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, 1999

                                       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)
<PAGE>

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  27,  2000,  the  aggregate  market  value  of  common  stock  held by
non-affiliates  of the Registrant was approximately  $47,914,556.  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  27,  2000,  the  number of shares  of  common  stock  outstanding  was
12,990,134 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 9,  2000,  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.

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<PAGE>

                                TABLE OF CONTENTS
                                                                            PAGE

PART I

   Item 1.  Business......................................................    4
   Item 2.  Properties....................................................   17
   Item 3.  Legal Proceedings.............................................   17
   Item 4.  Submission of Matters to a Vote of Security Holders...........   18


PART II

   Item 5.  Market for the Registrant's Common Stock and Related
            Stockholder Matters............................................  19
   Item 6.  Selected Financial Data........................................  20
   Item 7.  Management's Discussion and Analysis of Financial Condition
            and Results of Operations......................................  22
   Item 7A. Quantitative and Qualitative Disclosures About Market Risk.....  38
   Item 8.  Financial Statements and Supplementary Data....................  39
   Item 9.  Changes in and Disagreements With Accountants on
            Accounting and Financial Disclosure............................  40

PART III

   Item 10. Directors and Executive Officers of the Registrant.............  41
   Item 11. Executive Compensation.........................................  41
   Item 12. Security Ownership of Certain Beneficial Owners and Management.  41
   Item 13. Certain Relationships and Related Transactions.................  41


PART IV

   Item 14. Exhibits, Financial Statement Schedules and
            Reports on Form 8-K............................................  42

SIGNATURES.................................................................  46


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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 attract  and retain key  personnel,  especially  highly  skilled
technology personnel, the ability of the Company to secure additional capital to
finance its  business  strategy,  fluctuations  in paper prices and airline fuel
costs,  customer  credit  risks,   competition  from  other  catalog  companies,
retailers and e-commerce companies, 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 an integrated
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,
workplace   catalogs,   multi-media   CD-ROM,   DVD  and  on  the   Internet  at
WWW.SKYMALL.COM,      WWW.SKYMALLTRAVEL.COM,      WWW.DURHAM.SKYMALL.COM     and
WWW.SKYDISC.COM  SkyMall  is best  known  for its  in-flight  catalog,  which is
available on more than 70% of all domestic airlines,  reaching approximately 500
million  domestic airline  passengers  annually.  Through its skymall.com,  inc.
subsidiary,  which operates the  SKYMALL.COM(TM) and  SKYMALLTRAVEL.COM(TM)  Web
sites,  SkyMall offers an expanded  selection of products and services to online
shoppers  and enables  other  companies  to conduct  electronic  commerce  using
skymall.com's merchant solution.  Through another subsidiary,  Durham & Company,
SkyMall  offers  high-quality  logo  merchandise  via  its  catalogs,  workplace


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initiatives and the  DURHAM.SKYMALL.COM  Web site.  SkyMall's  subsidiary,  Disc
Publishing, Inc., produces the CD-ROM, SkyDisc(TM),  which provides advertising,
entertainment  and e-commerce  shopping links to travelers  through airline seat
pocket distribution and the SKYDISC.COM Web site.

         SkyMall   operates   two   distinct    segments   which   include   its
business-to-consumer and  business-to-business  initiatives.   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,  employee logo and corporate  recognition  merchandise and advertising
media to other  businesses  through  loyalty  programs and  catalogs,  workplace
catalogs, CD-ROM, DVD and the Company's Web site.

         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  from 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,  Australian  Outback
Collection,    Balducci's,   Canadian   Geographic,    Frontgate(R),    FTD.com,
garden.com(TM), Hammacher Schlemmer(R), Improvements(R), Lillian Vernon(R), L.L.
Bean(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).

         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 vast selection of
specialty  products  and services  through  unique  channels  and  partnerships.
SkyMall  has  adopted  the  following  strategies  for  satisfying  the needs of


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<PAGE>

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.

         o     PROVIDE  CUSTOMERS  WITH  ONLY  THE  BEST-SELLING,   HIGH-QUALITY
               MERCHANDISE FROM WELL-KNOWN BRANDS. SkyMall's Web site offers its
               customers more than 7,600 SKUs from numerous merchants. 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.

         o     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 from 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.

         o     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,  and a Gift  Shop,  with a search
               feature  that  enables the user to shop  according  to  occasion,
               price categories and gender.  Products and services are sorted by
               category and sub-category,  which enables customers to search and
               define their shopping needs faster and easier.  In addition,  our
               Web   site   provides    e-reminders,    e-cards   and   wishlist
               functionality,  together with a "specials"  area,  which features
               new  promotions  on a regular  basis to  encourage  consumers  to
               return  to the site to take  advantage  of  special  offers.  The
               "specials" area also provides easy access to the Company's travel
               site,  SKYMALLTRAVEL.COM,  as well as other rewards partners. See
               "BUSINESS-TO-CONSUMER  SEGMENT - ELECTRONIC  MEDIA - GENERAL" and
               "TECHNOLOGY."

         o     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,
               for its domestic  business and uses  outsource  call centers with
               expertise  in as many as eight  languages  for its  international
               orders.  Our global 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


                                       6
<PAGE>

               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.

         o     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.

         PRINT MEDIA

         GENERAL.  We market our  merchandise  through a number of print  media,
including our in-flight catalogs and international  catalogs. The merchandise of
each  participating  merchant in our catalogs is presented in a separate section
of  each  catalog  to  allow  browsing  from  "store-to-store,"   providing  the
convenience and variety of an upscale shopping mall environment.

         Our  print  media  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.  Through our  SKYMALL.COM Web
site, we offer online consumers a larger product selection.

         SKYMALL DOMESTIC IN-FLIGHT CATALOGS. Our in-flight catalogs,  which are
placed in airline seat pockets, are our largest distribution  channel.  Over the
past ten years, we have experienced substantial growth in our domestic in-flight
catalog business, which accounted for approximately 85% of net merchandise sales
and  substantially  all of our placement  fees and other revenue from all of our
business segments in 1999. During 1999, we had exclusive agreements to place our
catalogs on 18  airlines,  making our catalog  available  to  approximately  500
million  airline   passengers  in  1999.   These  18  airlines,   which  carried
approximately  70% of all  domestic  passengers  in 1999,  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,  except US Airways, which offers the
SkyMall catalog under the name  "Selections."  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 program offers  airlines a low-risk means of  incrementally
increasing  their  earnings.  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 net  merchandise  sales for the fiscal year ended 1999:


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                                           Percent of Net Merchandise Sales
          Name of Airline                     Through December 31, 1999
          ---------------                  --------------------------------

           Delta                                          15%
           United                                         12%
           Continental                                    10%
                                                          ---
           Total                                          37%
                                                          ===

         We continue to develop  marketing and promotional  programs  focused on
increasing  revenue per  passenger  enplanement,  some of which are  facilitated
through the unique  relationships  between the Company and our airline partners.
Among the plans in various stages of implementation are (i) enhancing  promotion
of our shopping  services through in-flight  announcements,  including video and
audio programming,  (ii) encouraging repeat customer purchases through discounts
and other special  offers,  (iii)  offering  airlines and key airline  employees
incentives for promoting the use of our catalogs among airline passengers,  (iv)
conducting   in-flight   promotions,   such  as  gift   certificates,   discount
certificates and special offers to passengers who order while in-flight, and (v)
expanding the selection and variety of products. The Company has tested a number
of the  foregoing  initiatives  with some of its  airline  partners  and,  where
successful, plans to expand the programs to other airline partners.

