SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   ----------

                                    FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

    For the fiscal year ended DECEMBER 31, 2000

                                       OR

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

    For the transition period from ________________ to __________________

                        Commission File Number 000-21657


                                  SKYMALL, INC.
             (Exact name of Registrant as specified in its charter)

               NEVADA                                            86-0651100
  (State or other jurisdiction of                             (I.R.S.  Employer
   incorporation or organization)                            Identification No.)

1520 EAST PIMA STREET, PHOENIX, ARIZONA                            85034
(Address of principal executive offices)                         (Zip Code)

       Registrant's telephone number, including area code (602) 254-9777

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

          Securities registered pursuant to Section 12(g) of the Act:

                          COMMON STOCK, $.001 PAR VALUE
                                (Title of class)

Indicate by check mark whether 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 (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark 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. [X]

On  March  28,  2001,  the  aggregate  market  value  of  common  stock  held by
non-affiliates of the Registrant was approximately $16.0 million.  The aggregate
market  value was based on the closing  price of common stock as reported by the
Nasdaq National Market.

              APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate  by check mark  whether  the  Registrant  has filed all  documents  and
reports  required  to be  filed by  Section  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court. Yes [ ] No [ ]

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.

At March  28,  2001,  the  number of shares  of  common  stock  outstanding  was
15,818,711 and there were no shares of preferred stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

The   Registrant's   Definitive  Proxy  Statement  for  its  Annual  Meeting  of
Shareholders,  to be held on June 15,  2001,  which  will be filed  pursuant  to
Regulation 14A within 120 days of the close of the Registrant's  fiscal year, is
incorporated by reference in answer to Part III of this report,  but only to the
extent indicated therein.
<PAGE>
                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
PART I

     Item 1.  Business.....................................................   1
     Item 2.  Properties...................................................   9
     Item 3.  Legal Proceedings............................................   9
     Item 4.  Submission of Matters to a Vote of Security Holders..........   9

PART II

     Item 5.  Market for the Registrant's Common Stock and Related
              Stockholder Matters..........................................  10
     Item 6.  Selected Financial Data......................................  11
     Item 7.  Management's Discussion and Analysis of Financial
              Condition and Results of Operations..........................  13
     Item 7A. Quantitative and Qualitative Disclosures About Market Risk...  28
     Item 8.  Financial Statements and Supplementary Data..................  29
     Item 9.  Changes in and Disagreements With Accountants on
              Accounting and Financial Disclosure..........................  30

PART III

     Item 10.  Directors and Executive Officers of the Registrant..........  31
     Item 11.  Executive Compensation......................................  31
     Item 12.  Security Ownership of Certain Beneficial Owners
               and Management..............................................  31
     Item 13.  Certain Relationships and Related Transactions..............  31

PART IV

     Item 14.  Exhibits, Financial Statement Schedules and
               Reports on Form 8-K.........................................  32

SIGNATURES.................................................................  36

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<PAGE>
                                     PART I

                           FORWARD-LOOKING STATEMENTS

     Certain  statements made herein,  in future filings by the Company with the
Securities  and  Exchange  Commission  and in the  Company's  written  and  oral
statements made by or with the approval of an authorized  executive officer, may
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended,  and Section 21E of the Securities  Exchange
Act of 1934,  as amended,  and the  Company  intends  that such  forward-looking
statements  be subject to the safe harbors  created  thereby.  These  statements
discuss, among other items, the Company's growth strategy and anticipated trends
in its business.  Words and phrases such as "should be," "will be,"  "believes,"
"expects,"  "anticipates,"  "plans,"  "intends,"  "may" and similar  expressions
identify forward-looking  statements.  Forward-looking statements are made based
upon  our  belief  as  of  the  date  that  such  statements  are  made.   These
forward-looking statements are based largely on our current expectations and are
subject  to a number of risks and  uncertainties,  many of which are  beyond our
control.  Actual  results  could differ  materially  from these  forward-looking
statements as a result of the factors described herein, including, among others,
regulatory or economic  influences.  Examples of uncertainties which could cause
such differences  include,  but are not limited to, the Company's  dependence on
its relationships with its airline,  merchant and other partners, the ability of
the  Company to secure  adequate  financing  to finance its  business  strategy,
fluctuations in paper prices and airline fuel costs as well as conditions in the
airline  industry in general,  customer  credit  risks,  competition  from other
catalog companies, retailers and e-commerce companies, the condition of the U.S.
economy  and the  impact  it may have on  consumer  spending  for  non-essential
merchandise, the ability of the Company to attract and retain key personnel, and
the Company's  reliance on technology  and  information  and  telecommunications
systems,  all of which are discussed more fully below and in the Company's other
filings with the Securities and Exchange  Commission.  The Company undertakes no
obligation to publicly update or revise any  forward-looking  statements whether
as a result of new information,  future events, or otherwise.  See "MANAGEMENT'S
DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION  AND RESULTS OF  OPERATIONS  --
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS."

ITEM 1. BUSINESS

GENERAL

     Founded  in 1989,  SkyMall,  Inc.,  a Nevada  corporation,  is a  specialty
retailer  that markets  high-quality  products and services  through a number of
unique channels and  partnerships.  The Company offers its products and services
via various media,  including the SkyMall  in-flight print catalogs,  and on the
Internet at  WWW.SKYMALL.COM.  SkyMall is best known for its in-flight  catalog,
which  is  available  on  domestic  flights  carrying  approximately  73% of all
domestic  passengers,   reaching  approximately  540  million  domestic  airline
passengers annually.  Through its skymall.com,  inc. subsidiary,  which operates
the  SKYMALL.COM(R)  Web site,  SkyMall offers an expanded selection of products
and  services to online  shoppers.  SkyMall  provides a  merchandise  redemption
program for a number of loyalty programs, allowing consumers to purchase SkyMall
merchandise with loyalty points earned in other programs.  During 2000, Durham &
Company,  a SkyMall  subsidiary,  offered  high-quality logo merchandise via its
catalogs, workplace initiatives and the WWW.DURHAM.SKYMALL.COM Web site.

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<PAGE>
     SkyMall    operates   two   distinct    segments,    which    include   its
business-to-consumer     and     business-to-business      initiatives.      The
business-to-consumer  segment provides retail merchandise  through the Company's
in-flight  catalogs  placed in domestic  airlines and through the  Company's Web
site. The business-to-business segment provides merchandise redemption offerings
for a number of point-based  loyalty programs and, during 2000, offered logo and
corporate recognition  products.  Subsequent to the end of the 2000 fiscal year,
SkyMall sold the assets of Durham & Company, our logo and corporate  recognition
product business, to a third party. See "Business-to-Business Segment - Logo and
Corporate Recognition Merchandise Programs".

     Unless the context indicates otherwise, the terms "SkyMall," the "Company,"
"we," "us" or "ours" refer to SkyMall, Inc. and its subsidiaries.

BUSINESS-TO-CONSUMER SEGMENT

     OVERVIEW

     SkyMall is a "one-stop"  shopping  source for  customers who may purchase a
variety of merchandise  typically offered by many different well-known merchants
in a single  transaction.  Although most of the merchandise  offered by SkyMall,
both in its print  catalogs and on its  SKYMALL.COM  Web site, is available from
other catalog and retail  companies,  each of these companies  typically has its
own policies for shipping and handling charges, merchandise returns, sales taxes
and price  guarantees,  as well as its own Web site.  In addition,  each company
typically has different customer service hours and credit and payment policies.

     By aggregating the merchandise of our various participating  merchants into
a single  location  in our  print  catalog  and on our Web  site,  we offer  our
customers a diverse  variety of products  from  numerous  retailers  and product
categories,  including clothing,  fashion  accessories,  health and beauty aids,
children's toys, executive gifts,  educational  products,  gourmet cooking aids,
exercise equipment, jewelry, luggage, travel aids, and home accessories. Some of
the  retailers  who offer  their  products  and/or  services  through  our print
catalogs  or on our Web  site  are:  American  Historic  Society,  Frontgate(R),
FTD.com,   Hammacher   Schlemmer(R),    Improvements(R),    Lillian   Vernon(R),
Magellan's(R),   Orvis(R),  Plow  &  Hearth(R),   Reliable  Home  Office,  Seiko
Instruments,  Successories(R), The Sharper Image(R), T. Shipley(R), and The Wine
Enthusiast(TM).

     Our  business-to-consumer  segment  accounted for  approximately 84% of net
merchandise  sales and substantially all of our placement fees and other revenue
from  all of  our  business  segments  in  2000.  Approximately  30% of our  net
merchandise  sales in our  business-to-consumer  segment in 2000 were Web-based,
accounting  for  approximately  $15.5  million of our  business-to-consumer  net
merchandise sales.

     CUSTOMER RELATIONSHIPS

     SkyMall is  committed  to  fostering a  high-quality,  one-to-one  customer
experience  that  exceeds   expectations  and  engages  customers  in  long-term
relationships. We provide high-quality customer service and a large selection of

                                       2
<PAGE>
specialty  products  and services  through  unique  channels  and  partnerships.
SkyMall  has  adopted  the  following  strategies  for  satisfying  the needs of
time-pressed  consumers,  particularly  those who have adopted the Internet as a
preferred  method of  shopping  and have  grown to expect  higher  standards  of
customer service and convenience.

     *    PROVIDE CUSTOMERS WITH ONLY THE BEST-SELLING, HIGH-QUALITY MERCHANDISE
          FROM WELL-KNOWN  BRANDS.  Our print media,  which  typically  includes
          approximately  2,000  items per  catalog,  provides  consumers  with a
          selection of only the  best-selling  products from our most well-known
          merchant  partners.  This ensures that consumers  quickly see the most
          popular items,  without having to review hundreds of items that may be
          of  little  interest.  SkyMall's  Web  site  offers  customers  a more
          comprehensive  merchandise  selection  of more  than  7,600  SKUs from
          numerous merchants.

     *    PROVIDE CUSTOMERS WITH A CONVENIENT ONE-STOP SHOPPING SERVICE. SkyMall
          is a  "one-stop"  shopping  source for  customers  who may  purchase a
          variety of merchandise  typically offered by many different well-known
          merchants in a single  transaction.  Although most of the  merchandise
          offered  by  SkyMall  is  available  from  other  catalog  and  retail
          companies,  each of these companies typically has its own policies for
          shipping and handling charges,  merchandise  returns,  sales taxes and
          price  guarantees,  as well as its own Web  site.  In  addition,  each
          company typically has different  customer service hours and credit and
          payment  policies.  By  aggregating  the  merchandise  of our  various
          participating  merchants into a single  location in our print catalogs
          and on the Web,  we  afford  our  customers  access  to  thousands  of
          products   offered  by  numerous   participating   merchants  and  the
          convenience of one-stop shopping.

     *    PROVIDE SUPERIOR CUSTOMER  SERVICE,  ORDER PROCESSING AND FULFILLMENT.
          The  Company  maintains  a  well-trained,  in-house  staff of customer
          service  representatives  located in Phoenix,  Arizona.  Our customers
          enjoy the convenience of being able to shop  twenty-four  hours a day,
          seven days a week.  The  Company's  customer  service  representatives
          encourage customers to purchase additional products with each order to
          increase the Company's  average  order size.  Consumers can shop while
          traveling by ordering from free in-flight phones or by phones anywhere
          using our toll-free number. Consumers can also shop online wherever an
          Internet connection is available. The Company offers telephone support
          to its online  consumers  twenty-four  hours a day, seven days a week,
          providing the Company's  online consumers the benefit of live customer
          service  assistance.  Online  consumers can also make customer service
          inquiries via e-mail. To facilitate  prompt delivery of products,  all
          orders taken by the Company are  forwarded to the  Company's  merchant
          partners  who ship  merchandise  directly to  consumers.  We currently
          offer expedited shipping options for most products.

     *    PROVIDE CUSTOMER  GUARANTEES AND EASY RETURNS.  We offer a no mark-up,
          low price guarantee under which we will refund the price difference if
          the  customer  finds the same  item  advertised  elsewhere  at a lower
          price.  We also  offer  a total  satisfaction  guarantee  that  lets a
          customer return merchandise for any reason within 60 days of purchase.

                                       3
<PAGE>
     *    PROVIDE OUR ONLINE  CUSTOMERS  WITH THE LATEST WEB SITE  TECHNOLOGIES.
          For the  convenience of our customers,  our Web site provides a search
          engine,  which enables  customers to search and define their  shopping
          needs.  Products and services are sorted by category and sub-category,
          which  enables  customers  to search and define their  shopping  needs
          faster and easier.

     SKYMALL DOMESTIC  IN-FLIGHT  CATALOGS.  Our in-flight  catalogs,  which are
placed in airline seat pockets,  are our largest  distribution  channel. We have
exclusive  agreements  to place our  catalogs on nineteen  airlines,  making our
catalogs  available to  approximately  540 million  airline  passengers in 2000.
These  nineteen  airlines,  which  carried  approximately  73% of  all  domestic
passengers in 2000, include America West Airlines,  Continental Airlines,  Delta
Air Lines,  Northwest  Airlines,  Southwest  Airlines,  United  Airlines  and US
Airways.  The  Company's  catalogs  carry the SkyMall name on all  participating
airlines.  In order to enhance the appeal of our product  offerings,  we produce
four new domestic  in-flight catalogs per year. To gain efficiency in production
and  printing,  the  catalog  content is  substantially  the same for all of our
airline   partners.   The  SkyMall   catalogs  are  also  available  on  certain
Northeastern routes of Amtrak.

     The  SkyMall  program  offers  airlines a low-risk  means of  incrementally
increasing  their  revenues.  In  exchange  for  placement  of our  catalogs  in
seat-back pockets, we pay each airline partner a monthly commission based on net
merchandise  revenues  generated  by the  Company  from sales to that  airline's
passengers. Some agreements also require payment of a minimum monthly commission
or a boarding  cost that  reimburses  the airline for the  increased  fuel costs
attributable  to the weight of the catalogs.  We believe our relations with each
of our airline partners are good.

     The following  airline  partners each accounted for in excess of 10% of the
Company's business-to-consumer segment net merchandise sales for the fiscal year
ended 2000:

                                               Percent of Net Merchandise Sales
     Name of Airline                              Through December 31, 2000
     ---------------                              -------------------------
     Delta                                                    19%
     United                                                   15%
     Continental                                              12%
     Southwest                                                11%
                                                             ---
          Total                                               57%
                                                             ===

     ELECTRONIC COMMERCE

     We launched  our first  Internet Web site in January of 1996 and since then
have continued to refine and develop our e-commerce  strategies.  Our e-commerce
channel showcases  products offered in our print catalogs and provides customers
an additional means of customer service and support.  In addition,  the Web site
offers  products and  services  from a greater  number of  merchants  and a full
complement of products from merchants who offer only their best-selling items in
our catalogs.

                                       4
<PAGE>
     Over the past two  years,  we have  made  significant  improvements  to our
e-commerce  channel.  In  1999  and  2000,  we  devoted  substantial  financial,
marketing,  technical and personnel  resources to further develop our electronic
commerce initiatives.  Our strategies in this area included, among other things,
(i) significantly improving the look and feel, as well as the speed, performance
and  search  functionality  of our Web site,  (ii)  further  development  of our
technology and other business  infrastructures used to convey orders and provide
order status  information to our customers,  and (iii) conducting  marketing and
other  promotional  campaigns through both online and off-line media designed to
enhance brand awareness of the SkyMall name and drive traffic to our Web site.

     In February 2000, we re-launched  our Web site,  SKYMALL.COM,  representing
the culmination of our year-long  technology  development  efforts. The new site
includes  improvements to the consumer shopping  experience,  including improved
navigation,  speed and performance,  an enhanced search engine,  redesigned home
page,  a  simplified   checkout  process  and  new  user  enhancements  such  as
e-reminders, e-cards and wish list functionality.

BUSINESS-TO-BUSINESS SEGMENT

     OVERVIEW

     SkyMall's   business-to-business  segment  provides  unique  solutions  for
corporate  clients.  Using both print and electronic  media, this segment offers
customized programs for various loyalty programs that allow program participants
to redeem accumulated points for SkyMall merchandise.  During 2000, we also sold
logo  merchandise and  recognition  products to various major  corporations  and
other entities.  In 2000, this segment  accounted for  approximately  17% of our
total net merchandise sales.

     LOYALTY  PROGRAMS.  During late 1999,  we entered  into an  agreement  with
Marriott  Corporation to provide  participants  in Marriott's  loyalty  program,
Marriott  Rewards,  an  opportunity  to redeem  points  for  specially  selected
merchandise.  Under this program, participants in Marriott's loyalty program can
"spend" their accumulated loyalty points for SkyMall  merchandise.  Marriott and
SkyMall cooperate to market the program to the Marriott Reward members through a
variety of media,  including print brochures and catalogs and various  Web-based
programs.  Marriott  reimburses  SkyMall  for the  product  costs at agreed upon
prices.  The agreement with Marriott  represents our principal  loyalty  program
revenue source. We also maintain similar loyalty program agreements with General
Motors  Corporation,  Hilton Hotels Corporation,  Milepoint.com.  and XYLO, Inc.
(formerly known as employeesavings.com).

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<PAGE>
     LOGO AND CORPORATE RECOGNITION  MERCHANDISE PROGRAMS.  During 2000, through
our subsidiary,  Durham & Company,  we offered logo  merchandise and recognition
products to employees of a number of blue-chip organizations,  primarily through
print  catalogs  and  various  Web  sites,   including   www.durham.skymall.com.
Competing in the highly  fragmented  incentive  industry,  Durham  distinguished
itself by providing  high-quality  products and excellent  customer  service and
focused its marketing efforts on large  organizations.  Subsequent to the end of
fiscal 2000,  SkyMall sold  substantially  all the assets of Durham & Company to
Awards.com,  Inc.  In  exchange  for the  assets of Durham,  SkyMall  received a
minority equity  interest in Awards.com and a note for  $1,000,000,  which bears
interest  at 10%  annually  that is due and  payable  on March  26,  2004 and is
secured by the assets of Durham.  Awards.com is a private,  venture-backed  firm
that offers and sells trophies,  awards,  incentive and logo merchandise through
catalogs  and  on  the  Web.   Awards.com  is  the  Internet's   largest  award,
recognition, and motivational resource.

GROWTH STRATEGY

     We intend to continue to grow our  business  through a series of  strategic
initiatives.  Our  marketing  strategy  is  designed  to build  strong  customer
loyalty,  maximize  repeat  purchases,  strengthen the SkyMall  brand,  increase
customer   traffic  to  the   SKYMALL.COM  Web  site  and  develop  new  revenue
opportunities. The Company employs a variety of media, marketing and promotional
methods to achieve these goals.

     In the business-to-consumer  segment, we intend to increase net merchandise
sales through  marketing  efforts to our core in-flight  consumers.  In 2001, we
will  seek to  create  new  promotional  opportunities  such as  direct  mail to
frequent flyer program  participants  and joint marketing  initiatives  with our
airline partners.  We plan to combine these initiatives with our online presence
to take advantage of the efficiencies that can be gained by driving consumers to
our Web site.  Additionally,  we  intend to  increase  placement  fee  revenues,
through contracts with premier  merchandise  brands, who we believe will be more
likely to pay placement fees in order to further  establish brand equity. In the
business-to-business  segment,  we intend to continue  to service  our  existing
merchandise redemption programs, including renewing our existing loyalty program
contracts,  and to  expand  the  loyalty  program  through  agreements  with new
participants.

     For further discussion, please see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL  CONDITION AND RESULTS OF  OPERATIONS  -- ADDITIONAL  FACTORS THAT MAY
AFFECT FUTURE RESULTS."

COMPETITION

     BUSINESS-TO-CONSUMER

     IN-FLIGHT CATALOG. All aspects of our in-flight catalog business are highly
competitive.  We compete for  customers  to some degree with all  retailers  and
catalog companies,  including airport retailers,  duty-free retailers, specialty
stores,  department stores,  specialty catalog companies and general merchandise
catalog companies. Although we believe that our long-standing relationships with
our business partners and participating merchants create substantial barriers to
competition,  many of our  competitors  and potential  competitors  have greater
financial,  marketing  and  other  resources,  and may seek to  enter or  expand

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penetration  into the markets we serve.  In our in-flight  business,  we compete
with other advertisers, including those who advertise in in-flight magazines and
other periodicals.  Several companies, some of which have greater resources than
the Company, have announced they may develop seatback interactive video shopping
services.  As seatback interactive video shopping services become more available
to airline passengers, competition in the in-flight marketing business is likely
to increase.  SEE "MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION
AND RESULTS OF OPERATIONS -- ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS."

     ELECTRONIC  MEDIA.  The Internet  online commerce market is relatively new,
rapidly  evolving and intensely  competitive.  Barriers to entry are minimal and
current and new  competitors  can launch new Web sites at a relatively low cost.
Many  competitors in this area have greater  financial,  technical and marketing
resources than the Company.  In addition,  new technologies and the expansion of
existing   technologies  may  increase  the  competitive   pressures  on  online
retailers,  including the Company. SEE "MANAGEMENT'S  DISCUSSION AND ANALYSIS OF
FINANCIAL  CONDITION AND RESULTS OF  OPERATIONS  -- ADDITIONAL  FACTORS THAT MAY
AFFECT FUTURE RESULTS."

     BUSINESS-TO-BUSINESS

     The market for our  business-to-business  programs is rapidly  changing and
intensely  competitive.  We may  not be  able to  compete  successfully  against
current or future competitors. Many of our competitors and potential competitors
have  greater   financial,   marketing  and  other   resources,   and  may  have
well-established  relationships with our existing and prospective customers.  In
addition,   negotiating  and  maintaining   favorable   customer  and  strategic
relationships  is  critical  to our  business.  Our  competitors  may be able to
negotiate  strategic  relationships  on more favorable terms than we are able to
negotiate.

     See  "MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND
RESULTS OF OPERATIONS -- ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS."

BUSINESS OPERATIONS

     MERCHANT AGREEMENTS. We enter into agreements with merchants who supply the
products and services offered in our programs.  Under merchant contracts, we buy
merchandise at pre-established  rates or receive placement fees for inclusion of
the merchant's  products in SkyMall programs.  Participating  merchants agree to
maintain  sufficient  levels of inventory to satisfy customer demand and to ship
all orders within 72 hours unless the  merchandise is  out-of-stock.  Generally,
our agreements with participating  merchants provide that prices for products be
honored by  merchants  as long as the  Company  receives  orders  for them.  The
agreements vary in length  typically from one quarter to one year or more in the
case of our larger merchant partners. The merchants typically agree to indemnify
the Company for any losses associated with injuries caused to customers from the
use of such merchant's products, to carry product liability insurance that names
SkyMall as an additional  insured,  and to indemnify the Company  against claims
that  their  products  infringe  on the  intellectual  property  rights of third
parties.  See "MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND
RESULTS OF OPERATIONS -- ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS."

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<PAGE>
     ORDER  PROCESSING,   CUSTOMER  SERVICE  AND  FULFILLMENT.  We  maintain  no
significant  inventory.  Therefore,  once we  receive  a  customer's  order,  we
transmit it to the appropriate  merchant who ships the  merchandise  directly to
the customer. Although expedited service is available, most orders are delivered
to customers within 7-to-10 days. In 2000, the Company's  average order size was
approximately  $118. Our customer service  representatives  are given incentives
for  increasing  order size.  We outsource  part of our call volume  during peak
order times.

     ENHANCED WEB SITE. The Company spent significant  resources during 1999 and
2000 on its information-technology and Web infrastructure.  In February 2000, we
re-launched  our Web site,  SKYMALL.COM,  in the  culmination  of our  year-long
efforts.  Our new Web site is more  consumer-friendly  due to a redesigned  home
page,  improved  navigation  capabilities,  new features and an enhanced  search
engine, which enables customers to search and define their shopping needs.

     ORDER ENTRY AND CUSTOMER SERVICE SYSTEM.  We have implemented  order entry,
transaction-processing  and fulfillment services and systems using a combination
of  our  own  proprietary   technologies  and  commercially  available  licensed
technologies.  The Company's  current  strategy is to spend minimal  development
efforts on enhancing the specialized, proprietary software that is unique to its
business and to license commercially developed technology for other applications
where  available and required.  Our Web-based  system  provides the Company with
many  advantages,  including  giving us significant  flexibility in implementing
marketing  programs  and enabling us to reduce  costs in our  in-flight  catalog
business.

REGULATION

     Our  operations  are subject to various  federal,  state and local laws and
regulations, including state sales tax laws and various Federal Trade Commission
regulations  governing  the sale of  merchandise  by  mail.  The  Federal  Trade
Commission  regulations applicable to our operations impose various requirements
on the  processing  of customer  orders,  including  shipping  deadlines,  delay
notices, order cancellations and refunds. During 2000, Durham & Company operated
a small facility where it manufactured recognition jewelry and related products.
These  operations  involve  certain  hazardous  chemicals  that  are used in the
manufacturing  process  and are  subject  to  various  federal,  state and local
environmental laws and regulations.

EMPLOYEES

     At March 14,  2001,  the  Company  had 199  employees.  The  Company  makes
significant  use of temporary and part-time  employees to process  orders during
the fourth quarter of each year. The Company believes it has good relations with
its employees.  The Company believes that its future success will depend in part
on its continued ability to attract,  hire and retain qualified  personnel.  See
"MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS -- ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS."

                                       8
<PAGE>
TRADEMARKS AND TRADE NAMES

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

ITEM 2. PROPERTIES

     Our  executive  offices  are located in  Phoenix,  Arizona,  where we lease
approximately  seven acres of land under long-term leases expiring in 2012, with
an option to extend to 2062. We own the improvements to this land, which include
offices, storage facilities and a small retail shopping center, consisting of an
aggregate of approximately 50,000 square feet.

ITEM 3. LEGAL PROCEEDINGS

     The  Company is  involved in legal  actions in the  ordinary  course of its
business.  Although the outcomes of any such legal actions  cannot be predicted,
in the opinion of management,  there is no legal proceeding  pending or asserted
against  or  involving  the  Company  the  outcome  of which is likely to have a
material adverse effect upon the consolidated  financial  position or results of
operations of the Company.

     On January 29, 1999, a securities  class action complaint was filed against
SkyMall and Robert Worsley, the Company's Chief Executive Officer,  Chairman and
largest shareholder,  in connection with certain disclosures made by the Company
in December 1998 relating to its Internet sales.  The complaint was filed in the
United States District Court, District of Arizona, Case No. CIV-99-0166-PHX-ROS.
The complaint alleges unlawful  manipulation of the price of the Company's stock
and insider  selling  during the period from December 28, 1998 through  December
30, 1998.  The complaint  seeks  unspecified  damages for alleged  violations of
federal  securities laws.  SkyMall and Mr. Worsley filed a motion to dismiss the
complaint  on the basis  that the  complaint  fails to state a claim  upon which
relief can be granted.  In  September  2000,  the motion was granted in part and
denied in part. SkyMall continues to believe that the allegations against it and
Mr. Worsley are substantially without merit and intends to vigorously defend the
lawsuit.  The case will now proceed to the class  certification  stage.  Neither
party to this litigation has yet undertaken any significant  discovery,  thus it
is not practical to ascertain what amount,  if any, SkyMall could potentially be
liable for in the event this action was determined adversely.

     On November 22, 1999, RGC International Investors,  LDC, the parent company
of Rose Glen Capital Management,  filed a complaint in the Court of Chancery New
Castle County Delaware,  Cause Number 17600 NC, RGC International Investors, LDC
v.  SkyMall,  Inc.  RGC  alleges  that the  Company  was  required to close on a
transaction for an equity  investment in SkyMall.  The Company filed a motion to
dismiss on the basis that the complaint fails to state a claim upon which relief
can be granted which was denied by the Court in late 2000. SkyMall believes that
the  allegations  against  it are  substantially  without  merit and  intends to
vigorously  defend  this  lawsuit.  Neither  party  to this  litigation  has yet
undertaken any significant discovery, thus it is not practical to ascertain what
amount, if any, SkyMall could potentially be liable for in the event this action
was determined adversely. Trial in this matter is scheduled for late 2001.

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

     No matters were  submitted to a vote of security  holders during the fourth
quarter of 2000.

                                       9
<PAGE>
                                     PART II


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

     SkyMall's  common  stock is traded on the Nasdaq  Stock  Market's  National
Market under the symbol "SKYM".  The following table sets forth, for the periods
indicated,  the high and low sales  prices per share of the common stock for the
two most recent  fiscal years as reported on Nasdaq.  As of March 29, 2001,  the
closing sale price for SkyMall's common stock was $1.75 per share. On that date,
there were 173 holders of record of SkyMall's Common Stock. This figure does not
reflect beneficial stockholders whose shares are held in nominee names.

           YEAR ENDED 2000                       HIGH               LOW
           ---------------                       ----               ---
           1st Quarter                          $10.188           $ 7.000
           2nd Quarter                          $ 6.625           $ 2.313
           3rd Quarter                          $ 3.625           $ 2.000
           4th Quarter                          $ 2.500           $ 1.063

           YEAR ENDED 1999                       HIGH               LOW
           ---------------                       ----               ---
           1st Quarter                          $27.125           $11.375
           2nd Quarter                          $23.125           $ 9.000
           3rd Quarter                          $12.625           $ 5.500
           4th Quarter                          $13.125           $ 5.250

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

                                       10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

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

     The  selected  financial  data as of and for each of the five  years in the
period  ended  December  31, 2000 are derived  from the  Consolidated  Financial
Statements  of the  Company  and its  subsidiaries,  which have been  audited by
Arthur  Andersen  LLP,  independent  public  accountants,  and should be read in
conjunction with the Consolidated  Financial  Statements  included  elsewhere in
this Form 10-K and the related notes thereto and  "MANAGEMENT'S  DISCUSSION  AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."

<TABLE>
<CAPTION>
                                                                            YEAR ENDED DECEMBER 31,
                                                    ---------------------------------------------------------------------
                                                       2000            1999           1998          1997          1996
                                                    -----------     ----------     ----------    ----------    ----------
<S>                                                 <C>              <C>              <C>             <C>             <C>
STATEMENT OF OPERATIONS DATA:
Merchandise sales, net                              $    62,474     $   60,665     $   49,320    $   42,844    $   30,978
Placement fees and other                                 19,595         18,275         22,722        23,532        14,921
                                                    -----------     ----------     ----------    ----------    ----------

     Total revenues                                      82,069         78,941         72,042        66,376        45,899

Cost of goods sold                                       47,983         46,422         39,292        40,657        26,471
                                                    -----------     ----------     ----------    ----------    ----------

     Gross margin                                        34,086         32,519         32,750        25,719        19,428
                                                    -----------     ----------     ----------    ----------    ----------

Media expenses                                           12,745         13,599         11,353         9,082         7,670
Selling expenses                                          4,656          4,482          3,474         3,450         2,476
Customer service and fulfillment expenses                 5,371          6,657          5,332         4,297         2,823
General and administrative expenses                      26,702         32,604          9,002         6,481         3,340
                                                    -----------     ----------     ----------    ----------    ----------

     Total operating expenses                            49,474         57,341         29,161        23,310        16,309
                                                    -----------     ----------     ----------    ----------    ----------

Income (loss) from operations                           (15,388)       (24,822)         3,589         2,409         3,119

Interest and other income (expense), net                   (654)          (231)           404           462          (651)
                                                    -----------     ----------     ----------    ----------    ----------

Income (loss) before income taxes                       (16,042)       (25,053)         3,993         2,871         2,468

Provision (benefit) for income  taxes                         0           (913)         1,707           300           280
                                                    -----------     ----------     ----------    ----------    ----------

Net income (loss)                                       (16,042)       (24,140)         2,286         2,571         2,188

Preferred stock dividends                                     0              0              0             0            77
                                                    -----------     ----------     ----------    ----------    ----------

Net income (loss) available for common shares       $   (16,042)    $  (24,140)    $    2,286    $    2,571    $    2,111
                                                    ===========     ==========     ==========    ==========    ==========

Diluted net income (loss) per common share                (1.11)         (2.60)    $      .27    $      .30    $      .38
                                                    ===========     ==========     ==========    ==========    ==========

Diluted weighted average shares outstanding          14,480,314      9,271,330      8,602,177     8,675,803     5,599,443
                                                    ===========     ==========     ==========    ==========    ==========
</TABLE>

                                       11
<PAGE>
<TABLE>
<CAPTION>
                                                                           YEAR ENDED DECEMBER 31,
                                                 -------------------------------------------------------------------
                                                   2000           1999           1998          1997          1996
                                                 --------       --------       --------       --------      --------
<S>                                             <C>             <C>            <C>           <C>           <C>
SELECTED OPERATING DATA (UNAUDITED):

Number of domestic enplanements (in 000's)(1)     740,487        699,896        604,169        579,822       530,661
Domestic enplanement percentage (2)                    73%            71%            68%            70%           63%
Revenue per passenger enplanement (3)            $   0.12       $   0.12       $   0.12       $   0.11      $   0.09
Number of airlines at end of period (4)                21             18             16             16            15
Number of catalogs produced (in 000's) (5)         18,620         17,015         17,973         16,933        15,729
Average number of pages per catalog (6)               187            197            192            168           148
Revenue per catalog produced (7)                 $   3.35       $   3.58       $   2.74       $   2.53      $   1.97
Revenue per page printed (8)                     $  0.018       $  0.018       $  0.014       $  0.015      $  0.013

BALANCE SHEET DATA:

Cash and cash equivalents                        $  9,938       $ 16,060       $  7,951       $  9,412      $ 11,491
Working capital                                       615          3,795          5,007          6,050         6,692
Total assets                                       33,872         50,249         31,925         26,634        19,721
Long-term debt                                      8,400          5,190            242             66           139
Shareholders' equity                                6,916         15,618         14,234         10,307         8,601
</TABLE>

----------
(1)  Approximate  number  of  revenue  passengers  flown on  scheduled  domestic
     airlines in the given period.
(2)  Approximate  number of passenger  enplanements  on domestic  airlines  that
     carried the SkyMall  catalogs  during the period as a  percentage  of total
     domestic  passenger  enplanements  in the period by all scheduled  domestic
     airlines.
(3)  Revenue per passenger enplanement is net merchandise sales from all Company
     programs  for the period  divided  by the  approximate  number of  domestic
     enplanements  during the period on all  scheduled  domestic  airlines  that
     carried the SkyMall catalogs.
(4)  Represents  the number of  airlines at end of period with which the Company
     had an  agreement  to carry the  SkyMall  catalogs.  During  the year ended
     December 31, 1996, the Company eliminated  unprofitable  circulation of the
     SkyMall catalogs by eliminating  routes on certain airlines and terminating
     agreements with certain smaller regional airlines.
(5)  Represents  the number of SkyMall  catalogs  produced by the Company during
     the period for distribution to airlines.
(6)  Represents the average number of pages in the SkyMall  catalogs  during the
     period.
(7)  Represents net merchandise  sales from all Company  programs for the period
     divided by the number of SkyMall  catalogs  produced by the Company  during
     the period.
(8)  Represents net merchandise  sales from all Company  programs for the period
     divided by the result of the number of SkyMall catalogs produced multiplied
     by the average number of pages per catalog during the period.

     In September  1999,  the Company  completed a merger with Disc  Publishing,
Inc. The merger  qualified as a tax-free  exchange  and was  accounted  for as a
pooling of interests. Accordingly, the Selected Financial and Operating Data has
been  restated to include  the  combined  financial  results of SkyMall and Disc
Publishing.

     Certain  reclassifications have been made to the 1999, 1998, 1997, and 1996
Selected  Financial  and Operating  Data to conform with the 2000  presentation.
Shipping  costs  which were  previously  netted  against  shipping  revenue  and
recorded  in  placement  fees and  other  revenue  have been  reclassified  from
placement  fees and other  revenue to cost of goods  sold.  Shipping  revenue is
included in placement  fees and other  revenue.  Settlement  expenses  that were
previously classified in customer service and fulfillment have been reclassified
to general and administrative.

                                       12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's results
of  operations  and  financial  condition.  The  discussion  should  be  read in
conjunction  with the  Consolidated  Financial  Statements and the related notes
thereto,  and the Selected  Financial and  Operating  Data  contained  elsewhere
herein.

RESULTS OF OPERATIONS

     REVENUES
                                               (IN THOUSANDS)
                            ----------------------------------------------------
                              2000     % CHANGE     1999     % CHANGE     1998
                              ----     --------     ----     --------     ----
Merchandise sales, net      $62,474      3.0%     $60,665      23.0%    $49,320
Placement fees and other    $19,595      7.2%     $18,276     (19.6)%   $22,722
Total revenues              $82,069      4.0%     $78,941       9.6%    $72,042

     Net merchandise sales are comprised of the selling price of merchandise and
services sold by the Company, net of returns. Growth in net merchandise sales in
2000 and 1999 reflects an increase in business-to-business sales of $1.8 million
and $7.8  million,  respectively,  while  business-to-consumer  sales  were flat
compared to the prior year.  Placement fees and other are comprised of fees paid
by participating  merchants to include their products in the Company's print and
electronic media, outbound shipping charges to customers and other revenues. The
increase  and  decrease in  placement  fees and other  revenues in 2000 and 1999
reflects  changes  in the mix of  agreements  with  merchants  between  variable
compensation  agreements  and fixed  placement  fees.  During 1999,  the Company
offered certain free shipping  promotions  which  contributed to the decrease in
placement fees and other revenues as compared to 1998.

     GROSS MARGIN

                                                (IN THOUSANDS)
                              ------------------------------------------------
                              2000     % CHANGE    1999     % CHANGE      1998
                              ----     --------    ----     --------      ----
Gross margin                 $34,086     4.8%     $32,519     (0.7)%    $32,750
Gross margin percentage         41.5%                41.2%                 45.5%

                                       13
<PAGE>
     Gross  margin  consists  of  revenues  less the cost of goods  sold,  which
consists of the cost of  merchandise  sold to  customers as well as outbound and
inbound  shipping costs.  Gross margin dollars and percentage  increased in 2000
reflecting an improvement in the mix of variable  commission and fixed placement
fee merchant agreements.

     OPERATING EXPENSES

                                                 (IN THOUSANDS)
                                -----------------------------------------------
                                2000    % CHANGE      1999    % CHANGE     1998
                                ----    --------      ----    --------     ----
Media expenses                 $12,745    (6.3)%    $13,599     19.8%    $11,353
Selling expenses               $ 4,656     3.9%     $ 4,482     29.0%    $ 3,474
Customer service and
 fulfillment expenses          $ 5,371   (19.3)%    $ 6,657     24.8%    $ 5,332
General and administrative
 expenses                      $24,107   (26.1)%    $32,604    262.2%    $ 9,002

Restructuring charges          $ 2,595     0.0%     $     0      0.0%    $     0

     Media expenses  consist of the cost to produce and distribute our in-flight
print catalogs and loyalty print pieces.  The media expense  decrease in 2000 of
$854,000 was primarily due to a decrease in paper,  processing  and  circulation
costs of $1.2  million;  an increase in loyalty  point media of $205,000  and an
increase  in CD and DVD media of  $95,000.  Included  in the 1999  increase  are
incremental costs associated with the acquisition of Disc Publishing.

     Selling  expenses  consist  primarily  of  commissions  paid  to  marketing
partners  and are variable in nature.  The increase in selling  expenses in 2000
and 1999 reflects the increased sales volume and addition of marketing partners.