         SKYMALL   INTERNATIONAL   IN-FLIGHT  CATALOGS.   We  believe  that  the
demographic and  technological  trends that are driving the domestic consumer to
shift from  traditional  retail shopping are also present in many  international
markets,  which we believe are  substantially  under-served.  In early 1998,  we
launched an  international  initiative  under which we began making  specialized
catalogs available to passengers on certain  international  flights traveling to
Japan and  serving  the  Pacific  Rim  featuring  merchandise  tailored  to this
audience.  In March 1999, the Company began offering SkyMall catalogs on certain
transatlantic flights originating from New York and Boston.

         Although  international  sales  have been  immaterial  to our total net
merchandise sales, we plan to continue exploring opportunities in these markets.
International  sales increased to $334,000 in 1999 compared to $132,000 in 1998.
SkyMall  continues to gain experience in  international  markets,  including the
areas of merchandising,  customer service and fulfillment.  The Company plans to
continue  to  maintain  its  presence  in large  international  markets  through
cooperative  ventures with its current  domestic airline  partners.  The Company
believes that its experience in the domestic in-flight business,  as well as its
Web-based   infrastructure,   will  enable  it  to  maintain   its  presence  in
international  markets,  particularly  those  with a  strong  interest  in  U.S.
products  or where  remote  shopping  already  has some level of  acceptance  by
consumers.

         OTHER PRINT MEDIA PROGRAMS. We provide unique,  upscale catalogs to the
membership-oriented  airport lounges of one of our major airline  partners.  The
SkyMall catalogs are also available on certain Northeastern routes of Amtrak.


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         ELECTRONIC MEDIA

         GENERAL. We launched our first Internet Web site in January of 1996 and
since then have  continued to refine and develop our e-commerce  strategies.  In
1999,  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
sites,   (ii)  further   development   of  our  technology  and  other  business
infrastructures  used to convey orders and provide order status  information  to
our  customers,  (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,  (iv)  significantly
increasing  the  selection  and variety of products  for our  programs,  and (v)
developing  non-product  travel-related content for our Web site that encourages
consumers to visit our site for information as well as shopping.

         In February  2000, we  re-launched  our Web site,  SKYMALL.COM,  in the
culmination  of our  year-long  technology  development  efforts.  The new  site
includes  both  improvements  to the  consumer  shopping  experience  as well as
significant  advances in the overall  performance,  speed and  stability  of the
site.  Our new Web site is more  consumer-friendly  due to  improved  navigation
capabilities,  new  features  and  an  enhanced  search  engine,  which  enables
customers to search and define their shopping needs. The most noticeable  change
for consumers is the redesign of our home page, which is visually more appealing
with key consumer features prominently displayed.  In addition,  based on formal
user  testing  surveys,  the flow of the user  checkout  process has been vastly
simplified.

         Using data modeling,  skymall.com created its newest feature,  the Gift
Shop, with a search feature that enables the user to shop according to occasion,
price  categories and gender.  Data modeling also has been used more extensively
on the Web site to sort by category and sub-category, which enables customers to
search and define their shopping needs faster and easier.  In addition,  we have
added  e-reminders,   e-cards  and  wishlist  functionality,   together  with  a
"specials"  area,  which features new promotions on a regular basis to encourage
consumers  to  return  to the site to take  advantage  of  special  offers.  The
"specials"  area  also  provides  easy  access  to  skymall.com's  travel  site,
SKYMALLTRAVEL.COM,  as well as other rewards partners.  For further  discussion,
see  "BUSINESS-TO-BUSINESS  SEGMENT," "TECHNOLOGY" and "MANAGEMENT'S  DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."

         Our e-commerce channels showcase products offered in our print catalogs
and provide  customers an additional means of customer  service and support.  In
addition,  because  the  Internet  does  not  pose  the  same  size  and  weight
constraints as our paper catalogs, we offer 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.  We have increased our revenues
from this media by developing  SkyMall's Web site as a premier Internet shopping
and travel  destination  and  increasing the number of partners in our affiliate
program.

         During   1999,   SkyMall   focused   substantial   resources   on   its
information-technology  infrastructure  and Web initiatives and, as a result, we
experienced a significant increase in our e-commerce  activity.  Net merchandise
sales from our e-commerce initiatives for fiscal 1999 were $13 million, compared


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to net  merchandise  sales  in  fiscal  1998 of $2.5  million;  an  increase  of
approximately  420%.  Our  e-commerce  sales  (i.e.,  sales from our various Web
sites)  accounted  for  approximately  37%  of  our   business-to-consumer   net
merchandise  sales in the  fourth  quarter of 1999,  compared  to 8% in the same
period  of 1998.  We  believe  this  trend  demonstrates  that the  Internet  is
increasingly  becoming a more  popular  way to shop and we plan to  continue  to
leverage our merchandise content, customer service expertise,  off-line channels
and back-end  infrastructure to capitalize on the opportunities of the Internet.
During 2000, we plan to further expand our e-commerce  initiatives.  For further
discussion,   see  "GROWTH  STRATEGY  -  ELECTRONIC  MEDIA,"   "TECHNOLOGY"  and
"MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS."

         CONSUMER  INCENTIVE AND LOYALTY  PROGRAMS.  The loyalty and award point
industry is  anticipated  to become a strong  market for the  Company,  both for
print catalogs,  CD-ROM and DVD. We are in the process of defining  programs and
services that will be offered to customers of other companies' loyalty programs.
Net merchandise sales from loyalty program initiatives for fiscal 1999 were $3.9
million.

         GOLD POINTS. In November 1998, Gold Points Corporation selected SkyMall
as a primary merchandise  redemption source for its Gold Points customer loyalty
program.  Gold Points  Corporation  is a subsidiary of Carlson  Companies  Inc.,
which  owns such  well-known  brands as Regent  International  Hotels,  Radisson
Hotels Worldwide, Radisson Seven Seas Cruises, Country Inns & Suites By Carlson,
Carlson Wagonlit Travel, T.G.I.  Friday's and Italianni's,  and operates Carlson
Marketing  Group,  the  largest  relationship  marketing  company  in the United
States. Through a network of well-known brands in different industries, the Gold
Points program  offers  participants  the  opportunity to earn and redeem points
with a variety of network  merchants.  Participants  in the Gold Points  program
include  Carlson-owned  hospitality  and  service  companies,  as  well  as  MCI
Worldcom,  the American Bar & Grill and others.  The SkyMall  redemption catalog
became available from  participating  Gold Points merchants in April 1999 and is
the  primary  general  merchandise  catalog  promoted  to  consumers  for  point
redemption.  SkyMall also  participates in the Gold Points merchant  network and
awards consumers Gold Points at their request.

         RELATIONSHIP WITH NETCENTIVES.  In February 1998,  SkyMall entered into
an affiliate  relationship  with  Netcentives  Inc.  Through this  relationship,
SkyMall  is able to offer  customers  the  ability to earn  "ClickMiles"  on the
purchase of  merchandise  through  SKYMALL.COM.  In turn,  customers can utilize
Netcentives'  ClickRewards  Program and redeem  "ClickMiles"  for frequent flyer
miles and merchandise  from a variety of retailers.  SkyMall and Netcentives are
considering other promotional opportunities.

BUSINESS-TO-BUSINESS SEGMENT

         OVERVIEW

         SkyMall's  business-to-business  segment  provides unique solutions for
corporate  clients.  In  particular,  this  segment  offers  retail  merchandise
services  through loyalty  programs,  workplace  catalogs,  CD-ROM,  DVD and the


                                       10
<PAGE>

Company's Web site. Through these  initiatives,  SkyMall offers custom solutions
to loyalty  programs for redemption of program  points for SkyMall  merchandise.
The workplace catalog presents  high-quality,  customized logo merchandise.  The
CD-ROM program and, upon  distribution,  the DVD program will provide  customers
with an  opportunity  to experience a broadband  experience  from the comfort of
their home or on the road  through a laptop.  This channel  provides  businesses
with a new advertising  medium combined with SkyMall's  favorable  demographics.
Additionally,  the  SKYMALL.COM  Web site  provides  our  affiliate  partners  a
mechanism to offer products to their customer bases.