     Customer  service and fulfillment  expenses  consist of costs to maintain a
full-service  customer contact and order fulfillment  center that generally vary
in  correlation  to  net  merchandise  sales.  The  decrease  in  2000  reflects
improvements in call center efficiencies and cost containment measures. Customer
service and  fulfillment  increase in 1999  reflected the increase of management
and  call  center   personnel  along  with   outsourcing   solutions  and  other
expenditures designed to improve the Company's customer service levels.

     General  and  administrative   expenses  consist  primarily  of  department
expenses,  except customer service and fulfillment  expenses,  including payroll
and related costs,  professional  fees,  marketing,  information  technology and
general  corporate  expenses.  The 2000  decrease in general and  administrative
expenses of $8.5  million  reflected  decreases  in the  following  areas:  $3.3
million in salaries and wages;  $1.3 million in advertising and marketing;  $2.7
million  related to the sales tax litigation  settlement;  $3.2 million in other
general and  administrative  expenses,  including  facilities,  travel and other
expenses  related  to a  reduction  in work  force and  restructuring.  The 2000
decrease in general and  administrative  expenses was  partially  offset by $1.7
million in  depreciation  primarily due to investment in information  technology
made in 1999 that are now being  depreciated  and  $300,000 in  consulting  fees
related to information technology development. The 1999 increase in general and

                                       14
<PAGE>
administrative expenses reflected increases in the following areas: $6.3 million
in marketing  efforts;  $6.3 million in information  technology  development and
support;  $1.6 million in additional expenses associated with acquired entities;
$1.3  million  in  depreciation  primarily  due to  investments  in  information
technology;  $2.0  million in legal  costs  including  legal  settlements;  $1.2
million in salaries  associated  with the hiring of additional  personnel in the
remaining  general and  administrative  departments;  and $4.7  million in other
general  and   administrative   expenses  related  to  the  Company's   business
initiatives.

     INTEREST EXPENSE

                                               (IN THOUSANDS)
                              ------------------------------------------------
                              2000     % CHANGE     1999     % CHANGE     1998
                              ----     --------     ----     --------     ----
Interest expense              $809       186%       $283       784%        $32

     Interest  expense  consists of interest paid on the debt obligations of the
Company.  Interest  expense  increase in 2000 and 1999 is a result of borrowings
from the Company's revolving line of credit.

     INTEREST AND OTHER INCOME

                                               (IN THOUSANDS)
                              ------------------------------------------------
                              2000     % CHANGE     1999     % CHANGE     1998
                              ----     --------     ----     --------     ----
Interest and other income     $155       198%       $52        (88)%      $436

     Interest income and other consists primarily of interest income on cash and
marketable securities.

     INCOME TAXES

                                               (IN THOUSANDS)
                              ------------------------------------------------
                              2000     % CHANGE     1999     % CHANGE     1998
                              ----     --------     ----     --------     ----
Provision (benefit) for
 income taxes                  $0         10%      $(913)      (153)%    $1,707

     No income tax benefit was recorded in 2000. The income tax benefit for 1999
is due to  operating  losses for income tax  purposes  which were  available  to
carryback and apply against  prior years taxable  income  resulting in an income
tax refund. At December 31, 2000, the Company had net operating losses available
for federal and state income tax purposes of  approximately  $36.9 million.  The
Company's  ability to utilize its net operating  losses to offset future taxable
income may be limited  under  provisions  of the  Internal  Revenue  Code due to
changes in shareholder  ownership. A valuation allowance has been provided since
the Company  believes the  realizability of the deferred tax asset does not meet
the more likely than not criteria under SFAS No. 109. The Company's  accumulated
net operating losses begin to expire in 2019.

                                       15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

     At December 31, 2000, the Company's cash balance was $9.9 million  compared
to $16.0 million at December 31, 1999.

     Cash used in operating  activities  in 2000 of $14.3  million was primarily
attributable  to the net loss of $16.0 million and decrease in accounts  payable
and accrued  liabilities  of $10.7 million  offset by non-cash  expenses of $4.7
million  and the  decrease  in assets of $8.2  million.  Cash used in  operating
activities  for 1999 of $13.3 million was  primarily  related to the net loss of
$24.1  million  and an  increase  in assets of $5.8  million  offset by non-cash
expenses  of $4.2  million  and an  increase  in  accounts  payable  and accrued
expenses of $12.4 million. Cash provided by operating activities in 1998 of $4.1
million, was primarily attributable to net income and non-cash expenses.

     Cash used in investing  activities  of $2.6  million,  $8.8  million,  $6.1
million  for 2000,  1999,  and 1998,  respectively,  was due to the  purchase of
property and equipment,  which  consisted  principally  of capitalized  software
costs and other computer equipment, and business combinations completed in 1998.

     Cash  provided by financing  activities  of $10.7  million in 2000 resulted
from the issuance of $7.3 million in common stock,  including  private placement
offerings and the exercise of stock options and  warrants,  and  borrowings on a
revolving line of credit of $3.4 million.  Cash provided by financing activities
of $30.3  million in 1999  resulted from the issuance of $25.3 million in common
and convertible  preferred stock,  including private placement offerings and the
exercise of stock options and warrants,  and  borrowings on a revolving  line of
credit of $7.5 million offset by long-term debt repayments of $2.6 million. Cash
provided by financing  activities of $555,000 in 1998 resulted from the issuance
of $742,000 in common stock from the exercise of stock  options and warrants and
long-term debt  borrowings  offset by $187,000 in treasury  stock  purchases and
long-term debt repayments.

WORKING CAPITAL AND NEGATIVE PROFITABILITY TRENDS

     At December 31, 2000,  the Company had net working  capital of $615,000 and
cash and  cash  equivalents  of $9.9  million.  The  Company  has a $10  million
revolving line of credit at a bank,  that reduces to $8 million in March of 2002
and expires in June of 2002.  At December  31, 2000, a total of $8.4 million was
drawn on the line of credit.  As of March 27,  2001, a total of $7.4 million had
been drawn on the line of credit,  with $2.6 million  available for borrowing by
the Company.  We incurred a net loss of $24.1  million for the fiscal year ended
December  31,  1999 and a net loss of $16.0  million  for the fiscal  year ended
December 31, 2000.

     Management  has taken  several  steps to return the  Company  to  operating
profitability and positive cash flow. Those steps include,  reducing general and
administrative  costs  significantly,  improving gross margins and  implementing
other cost control measures.  Subsequent to year-end,  the Company  successfully
negotiated  and received a commitment  letter for an extension of its  revolving
line of credit to June 30, 2002. The Company's  plans are subject to a number of
risks,  certain of which are beyond its control.  There can be no assurance that
the Company will be successful in implementing its business strategy.

                                       16
<PAGE>
     In 2001, the Company expects to achieve breakeven earnings before interest,
taxes,  depreciation and amortization ("EBITDA") as well as breakeven cash flow.
However,  the  Company  expects to incur a net loss in 2001 in the range of $6.0
million or $0.38 per share.  The Company expects to incur losses from operations
in the first three  quarters of 2001.  Thus,  much of the  Company's  ability to
achieve  the  foregoing   targets  is  dependent  on  the  Company's   financial
performance in the fourth quarter of 2001.

     Future  operating  results may be  adversely  impacted  due to a variety of
factors,  many of  which  are  outside  the  Company's  control,  including  the
following:

     *    the demand for our products and services,
     *    the level of competition in the markets we serve,
     *    our success in maintaining and expanding our distribution channels,
     *    our  success in  attracting  and  retaining  motivated  and  qualified
          personnel,
     *    our ability to control costs, and
     *    general economic conditions.

     The  Company  plans to  finance  its  working  capital  needs  and  capital
expenditures  through a combination of funds from operations,  its existing bank
line of credit  and by  securing  additional  financing  resources  through  the
issuance of debt and/or equity  securities.  There can be no assurance  that the
Company will be able to secure additional  financing to meet its working capital
needs or to secure such financing on terms  favorable to the Company.  A failure
to  secure  such  financing  may  be  detrimental  to  the  Company.  See  also,
"ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS."

CHANGES IN SECURITIES AND USE OF PROCEEDS

     SHAREHOLDER  RIGHTS PLAN. In September  1999, the Board of Directors of the
Company  adopted a  Shareholder  Rights  Plan  (the  "Plan")  designed  to deter
coercive  or unfair  takeover  tactics  and to  prevent  a person or group  from
gaining  control  of  the  Company   without   offering  a  fair  price  to  all
stockholders.  Under the  terms of the  Plan,  a  dividend  distribution  of one
Preferred  Stock  Purchase  Right  ("Right") for each  outstanding  share of the
Company's common stock  outstanding was made to holders of record on October 15,
1999.  These Rights entitle the holder to purchase one  one-hundredth of a share
of the Company's  Series R Preferred  Stock  ("Preferred  Stock") at an exercise
price of $65 per one one-hundredth of a share. The Rights become exercisable (a)
10 days after a public  announcement  that a person or group has acquired shares
representing  15% or more of the  outstanding  shares of common stock, or (b) 10
business days  following  commencement  of a tender or exchange offer for 15% or
more of such  outstanding  shares of common  stock.  The  Company can redeem the
Rights for $0.001 per Right at any time prior to their becoming exercisable. The
Rights will expire on October 15, 2009,  unless redeemed  earlier by the Company
or exchanged for common stock. Under certain circumstances, if a person or group
acquires  15%  or  more  of  the  Company's  common  stock,  the  Rights  permit
stockholders  other than the  acquiror to purchase  common stock having a market
value of twice the exercise price of the Rights, in lieu of the Preferred Stock.
In addition,  in the event of certain business  combinations,  the Rights permit
stockholders  to purchase  the common  stock of an  acquiror at a 50%  discount.
Rights held by the acquiror will become null and void in both cases.

                                       17
<PAGE>
     DISC PUBLISHING, INC. ACQUISITION. In September 1999, the Company completed
a merger with Disc Publishing,  Inc. SkyMall issued 280,555 shares of its common
stock in exchange for all of the  outstanding  common  stock of Disc  Publishing
based on a merger exchange ratio of 2.8 shares of the Company's common stock for
each  share of Disc  Publishing  common  stock.  The  issuance  of shares of the
Company's  common  stock  in  exchange  for Disc  Publishing  common  stock  was
completed  in reliance  on the  exemption  provided  under  Section  4(2) of the
Securities Act of 1933, as amended, and Regulation D thereunder.

     NOVEMBER 1999 PRIVATE PLACEMENT.  In November 1999, the Company completed a
private  placement of approximately $8 million in shares of the Company's common
stock and warrants to purchase  additional  shares of common stock pursuant to a
Stock and Warrant Purchase Agreement dated as of November 2, 1999 (the "November
1999 Private Offering"). A total of 1,142,885 shares of common stock were issued
at a purchase  price of $7.00 per share,  together  with warrants to purchase an
additional  571,444 shares of common stock.  The warrants have an exercise price
of $8.00 per share and,  subject to certain  conditions,  are  redeemable by the
Company at a nominal  price if the  Company's  common  stock trades over $12 per
share for  twenty  consecutive  trading  days.  In  addition,  an  aggregate  of
approximately  129,136 warrants to purchase shares of the Company's common stock
were issued to the  placement  agents in the  Private  Offering,  with  exercise
prices  ranging  from  $8.10 to $9.12 per  share.  The funds  received  from the
November 1999 Private  Offering were used  primarily to fund  SkyMall's  working
capital requirements.  The common stock and warrants issued in the November 1999
Private Offering were issued in reliance on the exemption provided under Section
4(2) of the Securities Act of 1933, as amended, and Regulation D thereunder.

     DECEMBER 1999 PRIVATE  PLACEMENT OF SERIES A JUNIOR  CONVERTIBLE  PREFERRED
STOCK AND WARRANTS.  In December 1999, the Company completed a private placement
of  approximately  $9  million  in  shares  of the  Company's  Series  A  Junior
Convertible  Preferred Stock (the "Series A Preferred") and warrants to purchase
additional shares of common stock (the "Series A Private Offering")  pursuant to
a Stock and  Warrant  Purchase  Agreement  dated as of  December  20,  1999 (the
"December 20, 1999  Agreement").  A total of 91,320 shares of Series A Preferred
were issued to  investors,  together  with  warrants  to purchase an  additional
652,289 shares of common stock. The warrants have an exercise price of $8.00 per
share and,  subject to certain  conditions,  are  redeemable by the Company at a
nominal  price if the  Company's  stock  trades  over $12 per share  for  twenty
consecutive  trading  days.  In addition,  an  aggregate of 200,742  warrants to
purchase  shares of the  Company's  common  stock were  issued to the  placement
agents in the Series A Private Offering, with exercise prices ranging from $7.00
to $9.12 per share.  The funds received from the Series A Private  Offering were
used  primarily to fund SkyMall's  working  capital  requirements.  The Series A
Preferred  and warrants  issued in the Series A Private  Offering were issued in
reliance on the exemption  provided  under Section 4(2) of the Securities Act of
1933, as amended, and Regulation D thereunder.

     Pursuant to the terms of the December 20, 1999  Agreement,  at the close of
business on March 10, 2000, all shares of Series A Preferred were  automatically
converted into  1,304,571  shares of common stock of the Company upon receipt of
shareholder  approval of such  conversion at a Special  Meeting of  Shareholders

                                       18
<PAGE>
held on March 10,  2000.  The resale of the shares of common  stock  issued upon
conversion  of the Series A Preferred  and the shares of common  stock  issuable
upon exercise of the warrants have been  registered  under the Securities Act of
1933, as amended.  The consolidated  financial  statements have been adjusted to
reflect  the  conversion  of the  Series A  Preferred  into  common  stock as of
December 31, 1999.

     JUNE 30, 2000  PRIVATE  PLACEMENT.  In June 2000,  the Company  completed a
private  placement of approximately $5 million in shares of the Company's common
stock  pursuant  to a Stock  Purchase  Agreement  dated as of June 30, 2000 (the
"June 2000 Private Offering").  A total of 2,483,000 shares of common stock were
issued  at a  purchase  price of $2.00 per share  and an  aggregate  of  179,813
warrants to purchase  shares of the  Company's  common  stock were issued to the
placement agents in the June 2000 Private Offering, with exercise prices ranging
from $2.00 to $7.50 per share.  The funds  received  from the June 2000  Private
Offering will be used primarily to fund SkyMall's working capital  requirements.
The common  stock  issued in the June 2000  Private  Offering  and the  warrants
issued in connection therewith were issued in reliance on the exemption provided
under Section 4(2) of the Securities Act of 1933, and Regulation D thereunder.

     In April and May 2000,  339,286 of the Investor  Warrants  were  exercised,
resulting in net proceeds to the Company of $2,714,288.

     DECEMBER 1999 PRIVATE  PLACEMENT OF SERIES B JUNIOR  CONVERTIBLE  PREFERRED
STOCK AND WARRANTS.  In December 1999, the Company completed a private placement
of  approximately  $8  million  in  shares  of the  Company's  Series  B  Junior
Convertible  Preferred Stock (the "Series B Preferred") and warrants to purchase
additional shares of common stock (the "Series B Private Offering")  pursuant to
a Stock and  Warrant  Purchase  Agreement  dated as of  December  30,  1999 (the
"December 30, 1999  Agreement").  A total of 80,000 shares of Series B Preferred
were issued to  investors,  together  with  warrants  to purchase an  additional
571,429 shares of common stock. The warrants have an exercise price of $8.00 per
share and,  subject to certain  conditions,  are  redeemable by the Company at a
nominal  price if the  Company's  stock  trades  over $12 per share  for  twenty
consecutive  trading  days.  In addition,  an  aggregate  of 34,286  warrants to
purchase shares of the Company's common stock were issued to the placement agent
in the Series B Private Offering, with an exercise price of $7.00 per share. The
funds  received from the Series B Private  Offering were used  primarily to fund
SkyMall's  working  capital  requirements.  The Series B Preferred  and warrants
issued in the Series B Private Offering were issued in reliance on the exemption
provided  under  Section 4(2) of the  Securities  Act of 1933,  as amended,  and
Regulation D thereunder.

     Pursuant to the terms of the December 30, 1999  Agreement,  at the close of
business on March 10, 2000, all shares of Series B Preferred were  automatically
converted into  1,142,857  shares of common stock of the Company upon receipt of
shareholder  approval of such  conversion at a Special  Meeting of  Shareholders
held on March 10,  2000.  The resale of the shares of common  stock  issued upon
conversion  of the Series B Preferred  and the shares of common  stock  issuable
upon exercise of the warrants  issued to investors  and the placement  agents in
the  December  30,  1999  private  placement  have  been  registered  under  the
Securities Act of 1933, as amended.  The consolidated  financial statements have
been adjusted to reflect the  conversion  of the Series B Preferred  into common
stock as of December 31, 1999.

                                       19
<PAGE>
ADDITIONAL WARRANT ISSUANCES.

     SHORELINE PACIFIC.  Shoreline Pacific  Institutional  Finance ("Shoreline")
acted as an advisor to the Company in connection with the Company's 1999 Private
Offerings and, as such,  received  warrants to purchase  shares of the Company's
common stock. Such warrants  contained  anti-dilution  provisions which required
the issuance of additional  warrants in  connection  with the December 20, 1999,
December 30, 1999 and June 30, 2000 Private  Offerings,  and as a result of such
anti-dilution  provisions, an additional 16,479 warrants were issued to purchase
shares of common  stock of the Company.  Pursuant to the terms of the  agreement
between the Company and  Shoreline,  such warrants have been issued to Shoreline
Pacific  Equity Ltd. and certain  employees of Shoreline  Pacific  Institutional
Finance.

FLUCTUATION IN QUARTERLY RESULTS

     The Company's  operating results may fluctuate from  period-to-period  as a
result of the  seasonal  nature of the retail  industry.  The Company  typically
recognizes its highest sales levels during the fourth  quarter,  and during 2000
the fourth quarter  accounted for  approximately 35% of the Company's annual net
merchandise sales.

     The following  table sets forth  certain  unaudited  information  about the
Company's  revenue and results of operations  on a quarterly  basis for 2000 and
1999.

<TABLE>
<CAPTION>
                                                       YEAR ENDED                                      YEAR ENDED
                                                    DECEMBER 31, 2000                               DECEMBER 31, 1999
                                      --------------------------------------------     --------------------------------------------
                                       1ST QTR     2ND QTR     3RD QTR     4TH QTR      1ST QTR     2ND QTR     3RD QTR     4TH QTR
                                      --------    --------    --------    --------     --------    --------    --------    --------
<S>                                   <C>         <C>         <C>         <C>          <C>         <C>         <C>         <C>
Merchandise sales, net                $ 15,645    $ 13,150    $ 11,984    $ 21,695     $  9,818    $ 12,922    $ 12,367    $ 25,588
Placement fees and other                 4,362       3,832       4,316       7,085        4,361       4,310       4,058       5,546
                                      --------    --------    --------    --------     --------    --------    --------    --------
Total revenues                          20,007      16,982      16,300      28,780       14,179      17,232      16,395      31,135
                                      --------    --------    --------    --------     --------    --------    --------    --------

Gross margin                             7,246       7,287       7,253      12,300        6,668       7,219       7,183      11,449
                                      --------    --------    --------    --------     --------    --------    --------    --------

Media expenses                           3,026       3,265       2,695       3,759        2,602       2,537       3,686       4,774
Selling expenses                         1,086       1,017       1,020       1,533          834       1,136       1,219       1,292
Customer service and fulfillment
 expenses                                1,742       1,131       1,146       1,352        1,733       1,350       1,441       2,132
General and administrative expenses      8,638       6,460       4,742       4,267        5,097      10,143       7,234      10,130

Restructuring charges                        0       2,595           0           0            0           0           0           0
                                      --------    --------    --------    --------     --------    --------    --------    --------
Total operating expenses                14,492      14,468       9,603      10,911       10,266      15,166      13,580      18,328
                                      --------    --------    --------    --------     --------    --------    --------    --------

Income (loss) from operations         $ (7,246)   $ (7,181)   $ (2,350)   $  1,389     $ (3,598)   $ (7,947)   $ (6,397)   $ (6,879)
                                      ========    ========    ========    ========     ========    ========    ========    ========
</TABLE>

     In September  1999,  the Company  completed a merger with Disc  Publishing,
Inc. The merger  qualified as a tax-free  exchange  and was  accounted  for as a
pooling of interests.  Accordingly,  the 1999 quarterly  operating  results have
been  restated to include  the  combined  financial  results of SkyMall and Disc
Publishing.

                                       20
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 1998, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement  of Financial  Accounting  Standards  ("SFAS")  133 -  Accounting  for
Derivative  Instruments  and  Hedging  Activities.  This  statement  establishes
accounting  and  reporting  standards  for  derivative  instruments,   including
derivative instruments embedded in other contracts,  and for hedging activities.
In June 1999, the FASB issued SFAS 137 - Accounting  for Derivative  Instruments
and Hedging  Activities - Deferral of the Effective  Date of FASB  Statement No.
133. This statement  deferred the effective date of SFAS 133 to January 1, 2001.
The Company is currently evaluating the impact of SFAS 133 on its future results
of operations and financial position.

     In  January  1999,  the  Company   adopted   Statement  of  Position  98-1,
"ACCOUNTING  FOR THE  COSTS OF  COMPUTER  SOFTWARE  DEVELOPED  OR  OBTAINED  FOR
INTERNAL  USE."  This  Statement  of  Position  ("SOP")  provides   guidance  on
accounting for the costs of computer software developed or obtained for internal
use. The statement identifies the characteristics of internal-use  software, the
capitalization criteria and the amortization method. Under SOP 98-1, the Company
capitalized   costs  of  $2.0  million  and  $5.5  million  in  2000  and  1999,
respectively.

     The Company  follows the guidance of  Accounting  Principles  Board ("APB")
Opinion No. 29,  "ACCOUNTING FOR  NON-MONETARY  TRANSACTIONS."  This APB opinion
provides  guidance on  accounting  for  transactions  that involve  primarily an
exchange   of   non-monetary   assets,    liabilities   or   services   ("barter
transactions"). Placement fees and other revenues include barter revenues, which
represent  an  exchange  by  SkyMall  of  advertising  space  in its  print  and
e-commerce  media  for  reciprocal  services,  including  print  and  e-commerce
advertising.  Revenues and expenses from barter transactions are recorded at the
lower of estimated fair value of the services received or delivered. Revenue and
expenses  recognized from barter  transactions  were  approximately  $370,000 in
1999. No revenue and expenses were recognized from barter transactions in 2000.

     In December  1999,  the  Securities  and Exchange  Commission  issued Staff
Accounting  Bulletin No. 101, REVENUE  RECOGNITION IN FINANCIAL  STATEMENTS (SAB
101),  which addresses  certain  criteria for revenue  recognition.  SAB 101, as
amended  by SAB 101A and SAB 101B,  outlines  the  criteria  that must be met to
recognize  revenue and  provides  guidance  for  disclosures  related to revenue
recognition  policies.  The Company has implemented the applicable provisions of
SAB 101.  The impact of adopting the  provisions  of SAB 101 was not material to
the accompanying financial statements.

     In September  2000,  the Emerging  Issues Task Force reached a consensus on
Issue 00-10,  Accounting for Shipping and Handling Fees and Costs (Issue 00-10).
Issue 00-10  requires that all amounts  billed to customers  related to shipping
and  handling  should be  classified  as  revenues.  In  addition,  Issue 00-10,
specifies that the classification of shipping and handling cost is an accounting
policy  decision  that should be  disclosed  pursuant to APB 22,  Disclosure  of
Accounting  Policies.  A company may adopt a policy of  including  shipping  and
handling costs in cost of sales. If shipping and handling costs are not included
in costs of sales,  a company  should  disclose both the amount of such cost and

                                       21
<PAGE>
the line item in the statement of operations  which includes those costs.  Issue
00-10 was effective for the Company during the fourth quarter of the fiscal year
ending  December 31, 2000. Net  merchandise  sales and cost of sales reflect the
provisions of Issue 00-10.

SEGMENT DISCLOSURE

     The Company is a specialty  retailer  that  provides a large  selection  of
premium-quality  products  and  services  to  consumers  from a wide  variety of
merchants  and  partners.  The  Company's  operations  are  classified  into two
reportable  business segments:  business-to-consumer  and  business-to-business.
Business  initiatives  for the  Company's  two  reportable  segments are managed
separately while support functions are combined.

     The  business-to-consumer  segment provides retail merchandise  through the
Company's  in-flight  catalogs  placed in  domestic  airlines  and  through  the
Company's  Web  site.  The  business-to-business  segment  provides  merchandise
redemption  offerings for a number of point-based  loyalty  programs and, during
2000, offered logo and corporate recognition products.  Subsequent to the end of
the 2000  fiscal  year,  SkyMall  sold the assets of Durham & Company,  logo and
corporate    recognition    product   business,    to   a   third   party.   See
"Business-to-Business  Segment  - Logo  and  Corporate  Recognition  Merchandise
Programs."  Previously,  the Company defined its reportable business segments by
in-flight  catalog,  workplace  catalog and Web site. All periods presented have
been adjusted to reflect the new reportable business segments.

     The Company evaluates the performance of its segments based on revenues and
gross margins.  Operating  expenses are included with corporate  expense and are
not  allocated  to  the  business  segments.  The  accounting  policies  of  the
reportable  segments  are the same as those used in the  consolidated  financial
statements  and  described in the notes to  consolidated  financial  statements.
Inter-segment transactions are not significant.

     Revenues and gross  margins for the  business  segments are provided in the
notes to consolidated financial statements filed herewith.

ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS

     In addition to other  information  in this Annual Report on Form 10-K,  the
following  important  factors  should be carefully  considered in evaluating the
Company and its  business  because  such factors  currently  have a  significant
impact or may have a significant  impact on the Company's  business,  prospects,
financial condition and results of operations.

     WE REPORTED  SIGNIFICANT  LOSSES IN FISCAL 1999 AND 2000. We incurred a net
loss of $24.1 million for the fiscal year ended December 31, 1999 and a net loss
of $16.0  million for the fiscal year ended  December 31, 2000.  The Company had
working  capital of  approximately  $615,000 at December 31, 2000.  Cash used in
operating activities was $14.2 million and $13.3 in 2000 and 1999, respectively.

                                       22
<PAGE>
     Management  has taken  several  steps to return the  Company  to  operating
profitability and positive cash flow. Those steps include,  reducing general and
administrative  costs  significantly,  improving gross margins and  implementing
other cost control measures.  Subsequent to year-end,  the Company  successfully
negotiated  and received a commitment  letter for an extension of its  revolving
line of credit to June 30, 2002. The Company's  plans are subject to a number of
risks,  certain of which are beyond its control.  There can be no assurance that
the Company will be successful in implementing its business strategy.

     In 2001, the Company expects to achieve breakeven earnings before interest,
taxes,  depreciation and amortization ("EBITDA") as well as breakeven cash flow.
However,  the  Company  expects to incur a net loss in 2001 in the range of $6.0
million or $0.38 per share.  The Company expects to incur losses from operations
in the first three  quarters of 2001.  Thus,  much of the  Company's  ability to
achieve  the  foregoing   targets  is  dependent  on  the  Company's   financial
performance in the fourth quarter of 2001.

     We expect to experience fluctuations in our future operating results may be
adversely  impacted  due to a variety of factors,  many of which are outside the
Company's control, including the following:

     *    the demand for our products and services,
     *    the level of competition in the markets we serve,
     *    our success in maintaining and expanding our distribution channels,
     *    our  success in  attracting  and  retaining  motivated  and  qualified
          personnel,
     *    our ability to control costs, and
     *    general economic conditions.

     WE MAY NOT BE ABLE TO MAINTAIN  COMPLIANCE  WITH COVENANTS UNDER OUR CREDIT
FACILITY.  In 1999,  we entered into a credit  facility  with  Imperial  Bank, a
Comerica  Incorporated  Company,  which provides us with a $10,000,000 revolving
line of credit (the  "Credit  Facility").  The Credit  Facility  was modified in
March 2001 to extend the term to June 2002.  The Credit  Facility  is secured by
substantially  all  of  the  Company's  assets  and  contains  strict  covenants
requiring the Company to achieve  certain  financial  ratios and maintain  other
covenants. As of the date of this Report, the Company was in compliance with all
of the covenants under the Credit  Facility.  There can be no assurance that the
Company's  operations and financial  performance will enable it to maintain such
compliance  in the  future.  The  Company's  failure to comply with any of these
covenants could result in an event of default,  thereby permitting  acceleration
of the related  indebtedness,  which could have a material adverse effect on the
Company's financial condition and results of operation.  In the event the lender
were to  foreclose  on its  security  interest  during  the  term of the  Credit
Facility,  the  Company  would be  unable  to repay  such  indebtedness  without
obtaining additional sources of financing.

     OUR COMMON STOCK COULD BE DELISTED FROM THE NASDAQ NATIONAL  MARKET,  WHICH
MAY ADVERSELY  AFFECT HOLDERS OF OUR COMMON STOCK. Our common stock is listed on
the Nasdaq  National  Market.  In order to  continue  to be listed on the Nasdaq
National  Market,  we must meet  specific  quantitative  standards,  including a
minimum net tangible asset  requirement of $4.0 million (the "Net Tangible Asset
Requirement").  At  December  31,  2000,  we  exceeded  the Net  Tangible  Asset
Requirement  by  approximately  $304,000.  Any  further  losses  incurred by the
Company  would  further  erode our net tangible  assets and  possibly  cause the

                                       23
<PAGE>
Company to fall out of compliance  with the Net Tangible Asset  Requirement.  If
the latter event occurs, we would likely receive a de-listing notice from Nasdaq
advising us that we no longer meet the Net Tangible Asset Requirement.  Although
we would have an  opportunity  to appeal  any  decision  by the Nasdaq  National
Market to delist our common  stock,  there can be no assurance  that this appeal
would be successful.  If our common stock were delisted from the Nasdaq National
Market,  we would seek to have the common  stock  listed on the Nasdaq  SmallCap
Market  or  another  exchange,  such as AMEX or one of the  regional  exchanges.
However,  many of these  exchanges  and markets also have  minimum  quantitative
standards  that we may be unable to meet.  If our common stock is delisted  from
the Nasdaq  National  Market and we are  unable to have our shares  included  on
another  exchange or in the  over-the-counter  market,  shareholders may find it
more  difficult to dispose of the shares.  In addition,  the market price of the
shares could decline,  news coverage about us may be  unfavorable,  and we could
find it more difficult to obtain financing in the future.

     WE MAY NOT BE ABLE TO RAISE SUFFICIENT CAPITAL. Our existing line of credit
and  cash  resources  may not be  sufficient  to  permit  the  Company  to fully
implement its business  plan. In order to fully  implement our business plan, we
may need to raise  additional  capital from third  parties or  otherwise  secure
additional financing for the Company. There can be no assurance that the Company
will be able to successfully raise additional capital or secure other financing,
or that such  funding  will be  available  on terms  that are  favorable  to the
Company.  To the extent we are unable to raise sufficient  additional capital or
secure  other  financing,  this  could  have a  material  adverse  effect on the
Company. In addition, our line of credit with our bank becomes due in June 2002.
If we are unable to repay this debt or renegotiate  the terms of this loan, this
could have a material adverse effect on the Company.

     OUR  BUSINESS  MAY NOT  GROW IN THE  FUTURE;  AN  ECONOMIC  DOWNTURN  COULD
ADVERSELY AFFECT OUR BUSINESS. Since our inception, we have rapidly expanded our
operations, growing from total revenues of $200,000 in 1990 to total revenues of
$82.1 million in 2000. Our continued  future growth will depend to a significant
degree  on our  ability  to  increase  revenues  from our  existing  businesses,
maintain existing partner  relationships and develop new  relationships,  expand
our product and content offering to consumers,  while maintaining adequate gross
margins, to continue the perception by participating  merchants that we offer an
effective  marketing channel for their products and services and implement other
programs  that  increase  the  circulation  of the SkyMall  print  catalogs  and
generate traffic for our e-commerce programs.  An economic downturn or recession
could   adversely   impact  our  business.   We  carry  many  luxury  and  other
non-essential  items in our  programs  and,  as a result,  much of the  consumer
spending  with SkyMall is  discretionary.  A decline in  discretionary  spending
could adversely impact us.

     There can be no assurance  that we will be able to  successfully  implement
our growth strategy.

     WE MAY BE UNABLE TO  MANAGE  THE  POTENTIAL  GROWTH  OF OUR  BUSINESS.  Our
potential growth may place  significant  demands upon our personnel,  management
and  financial  resources.  There is no  assurance  that our current  personnel,
systems,  procedures  and  controls  will be  adequate  to  support  our  future
operations, that we will be able to train, retain, motivate and manage necessary
personnel,  or that our management will be able to identify,  manage and exploit
existing and potential strategic  relationships and market opportunities.  If we
are unable to effectively  manage any future growth,  our business and financial
condition could be adversely affected.

                                       24
<PAGE>
     WE FACE INTENSE COMPETITION. The distribution channels for our products are
highly  competitive.  From  time  to  time  in  our  airline  catalog  business,
competitors,  typically  other  catalog  retailers,  have  attempted  to  secure
contracts  with  various  airlines  to offer  merchandise  to  their  customers.
American  Airlines  and  TWA  currently  offer  merchandise  catalogs  to  their
customers  through a competitor.  We also face  competition  for customers  from
airport-based  retailers,  duty-free  retailers,  specialty  stores,  department
stores  and  specialty  and  general  merchandise  catalogs,  many of which have
greater financial and marketing resources than we have. In addition,  we compete
for customers with other in-flight  marketing media,  such as  airline-sponsored
in-flight  magazines and airline video programming.  In our electronic  commerce
sales, we face intense  competition  from other content  providers and retailers
who offer their products and/or services on the Web.

     OUR  BUSINESS IS  SEASONAL.  Our  business is seasonal in nature,  with the
greatest volume of sales typically  occurring  during the holiday selling season
of the  fourth  calendar  quarter.  During  2000,  approximately  35% of our net
merchandise sales were generated in the fourth quarter. Any substantial decrease
in sales for the fourth  quarter  could have a  material  adverse  effect on our
results of operations.

     DEPENDENCE ON KEY RELATIONSHIPS.  Our business depends significantly on our
relationships  with airlines and certain other partners.  Some of our agreements
with  our  partners  are  short-term  allowing  the  partner  to  terminate  the
relationship on 90 days' advance notice. There is no assurance that our partners
will continue  their  relationships  with us, and the loss of one or more of our
significant  partners  could have a  material  adverse  effect on our  business,
prospects, financial condition and results of operations.

     WE MAY BE UNABLE TO MAINTAIN  HISTORICAL MARGIN LEVELS. We may be unable to
increase or maintain our gross  margins at  historical  levels.  As  competition
intensifies or if the economy declines,  our merchant participants may be unable
or unwilling to  participate in our programs under  historical  terms.  Although
many of our merchants have  participated  with us for several years, most of our
relationships  are short-term and may be  re-negotiated by the merchant every 90
days.  To the extent our gross  margins  decline  from  historical  levels,  our
business,  financial  condition  and  results  of  operations  may be  adversely
affected.

     WE FACE CREDIT RISKS. Some participating merchants agree to pay a placement
fee to us for including their merchandise in our programs.  We record an account
receivable  from the merchant for the placement  fee. In some cases,  we collect
the placement fee either from the merchant or by withholding it from amounts due
to the merchant for  merchandise  sold to our customers.  To the extent that the
placement fee receivable  exceeds the sales of the  merchant's  products and the
merchant is unable or unwilling to pay the  difference to us, we may  experience
credit  losses,  which  could have a material  adverse  effect on our  business,
financial condition and results of operations.

                                       25
<PAGE>
     WE ARE VULNERABLE TO INCREASES IN PAPER COSTS AND AIRLINE FUEL PRICES.  The
cost of paper  used to print  our  catalogs  and the fees  paid to  airlines  to
reimburse  them for the  increased  fuel  costs  associated  with  carrying  our
catalogs are  significant  expenses of our operations.  Historically,  paper and
airline  fuel prices have  fluctuated  significantly  from time to time and fuel
prices,  in particular,  have  increased  significantly  in recent  months.  Our
airline  partners  may  require us to pay  additional  fees to them to carry the
catalog in times of higher fuel prices. Increases in paper or airline fuel costs
that we must pay could have a material adverse effect on our business, financial
condition and results of operations.

     OUR INFORMATION AND  TELECOMMUNICATIONS  SYSTEMS MAY FAIL OR BE INADEQUATE.
We process a large volume of relatively small orders. Consequently,  our success
depends to a significant  degree on the effective  operation of our  information
and  telecommunications  systems.  These  systems  could fail for  unanticipated
reasons or they may be  inadequate  to process any  increase in our sales volume
that  may  occur.  In  addition,  we must  ensure  the  secure  transmission  of
confidential customer information over public  telecommunications  networks. Our
business depends on the efficient and uninterrupted operation of our servers and
communications  hardware systems and  infrastructure.  Any sustained or repeated
systems  interruptions  that cause our Web sites to become  unavailable  for use
would result in our inability to service our customers.  Any extended failure of
our  information  and  telecommunications  systems  or a breach in our  security
systems  could  have  a  material  adverse  effect  on our  business,  financial
condition and results of operations.

     WE  MAY  BECOME  SUBJECT  TO  BURDENSOME  GOVERNMENT  REGULATION.  Any  new
legislation or regulation or  governmental  enforcement of existing  regulations
may limit the growth of the  Internet,  increase  our cost of doing  business or
increase our legal exposure.  We currently are not subject to direct  regulation
by any governmental agency other than laws and regulations  generally applicable
to businesses and specifically,  direct marketing and Web-based businesses.  Due
to the  increasing  popularity  and use of the Internet,  governmental  or other
regulatory  bodies in the United States and abroad may adopt additional laws and
regulations  with  respect to the  Internet  that cover  issues such as content,
privacy, pricing, encryption standards, consumer protection, electronic commerce
and taxation.  We cannot predict the impact,  if any, that any future regulatory
changes  or  development  may have on our  business,  financial  condition,  and
results of operations.

     WE FACE A RISK OF PRODUCT LIABILITY CLAIMS. Our catalogs and our electronic
commerce  sites  feature  products  and  services  from  numerous  participating
merchants.  Generally, our agreements with these participating merchants require
the merchants to indemnify us and thereby be solely  responsible  for any losses
arising from product liability claims made by customers,  including the costs of
defending any such claims,  and to carry product liability  insurance that names
SkyMall as an  additional  insured.  In  addition,  we maintain  our own product
liability  insurance.  If a merchant  was unable or unwilling to indemnify us as
required,  and any such  losses  exceeded  our  insurance  coverage  or were not
covered by our insurer,  our financial condition and results of operations could
be materially adversely affected.

     WE RELY  UPON OUR  PRESIDENT  AND  OTHER  KEY  PERSONNEL.  We depend on the
continued  services  of Robert M.  Worsley,  our  chairman  and chief  executive
officer,  Cary L. Deacon, our president and chief operating officer,  and on the
services of certain other executive  officers.  The loss of Mr. Worsley's or Mr.
Deacon's  services or of the services of certain other executive  officers could
have a material adverse effect on our business.