         PRINT MEDIA

         WORKPLACE  MERCHANDISE  CATALOGS.  Through  our  subsidiary,  Durham  &
Company, a Utah corporation, acquired in October 1998, we offer logo merchandise
and  recognition  products to employees of a number of blue-chip  organizations,
primarily  through print  catalogs and since  September  1999, on the Durham Web
site. Sales in 1999 were the highest ever for Durham. Net merchandise sales from
Durham  accounted for  approximately  8% of the Company's  total net merchandise
sales in 1999.  Competing in the highly fragmented  incentive  industry,  Durham
distinguishes itself by providing  high-quality  products and excellent customer
service  and  focuses  its  marketing  efforts on large  organizations.  SkyMall
provides Durham's clients with unique,  high-quality merchandise offered through
other SkyMall channels as well as logo merchandise and recognition  products for
corporate gift giving, employee recognition, sales promotions and incentives and
similar programs.

         INCENTIVE AND LOYALTY PROGRAMS. The loyalty and award point industry is
anticipated  to become a strong market  segment for the Company,  both for print
catalogs,  CD-ROM  and DVD.  We are in the  process  of  defining  programs  and
services that will be offered in the future to loyalty  programs.  In late 1999,
we entered into an agreement with Mariott to allow loyalty program  participants
to redeem points for specially selected merchandise.  This agreement will expire
in April 2000.

         ELECTRONIC MEDIA

         AFFILIATE PROGRAM.  In addition to developing our own Web site, we have
an affiliate  program through which we provide a turn-key  merchant  solution to
businesses that are interested in providing SkyMall's merchandise to visitors to
their own Web sites. Our unique  proprietary  technology and other systems allow
us to quickly and cost-effectively  implement affiliate site programs.  Visitors
to SkyMall's  affiliate sites go directly to a SkyMall site,  which is typically
co-branded with the affiliate partner,  for shopping  services.  After shopping,
the customers are directed back exclusively to the site from which they began so
that the affiliate partner does not lose the benefit of the traffic to its site.
Although an online store can be privately  labeled for our  affiliate  partners,
most of our affiliate sites are co-branded to increase SkyMall's brand awareness
as well as generate affinity for our online partners.

         Our  affiliate  program  offers  advantages  to both  consumers and our
partners.  Consumers enjoy the convenience of SkyMall's  online shopping and our
partner sites enjoy the benefit of increased revenue,  while ensuring that their
customers return to their site.


                                       11
<PAGE>

         Participants  in our  affiliate  program  include  some of our  airline
partners  and  related  entities,  such as Delta Air Lines,  Delta  Crown  Room,
Continental Airlines,  Northwest Airlines, America West Airlines and US Airways.
Other participants include Visa USA, Visa International,  First USA, the largest
Visa card  issuer  and a banking  leader in  electronic  commerce.  The  Company
continues  to evaluate  the success of its  individual  affiliates  and, in some
cases,   has  terminated   relationships   while  it  continues  to  pursue  new
affiliations.

         AFFILIATE RELATIONSHIP WITH QUINTEL  COMMUNICATIONS.  In November 1999,
SkyMall entered into a Promotional Agreement with Quintel  Communications,  Inc.
Under  the  agreement,  the  parties  agreed to  participate  in  certain  joint
marketing  efforts,  including  offering  SkyMall's  products  and  services  to
Quintel's MultiBuyer.com Program. The parties are also pursuing other co-branded
marketing opportunities, including promoting each party's goods and services.

         THE  SKYMALLTRAVEL.COM  WEB SITE.  In July 1999,  SkyMall  launched its
SKYMALLTRAVEL.COMWeb  site  targeted  to  frequent  travelers,   which  provides
one-stop access for all their travel needs.  SKYMALLTRAVEL.COM organizes many of
the best  travel  resources  in one  place,  including  linked  directories  for
airlines, hotels, rental car and online booking services, as well as content and
tools that assist business  travelers before,  during and after their trips. The
site was designed to help  travelers get the most out of online travel  planning
while minimizing the effort and time involved. Some of the leading online travel
companies  are  affiliates  at  our   SKYMALLTRAVEL.COM   Web  site,   including
webflyer.com, Trip.com, ontheroad.com,  mapquest.com,  weather.com, homefair.com
and MyFamily.com.

         THE DURHAM & COMPANY  WEB SITE.  In  September  1999,  Durham & Company
launched its Web site at DURHAM.SKYMALL.COM,  which offers high quality logo and
corporate recognition merchandise to organizations.

         DISC  PUBLISHING,   INC.  In  September  1999,  SkyMall  acquired  Disc
Publishing,  Inc.,  a Utah  corporation.  Disc  Publishing's  SkyDisc(TM)  is an
interactive  CD-ROM  targeted  to  the  business  traveler.  SkyDisc  integrates
high-quality  print,  broadcast  and online  media to provide an exciting mix of
topics that entertain,  inform and enhance the business travelers' life. SkyDisc
offers  the  consumer  the  option  of using the disk on their  laptop  computer
whether onboard the aircraft, in a hotel, at the office, or at home. While using
the disk online, consumers can link to Web sites promoted on SkyDisc to get more
information  and services.  With the continued  proliferation  of new Web sites,
SkyDisc  will help  consumers  sort  through  the  clutter  of the Web and drive
traffic  to the  sites of our  program  participants.  Every  other  month a new
"issue" of SkyDisc is available  free in airline  seatback  pockets to more than
400,000 SkyWest  Airlines  passengers per month.  SkyDisc has already  attracted
many program participants such as Amazon.com, Earthlink Network, Inc., Interplay
Entertainment,   Inc.  and  U.  S.  WEST(R).   The  Company  intends  to  expand
distribution of SkyDisc through its airline partners and other channels.

GROWTH STRATEGY

         We  plan  to   continue   to  increase   our   product   offering   and
non-merchandise travel-related content to consumers through our online media. We


                                       12
<PAGE>

also plan to further  broaden our  distribution  channels and our customer  base
through,  among  other  things,  additional  and  on-going  electronic  commerce
initiatives,  expansion of our in-flight  catalog program,  expansion of our DVD
and SkyDisc  initiatives,  expansion of our incentive  and loyalty  programs and
implementation of additional workplace marketing programs. From time to time, we
may also consider  further  expanding our media  capabilities  and  distribution
channels,  either  through joint venture  relationships,  acquisitions  or other
arrangements.

         Our new  technology  platform  will allow us to quickly  implement  new
best-of-breed consumer features and functionality, many of which are planned for
the current fiscal year. Our technology infrastructure now has the capability of
supporting significant increases in order volume and provides us with a platform
for expanding our marketing and channel development  efforts.  Our focus in 2000
will be on the addition of new consumer  features to our Web site and on the key
drivers for our sales growth,  including  improving customer reach,  conversion,
repeat  business  and average  order size.  We plan to further tap into the more
than 1.3  million  demographically  desirable  consumers  who see our  in-flight
catalog each day as we work to improve our revenue growth and profitability. Our
profitable customer  acquisition model,  together with our strong gross margins,
form the foundation for future growth and our plans to return to  profitability.
For further  discussion,  please see  "MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF
FINANCIAL  CONDITION AND RESULTS OF  OPERATIONS  -- ADDITIONAL  FACTORS THAT MAY
AFFECT FUTURE RESULTS."

         Our marketing strategy is designed to strengthen the SkyMall brand name
online,  increase  customer  traffic to the SKYMALL.COM  Web site,  build strong
customer loyalty,  maximize repeat purchases and develop revenue  opportunities.
We seek to build customer loyalty by creatively  applying  technology to deliver
personalized  programs and services,  as well as employing creative and flexible
merchandising strategies.  The Company employs a variety of media, marketing and
promotional methods to achieve these goals.

         We believe our in-flight  readership  is a valuable  asset as we expand
our business,  particularly  our  electronic  commerce  initiatives.  SkyMall is
uniquely  positioned among Internet  retailers  because it promotes its Internet
site at a relatively low cost to more than 1.3 million  airline  passengers each
day through the  SkyMall  in-flight  print  catalogs.  As we grow our  in-flight
presence,  we  believe  the  brand  awareness  and  visibility  we gain with our
high-profile  consumer  audience  will  strengthen  the  visibility  of our  Web
initiative and help to promote  traffic to our Web site.  While other  companies
expend  tremendous  resources on off-line  advertising to reach a portion of our
audience,  SkyMall has the  advantage  of promoting  its site in another  proven
distribution channel.

COMPETITION

         BUSINESS-TO-CONSUMER.

         PRINT  MEDIA.  All  aspects  of our print  media  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,  incentive and logo merchandise companies,  department stores, specialty
catalog companies and general merchandise catalog companies. Although we believe
that  our   long-standing   relationships   with  our   business   partners  and


                                       13
<PAGE>

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 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.  The Company  expects that
competition in the online commerce market will intensify in the future. 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  business-to-business  e-commerce  solutions  is rapidly
changing and intensely  competitive.  We expect  competition to intensify as the
number of entrants and new technologies increases. We may not be able to compete
successfully against current or future competitors. Although we believe that our
long-standing  relationships  with our business  partners and  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 penetration into the markets we currently serve. 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. Many of our
competitors also may have  well-established  relationships with our existing and
prospective customers.

         INCENTIVE  AND LOYALTY  PROGRAMS.  The market for incentive and loyalty
programs  is rapidly  changing  and  intensively  competitive.  As the number of
entrants increases and technology changes, we expect greater competition. We may
not be able to successfully compete against current or future competitors.  Many
of   our   competitors   have   more   experience   developing    Internet-based
business-to-business solutions and have larger technical staffs, larger customer
bases,  greater  financial  resources  and  other  resources  than  we  do.  Our
competitors  may be better  able to develop  products  and/or  services,  create
superior functionality and/or achieve greater customer acceptance.

         OTHER   BUSINESS-TO-BUSINESS    SOLUTIONS   (CD-ROM,   DVD,   CORPORATE
MERCHANDISE).  The market for corporate advertising and logo merchandise is also
highly competitive and changing rapidly.  In each instance,  there are numerous,
large  competitors who have longer operating  histories,  larger customer bases,
greater brand recognition,  and significantly  greater financial,  marketing and
other resources than we do. These  competitors may enter strategic or commercial
relationships with larger more established and well-financed companies.  Some of


                                       14
<PAGE>

our competitors may be able to secure alliances with customers and affiliates on
more favorable  terms,  devote great  resources and achieve  superior  marketing
results  than we do.  The  environment  for  corporate  services  is  constantly
changing  as a  result  of new  technologies.  We may  not be  able  to  compete
successfully  in light of the changing  technical  requirements  and competitive
conditions may harm our business, operating results and financial condition. See
"MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS -- ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS."

TECHNOLOGY

         ENHANCED WEB SITE. The Company spent  approximately  $15 million during
fiscal 1999, including approximately $8 million in capital expenditures,  on its
information-technology and Web infrastructure.  During 1999, our technology team
developed a cutting edge technology  solution to ensure that  skymall.com has an
e-commerce  site that is as  stable,  salable  and robust and to provide a solid
technology   platform  for  our  future  sales  growth.  In  February  2000,  we
re-launched  our Web site,  SKYMALL.COM,  in the  culmination  of our  year-long
efforts.  The new site  includes  both  improvements  to the  consumer  shopping
experience as well as significant advances in the overall performance, speed and
scalability of the site.  This new technology  platform will allow us to quickly
implement new best-of-breed  consumer features and functionality,  many of which
are planned for the current year. Our new Web site is more consumer-friendly due
to improved navigation capabilities, new features and an enhanced search engine,
which  enables  customers to search and define their  shopping  needs.  The most
noticeable  change for  consumers  is the  redesign  of our home page,  which is
visually more appealing with key consumer  features  prominently  displayed.  In
addition,  based on formal user testing  surveys,  the flow of the user checkout
process has been vastly simplified.

         With the launch of our new Web site, SkyMall has converted to an n-tier
architecture.   This   framework   provides   SkyMall   with  a   highly-modular
object-oriented  architecture  that will allow SkyMall to rapidly  integrate the
best of today's off-the-shelf and custom built technical product solutions.  The
new platform  relies heavily on the use of Java in a middle tier  communications
layer,  which provides a technology  agnostic  integration  solution for diverse
applications.

         In addition to the open architecture of the software,  the new platform
is  based  on  a  fully  redundant  and  highly  scalable  systems  and  network
architecture,   which  is  supported  in  part  through  an  alliance  with  PKS
Information  Services,  a subsidiary company of Level 3 Communications  Systems,
which is a leading provider of state-of-the-art infrastructure, applications and
e-business  services.  In  connection  with the launch of our new Web site,  the
Company migrated to a Solaris operating system that runs on Sun Microsystems and
Intel hardware. The system runs on an Oracle database and uses a data repository
consisting of a massively  parallel storage solution  provided by EMC, a leading
supplier of enterprise-wide intelligent storage and retrieval technology.

         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  focus  its
development  efforts on creating  and  enhancing  the  specialized,  proprietary
software  that is unique to its business and to license  commercially  developed

                                       15
<PAGE>

technology  for  other  applications   where  available  and  appropriate.   Our
Internet-based  system  provides  the Company  with many  advantages,  including
giving us significant  flexibility in implementing  marketing programs and other
promotions,  allowing quick implementation of affiliate programs,  permitting us
to  establish  call  center  operations  in foreign  countries  to  support  our
international  operations  and  enabling  us to reduce  costs in our print media
business.

BUSINESS OPERATIONS

         MERCHANT AGREEMENTS. We enter into agreements with merchants who supply
the   products   and   services   offered   in  our   business-to-consumer   and
business-to-business  segments.  Under merchant contracts, we earn fees based on
percentages  of revenues  generated by sales or 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  typically  have an initial  term of a single  quarterly  catalog and
automatically  renew thereafter for successive  catalog editions.  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" and "RECENTLY ISSUED ACCOUNTING STANDARDS."

         AFFILIATE  AGREEMENTS.  We enter into  agreements  with  affiliates who
offer  our  products  and  services  to their  customers.  Under  our  affiliate
agreements,  we  typically  pay a  commission  based  on net  merchandise  sales
attributable  to purchases made by consumers who purchase  products and services
from SkyMall vis-a-vis these affiliate  channels.  See "MANAGEMENT'S  DISCUSSION
AND ANALYSIS OF FINANCIAL  CONDITION  AND RESULTS OF  OPERATIONS  --  ADDITIONAL
FACTORS THAT MAY AFFECT FUTURE RESULTS."

         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.  The  Company's   average  order  size  is
approximately  $115. Our customer service  representatives  are given incentives
for  increasing  order size.  We outsource  part of our call volume  during peak
order times.

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.  Our subsidiary,  Durham & Company,
operates  a small  manufacturing  facility  where it  manufacturers  recognition


                                       16
<PAGE>
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 27, 2000,  the Company had 324  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."