                                       26
<PAGE>
     THE WORSLEYS,  WAND PARTNERS INC. AND/OR RS INVESTMENT  MANAGEMENT L.P. CAN
CONTROL MANY IMPORTANT COMPANY  DECISIONS.  As of February 15, 2001, Mr. Worsley
and his wife (the "Worsleys") owned 4,830,280 shares, or approximately  30.5% of
our outstanding  common stock, and Wand Partners Inc. owned 1,292,857 shares, or
approximately  8.2% of our  outstanding  common  stock.  David J.  Callard,  the
President of Wand  Partners  Inc.,  and Mr.  Worsley are members of the Board of
Directors of the Company. RS Investment Management, L.P. and various affiliates,
benefically own a total of 2,079,900  shares of Common Stock of the Company,  or
13.1% as of February 15, 2001. As a result,  the Worsleys,  Wand Partners and RS
Investment  Management  L.P.  have the ability to  significantly  influence  the
affairs of the Company and matters requiring a shareholder  vote,  including the
election of the Company's  directors,  the  amendment of the  Company's  charter
documents,  the merger or  dissolution  of the  Company,  and the sale of all or
substantially  all of the  Company's  assets.  The voting power of the Worsleys,
Wand Partners and RS Investment  Management  L.P. may also discourage or prevent
any proposed takeover of the Company pursuant to a tender offer.

     THE PRICE OF OUR COMMON  STOCK IS EXTREMELY  VOLATILE.  The market price of
our common  stock has been  highly  volatile.  Occurrences  that could cause the
trading  price of our  common  stock to  fluctuate  dramatically  in the  future
include:

     *    new merchant agreements
     *    the acquisition or loss of one or more airline or other key partner
     *    fluctuations in our operating results
     *    analyst reports, media stories,  Internet chat room discussions,  news
          broadcasts and interviews
     *    market conditions for retailers and electronic  commerce  companies in
          general
     *    changes in airline fuel, paper or our other significant expenses
     *    changes in the purchase price for products acquired from our merchants
     *    changes  in the  macroeconomic  conditions  of the  United  States and
          global economies.

     The stock market has from time to time experienced extreme price and volume
fluctuations that have particularly affected the market price for companies that
do some or all of their business on the Internet.  Accordingly, the price of our
common stock may be impacted by these or other trends.

     OUR OUTSTANDING SHARES MAY BE DILUTED. The market price of our common stock
may  decrease as more  shares of common  stock  become  available  for  trading.
Certain  events  over  which  you have no  control  result  in the  issuance  of
additional  shares of our  common  stock,  which  would  dilute  your  ownership
percentage  in  SkyMall.  We may issue  additional  shares  of  common  stock or
preferred stock to raise additional capital or finance acquisitions, or upon the
exercise or conversion of outstanding options and warrants.

                                       27
<PAGE>
     As of March 27,  2001,  there  were  outstanding  warrants  and  options to
acquire up to 4,054,302  shares of common stock at prices  ranging from $1.21 to
$16.75 per share.  If exercised,  these  securities  will dilute the  percentage
ownership  of  holders  of  outstanding  common  stock  of  the  Company.  These
securities,  unlike the common stock, provide for anti-dilution  protection upon
the  occurrence  of  stock  splits,  redemptions,  mergers,   reclassifications,
reorganizations  and other similar corporate  transactions,  and, in some cases,
major corporate announcements. If one or more of these events occurs, the number
of shares of common stock that may be acquired upon conversion or exercise would
increase.

     RISK THAT FORWARD-LOOKING STATEMENTS MAY NOT COME TRUE. This Report and the
documents incorporated herein by reference,  contain forward-looking  statements
that involve risks and uncertainties.  We use words such as "believe," "expect,"
"anticipate,"  "plan" or similar words to identify  forward-looking  statements.
Forward-looking  statements  are made  based upon our belief as of the date that
such statements are made. These forward-looking  statements are based largely on
our current expectations and are subject to a number of risks and uncertainties,
many of which are beyond our  control.  You should not place  undue  reliance on
these  forward-looking  statements,  which  apply  only  as of the  date of such
documents.  Our actual results could differ materially from those anticipated in
these forward-looking  statements for many reasons, including the risks faced by
us described above and elsewhere in this Report.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

     Our market risk  exposure is limited to the interest  rate risk  associated
with our credit  instruments.  We incur interest on loans made under a revolving
line of credit at a variable interest rate. We had outstanding borrowings on the
line of credit of approximately $8.4 million at December 31, 2000.

     The Company does not have any financial derivative instruments.

                                       28
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          INDEX TO FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----
FINANCIAL STATEMENTS:

Report of Independent Public Accountants                                     F-1

Consolidated Balance Sheets as of December 31, 2000 and 1999                 F-2

Consolidated Statements of Operations for the Years Ended
  December 31, 2000, 1999 and 1998                                           F-3

Consolidated Statements of Shareholders' Equity for the Years Ended
  December 31, 2000, 1999 and 1998                                           F-4

Consolidated Statements of Cash Flows for the Years Ended
  December 31, 2000, 1999 and 1998                                           F-5

Notes to Consolidated Financial Statements                                   F-6

SUPPLEMENTARY DATA:

Report of Independent Public Accountants                                     S-1

Schedule II - Valuation and Qualifying Accounts and Reserves
 For the Years Ended December 31, 2000, 1999 and 1998                        S-2

                                       29
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To SkyMall, Inc.:

We have audited the accompanying consolidated balance sheets of SKYMALL, INC. (a
Nevada  corporation)  AND  SUBSIDIARIES , as of December 31, 2000, and 1999, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended  December 31, 2000.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of SkyMall,  Inc and subsidiaries
as of December 31, 2000 and 1999, and the results of their  operations and their
cash  flows for the three  years in the  period  ended  December  31,  2000,  in
conformity with accounting principles generally accepted in the United States.

Our  audit  was  made  for the  purpose  of  forming  an  opinion  on the  basic
consolidated  financial  statements taken as a whole. The schedule (Schedule II)
on page S-2 is the  responsibility of the Company's  management and is presented
for purposes of complying with the Securities  and Exchange  Commission's  rules
and are not part of the basic consolidated  financial statements.  This schedule
has been subjected to the auditing  procedures applied in the audit of the basic
consolidated  financial  statements  and, in our opinion,  fairly  states in all
material  respects  the  financial  data  required  to be set forth  therein  in
relation to the basic consolidated financial statements taken as a whole.

/s/ ARTHUR ANDERSEN LLP

Phoenix, Arizona
March 14, 2001

                                      F-1
<PAGE>
                                  SKYMALL, INC.

                           CONSOLIDATED BALANCE SHEETS
               (AMOUNTS IN THOUSANDS, EXCEPT SHARES AND PAR VALUE)
<TABLE>
<CAPTION>
                                                                             December 31,
                                                                     ----------------------------
                                                                       2000                1999
                                                                     --------            --------
<S>                                                                  <C>                 <C>
                                     ASSETS
Current Assets:
  Cash and cash equivalents                                          $  9,938            $ 16,060
  Accounts receivable, net                                              7,097              11,994
  Inventories                                                             837               1,300
  Prepaid media costs and other                                         1,289               2,914
  Income tax receivable                                                    --                 968
                                                                     --------            --------
        Total current assets                                           19,161              33,236

Property and equipment, net                                            11,414              12,869
Goodwill, net                                                           2,612               2,817
Other assets, net                                                         685               1,327
                                                                     --------            --------

        Total assets                                                 $ 33,872            $ 50,249
                                                                     ========            ========
                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Accounts payable                                                   $ 15,104            $ 24,136
  Accrued liabilities                                                   2,291               3,979
  Unearned revenue                                                        536               1,298
  Current portion of notes payable and capital leases                     190                  28
  Current portion of restructuring reserve                                425                  --
                                                                     --------            --------
        Total current liabilities                                      18,546              29,441

Notes payable and capital leases, net of current portion                8,400               5,190
Restructuring reserve, net of current portion                              10                  --
                                                                     --------            --------

        Total liabilities                                              26,956              34,631
                                                                     --------            --------
Commitments and contingencies (Note 8)

Shareholders' equity:
  Preferred stock, $0.001 par value; 10,000,000 shares
   authorized; no shares issued and outstanding                            --                  --
  Common stock, $0.001 par value; 50,000,000 shares
   authorized; issued and outstanding shares: 15,817,420
   in 2000 and 12,981,425 in 1999                                          16                  13
  Additional paid-in capital                                           41,221              33,884
  Accumulated deficit                                                 (34,321)            (18,279)
                                                                     --------            --------

       Total shareholders' equity                                       6,916              15,618
                                                                     --------            --------

       Total liabilities and shareholders' equity                    $ 33,872            $ 50,249
                                                                     ========            ========
</TABLE>
              The accompanying notes are an integral part of these
                          consolidated balance sheets.

                                      F-2
<PAGE>
                                  SKYMALL, INC.

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


<TABLE>
<CAPTION>
                                                              For the Year Ended December 31,
                                                    ------------------------------------------------
                                                        2000              1999               1998
                                                    -----------        ----------         ----------
<S>                                                 <C>                <C>                <C>
Revenues:
  Merchandise sales, net                            $    62,474        $   60,665         $   49,320
  Placement fees and other                               19,595            18,276             22,722
                                                    -----------        ----------         ----------
        Total revenues                                   82,069            78,941             72,042
Cost of goods sold                                       47,983            46,422             39,292
                                                    -----------        ----------         ----------
Gross margin                                             34,086            32,519             32,750

Operating expenses:
  Media expenses                                         12,745            13,599             11,353
  Selling expenses                                        4,656             4,481              3,474
  Customer service and fulfillment expenses               5,371             6,657              5,332
  General and administrative expenses                    24,107            32,604              9,002
  Restructuring charge                                    2,595                --                 --
                                                    -----------        ----------         ----------
        Total operating expenses                         49,474            57,341             29,161
                                                    -----------        ----------         ----------

(Loss) income from operations                           (15,388)          (24,822)             3,589

Interest expense                                           (809)             (283)               (32)
Interest and other income                                   155                52                436
                                                    -----------        ----------         ----------

(Loss) income before taxes                              (16,042)          (25,053)             3,993

Provision (benefit) for income taxes                         --              (913)             1,707
                                                    -----------        ----------         ----------

Net (Loss) income                                   $   (16,042)       $  (24,140)        $    2,286
                                                    ===========        ==========         ==========

Basic (loss) income per common share                $     (1.11)       $    (2.60)        $      .27
                                                    ===========        ==========         ==========

Diluted (loss) income per common share              $     (1.11)       $    (2.60)        $      .27
                                                    ===========        ==========         ==========

Basic weighted average shares outstanding            14,480,314         9,271,330          8,583,195
                                                    ===========        ==========         ==========

Diluted weighted average shares outstanding          14,480,314         9,271,330          8,602,177
                                                    ===========        ==========         ==========
</TABLE>

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

                                      F-3
<PAGE>
                                  SKYMALL, INC.

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



<TABLE>
<CAPTION>
                                                  Convertible                                                Retained
                                                Preferred Stock           Common Stock        Additional     Earnings
                                               ------------------    ----------------------    Paid-in     (Accumulated
                                                Shares     Amount      Shares        Amount    Capital       Deficit)      Total
                                                ------     ------      ------        ------    -------       --------      -----
<S>                                             <C>         <C>      <C>          <C>         <C>             <C>          <C>
Balance, December 31, 1997                           --     $  --     8,516,600      $   9     $ 6,723       $  3,575    $ 10,307
Repurchase of common stock                           --        --       (27,000)        --        (127)            --        (127)
Common stock issued upon exercise of options         --        --       235,815         --       1,432             --       1,432
Warrants issued in connection with asset
 purchase                                            --        --            --         --         100             --         100
Disc Publishing pooling of interest                  --        --       280,555         --         236             --         236
Net income                                           --        --            --         --          --          2,286       2,286
                                               --------     -----   -----------      -----     -------       --------    --------
Balance, December 31, 1998                           --        --     9,005,970          9       8,364          5,861      14,234

Common stock issued upon exercise of options         --        --       385,142         --       2,727             --       2,727
Common stock, net of issuance costs                  --        --     1,114,047          1       6,869             --       6,870
Conversion of note payable to common stock           --        --        28,838         --         200             --         200
Series A preferred stock, net of issuance
 costs                                           91,320        --            --         --       8,047             --       8,047
Series B preferred stock, net of issuance
 costs                                           80,000        --            --         --       7,680             --       7,680
Conversion of preferred stock to common
 stock                                         (171,320)       --     2,447,428          3          (3)            --          --
Net loss                                             --        --            --         --          --        (24,140)    (24,140)
                                               --------     -----   -----------      -----     -------       --------    --------
Balance, December 31, 1999                           --        --    12,981,425         13      33,884        (18,279)     15,618

Common stock issued upon exercise of options         --        --        11,709         --          61             --          61
Common stock, net of issuance costs                  --        --     2,483,000          3       4,469             --       4,472
Conversion of warrants to common stock               --        --       341,286         --       2,721             --       2,721
Warrant expense                                      --        --            --         --          86             --          86
Net loss                                             --        --            --         --          --        (16,042)    (16,042)
                                               --------     -----   -----------      -----     -------       --------    --------
Balance, December 31, 2000                           --     $  --    15,817,420      $  16     $41,221       $(34,321)   $  6,916
                                               ========     =====   ===========      =====     =======       ========    ========
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                      F-4
<PAGE>
                                  SKYMALL, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                 For the Year Ended December 31,
                                                                           ------------------------------------------
                                                                             2000             1999             1998
                                                                           --------         --------         --------
<S>                                                                       <C>              <C>              <C>
Cash flows (used in) provided by operating activities:
 Net (loss) income                                                         $(16,042)        $(24,140)        $  2,286
 Adjustments to reconcile net income (loss) to net cash
   (used in) provided by operating activities:
   Depreciation and amortization                                              4,079            2,360            1,118
   Provision for doubtful accounts                                              716              859              281
   Warrants expense                                                              86               --               --
   Loss on disposal of property and equipment                                   467              469               --
   Deferred income taxes and other tax effects, net                              --              500              878
   Change in assets and liabilities, net of effects of acquisition:
    (Increase) decrease in:
      Accounts receivable                                                     4,181           (1,409)            (423)
      Inventories                                                               463             (670)              22
      Prepaid media costs and other                                           1,625           (1,401)             351
      Income tax receivable                                                     968             (968)              --
      Other assets                                                              323           (1,317)             117
    (Decrease) increase in:
      Accounts payable                                                       (9,032)          12,473           (2,256)
      Accrued liabilities                                                    (1,688)           2,762           (1,413)
      Unearned revenue                                                         (762)          (2,075)           2,911
      Income taxes payable                                                       --             (761)             205
      Reserve for restructuring charges                                         435               --               --
                                                                           --------         --------         --------
          Net cash (used in) provided by operating activities               (14,181)         (13,318)           4,077
                                                                           --------         --------         --------
Cash flows used in investing activities:
 Purchase of property and equipment                                          (2,567)          (8,847)          (3,193)
 Payments for acquisition, net of cash acquired                                  --               --           (2,900)
                                                                           --------         --------         --------
          Net cash used in investing activities                              (2,567)          (8,847)          (6,093)
                                                                           --------         --------         --------
Cash flows provided by (used in) financing activities:
 Proceeds from debt                                                           3,400            7,500              195
 Payments on capital leases                                                     (28)              --               --
 Payments on debt                                                                --           (2,550)             (60)
 Proceeds from issuance of preferred stock, net of issuance costs                --           15,727               --
 Proceeds from issuance of common stock, net of issuance costs                7,254            9,597              547
 Repurchase of common shares                                                     --               --             (127)
                                                                           --------         --------         --------
          Net cash provided by financing activities                          10,626           30,274              555
                                                                           --------         --------         --------

Increase (decrease) in cash and cash equivalents                             (6,122)           8,109           (1,461)

Cash and cash equivalents, beginning of year                                 16,060            7,951            9,412
                                                                           --------         --------         --------

Cash and cash equivalents, end of year                                     $  9,938         $ 16,060         $  7,951
                                                                           ========         ========         ========
Supplemental disclosure of cash flow activity:
 Income taxes paid                                                         $     --         $     --         $    623
                                                                           ========         ========         ========
 Total interest paid                                                       $    710         $    283         $     32
                                                                           ========         ========         ========
Supplemental disclosure of noncash activity:
 Long-term debt incurred with business acquisition                         $     --         $     --         $    200
                                                                           ========         ========         ========
 Conversion of long-term debt to common stock                              $     --         $    200         $     --
                                                                           ========         ========         ========
 Employee receivable for stock options exercised                           $     --         $     --         $    401
                                                                           ========         ========         ========
 Mature shares received for stock options exercised                        $     --         $     --         $    208
                                                                           ========         ========         ========

</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements

                                      F-5
<PAGE>
                                  SKYMALL, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 2000


(1)  THE COMPANY:

     NATURE OF ORGANIZATION

     SkyMall,  Inc.  (the  Company)  was  incorporated  in  1989  as an  Arizona
corporation  (and  reincorporated  in Nevada in October 1996).  The Company is a
specialty retailer that markets  high-quality  products and services via various
media,  including the SkyMall in-flight print catalogs and on the Internet.  The
Company  maintains  minimum levels of inventory and  substantially  all products
displayed in the Company's  in-flight  print catalogs and the Company's Web site
are acquired from  participating  merchants when a customer places an order with
the Company.

     MANAGEMENT PLANS

     The Company incurred losses of $16.0 million and $24.1 million in the years
ended December 31, 2000 and 1999, respectively.  The Company had working capital
of  approximately  $615,000 million at December 31, 2000. Cash used in operating
activities was $14.2 million and $13.3 million in 2000 and 1999, respectively.

     Management  has taken  several  steps to return the  Company  to  operating
profitability and positive cash flow. Those steps include,  reducing general and
administrative  costs  significantly,  improving gross margins and  implementing
other cost control measures.  Subsequent to year-end,  the Company  successfully
negotiated  and received a commitment  letter for an extension of its  revolving
line of credit to June 30, 2002. The Company's  plans are subject to a number of
risks, some of which are beyond its control.  There can be no assurance that the
Company will be successful in implementing its business strategy.

(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     PRINCIPLES OF CONSOLIDATION

     The consolidated  financial  statements include the accounts of the Company
and its wholly-owned  subsidiaries,  skymall.com,  inc., Durham & Company,  Disc
Publishing,  Inc., SkyMall Ventures, Inc. and SkyMall Media Ventures,  Inc., and
include all adjustments and reclassifications  necessary to eliminate the effect
of significant intercompany accounts and transactions.

     USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS

     The  preparation of  consolidated  financial  statements in conformity with
accounting   principles   generally  accepted  in  the  United  States  requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities,  revenues,  expenses and disclosures.  Actual results could
differ from those estimates.

                                      F-6
<PAGE>
     RECLASSIFICATIONS

     Certain  reclassifications have been made to the 1999 and 1998 consolidated
financial statements to conform to the 2000 presentation. Settlement costs which
were previously  recorded in customer  service and fulfillment  expenses in 1998
and 1999 have been reclassified to general and administrative expenses.

     CASH AND CASH EQUIVALENTS

     Cash equivalents include investments purchased with an original maturity of
three months or less.

     ACCOUNTS RECEIVABLE

     Accounts  receivable  at  December  31,  2000 and 1999,  primarily  include
amounts due from  participating  merchants,  credit card  companies and products
shipped but not billed.  The allowance for doubtful  accounts as of December 31,
2000 and 1999, was approximately $1.5 million and $744,000, respectively.

     INVENTORIES

     Inventories  are stated at the lower of cost or market.  Cost is determined
using the first-in,  first-out  method.  Inventory  cost includes raw materials,
direct labor and overhead.

     PREPAID MEDIA COSTS

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

     PROPERTY AND EQUIPMENT

     Property and  equipment  are stated at cost.  Assets  leased under  capital
lease  agreements  are  included  in property  and  equipment.  Depreciation  of
property  and  equipment  is  provided  by the  straight-line  method  over  the
estimated  useful  lives  of  the  respective  assets  or  capital  lease  term.
Periodically,  the Company evaluates property and equipment whenever significant
events or changes  occur that might  impair  recovery of recorded  asset  costs.
There were no asset impairments recorded in 2000, 1999 or 1998.