TRADEMARKS AND TRADE NAMES

         SkyMall(R) is a registered trademark of the Company and skymall.com(TM)
is a trademark 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.  We also lease  approximately
12,000 square feet of office space in New York City, under a lease which expires
in December 2000, for the operations of our  subsidiary,  skymall.com,  inc. Our
logo  merchandise  subsidiary,  Durham & Company,  leases  approximately  18,000
square  feet of space in an  industrial  park in Tempe,  Arizona,  under a lease
expiring in 2002, where it houses a small warehouse and manufacturing  facility.
Our subsidiary, Disc Publishing, Inc., leases approximately 2,800 square feet of
office space in Orem, Utah under a lease expiring in 2004.

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 May 13,  1998,  Kathy  Jordan,  a purchaser  of  products  through a
SkyMall catalog in March 1998, filed an action in the District Court of Cherokee
County,  Oklahoma,  styled  as  Kathy  Jordan,  Plaintiff  v.  SkyMall,  Inc.  a
corporation,  and John Doe(s), et al.,  Defendants,  which is designated as Case
No.  CJ-98-208.  Plaintiff  alleged that SkyMall  improperly  collected from her


                                       17
<PAGE>

certain state and local taxes  relating to her purchase.  Plaintiff  brought the
action  on  behalf  of  herself  and a class of  persons  in the  United  States
similarly situated.  She alleged causes of action for unjust enrichment,  fraud,
breach of  contract,  and  declaratory  judgment,  and seeks return of allegedly
unlawful revenue collected with interest, an injunction against collecting taxes
improperly,  compensatory and punitive  damages,  and attorneys' fees and costs.
While the Company believed Ms. Jordan's claims were substantially without merit,
in order to minimize overall  litigation risks and ongoing litigation costs, and
to reduce  the  management  time and  attention  required  to be devoted to this
matter,  the Company entered into a Settlement  Agreement with Plaintiff and the
alleged class. The agreement  received final court approval on October 14, 1999.
As a part of the agreement, the Company has agreed, among other things, to offer
discounts  during 2000 to SkyMall  customers who purchased  merchandise from the
Company  prior to December 31,  1998.  The  agreement  also calls for SkyMall to
issue to  Plaintiff's  attorneys  approximately  65,000  shares of common  stock
valued at $600,000 and $100,000  cash.  The Company  recorded a reserve for this
settlement  amount and the related expenses in the second quarter of 1999 in the
amount  of  $1.436  million,  representing  approximately  $700,000  payable  to
Plaintiff's  attorneys  in stock  and cash,  $356,000  in  anticipated  customer
discounts  associated  with the offer to customers and $380,000 in  professional
fees incurred.

         On January 29,  1999, a securities  class  action  complaint  was filed
against  SkyMall and Robert  Worsley,  the Company's  Chief  Executive  Officer,
Chairman and principal 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 has filed a Motion to Dismiss.
SkyMall   believes  that  the  allegations   against  it  and  Mr.  Worsley  are
substantially without merit and intends to vigorously defend the lawsuit.

         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 has
filed a Petition for Removal to move the case to Delaware Federal Court, and has
filed a motion  for  dismiss on the basis  that the  complaint  fails to state a
claim upon which relief can be granted.  SkyMall  believes that the  allegations
against it are substantially without merit and intends to vigorously defend this
lawsuit.

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 1999.


                                       18
<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 27, 2000,  the
closing  sale price for  SkyMall's  common  stock was $7.125 per share.  On that
date,  there were 168 holders of record of SkyMall's  Common Stock.  This figure
does not reflect beneficial stockholders whose shares are held in nominee names.

         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

         YEAR ENDED 1998                   HIGH               LOW

         1st Quarter                      $ 5.375           $ 4.000
         2nd Quarter                      $ 7.500           $ 4.000
         3rd Quarter                      $ 5.625           $ 2.250
         4th Quarter                      $48.000           $ 1.875

         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, and other relevant factors.


                                       19
<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 ended
December 31, 1999 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,
                                              -------------------------------------------------------------------------
                                                  1999           1998           1997           1996            1995
                                              -----------     -----------    -----------    -----------     -----------
<S>                                           <C>             <C>            <C>            <C>             <C>
STATEMENT OF OPERATIONS DATA:

Merchandise sales, net                        $    60,880     $    49,320    $    42,844    $    30,978     $    26,883
Placement fees and other                           18,061          22,722         23,532         14,921          19,128
                                              -----------     -----------    -----------    -----------     -----------
     Total revenues                                78,941          72,042         66,376         45,899          46,011

Cost of goods sold                                 46,422          39,292         40,657         26,471          27,494
                                              -----------     -----------    -----------    -----------     -----------
     Gross Margin                                  32,519          32,750         25,719         19,428          18,517
                                              -----------     -----------    -----------    -----------     -----------
Media expenses                                     13,587          11,353          9,082          7,670           9,532
Selling expenses                                    4,482           3,474          3,450          2,476           2,229
Customer service and fulfillment expenses           7,123           5,567          4,438          2,823           2,136
General and administrative expenses                32,149           8,767          6,340          3,340           3,112
                                              -----------     -----------    -----------    -----------     -----------
     Total operating expenses                      57,341          29,161         23,310         16,309          17,009
                                              -----------     -----------    -----------    -----------     -----------
Income (loss) from operations                     (24,822)          3,589          2,409          3,119           1,508

Interest and other income (expense), net             (231)            404            462           (651)           (750)
                                              -----------     -----------    -----------    -----------     -----------
Income (loss) before income taxes                 (25,053)          3,993          2,871          2,468             758

Provision (benefit) for income  taxes                (913)          1,707            300            280               0
                                              -----------     -----------    -----------    -----------     -----------
Net income (loss)                                 (24,140)          2,286          2,571          2,188             758

Preferred stock dividends                               0               0              0             77               0
                                              -----------     -----------    -----------    -----------     -----------
Net income (loss) available for
     common  shares                           $   (24,140)          2,286          2,571          2,111             758
                                              ===========     ===========    ===========    ===========     ===========
Diluted net income (loss) per common share    $     (2.60)    $       .27    $       .30    $       .38     $       .14
                                              ===========     ===========    ===========    ===========     ===========
Diluted weighted average shares outstanding     9,271,330       8,602,177      8,675,803      5,599,443       5,431,337
                                              ===========     ===========    ===========    ===========     ===========

SELECTED OPERATING DATA (UNAUDITED):

Number of domestic enplanements
     (in 000's)(1)                                699,896         604,169        579,822        530,661         498,611
Domestic enplanement percentage (2)                   71%             68%            70%            63%             64%
Revenue per passenger enplanement (3)         $      0.12     $      0.12    $      0.11    $      0.09     $      0.08
Number of airlines at end of period (4)                18              16             16             15              20
Number of catalogs produced (in 000's) (5)         17,015          17,973         16,933         15,729          17,162
Average number of pages per catalog (6)               197             192            168            148             137
Revenue per catalog produced (7)              $      3.58     $      2.74    $      2.53    $      1.97     $      1.57
Revenue per page printed (8)                  $     0.018     $     0.014    $     0.015    $     0.013     $     0.011

BALANCE SHEET DATA:

Cash and cash equivalents                     $    16,060     $     7,951    $     9,412    $    11,491     $       775
Working capital (deficit)                           3,795           5,007          6,050          6,692          (4,734)
Total assets                                       50,249          31,925         26,634         19,721           4,726
Long-term debt                                      5,190             242             66            139          10,818
Shareholders' equity (deficit)                $    15,618     $    14,234    $    10,307    $     8,601     $   (15,033)


</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 1999 and 1998  Selected  Financial and
Operating  Data has been restated to include the combined  financial  results of
SkyMall and Disc Publishing, which was formed in 1998.