     The Company  capitalizes  labor cost  associated  with the  development  of
computer  software  for internal use in  accordance  with  Statement of Position
("SOP")  98-1,  "ACCOUNTING  FOR THE COSTS OF  COMPUTER  SOFTWARE  DEVELOPED  OR
OBTAINED  FOR  INTERNAL  USE." Costs  capitalized  under SOP 98-1  totaled  $2.0
million and $5.5 million for 2000 and 1999, respectively.

     GOODWILL

     Goodwill represents the excess of the purchase price and related costs over
the value assigned to net tangible  assets in connection with the acquisition of
Durham & Company in October 1998.  Goodwill is amortized using the straight-line

                                      F-7
<PAGE>
method  over 15 years.  Amortization  expense  was  $204,947 in each of 2000 and
1999.  Accumulated  amortization  at December 31, 2000 and 1999 was $462,086 and
$257,139,  respectively.  Periodically, the Company evaluates goodwill and other
intangibles  whenever  significant  events or changes  occur  that might  impair
recovery of recorded asset costs.  There were no asset  impairments  recorded in
2000, 1999 or 1998.

     UNEARNED REVENUE

     Unearned  revenue  represents  amounts charged to customer credit cards and
customers with corporate  recognition programs in which all related products for
that  charge  have not been  shipped.  Unearned  revenue  is  recognized  as net
merchandise  sales when the  related  product is shipped.  The Company  also has
unearned  revenue  relating to placement fee revenue that is partially billed in
advance  of  the   distribution   of  the  catalog.   This  is  reflected  as  a
contra-receivable account in the accompanying consolidated balance sheets.

     INCOME TAXES

     The Company uses the asset and liability  method of  accounting  for income
taxes as set forth in  Statement  of  Financial  Accounting  Standards  No. 109,
"Accounting for Income Taxes".  Under the asset and liability  method,  deferred
tax  assets  and  liabilities  are  recognized  for  the  estimated  future  tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases and for the expected future tax benefits to be realized from net operating
loss and tax credit  carryforwards.  Deferred  tax assets  and  liabilities  are
measured using enacted tax rates expected to apply to taxable income in years in
which those temporary  differences are expected to be recovered or settled.  The
effect on the  deferred tax assets and  liabilities  of a change in tax rates is
recognized in income in the period that includes the  enactment  date.  Deferred
tax assets are reviewed periodically for recoverability and valuation allowances
are provided as necessary.

     REVENUE RECOGNITION

     The Company has two primary sources of revenue,  net merchandise  sales and
placement fees. Net merchandise sales are recognized as revenue upon delivery of
product to customers by the Company or participating merchants, net of estimated
returns and  allowances.  Placement  fees  represent fees paid to the Company by
participating  merchants for inclusion of their products in the Company's  media
channels.  Placement fee revenue is recognized on a straight-line basis over the
circulation period of a media channel,  generally three months. Customer charges
for shipping and  handling  are  included in placement  fees and other  revenue.
Revenue  from gift  certificates  is  recognized  upon  delivery  of the product
following redemption.

     Placement fees and other revenue also include barter revenue which includes
an exchange  by the Company of  advertising  space or  services  for  reciprocal
advertising  space or services.  The Company  follows the guidance of Accounting
Principles   Board  ("APB")  Opinion  No.  29,   "ACCOUNTING  FOR   NON-MONETARY
TRANSACTIONS." This APB Opinion provides guidance on accounting for transactions
that  involve  primarily  an exchange of  non-monetary  assets,  liabilities  or
services ("barter transactions"). Revenues and expenses from barter transactions
are recorded at the lower of estimated fair value of the advertising or services
received or  delivered.  Barter  revenue and  expenses are  recognized  when the
advertising  or  services  performed  are  delivered.  There were no revenue and

                                      F-8
<PAGE>
expenses  recognized  from barter  transactions  in 2000.  Revenue and  expenses
recognized from barter  transactions were approximately $0 in 2000,  $370,000 in
1999 and $0 in 1998.

     On December 3, 1999, the Securities  and Exchange  Commission  issued Staff
Accounting   Bulletin  ("SAB")  No.  101,   REVENUE   RECOGNITION  IN  FINANCIAL
STATEMENTS, which provides additional guidance in applying accounting principles
generally  accepted in the United  States for revenue  recognition  in financial
statements. The Company's adoption of SAB No. 101 did not have a material impact
on the revenue recognition method of the Company.

     COST OF GOODS SOLD

     Cost of goods sold represents net amounts paid to  participating  merchants
to acquire  products sold to  customers.  For products sold by Durham & Company,
cost of goods sold includes manufacturing costs, including materials,  labor and
overhead.  Shipping costs incurred  related to product  delivery are included in
cost of goods sold.

     STOCK-BASED COMPENSATION

     SFAS No. 123 ACCOUNTING FOR STOCK-BASED COMPENSATION  encourages,  but does
not  require,  companies  to adopt a  fair-value  based  method for  determining
expense related to stock-based  compensation.  The Company  continues to account
for  stock-based  compensation  using the  intrinsic  value method as prescribed
under APB Opinion No. 25,  ACCOUNTING  FOR STOCK ISSUED TO EMPLOYEES and related
interpretations. See Note 8 for disclosures required under SFAS No. 123

     CONCENTRATION OF CREDIT RISK

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

     INCOME (LOSS) PER COMMON SHARE

     Income (loss) per common share is computed in accordance with SFAS No. 128,
EARNINGS  PER SHARE.  Basic  income  (loss)  per common  share is based upon the
weighted average shares  outstanding.  Diluted income (loss) per common share is
based on the weighted  average  shares  outstanding  and  dilutive  common stock
equivalents.

     FINANCIAL INSTRUMENTS

     The Company's  financial  instruments  include cash,  accounts  receivable,
accounts  payable,  notes  payable,  and capital  leases.  Due to the short-term
nature of cash,  accounts  receivable,  and accounts payable,  the fair value of
these  instruments   approximates  their  recorded  value.  In  the  opinion  of
management,  based upon current information, the fair value of notes payable and
capital leases  approximates market value because interest rates reflect current
market rates.  The Company does not have  material  financial  instruments  with
off-balance sheet risk.

                                      F-9
<PAGE>
(3)  RESTRUCTURING CHARGE:

     In April 2000,  the Company  began  execution of a plan to reduce costs and
improve  profitability,  which  resulted  in the  Company  recording  a one-time
restructuring  expense  totaling $2.6 million in the second fiscal quarter ended
June 30, 2000, of which $228,000  relates to non-cash  transactions  relating to
the write-off of assets.  Approximately $2.2 million of the total  restructuring
charge has been paid through  December 31, 2000.  The remaining  charge has been
classified in current and non-current  liabilities on the  Consolidated  Balance
Sheet and will be funded through cash provided by operating  activities.  Of the
total restructuring charge taken in June, 2000, $1.0 million related to plans to
discontinue  various  catalog  programs  that  had not  been  profitable  to the
Company, including the international catalog program, as well as other specialty
catalog  programs.  This part of the plan has been executed and  completed.  The
ability to order products with international shipping destinations will continue
to  be  available  through  the  existing  business  infrastructure.  Under  the
restructuring  plan, the Company  eliminated  approximately  53 employees and 15
outside contractors in April 2000, resulting in a charge of $687,000.  This cost
included  special  termination  benefits related to the reduction in work force.
The Company has also consolidated  operations previously located in New York and
Utah to Phoenix resulting in closure and other payroll costs of $839,000,  which
have been included in restructuring  charges. The elimination of these locations
has not  resulted  in a  discontinuation  of product  lines,  but has,  instead,
consolidated management and day-to-day operational control.

(4)  PROPERTY AND EQUIPMENT:

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

                                            Estimated         December 31,
                                           Useful Life   ----------------------
                                             (Years)       2000          1999
                                           -----------   --------      --------
Equipment and software                         2-10      $ 15,450      $ 13,747
Buildings and leasehold improvements           15-40        3,070         3,347
Furniture, fixtures and other                  3-7            968           991
                                                         --------      --------
                                                           19,488        18,085
Accumulated depreciation                                   (8,074)       (5,216)
                                                         --------      --------

                                                         $ 11,414      $ 12,869
                                                         ========      ========

Depreciation  expense was $3.6  million,  $2.0 million and $1.1 million in 2000,
1999 and 1998, respectively.

(5)  OTHER ASSETS:

     Purchased airline  contracts are amortized using the  straight-line  method
over their contract lives.  Other assets  consists of the following  (amounts in
thousands):

                                      F-10
<PAGE>
                                                                December 31,
                                          Contract Life    ---------------------
                                             (Years)        2000          1999
                                             -------       -------       -------
Purchased airline contracts                    1-2         $ 1,323       $ 1,323
Other                                          102             425
                                                           -------       -------
                                                             1,425         1,748
Accumulated amortization                      (740)           (421)
                                                           -------       -------

                                                           $   685       $ 1,327
                                                           =======       =======

(6)  DEBT AND CAPITAL LEASES:

     Debt and capital leases consist of the following (amounts in thousands):

                                                              December 31,
                                                         ----------------------
                                                          2000            1999
                                                         -------        -------
Revolving line of credit                                 $ 8,400        $ 5,000

Note payable to former employee, interest at 6%,
 due October 2001                                            180            180

Capital leases, interest at varying rates of 18% to
 23%, due in monthly installments (including interest)
 of approximately $2,700 through May 2001, secured by
 equipment                                                    10             38
                                                         -------        -------

Total debt and capital leases                              8,590          5,218
Less current portion                                        (190)           (28)
                                                         -------        -------

Long-term debt, net of current portion                   $ 8,400        $ 5,190
                                                         =======        =======

     At December 31, 2000,  aggregate  annual  maturities of long-term  debt and
capital leases were as follows (amounts in thousands):

     2001                                                           $  190
     2002                                                            8,400
                                                                    ------
                                                                    $8,590
                                                                    ======

     In June 1999, the Company  obtained a $10 million  revolving line of credit
(the "Line") from a bank with an original  maturity  date of May 2001.  Advances
made  on the  Line  bear  interest  at  prime.  The  Line is  collateralized  by
substantially all assets of the Company.  The balance outstanding on the Line at
December 31, 2000 was $8.4 million. Subsequent to December 31, 2000, the Company
negotiated certain  modifications to the Line including an extension to June 30,
2002. The modifications  eliminated certain financial  covenants that related to
the year ended  December 31, 2000 and imposed new financial and other  covenants
for the balance of the term of the Line. These covenants require  maintenance of
minimum  net  worth,   earnings  before   interest,   taxes,   depreciation  and
amortization  and interest  coverage.  The Line limits capital  expenditures  to
$600,000  annually and requires the Company to reduce the Line to $2,000,000 for
specified periods during the term of the Line.

                                      F-11
<PAGE>
(7)  SEGMENT AND RELATED INFORMATION:

     The Company is a specialty  retailer  that  provides a large  selection  of
premium-quality  products  and  services  to  consumers  from a wide  variety of
merchants  and  partners.  The  Company's  operations  are  classified  into two
reportable  business segments:  business-to-consumer  and  business-to-business.
Business  initiatives  for the Company's two  reportable  business  segments are
managed separately while support functions are combined.

     The  business-to-consumer   segment  provides  retail  merchandise  service
through the Company's  in-flight  catalogs placed in domestic and  international
airlines and through the Company's Web site.  The  business-to-business  segment
provides  retail  merchandise  services for loyalty  point-based  programs,  and
recognition and logo merchandise.

     The Company evaluates the performance of its segments based on revenues and
gross margins.  Operating  expenses are included with corporate  expense and are
not  allocated  to  the  business  segments.  The  accounting  policies  of  the
reportable  segments  are the same as those used in the  consolidated  financial
statements  and described in Note 2 of these  condensed  consolidated  financial
statements. Inter-segment transactions are not significant.

     Revenues  and gross  margin for the  Company's  reportable  segments are as
follows (amounts in thousands):

                           Business-to-   Business-to-
December 31,                 Consumer       Business     Corporate      Total
------------                 --------       --------     ---------      -----
2000
Revenues                     $ 71,357       $ 10,712     $     --     $ 82,069
Gross margin                   31,025          3,061           --       34,086
Operating expenses                 --             --       49,474       49,474
Loss from operations                                                   (15,388)

1999
Revenues                     $ 70,018       $  8,923     $     --     $ 78,941
Gross margin                   29,491          3,028           --       32,519
Operating expenses                 --             --       57,341       57,341
Loss from operations                                                   (24,822)

1998
Revenues                     $ 70,920       $  1,122     $     --     $ 72,042
Gross margin                   32,300            450           --       32,750
Operating expenses                 --             --       29,161       29,161
Loss from operations                                                     3,589

     Identifiable assets available to support the Company's business-to-business
segment approximate $4,480,000,  $4,587,000 and $4,371,000 at December 31, 2000,
1999, and 1998, respectively. The remaining assets which are combined to support
the  Company's  two  reportable  business  segments,   approximate  $29,392,000,
$45,662,000,  and $27,554,000 at December 31, 2000, 1999 and 1998, respectively.
Depreciation  and  amortization  included in corporate were  approximately  $4.1
million, $2.4 million and $1.1 million in 2000, 1999 and 1998, respectively.

                                      F-12
<PAGE>
(8)  COMMITMENTS AND CONTINGENCIES:

     LITIGATION

     The  Company  is  involved  in legal  actions  in the  ordinary  course  of
business.  Although the outcomes of any such legal actions  cannot be predicted,
in the opinion of management,  there is no legal proceeding  pending or asserted
against  or  involving  the  Company,  the  outcome of which is likely to have a
material adverse effect upon the consolidated  financial  position or results of
operations  of the Company,  although no assurance  can be given with respect to
the ultimate outcome of any such claims or with respect to the occurrence of any
future claims.

     A securities  class action  complaint was filed against  SkyMall and Robert
Worsley,   the  Company's   Chief  Executive   Officer,   Chairman  and  largest
shareholder,  in  connection  with  certain  disclosures  made by the Company in
December  1998  relating to its Internet  sales.  The complaint was filed in the
United States District Court, District of Arizona, Case No. CIV-99-0166-PHX-ROS.
The complaint alleges unlawful  manipulation of the price of the Company's stock
and insider  selling  during the period from December 28, 1998 through  December
30, 1998.  The complaint  seeks  unspecified  damages for alleged  violations of
federal  securities  laws. The Company and Mr. Worsley filed a motion to dismiss
the complaint on the basis that the complaint  fails to state a claim upon which
relief can be granted.  In  September  2000,  the motion was granted in part and
denied in part. The Company continues to believe that the allegations against it
and Mr. Worsley are substantially without merit and intends to vigorously defend
the lawsuit. The case will now proceed to the class certification stage. Neither
party to this litigation has yet undertaken any significant  discovery,  thus it
is unpractical to ascertain what amount,  if any, the Company could  potentially
be liable for in the event this action was determined adversely.

     RGC International  Investors,  LDC, the parent company of Rose Glen Capital
Management,  filed a  complaint  in the  Court of  Chancery  New  Castle  County
Delaware,  Case Number 17600 NC, RGC  International  Investors,  LDC v. SkyMall,
Inc. RGC alleges that the Company was required to close on a transaction  for an
equity  investment in the Company.  The Company filed a motion to dismiss on the
basis  that the  complaint  fails  to state a claim  upon  which  relief  can be
granted,  which was denied by the Court in late 2000. The Company  believes that
the  allegations  against  it are  substantially  without  merit and  intends to
vigorously  defend  this  lawsuit.  Neither  party  to this  litigation  has yet
undertaken any significant discovery, thus it is not practical to ascertain what
amount,  if any, the Company could  potentially  be liable for in the event this
action was  determined  adversely.  Trial in this matter is  scheduled  for late
2001.

     LEASES

     The Company has entered into several  operating  leases for  equipment  and
facilities.  As of December 31, 2000,  the future  minimum  payments under these
leases are as follows (amounts in thousands):

     2001                                                       $1,395
     2002                                                          805
     2003                                                           96
     2004                                                           96
     2005                                                           47
     Thereafter                                                    426
                                                                ------
                                                                $2,865
                                                                ======

                                      F-13
<PAGE>
     Other  equipment  and property are leased on a monthly  basis.  Total lease
expense for the years ended December 31, 2000,  1999 and 1998 was  approximately
$1,511,000, $1,299,000 and $141,000, respectively.

     LEASE REVENUE

     The Company leases certain of its facilities to others under non-cancelable
leases and month-to-month  agreements.  Lease revenue of approximately $116,000,
$185,000,  and $74,000 for the years ended  December  31,  2000,  1999 and 1998,
respectively,  is  included  in interest  and other  income in the  accompanying
consolidated financial statements. As of December 31, 2000, future minimum lease
payments to be received under  non-cancelable  leases are as follows (amounts in
thousands):


     2001                                                     $ 42
     2002                                                       14
                                                              ----
                                                              $ 56
                                                              ====

     401(k) PLAN

     Under the  Company's  401(k)  plan (the  Plan)  adopted  in 1992,  eligible
employees  may  direct  a  portion  of  their  compensation,  up  to  a  legally
established  maximum,  be  withheld  by the  Company  and  contributed  to their
account.  All  contributions are placed in a trust fund which is invested by the
Plan's trustee.  The Plan permits participants to direct the investment of their
account  balances  among mutual or investment  funds and the Company  provides a
matching contribution of 50% of the first 6% of a participant's contributions.

     The total contributions made by the Company during the years ended December
31,  2000,  1999 and 1998 were  approximately,  $355,000,  $116,000 and $77,000,
respectively.

     EMPLOYMENT CONTRACTS

     The Company entered into employment contracts with certain officers,  which
expire in January 2002. The contracts may be terminated  earlier under terms and
circumstances described in the agreements. Under certain circumstances,  certain
officers may receive the remaining  amounts under the contract upon termination,
which total $600,000 and $159,000 for 2001 and 2002.

(9)  STOCK-BASED COMPENSATION:

     STOCK OPTION PLANS

     The Company has an incentive  and  nonqualified  stock  option plan,  which
allows the Company to grant to officers  and key  employees  (the  "Officer  and
Employee  Plan") options  covering up to 1,700,000  shares of common stock at an
exercise price of not less than fair market value at the date of grant.

                                      F-14
<PAGE>
     Under the Officer and Employee  Plan,  the option  exercise price equals or
exceeds  the  stock's  fair  market  value on date of  grant.  The Plan  options
generally  fully vest on varying  schedules  upon  completion  of three years of
employment;  options  expire ten years  after the date of grant or three  months
after grantee's employment termination.

     In October 1996, the Company  adopted a Non-Employee  Director Stock Option
Plan (the  "Director  Plan"),  which  allows the  Company to grant  non-employee
directors  options  covering up to 375,000 shares of common stock at an exercise
price of not less than fair market value on the date of grant.

     Under the  Director  Plan,  each  non-employee  Board  member is granted an
option to purchase  25,000  common shares upon  appointment  to the Board and an
option to purchase 7,500 shares annually, subject to certain conditions. Options
are fully vested upon grant and expire ten years after the date of issuance.

     A summary of the status of the Company's  Plans at December 31, 2000,  1999
and 1998, and changes during the years ended December 31, 2000,  1999, and 1998,
are presented in the table below (share amounts in thousands):

<TABLE>
<CAPTION>
                                                                         December 31,
                                          --------------------------------------------------------------------
                                                 2000                    1999                    1998
                                          -------------------     -------------------     --------------------
                                                      Average                 Average                 Average
                                                      Exercise                Exercise                Exercise
                                          Options      Price      Options      Price      Options      Price
                                          -------      -----      -------      -----      -------      -----
<S>                                         <C>        <C>            <C>      <C>            <C>      <C>
Outstanding at beginning of period          1,008      $ 9.88         544      $ 5.82         604      $ 6.39
Granted                                       789        4.18         636       13.42         312        4.66
Exercised                                     (15)       3.26         (13)       3.62        (106)       6.89
Forfeited                                    (378)      11.92        (159)      10.63        (266)       6.67
                                           ------      ------      ------      ------      ------      ------
Expired                                        --          --          --          --          --          --
                                           ------      ------      ------      ------      ------      ------

Outstanding at end of period                1,404      $ 6.20       1,008      $ 9.88         544      $ 5.82
                                           ======      ======      ======      ======      ======      ======
</TABLE>

     Stock options  outstanding  and  exercisable  at December 31, 2000,  are as
follows (option amounts in thousands):

                                      F-15
<PAGE>
                               Outstanding                     Exercisable
                     --------------------------------     --------------------
    Exercise                                 Average                   Average
     Price                        Average    Exercise                  Exercise
     Range           Options      Life(a)     Price        Options      Price
     -----           -------      -------     -----        -------      -----
$ 2.13  $ 5.06          690        9.29      $  3.16         294       $ 3.38
  5.56   13.19          636        9.09         8.38         422         4.43
 14.75   16.75           78        9.00        16.07          51        16.07
--------------        -----        ----      -------        ----       ------

$ 2.13  $16.75        1,404        9.19      $  5.97         767       $ 6.45
==============        =====        ====      =======        ====       ======

     (a)  Average contractual life remaining.

     The Company accounts for its stock-based  compensation  plans under APB No.
25, under which no compensation expense has been recognized, as all options have
been granted  with an exercise  price equal to or in excess of the fair value of
the Company's common stock on the date of grant. The Company  estimated the fair
value of each  option  grant as of the date of  grant  using  the  Black-Scholes
option pricing model with the following weighted average assumptions:  risk-free
interest rate of 5.5%,  expected life of five years,  dividend rate of zero, and
expected  volatility of  approximately  63%, 107%,  and 77% for 2000,  1999, and
1998, respectively. Using these assumptions, the fair value of the stock options
granted in 2000, 1999, and 1998 is  approximately  $1,900,000,  $5,200,000,  and
$930,000,  respectively,  which would be amortized as compensation  expense over
the vesting period of the options.  Options generally vest over three years. Had
compensation  costs been determined  consistent with SFAS No. 123, utilizing the
assumptions  detailed  above,  the  Company's  net income  (loss) and net income
(loss) per common  share  would have been  adjusted to the  following  pro forma
amounts (amounts in thousands except per common share amounts):

<TABLE>
<CAPTION>
                                                                      Year Ended
                                                                      December 31,
                                                        ---------------------------------------
                                                           2000           1999          1998
                                                        ----------     ----------    ----------
<S>                                                     <C>            <C>           <C>
Net income (loss) available to common shareholders:
  As reported                                            $(16,042)     $(24,140)        $2,286
  Pro forma                                               (16,933)      (25,182)         2,167

Basic net income (loss) per common share:
  As reported                                            $  (1.11)     $  (2.60)        $  .27
  Pro forma                                                 (1.17)        (2.72)           .25

Diluted net income (loss) per common share:
  As reported                                            $  (1.10)     $  (2.60)        $  .27
  Pro forma                                                 (1.17)        (2.72)           .25
</TABLE>

     STOCK WARRANTS

     A summary  of the  status  of the  Company's  Stock  Purchase  Warrants  at
December 31, 2000,  1999 and 1998,  and changes  during the years ended December
31, 2000,  1999,  and 1998,  are presented in the table below (share  amounts in
thousands):

                                      F-16
<PAGE>
<TABLE>
<CAPTION>
                                                                        December 31,
                                          ------------------------------------------------------------------
                                                 2000                   1999                    1998
                                          -------------------    ------------------     --------------------
                                                     Average                Average                Average
                                                     Exercise               Exercise               Exercise
                                          Shares      Price      Shares      Price      Shares      Price
                                          ------      ------     ------      ------     ------      ------
<S>                                        <C>        <C>           <C>      <C>           <C>      <C>
Outstanding at beginning of period         2,549      $ 8.04        358      $ 8.18        539      $ 8.59
Granted                                      196       14.47      2,499        8.04         --          --
Exercised                                   (339)       8.00       (294)       8.21       (181)       9.42
Expired                                       --          --        (14)       8.00         --          --
                                          ------      ------     ------      ------     ------      ------

Outstanding at end of period               2,406      $ 8.57      2,549      $ 8.04        358      $ 8.18
                                          ======      ======     ======      ======     ======      ======
</TABLE>

     The Company has 2,405,752  outstanding warrants to purchase common stock at
prices ranging from $7.00 to $15.40 per share with an average  exercise price of
$8.57 per share.  These warrants expire five years from the date of issuance and
have an average contractual life remaining of 4.29 years.

(10)  INCOME TAXES:

     The provision (benefit) for income taxes includes the following:

                                                            Year Ended
                                                           December 31,
                                                -------------------------------
                                                  2000        1999        1998
                                                --------    -------     -------
Current:
  Federal                                       $     --    $  (917)    $ 1,374
  State                                               --       (496)        364
                                                --------    -------     -------

     Total current                                    --     (1,413)      1,738
                                                --------    -------     -------
Deferred:
  Federal                                             --        425         (26)
  State                                               --         75          (5)
                                                --------    -------     -------

     Total deferred                                   --        500         (31)
                                                --------    -------     -------

Provision (benefit) for income taxes            $     --    $  (913)    $ 1,707
                                                ========    =======     =======

     The (benefit)  provision  for income taxes is different  from the statutory
federal income tax rate primarily due to the following:

                                                          Year Ended
                                                         December 31,
                                                  --------------------------
                                                  2000       1999       1998
                                                  ----       ----       ----
Federal statutory rate                            (34)%      (34)%       34%
State taxes, net of federal benefit                (6)        (5)         6
Change in valuation allowance                      42         37          0
Other                                              (2)        (2)         3
                                                  ---        ---        ---

Income tax  provision (benefit)                     0%        (4)%       43%
                                                  ===        ===        ===

                                      F-17
<PAGE>
     The primary components of the Company's  deferred tax assets  (liabilities)
and the related valuation allowance are as follows (amounts in thousands):

                                                               December 31,
                                                          ---------------------
                                                            2000         1999
                                                          --------     --------
Deferred tax assets:
  Nondeductible charges including bad debts, sales
    returns and other                                     $  1,152     $  1,163
  Accrued liabilities                                          392          319
  Other                                                        136          138
  Net operating loss carry forward                          14,773        8,261
  Valuation allowance                                      (16,076)      (9,317)
                                                          --------     --------

Deferred tax assets                                            377          564
                                                          --------     --------
Deferred tax liabilities:
  Tax depreciation in excess of book depreciation             (377)        (564)
                                                          --------     --------

Net deferred tax assets                                   $     --     $     --
                                                          ========     ========

Based on the criteria of more likely than not, the Company  recorded a valuation
allowance for deferred tax assets as of December 31, 2000 of $16.1  million.  As
of December 31, 2000, the Company has approximately $36.9 million of federal net
operating loss carryforwards  which may be used to offset future taxable income.
These loss  carryforwards  begin to expire in 2019 for federal  purposes  and in
various years beginning in 2004 for state purposes.

(11) BUSINESS COMBINATIONS:

In October 1998,  the Company  acquired all the  outstanding  shares of Durham &
Company, an employee logo and incentive merchandise company, for $2.9 million in
cash and a note payable of $200,000 totaling $3.1 million.  The note payable was
due October  1999,  and was settled  through  the  issuance of 28,838  shares of
common stock of the Company and warrants to purchase an additional 14,420 shares
of common stock.

This  acquisition  has been  accounted  for as a  purchase,  and the  results of
operations  of the  acquired  business  have been  included in the  consolidated
financial  statements  since the date of acquisition.  The excess purchase price
over the fair value of net assets  acquired was $3,074,206 and has been recorded
as goodwill and is being amortized on a straight-line  basis over 15 years.  The
purchase price was allocated as follows:

                                      F-18
<PAGE>
Accounts receivable                                                     476,110
Inventory                                                               651,790
Property, equipment and other assets                                    170,514
Goodwill                                                              3,074,206
Liabilities assumed                                                  (1,272,620)
                                                                    -----------

                                                                    $ 3,100,000
                                                                    ===========

     The following unaudited  consolidated pro forma information is presented as
if the  Durham &  Company  acquisition  had  occurred  on  January  1,  1998 (in
thousands).

                                                                     Year Ended
                                                                    December 31,
                                                                    ------------
                                                                        1998
                                                                     ----------
Total revenues                                                       $   74,974
Net income                                                                2,124
Basic income per common share                                               .25
Diluted income per common share                                             .25

     The unaudited  consolidated pro forma information  includes  adjustments to
give effect to amortization of goodwill.  The unaudited  consolidated  pro forma
information  is not  necessarily  indicative of the combined  results that would
have  occurred  had the  acquisition  been made at the  beginning  of the period
presented, nor is it indicative of the results that may occur in the future.

     In September  1999,  the Company  completed a merger with Disc  Publishing,
Inc.  SkyMall  issued  280,555 shares of its common stock in exchange for all of
the outstanding common stock of Disc Publishing based on a merger exchange ratio
of 2.8 shares of the  Company's  common stock for each share of Disc  Publishing
common stock.  The merger qualified as a tax free exchange and was accounted for
as a pooling of interests. Accordingly, the Company's 1999 and 1998 consolidated
financial  statements  have been  restated  to include  the  combined  financial
results of SkyMall  and Disc  Publishing,  Inc.,  which was formed in 1998.  The
following  table  presents a  reconciliation  of net  merchandise  sales and net
income (loss) previously reported by the individual companies to those presented
in the accompanying consolidated financial statements (amounts in thousands).

                                                       Year Ended December 31,
                                                      -------------------------
                                                        1999             1998
                                                      --------         --------
REVENUES:
SkyMall, Inc.                                         $ 78,710         $ 72,042
Disc Publishing, Inc.                                      231               --
                                                      --------         --------
     Total revenues                                   $ 78,941         $ 72,042
                                                      ========         ========

NET INCOME (LOSS):
SkyMall, Inc.                                         $(23,437)        $  2,551
Disc Publishing, Inc.                                     (703)            (265)
                                                      --------         --------
     Total net income (loss)                          $(24,140)        $  2,286
                                                      ========         ========

                                      F-19
<PAGE>
(12) CAPITAL STOCK

SHAREHOLDER RIGHTS PLAN

     In September  1999,  the Company's  Board of Directors  adopted a Preferred
Stock Purchase Rights Plan and  distributed to shareholders  one preferred stock
purchase right (a "Right") for each  outstanding  share of common stock.  In the
event a person or group acquires or announces a tender to acquire 15% or more of
the Company's common stock, the Right may be exercised  (except by the acquiring
person or group whose Rights are  canceled).  Each Right  entitles the holder to
purchase  from the  Company  one  one-hundredth  of a share of a new  series  of
preferred  stock at an initial  exercise  price of $65 per Right.  Under certain
circumstances,  each Right entitles the holder  (except the acquiring  person or
group) to purchase common stock of the Company having a market value  equivalent
to two times the exercise price of the Rights,  in lieu of preferred  stock.  In
the event of certain  business  combinations,  each Right  permits the holder to
purchase  common stock of the acquiring  company at a 50%  discount.  The Rights
expire on October  15,  2009,  and may be  redeemed by the Company for $.001 per
Right  prior to a person or group  acquiring  or  announcing  a tender  offer to
acquire 15% or more of the Company's common stock.

PREFERRED STOCK

     The Company is  authorized  to issue up to ten million  shares of preferred
stock,  $.001 par value. The power to issue any shares of preferred stock of any
class or any series of any class and designations,  voting powers,  preferences,
and  relative   participating,   optional  or  other  rights,  if  any,  or  the
qualifications, limitations, or restrictions thereof, shall be determined by the
Board of Directors.

     In 1999,  the Company  issued 91,320 shares of Series A Junior  Convertible
Preferred  Stock (the "Series A Preferred") and 80,000 shares of Series B Junior
Convertible  Preferred Stock (the "Series B Preferred") in two separate  private
offerings.  The Series A and Series B  Preferred  had no voting  rights and were
subject to certain redemption rights,  conversion terms and liquidation  values.
The shares of Series A and Series B  Preferred  were  automatically  convertible
into shares of common  stock upon  approval by the  Company's  shareholders.  On
March 10, 2000, the Company held a special meeting of shareholders  and received
approval  from the  shareholders  to convert the Series A and Series B Preferred
into  1,304,571  and  1,142,857  shares  of  common  stock,  respectively.   The
accompanying consolidated financial statements have been adjusted to reflect the
conversion  of the  Series A and  Series B  Preferred  into  common  stock as of
December 31, 1999.  Calculation of the basic weighted average shares outstanding
includes  the effect of the  conversion  of the Series A and Series B  Preferred
into common stock from the original date of issuance.

COMMON STOCK

     In 1999,  the Company  issued  1,142,885  shares of common  stock at $7 per
share in a private offering.

     In 2000,  the Company  issued  2,483,000  shares of common  stock at $2 per
share in a private offering.

                                      F-20
<PAGE>
STOCK WARRANTS

     In 1999, the Company  issued  652,289 stock  purchase  warrants to Series A
Preferred  shareholders,  571,429 stock purchase  warrants to Series B Preferred
shareholders  and 571,444  stock  purchase  warrants to common  shareholders  in
connection  with  various  private   placement   offerings.   The  warrants  are
exercisable at $8.00 per share and expire in 2004.  The Company issued  200,742,
34,286 and 129,316  stock  purchase  warrants to placement  agents in connection
with the  Series A  Preferred,  Series B  Preferred  and  common  stock  private
placement offerings, respectively. In addition, the Company issued 339,240 stock
purchase warrants in various transactions in 1999. These stock purchase warrants
are  exercisable  at prices  ranging from $7.00 to $9.12 per share and expire in
2004.

(13) INCOME (LOSS) PER COMMON SHARE:

     The following  table sets forth the computation of basic and diluted income
(loss) per common share (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                          Year Ended
                                                                         December 31,
                                                         --------------------------------------
                                                           2000             1999          1998
                                                         ---------       ---------       ------
<S>                                                      <C>             <C>             <C>
Basic income (loss) per common share:
  Net Income (loss)                                      $ (16,042)      $ (24,140)      $2,286
                                                         =========       =========       ======

  Weighted average shares outstanding                       14,480           9,271        8,583
                                                         =========       =========       ======

  Basic income (loss) per common share                   $   (1.11)      $   (2.60)      $  .27
                                                         =========       =========       ======

                                                                         Year Ended
                                                                        December 31,
                                                         --------------------------------------
                                                           2000             1999          1998
                                                         ---------       ---------       ------
Diluted income (loss) per common share:
  Net Income (loss)                                      $ (16,042)      $ (24,140)      $2,286
                                                         =========       =========       ======

  Weighted average shares outstanding                       14,480           9,271        8,583

  Dilutive effect of options and warrants assumed
    converted                                                   --              --           19
                                                         ---------       ---------       ------
  Total weighted average shares outstanding plus
    assumed conversions                                     14,480           9,271        8,602
                                                         =========       =========       ======

  Diluted income (loss) per common share                 $   (1.11)      $   (2.60)      $  .27
                                                         =========       =========       ======
</TABLE>

     As a result of  anti-dilutive  effects,  approximately  280,000 and 366,000
employee  options and other  common stock  equivalents  were not included in the
computation of diluted earnings per share for 2000 and 1999, respectively.

                                      F-21
<PAGE>
(14) MAJOR MERCHANTS AND AIRLINES:

Revenue generated through net merchandise sales and fixed placement fees for the
Company's largest participating merchants for the years ended December 31, 2000,
1999 and 1998, is as follows:

                                                        Years Ended December 31,
                                                        ------------------------
                                                         2000     1999     1998
                                                         ----     ----     ----
Number of merchants                                        1        2        2
Percentage of total merchandise sales and
 placement fees                                           10%      21%      21%

     There were no other merchants that exceeded 10% of total revenues.

     Net  merchandise   sales   originating  from  the  Company's  four  largest
participating  airlines  approximated  57%,  51% and 72%  for  the  years  ended
December 31, 2000, 1999 and 1998, respectively.

(15) TRANSACTIONS WITH RELATED PARTIES:

     The Company has an agreement  with a company,  which is owned by one of the
Company's directors,  to provide order conveyance services.  Expenses related to
this  agreement  totaled  $868,000,  $485,000  and  $343,000 for the years ended
December 31, 2000, 1999 and 1998, respectively.

     Disc Publishing, Inc. entered into a note payable agreement with one of its
officers  prior to the merger with the Company.  The note payable bears interest
at 6% and matures in October  2001.  As of December 31, 2000,  1999 and 1998 the
balance outstanding was $180,000, $180,000 and $198,000, respectively.

     The Company had an agreement  with a company,  which is owned by one of the
Company's  officers,  to provide  consulting and recruiting  services.  Expenses
related to this agreement totaled $0, $97,000 and $0,  respectively during 2000,
1999 and 1998.

     The Company had an agreement  with a company,  which is owned by one of the
Company's  officers,  to  provide  Internet  content.  Expenses  related to this
agreement totaled $24,300,  $45,000 and $0,  respectively  during 2000, 1999 and
1998.

     The  Company  had an  agreement  with a  company,  which is owned by former
shareholders  of  Disc  Publishing,  Inc.,  to  provide  professional  services.
Expenses related to this agreement totaled $72,000, $71,000 and $0, respectively
during 2000, 1999 and 1998.

(16) SUBSEQUENT EVENTS (UNAUDITED)

     On March 28, 2001,  the Company  executed an agreement to exchange  certain
assets of Durham & Company (a wholly owned subsidiary) for an equity interest in
Awards.com  and a  $1.0  million  note  receivable  from  Awards.com.  The  note
receivable  bears interest at 10% which is due monthly.  The principal amount of
the note  receivable  is due March 28,  2004.  Awards.com  is a  privately  held
company  in  the  business  of  providing   corporate  gifts,   promotional  and
motivational products to individuals, organization and corporations.

                                      F-22
<PAGE>
SKYMALL, INC.

                                   SCHEDULE II
                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
           FOR THE FISCAL YEARD ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                        Balance at                      Charged                           Balance At
                                        Beginning       Expense         to Other                             End
                                        of Period       Recorded        Accounts        Other             of Period
                                       -----------    ------------     ---------     ------------        -----------
<S>                                   <C>            <C>               <C>           <C>                 <C>
Allowance for doubtful accounts:
  Year ended December 31, 2000         $  744,364     $   716,001       $ 82,131     $   (28,138)(1)      $1,514,359
  Year ended December 31, 1999          1,204,876         858,641             --      (1,319,153)(1)         744,364
  Year ended December 31, 1998            422,330       1,119,215             --        (336,669)(1)       1,204,876

General Reserves (3):
  Year ended December 31, 2000         $1,408,095     $  (183,321)(5)   $(82,131)    $  (210,222)(2)      $  932,421
  Year ended December 31, 1999            256,805       2,926,446             --      (1,775,156)(2)       1,408,095
  Year ended December 31, 1998            200,000          56,805             --              --             256,805

Restructuring Reserves (4):
  Year ended December 31, 2000                 --     $(2,595,000)            --     $(2,159,977)(4)      $  435,023
</TABLE>

(1)  Write-off of bad debts
(2)  Payments, settlements, sales returns activities and reversal of reserves.
(3)  General reserves  primarily include amounts reserved for litigation,  sales
     tax assessments and sales returns.
(4)  Details of  restructuring  charge  contained in Footnote 3 of the Company's
     Consolidated Financial Statements included in this filing.
(5)  The Company  reserves for potential  vendor  disputes and sales tax audits.
     Based on activity of the  reserves the Company  determined  the reserve was
     overestimated.