         Certain  reclassifications  have been made to the 1998,  1997, 1996 and
1995  Selected   Financial   and  Operating   Data  to  conform  with  the  1999
presentation.  Shipping  costs which were  previously  netted  against  shipping


                                       21
<PAGE>

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.

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)
                           -----------------------------------------------------
                             1999     % Change     1998    % Change      1997
                             ----     --------     ----    --------      ----

Merchandise sales, net      $60,880     23.4%     $49,320    15.1%     $42,844
Placement fees and other    $18,061    (20.5)%    $22,722    (3.4)%    $23,532
Total revenues              $78,941      9.6%     $72,042     8.5%     $66,376


         Net merchandise  sales are composed of the selling price of merchandise
and services  sold by the  Company,  net of returns.  Growth in net  merchandise
sales in 1999 and 1998  reflects an increase  in  business-to-business  sales of
$7.8 million and $1.1 million,  respectively,  and business-to-consumer sales of
$3.8 million and $5.3 million, respectively.  Growth in business-to-business net
merchandise  sales in 1999 and 1998 include net merchandise  sales from business
acquisitions of $3.9 million and $1.1 million, respectively.  Placement fees and
other are  composed of fees paid by  participating  merchants  to include  their
products or advertisements 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 1999 and 1998 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.

         GROSS MARGIN
                                               (In thousands)
                           -----------------------------------------------------
                             1999     % Change     1998    % Change      1997
                             ----     --------     ----    --------      ----

Gross margin               $32,519     (0.7)%    $32,750     27.3%     $25,719
Gross margin percentage      41.2%                 45.5%                 38.7%


                                       22
<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 remained level in absolute  dollars while
the gross margin percentage declined in 1999 reflecting the effect of the mix of
merchant agreements between variable compensation agreements and fixed placement
fees,  lower  margin   agreements  to  increase   certain   business-to-business
initiatives and free shipping promotions offered in 1999. Gross margin increased
in  absolute  dollars  and as a  percentage  of  sales  in 1998  reflecting  the
Company's  increased  sales  volume  and  the  effect  of the  mix  of  merchant
agreements between variable compensation agreements and fixed placement fees.

         OPERATING EXPENSES

                                               (In thousands)
                           -----------------------------------------------------
                               1999   % Change     1998    % Change      1997
                               ----   --------     ----    --------      ----

Media expenses               $13,587    19.7%    $11,353     25.0%      $9,082
Selling expenses             $ 4,482    29.0%    $ 3,474      0.7%      $3,450
Customer service and
  fulfilllment expenses      $ 7,123    28.0%    $ 5,567     25.4%      $4,438
General and administrative
  expenses                   $32,149   266.7%    $ 8,767     38.2%      $6,340


         Media  expenses  consist  of the cost to  produce  and  distribute  our
in-flight  print catalogs and CD-ROM.  The media  expenses  increase in 1999 and
1998  primarily  reflects  the  increase  in  the  average  pages  per  catalog,
circulation,  paper costs and  catalog  production  costs.  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 1999
reflects the increased sales volume and addition of marketing partners.  Selling
expense remained level in absolute dollars in 1998.

         Customer service and fulfillment  expenses consist of costs to maintain
a full-service  customer contact and order fulfillment center.  Customer service
and  fulfillment  increase in 1999 and 1998 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 1999  increase in general and  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


                                       23
<PAGE>

expenses related to the Company's business initiatives. The 1998 increase is due
primarily  to the  addition of  management  personnel  and other  infrastructure
investments to support business initiatives.

         INTEREST EXPENSE

                                               (In thousands)
                           -----------------------------------------------------
                             1999     % Change     1998    % Change      1997
                             ----     --------     ----    --------      ----

Interest expense             $283        784%       $32      (68)%       $99


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

         INTEREST AND OTHER INCOME

                                               (In thousands)
                           -----------------------------------------------------
                             1999     % Change     1998    % Change      1997
                             ----     --------     ----    --------      ----

Interest and other income    $52        (88)%      $436      (22)%       $561


         Interest income and other consists primarily of interest income on cash
and marketable  securities.  Interest  income  decreased in 1999 and 1998 due to
lower  investment   balances  resulting  from  funding  the  Company's  business
initiatives.

         INCOME TAXES

                                               (In thousands)
                           -----------------------------------------------------
                             1999     % Change     1998    % Change      1997
                             ----     --------     ----    --------      ----

Provision (benefit) for
  income taxes              $(913)      (153)%    $1,707      469%       $300


         The income tax benefit for 1999 is due to  operating  losses for income
tax purposes  which are  available to carryback  and apply  against  prior years
taxable income resulting in an income tax refund.  The tax provision increase in
1998 is a result of certain timing  differences in 1997 resulting in a lower tax
provision in 1997.  The Company has  approximately  $20.6 million of federal net
operating loss carryforwards  which may be used to offset future taxable income.
These loss carryforwards begin to expire in 2019.

LIQUIDITY AND CAPITAL RESOURCES

         At  December  31,  1999,  the  Company's  cash  balance was $16 million
compared to $8 million at December 31, 1998.

         Cash  used  in  operating  activities  in  1999 of  $13.3  million  was
primarily attributable to the net loss and increase in assets offset by non-cash
expenses  and the  increase in accounts  payable and accrued  liabilities.  Cash


                                       24
<PAGE>

provided  by  operating  activities  in 1998 and 1997 of $4.1  million  and $2.6
million,  respectively,  was primarily  attributable  to net income and non-cash
expenses.

         Cash used in  investing  activities of  $8.8 million,  $6.1 million and
$2.8 million for 1999, 1998 and 1997,  respectively,  was due to the purchase of
property and equipment and business combinations.

         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 $2.5 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. Cash used
in  financing  activities  of $1.9  million in 1997  resulted  from  $865,000 in
treasury stock purchases and $1 million in long-term debt repayments.

WORKING CAPITAL AND NEGATIVE PROFITABILITY TRENDS

         At December  31,  1999,  the  Company  had net working  capital of $3.8
million and cash and cash  equivalents of $16.1  million.  On June 30, 1999, the
Company  secured a $10  million  revolving  line of credit at a bank,  under the
terms of which $5 million was immediately available and the remaining $5 million
was to become available, subject to certain conditions, upon the Company raising
a minimum of $15  million in  subordinated  debt  and/or  equity.  In the fourth
quarter of 1999,  the Company  raised  approximately  $25 million in a series of
private equity transactions, resulting in the entire $10 million being available
to the Company  under such credit  line.  As of March 27,  2000, a total of $9.4
million  had been  drawn on the line of  credit,  with  $600,000  available  for
borrowing by the Company.

         On November  4, 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 (the "November Private Offering"). In
December 1999,  the Company  completed two additional  private  placements,  the
first for  approximately  $9.1 million in shares of Series A Junior  Convertible
Preferred  Stock  ("Series A  Preferred")  of the Company (the "Series A Private
Offering")  and the  second for  approximately  $8 million in shares of Series B
Junior  Convertible  Preferred  Stock ("Series B Preferred") of the Company (the
"Series B Private  Offering").  The shares of Series A and  Series B Convertible
Preferred Stock 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. The funds received
from the Series A and Series B Private  Offering will be used  primarily to fund
SkyMall's  on-going  e-commerce  initiatives.  See Part II, Item 2,  "CHANGES IN
SECURITIES  AND USE OF PROCEEDS"  for  complete  details  regarding  the Private
Offerings.  The  funds  received  from the  Private  Offerings  will be used for
working capital purposes. 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


                                       25
<PAGE>

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 and cause it
to reduce or eliminate its growth  initiatives.  See also,  "ADDITIONAL  FACTORS
THAT MAY AFFECT FUTURE RESULTS."