                                       S-1
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURES

     Not applicable.

                                       30
<PAGE>
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information  with respect to the directors  and  executive  officers of the
Company is  incorporated  herein by reference to the Definitive  Proxy Statement
relating to the Company's  Annual Meeting to be held on June 15, 2001 (the "2001
Annual Meeting").

ITEM 11. EXECUTIVE COMPENSATION

     Information with respect to executive  compensation is incorporated  herein
by  reference  to the  Definitive  Proxy  Statement  relating to the 2001 Annual
Meeting.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Information  with respect to the security  ownership of certain  beneficial
owners and  management  is  incorporated  herein by reference to the  Definitive
Proxy Statement relating to 2001 Annual Meeting.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information with respect to certain  relationships and related transactions
is incorporated  herein by reference to the Definitive Proxy Statement  relating
to the 2001 Annual Meeting.

                                       31
<PAGE>
                                     PART IV

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

                                                                           Page
                                                                           ----
     (a)(1) Consolidated Financial Statements.

            Report of Independent Public Accountants                         F-1
            Consolidated Balance Sheets as of December 31, 2000 and 1999     F-2
            Consolidated Statements of Operations for the Years Ended
              December 31, 2000, 1999 and 1998                               F-3
            Consolidated Statements of Shareholders' Equity for the Years
              Ended December 31, 2000, 1999 and 1998                         F-4
            Consolidated Statements of Cash Flows for the Years Ended
              December 31, 2000, 1999 and 1998                               F-5
            Notes to Consolidated Financial Statements                       F-6

     (a)(2) and (d) Consolidated Financial Statement Schedules.

            Report of Independent Public Accountants                         S-1
            Schedule II - Valuation and Qualifying Accounts and Reserves
              For the Years Ended December 31, 2000, 1999 and 1998           S-2

     (a)(3) and (c) Exhibits.

Exhibit                                                                Method of
Number                        Description                                Filing
------                        -----------                                ------
3.1(a)     Articles of Incorporation of Registrant                         (1)
3.1(b)     Certificate of Amendment to Articles of Incorporation           (1)
3.2        Certificate of Designations, Rights, Preferences and
           Limitations of the Series A Junior Convertible Preferred Stock  (10)
3.3        Certificate of Designations, Rights, Preferences and
           Limitations of the Series B Junior Convertible Preferred Stock  (12)
3.4        Certificate of Designation of Rights, Preferences and Terms of
           the Series R Preferred Stock (See Exhibit 10.11(a), below)      (5)
3.5        Bylaws of Registrant                                            (1)
4.1        Form of Common Stock Certificate                                (1)
4.2        Form of Series A Junior Convertible Preferred Stock
           Certificate                                                     (10)
4.3        Form of Series B Junior Convertible Preferred Stock
           Certificate                                                     (12)

                                   32
<PAGE>
Exhibit                                                                Method of
Number                        Description                                Filing
------                        -----------                                ------
4.4        Form of Right Certificate                                       (5)
10.1       Employment Agreement between the Company and Robert M. Worsley  (1)
10.2       Employment Agreement between the Company and Thomas C. Edwards  (2)
10.4(a)    Form of Airline Customer Services Agreement                     (1)
10.4(b)    Schedule of Omitted Material Terms from Material Airline
           Customer Services Agreement                                     (1)
10.5       Form of Tax Indemnification Agreement                           (1)
10.6       SkyMall, Inc. 1994 Stock Option Plan, as amended                (6)
10.7       Non-Employee Director Stock Option Plan, as amended             (7)
10.8(a)    Lease Agreement between Pasqualetti Properties, Inc. and
           Smitty's Super Valu, Inc. dated June 24, 1960                   (1)
10.8(b)    Agreement between Rose Pasqualetti Perkins, Amos Pasqualetti,
           Anthony Pasqualetti, Ben Pasqualetti and Smitty's Super Valu,
           Inc. dated March 2, 1961                                        (1)
10.8(c)    Addendum to Lease between Amos Pasqualetti, Ben S.
           Pasqualetti, Rose Pasqualetti Jenkins, Estate of Anthony J.
           Pasqualetti and Smitty's Super Valu, Inc. dated May 11, 1966    (1)
10.8(d)    Sublease between Schwan Brothers Properties and Smitty's Super
           Valu, Inc. dated August 1, 1984                                 (1)
10.8(e)    Lease Amending Agreement between Smitty's Super Valu, Inc.,
           Pasquo Investments, and Amos Pasqualetti and Victoria
           McFarland dated October 1, 1984                                 (1)
10.8(f)    Addendum to Sublease between Smitty's Super Valu, Inc. and
           Schwan Brothers Properties dated January 1, 1985                (1)
10.8(g)    Assignment of Sublease from Pima Partners to SkyMall, Inc.
           dated July 12, 1990                                             (1)
10.9       Warrant issued to Ryan, Beck & Co., Inc. in connection with
           financial advisory services dated June 30, 1999                 (9)
10.10(a)   Credit and Security Agreement between SkyMall, Inc.,
           skymall.com, inc., Durham & Company and Imperial Bank dated as
           of June 30, 1999                                                (3)
10.10(b)   Promissory Note between SkyMall, Inc., skymall.com, inc.,
           Durham & Company and Imperial Bank dated as of June 30, 1999    (3)

                                   33
<PAGE>
Exhibit                                                                Method of
Number                        Description                                Filing
------                        -----------                                ------
10.11(a)   Rights Agreement between the Company and Continental Stock
           Transfer & Trust Company, as Rights Agent, dated as of
           September 15, 1999 (including as Exhibit A the form of
           Certificate of Designation of Rights, Preferences and Terms of
           the Series R Preferred Stock, as Exhibit B the form of Right
           Certificate, and as Exhibit C the Summary of Terms of Rights
           Agreement)                                                      (4)
10.11(b)   Form of Letter to SkyMall, Inc. shareholders, dated October
           15, 1999                                                        (4)
10.12(a)   Stock Acquisition Agreement, dated as of August 26, 1999, by
           and among SkyMall, Inc., Disc Publishing, Inc., Lorne
           Grierson, Warren Osborn, Flamingo Partnership, Kyle Love, Bart
           Howell and David E. Hardy                                       (4)
10.12(b)   Amendment to Stock Acquisition Agreement, dated as of
           September 20, 1999, by and among SkyMall, Inc., Disc
           Publishing, Inc., Lorne Grierson, Warren Osborn, Flamingo
           Partnership, Kyle Love, Bart Howell and David E. Hardy          (4)
10.13      Form of Warrant issued to the Mark P. Durham and Mary R.
           Durham Trusts                                                   (9)
10.14(a)   Stock and Warrant Purchase Agreement between SkyMall, Inc. and
           the investors in the November 1999 Private Placement            (4)
10.14(b)   Form of Warrant issued to investors in the November 1999
           Private Placement                                               (8)
10.14(c)   Form of Warrant issued to Ryan, Beck & Co., Inc., Michael J.
           Kollender and Randy Rock as placement agents in the November
           1999 Private Placement                                          (8)
10.14(d)   Form of Warrant issued to Shoreline Pacific as a placement
           agent in the November 1999 Private Placement                    (8)
10.15      Form of Warrant issued to Genesis Select for advisory services  (10)
10.16(a)   Stock and Warrant Purchase Agreement between the Company and
           the investors in the December 20, 1999 Private Placement        (10)
10.16(b)   Form of Warrant issued to investors in the December 20, 1999
           Private Placement                                               (10)
10.16(c)   Form of Warrant issued to Ryan, Beck & Co., Inc., Michael J.
           Kollender and Randy Rock as placement agents in the December
           20, 1999 Private Placement                                      (10)
10.16(d)   Form of Warrant issued to Schneider Securities and Budd
           Zuckerman as placement agents in the December 20, 1999 Private
           Placement                                                       (10)
10.16(e)   Form of Warrant issued to Shoreline Pacific, et al., as a
           placement agent in the December 20, 1999 Private Placement      (10)
10.17(a)   Stock and Warrant Purchase Agreement between the Company and
           the investors in the December 30, 1999 Private Placement        (12)
10.17(b)   Form of Warrant issued to investors in the December 30, 1999
           Private Placement                                               (12)
10.17(c)   Form of Warrant issued to Ryan, Beck & Co., Inc., Michael J.
           Kollender and Randy Rock as placement agents in the December
           30, 1999 Private Placement                                      (12)

                                   34
<PAGE>
Exhibit                                                                Method of
Number                        Description                                Filing
------                        -----------                                ------
10.17(d)   Form of Advisory Fee Warrant issued to Wand Partners Inc.
           pursuant to the December 30, 1999 Private Placement             (12)
10.18      Employment Agreement between the Company and Cary L. Deacon     *
21         Subsidiaries of Registrant                                      *
23         Consent of Independent Public Accountants                       *
24         Powers of Attorney                                 See Signature Page

---------
*    Filed herewith.
(1)  Incorporated by reference to Form S-1 Registration Statement (File No.
     333-14539).
(2)  Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the Quarter Ended March 31, 1999.
(3)  Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the Quarter Ended June 30, 1999.
(4)  Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the Quarter Ended September 30, 1999.
(5)  Incorporated by reference to the Company's Current Report on Form 8-K filed
     October 5, 1999.
(6)  Incorporated by reference to Form S-8 Registration Statement (File No.
     333-92807).
(7)  Incorporated by reference to Form S-8 Registration Statement (File No.
     333-71543).
(8)  Incorporated by reference to Form S-3 Registration Statement (File No.
     333-91279).
(9)  Incorporated by reference to Form S-3 Registration Statement (File No.
     333-91433).
(10) Incorporated by reference to Form S-3 Registration Statement (File No.
     333-94099).
(11) Incorporated by reference to Amendment No. 1 to Form S-3 Registration
     Statement (File No. 333-94099).
(12) Incorporated by reference to Form S-3 Registration Statement (File No.
     333-94731).

     (b) Reports on Form 8-K

                                       35
<PAGE>
                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized, this 30th
day of March, 2000.

                                        SKYMALL, INC.

                                        By /s/ Robert M. Worsley
                                           -------------------------------------
                                           Robert M. Worsley
                                           Chairman and Chief Executive Officer

                                POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS,  that each person whose  signature  appears
below constitutes and appoints ROBERT M. WORSLEY and CHRISTINE A. AGUILERA,  and
each of them, his true and lawful  attorneys-in-fact and agents, with full power
of substitution and  resubstitution for him and in his name, place and stead, in
any and all capacities,  to sign any and all amendments to this Form 10-K Annual
Report, and to file the same, with all exhibits thereto,  and other documents in
connection therewith with the Securities and Exchange Commission,  granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing  requisite  and necessary to be done
in and about the premises,  as fully and to all intents and purposes as he might
or  could  do  in  person  hereby   ratifying  and   confirming  all  that  said
attorneys-in-fact and agents, or his substitute or substitutes,  may lawfully do
or cause to be done by virtue hereof.

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report on Form 10-K 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/ Robert M. Worsley           Chairman of the Board,            March 30, 2001
--------------------------      and Chief Executive Officer
Robert M. Worsley               (Principal Executive Officer)


/s/ Cary L. Deacon              President, Chief Operating        March 30, 2001
--------------------------      Officer and Director
Cary L. Deacon


/s/ Christine A. Aguilera       Executive Vice President and      March 30, 2001
--------------------------      Acting CFO (Principal Financial
Christine A. Aguilera           and Accounting Officer)


/s/ Lyle R. Knight              Director                          March 30, 2001
--------------------------
Lyle R. Knight

                                       36
<PAGE>
      SIGNATURE                         TITLE                          DATE
      ---------                         -----                          ----

/s/ Thomas J. Litle             Director                          March 30, 2001
--------------------------
Thomas J. Litle


/s/ Randy Petersen              Director                          March 30, 2001
--------------------------
Randy Petersen


/s/ David J. Callard            Director                          March 30, 2001
--------------------------
David J. Callard

                                       37
<PAGE>
                                 EXHIBIT INDEX

Exhibit                                                                Method of
Number                        Description                                Filing
------                        -----------                                ------

3.1(a)     Articles of Incorporation of Registrant                         (1)
3.1(b)     Certificate of Amendment to Articles of Incorporation           (1)
3.2        Certificate of Designations, Rights, Preferences and
           Limitations of the Series A Junior Convertible Preferred Stock  (10)
3.3        Certificate of Designations, Rights, Preferences and
           Limitations of the Series B Junior Convertible Preferred Stock  (12)
3.4        Certificate of Designation of Rights, Preferences and Terms of
           the Series R Preferred Stock (See Exhibit 10.11(a), below)      (5)
3.5        Bylaws of Registrant                                            (1)
4.1        Form of Common Stock Certificate                                (1)
4.2        Form of Series A Junior Convertible Preferred Stock
           Certificate                                                     (10)
4.3        Form of Series B Junior Convertible Preferred Stock
           Certificate                                                     (12)
4.4        Form of Right Certificate                                       (5)
10.1       Employment Agreement between the Company and Robert M. Worsley  (1)
10.2       Employment Agreement between the Company and Thomas C. Edwards  (2)
10.4(a)    Form of Airline Customer Services Agreement                     (1)
10.4(b)    Schedule of Omitted Material Terms from Material Airline
           Customer Services Agreement                                     (1)
10.5       Form of Tax Indemnification Agreement                           (1)
10.6       SkyMall, Inc. 1994 Stock Option Plan, as amended                (6)
10.7       Non-Employee Director Stock Option Plan, as amended             (7)
10.8(a)    Lease Agreement between Pasqualetti Properties, Inc. and
           Smitty's Super Valu, Inc. dated June 24, 1960                   (1)
10.8(b)    Agreement between Rose Pasqualetti Perkins, Amos Pasqualetti,
           Anthony Pasqualetti, Ben Pasqualetti and Smitty's Super Valu,
           Inc. dated March 2, 1961                                        (1)
10.8(c)    Addendum to Lease between Amos Pasqualetti, Ben S.
           Pasqualetti, Rose Pasqualetti Jenkins, Estate of Anthony J.
           Pasqualetti and Smitty's Super Valu, Inc. dated May 11, 1966    (1)
10.8(d)    Sublease between Schwan Brothers Properties and Smitty's Super
           Valu, Inc. dated August 1, 1984                                 (1)
10.8(e)    Lease Amending Agreement between Smitty's Super Valu, Inc.,
           Pasquo Investments, and Amos Pasqualetti and Victoria
           McFarland dated October 1, 1984                                 (1)
<PAGE>
Exhibit                                                                Method of
Number                        Description                                Filing
------                        -----------                                ------

10.8(f)    Addendum to Sublease between Smitty's Super Valu, Inc. and
           Schwan Brothers Properties dated January 1, 1985                (1)
10.8(g)    Assignment of Sublease from Pima Partners to SkyMall, Inc.
           dated July 12, 1990                                             (1)
10.9       Warrant issued to Ryan, Beck & Co., Inc. in connection with
           financial advisory services dated June 30, 1999                 (9)
10.10(a)   Credit and Security Agreement between SkyMall, Inc.,
           skymall.com, inc., Durham & Company and Imperial Bank dated as
           of June 30, 1999                                                (3)
10.10(b)   Promissory Note between SkyMall, Inc., skymall.com, inc.,
           Durham & Company and Imperial Bank dated as of June 30, 1999    (3)
10.11(a)   Rights Agreement between the Company and Continental Stock
           Transfer & Trust Company, as Rights Agent, dated as of
           September 15, 1999 (including as Exhibit A the form of
           Certificate of Designation of Rights, Preferences and Terms of
           the Series R Preferred Stock, as Exhibit B the form of Right
           Certificate, and as Exhibit C the Summary of Terms of Rights
           Agreement)                                                      (4)
10.11(b)   Form of Letter to SkyMall, Inc. shareholders, dated October
           15, 1999                                                        (4)
10.12(a)   Stock Acquisition Agreement, dated as of August 26, 1999, by
           and among SkyMall, Inc., Disc Publishing, Inc., Lorne
           Grierson, Warren Osborn, Flamingo Partnership, Kyle Love, Bart
           Howell and David E. Hardy                                       (4)
10.12(b)   Amendment to Stock Acquisition Agreement, dated as of
           September 20, 1999, by and among SkyMall, Inc., Disc
           Publishing, Inc., Lorne Grierson, Warren Osborn, Flamingo
           Partnership, Kyle Love, Bart Howell and David E. Hardy          (4)
10.13      Form of Warrant issued to the Mark P. Durham and Mary R.
           Durham Trusts                                                   (9)
10.14(a)   Stock and Warrant Purchase Agreement between SkyMall, Inc. and
           the investors in the November 1999 Private Placement            (4)
10.14(b)   Form of Warrant issued to investors in the November 1999
           Private Placement                                               (8)
10.14(c)   Form of Warrant issued to Ryan, Beck & Co., Inc., Michael J.
           Kollender and Randy Rock as placement agents in the November
           1999 Private Placement                                          (8)
10.14(d)   Form of Warrant issued to Shoreline Pacific as a placement
           agent in the November 1999 Private Placement                    (8)
10.15      Form of Warrant issued to Genesis Select for advisory services  (10)
10.16(a)   Stock and Warrant Purchase Agreement between the Company and
           the investors in the December 20, 1999 Private Placement        (10)
10.16(b)   Form of Warrant issued to investors in the December 20, 1999
           Private Placement                                               (10)
10.16(c)   Form of Warrant issued to Ryan, Beck & Co., Inc., Michael J.
           Kollender and Randy Rock as placement agents in the December
           20, 1999 Private Placement                                      (10)
<PAGE>
Exhibit                                                                Method of
Number                        Description                                Filing
------                        -----------                                ------

10.16(d)   Form of Warrant issued to Schneider Securities and Budd
           Zuckerman as placement agents in the December 20, 1999 Private
           Placement                                                       (10)
10.16(e)   Form of Warrant issued to Shoreline Pacific, et al., as a
           placement agent in the December 20, 1999 Private Placement      (10)
10.17(a)   Stock and Warrant Purchase Agreement between the Company and
           the investors in the December 30, 1999 Private Placement        (12)
10.17(b)   Form of Warrant issued to investors in the December 30, 1999
           Private Placement                                               (12)
10.17(c)   Form of Warrant issued to Ryan, Beck & Co., Inc., Michael J.
           Kollender and Randy Rock as placement agents in the December 30,
           1999 Private Placement                                          (12)
10.17(d)   Form of Advisory Fee Warrant issued to Wand Partners Inc.
           pursuant to the December 30, 1999 Private Placement             (12)
10.18      Employment Agreement between the Company and Cary L. Deacon     *
21         Subsidiaries of Registrant                                      *
23         Consent of Independent Public Accountants                       *
24         Powers of Attorney                                 See Signature Page

---------
*    Filed herewith.
(1)  Incorporated by reference to Form S-1 Registration Statement (File No.
     333-14539).
(2)  Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the Quarter Ended March 31, 1999.
(3)  Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the Quarter Ended June 30, 1999.
(4)  Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the Quarter Ended September 30, 1999.
(5)  Incorporated by reference to the Company's Current Report on Form 8-K filed
     October 5, 1999.
(6)  Incorporated by reference to Form S-8 Registration Statement (File No.
     333-92807).
(7)  Incorporated by reference to Form S-8 Registration Statement (File No.
     333-71543).
(8)  Incorporated by reference to Form S-3 Registration Statement (File No.
     333-91279).
(9)  Incorporated by reference to Form S-3 Registration Statement (File No.
     333-91433).
(10) Incorporated by reference to Form S-3 Registration Statement (File No.
     333-94099).
(11) Incorporated by reference to Amendment No. 1 to Form S-3 Registration
     Statement (File No. 333-94099).
(12) Incorporated by reference to Form S-3 Registration Statement (File No.
     333-94731).