CHANGES IN SECURITIES AND USE OF PROCEEDS

         1996 PRIVATE  PLACEMENT.  In October 1996,  the Company  issued 180,000
warrants to purchase common stock of the Company to preferred  shareholders in a
private  placement,  at an  exercise  price of $8.00  per  share  (the  "Pre-IPO
Warrants").  During  fiscal  1998,  20,400  of the  Pre-IPO  Warrants  had  been
exercised, resulting in net proceeds to the Company for fiscal 1998 of $163,200.
In 1999,  145,800 of the  Pre-IPO  Warrants  were  exercised,  resulting  in net
proceeds to the Company of $1,166,400.  In December  1999, the remaining  13,800
warrants,  which were unexercised  expired and all of such unexercised  warrants
were  cancelled.  All of such  proceeds  received  upon  exercise of the Pre-IPO
Warrants were designated for general corporate purposes.  The shares issued upon
exercise of the Pre-IPO  Warrants  were  issued in reliance  upon the  exemption
provided  under  Section 4(2) of the  Securities  Act of 1933,  as amended,  and
Regulation D thereunder.

         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.

         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.


                                       26
<PAGE>

         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  will be used  primarily to fund  SkyMall's
on-going  e-commerce  initiatives and 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 will
be used primarily to fund SkyMall's on-going e-commerce  initiatives and 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  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.

         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


                                       27
<PAGE>

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 will be used primarily to fund
SkyMall's on-going e-commerce initiatives and 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.

         ADDITIONAL WARRANT ISSUANCES.

         RYAN,  BECK & CO.,  INC.  In June 1999,  the  Company  entered  into an
agreement with Ryan, Beck & Co., Inc. for financial advisory services.  Pursuant
to  such  agreement,  the  Company  issued  warrants  (the  "Ryan  Beck  Advisor
Warrants")  to acquire up to 25,000  shares of common stock of the Company.  The
Ryan Beck Advisor  Warrants are exercisable for three years at an exercise price
of $9.31 per share.  The funds received,  if any, upon exercise of the Ryan Beck
Advisor  Warrants will be used primarily to fund SkyMall's  on-going  e-commerce
initiatives  and working  capital  requirements.  The  issuance of the Ryan Beck
Advisor Warrants was exempt under Section 4(2) of the Securities Act of 1933, as
amended.  The resale of the shares of common stock issuable upon exercise of the
Ryan Beck Advisor Warrants has been registered under the Securities Act of 1933,
as amended.

         DURHAM NOTE  CONVERSION.  In connection  with the 1998  acquisition  of
Durham & Company, the Company issued a note in the amount of $200,000 to Mr. and
Mrs.  Durham (the "Durham  Note").  In November 1999, the parties  converted the
Durham Note into common  stock and  warrants  of the  Company.  Pursuant to such
conversion, a total of 28,838 shares of common stock were issued upon conversion
of the Durham Note,  together  with  warrants to purchase an  additional  14,420
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.  The funds  received,  if any,  upon exercise of the
warrants  will  be  used  primarily  to  fund  SkyMall's   on-going   e-commerce
initiatives  and working  capital  requirements.  The common  stock and warrants
issued  upon  conversion  of the  Durham  Note were  issued in  reliance  on the


                                       28
<PAGE>

exemption provided under Section 4(2) of the Securities Act of 1933, as amended.
The resale of the shares of common  stock issued upon  conversion  of the Durham
Note and the shares of common stock  issuable upon exercise of the warrants have
been registered under the Securities Act of 1933, as amended.

         GENESIS SELECT. In December 1999, the Company entered into an agreement
with Genesis Select for investor relations  advisory services.  Pursuant to such
agreement, the Company issued warrants (the "Genesis Warrants") to acquire up to
50,000  shares  of  common  stock  of the  Company.  The  Genesis  Warrants  are
exercisable  for three years at an exercise  prices ranging from $8.19 to $14.40
per share.  The funds  received,  if any, upon exercise of the Genesis  Warrants
will be used primarily to fund SkyMall's  on-going  e-commerce  initiatives  and
working capital  requirements.  The issuance of the Genesis  Warrants was exempt
under Section 4(2) of the Securities Act of 1933, as amended.  The resale of the
shares of common stock  issuable upon exercise of the Genesis  Warrants has been
registered under the Securities Act of 1933, as amended.

         WAND PARTNERS INC.  Pursuant to the December 30, 1999  Agreement and in
connection  with the December 30, 1999 private  placement,  Wand  Partners  Inc.
rendered advisory  services in connection with the transactions  contemplated by
the December 30, 1999 Agreement.  Pursuant to such agreement, the Company issued
warrants to Wand Partners  Inc. to acquire up to 250,000  shares of common stock
of the Company (the "Wand Partners  Warrants").  The Wand Partners  Warrants are
exercisable  for three years at an exercise price of $8.00 per share.  The funds
received,  if any,  upon  exercise of the Wand  Partners  Warrants  will be used
primarily to fund SkyMall's on-going e-commerce  initiatives and working capital
requirements.  The  issuance  of the Wand  Partners  Warrants  was exempt  under
Section 4(2) of the Securities Act of 1933, as amended. The resale of the shares
of common stock  issuable upon  exercise of the Wand Partners  Warrants has been
registered under the Securities Act of 1933, as amended.

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 1999
the fourth quarter  accounted for  approximately 42% 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 1999 and
1998.
<TABLE>
<CAPTION>

                                          YEAR ENDED                             YEAR ENDED
                           -------------------------------------   -------------------------------------
                           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     $ 9,818   $12,928   $12,464   $25,670   $ 9,234   $10,131   $ 9,657   $20,298
Placement fees and other     4,361     4,304     3,931     5,465     4,990     4,960     5,143     7,629
                           -------   -------   -------   -------   -------   -------   -------   -------
Total revenues              14,179    17,232    16,395    31,135    14,224    15,091    14,800    27,927
                           -------   -------   -------   -------   -------   -------   -------   -------
Gross margin                 6,668     7,219     7,183    11,449     6,355     6,639     7,225    12,531
                           -------   -------   -------   -------   -------   -------   -------   -------
</TABLE>


                                       29

<PAGE>
<TABLE>
<CAPTION>
                                          YEAR ENDED                             YEAR ENDED
                           -------------------------------------   -------------------------------------
                           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>
Media expenses               2,602     2,536     3,675     4,774     2,663     2,717     2,723     3,250
Selling expenses               834     1,136     1,220     1,292       864       821       816       973
Customer service and
  fulfillment expenses       1,798     1,479     1,551     2,295     1,099       912       940     2,616
General and
  administrative
  expenses                   5,033    10,015     7,134     9,967     1,761     1,939     2,223     2,844
                           -------   -------   -------   -------   -------   -------   -------   -------
Total operating expenses    10,267    15,166    13,580    18,328     6,387     6,389     6,702     9,683
                           -------   -------   -------   -------   -------   -------   -------   -------
Income (loss) from
  operations               $(3,599)  $(7,947)  $(6,397)  $(6,879)  $   (32)  $   250   $   523   $ 2,848
                           =======   =======   =======   =======   =======   =======   =======   =======
</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 and 1998 quarterly operating results
have been restated to include the combined financial results of SkyMall and Disc
Publishing, which was formed in 1998.

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.
The  statement,  which was to be applied  prospectively,  is  effective  for the
Company's  quarter ending March 31, 2000. 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 the Company's  quarter ending March 31, 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. SOP 98-1 is effective for
fiscal years beginning after December 15, 1998. The Company capitalized costs of
$5.5 million in 1999.

         In January  1999,  the Company  adopted  Statement  of  Position  98-5,
"REPORTING ON THE COSTS OF START-UP  ACTIVITIES."  This SOP provides guidance on
the  financial  reporting  of start-up  costs and  organization  costs.  The SOP
requires costs of start-up  activities and organization  costs to be expensed as
incurred.  SOP 98-5 is effective for fiscal years  beginning  after December 15,
1998.  Application  of SOP 98-5 did not have a material  impact on the Company's
financial condition, results of operations or earnings per share data.

         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


                                       30
<PAGE>

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. Prior to 1999, barter transactions were not significant.

         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 generally accepted
accounting   principles  for  revenue  recognition  in  consolidated   financial
statements.  The  issuance of SAB No. 101 did not have a material  impact on the
revenue recognition method of the Company.

SEGMENT DISCLOSURE

         The  Company  is  an  integrated  e-commerce  specialty  retailer  that
provides a vast 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  service
through its in-flight catalogs placed in the domestic and international airlines
and through the Company's Web site. The  business-to-business  segment  provides
retail merchandise services, employee logo and corporate recognition merchandise
and advertising media to other businesses  through loyalty  catalogs,  workplace
catalogs,  CD-ROM,  DVD and the  Company's  Web sites.  Previously,  the Company
defined its reportable business segments by in-flight catalog, workplace catalog
and Web sites.  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 expenses 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.


                                       31
<PAGE>

         WE  REPORTED  LOSSES IN FISCAL  1999 AND MAY NOT BE  PROFITABLE  IN THE
FUTURE.  While we have been  profitable  in the past,  we incurred a net loss of
$24,140,000 for the fiscal year ended December 31, 1999. We expect to experience
fluctuations in our future operating  results due to a variety of factors,  many
of which are outside the Company's control, including the following:

         o     the demand for our products and services,
         o     the level of competition in the merchants we serve,
         o     our  success  in  maintaining  and  expanding  our   distribution
               channels,
         o     our success in attracting  and retaining  motivated and qualified
               personnel,
         o     our ability to expand into existing and new domestic,  as well as
               international markets,
         o     our development and marketing of new products and services,
         o     our ability to control costs, and
         o     general economic conditions.

Our  operating  results will be materially  and adversely  affected if we do not
successfully address these and other risks.

         WE MAY NOT BE ABLE TO RAISE  SUFFICIENT  CAPITAL.  Our existing line of
credit is not  sufficient to permit the Company to fully  implement its business
plan.  In order to fully  implement our growth  strategy,  we will 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 and we may
be unable to fully implement our planned growth strategy.

         OUR BUSINESS MAY NOT GROW IN THE FUTURE.  Since our inception,  we have
rapidly expanded our operations, growing from total revenues of $200,000 in 1990
to total  revenues of $78.9 million in 1999.  Our  continued  future growth will
depend to a  significant  degree on our  ability to increase  revenues  from our
existing businesses, maintain existing channel partner relationships and develop
new channel partner  relationships,  expand our product and content  offering to
consumers,  while  maintaining  adequate  gross  margins,  and  implement  other
programs  that  increase  the  circulation  of the SkyMall  print  catalogs  and
generate  traffic for our  e-commerce  programs.  Our ability to  implement  our
growth strategy will also depend on a number of other factors, many of which are
or may be beyond our control, including:

         o     our ability to select  products  that appeal to our customer base
               and effectively market them to our target audience,
         o     sustained or increased levels of airline travel,  particularly in
               domestic airline markets,
         o     increasing adoption by consumers of the Internet for shopping,
         o     the continued perception by participating merchants that we offer
               an effective  marketing  channel for their products and services,
               and
         o     our ability to attract,  train and retain qualified employees and
               management.

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



                                       32
<PAGE>

         OUR FUTURE GROWTH IS IN PART DEPENDENT UPON THE CONTINUED GROWTH OF THE
ELECTRONIC  COMMERCE  MARKET.  The market for the sale of products  and services
over the  Internet  is a new and  rapidly  evolving  market.  Our future  growth
strategy is partially dependent upon the widespread acceptance and use of online
services as an avenue for retail purchases. There is no assurance that consumers
will continue to make purchases over the Internet in the future. In order for us
to grow our online  customer  base, we will need to attract  purchasers who have
historically  relied upon traditional  venues for making their retail purchases.
If use of online  services  does not  continue  to grow as  expected,  or if the
technological  infrastructure for the Internet is unable to effectively  support
its growing use, our growth  strategy,  business and financial  condition may be
materially adversely affected.

         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.  In order to manage this growth,  we may have to hire
additional personnel and develop additional management infrastructure.  There is
no  assurance  that  people with the  necessary  skills and  experience  will be
available as needed or on terms  favorable to us. There is no assurance that our
current and planned personnel, systems, procedures and controls will be adequate
to support our future operations,  that we will be able to attract, hire, 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 potential  growth,  our business and financial  condition could be adversely
affected.

         OUR PLANS FOR  INTERNATIONAL  OPERATIONS POSE ADDITIONAL RISKS. We have
limited  experience  in  selling  our  products  and  services  internationally.
International operations place additional burdens upon our management, personnel
and financial  resources and may cause the Company to incur losses. We also face
different  and  additional   competition  in  these  international  markets.  In
addition, international operations have certain unique risks, such as regulatory
requirements,  legal uncertainty  regarding  liability,  tariffs and other trade
barriers,  difficulties  in staffing and  managing  foreign  operations,  longer
payment cycles,  political instability and potentially adverse tax implications.
To the extent we operate or expand  our  business  internationally,  we also are
subject to risks associated with international  monetary exchange  fluctuations.
Any one of these risks could  affect our  international  operations,  as well as
have a material adverse impact upon our overall business operations,  growth and
financial condition.

         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 currently offers merchandise catalogs to its customers through
a competitor.  In addition,  in July 1999, TWA, a former SkyMall partner,  began
carrying a competitor's  catalog.  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


                                       33
<PAGE>

who seek to offer their products and/or services at their own Web sites or those
of other third  parties.  The success of online  marketing  cannot be  currently
determined,  and further  penetration  in this market will  require  substantial
additional  financial  resources,  acquisition  of  technology,  investments  in
marketing and contractual relationships with third parties. Results will also be
affected by existing competition,  which the Company anticipates will intensify,
and by  additional  entrants  to the market who may already  have the  necessary
technology and expertise,  many of whom may have substantially greater resources
than the Company.

         DEPENDENCE ON CHANNEL RELATIONSHIPS. Our business depends significantly
on our relationships  with the airlines,  affiliate Web sites,  hotels and other
channel  partners.  Some  of  our  agreements  with  our  channel  partners  are
short-term allowing the partner to terminate the relationship on 60-to-180 days'
advance  notice.  There is no assurance that our channel  partners will continue
their  relationships  with us,  and the  loss of one or more of our  significant
channel  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, particularly for
our  electronic  commerce   initiatives.   As  competition  in  online  shopping
intensifies, our merchant participants may be unable or unwilling to participate
in our programs when more favorable economic  arrangements may be available from
other third parties.  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 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.

         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. Prices in
the paper  market can and often do change  dramatically  over a short  period of
time. Any significant  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


                                       34
<PAGE>

sales  volume  that may  occur.  Any  extended  failure of our  information  and
telecommunications systems could have a material adverse effect on our business,
financial condition and results of operations.

         WE FACE RISKS ASSOCIATED WITH ONLINE SECURITY BREACHES OR FAILURES.  In
order to successfully make sales over the Internet,  it is necessary that we can
ensure the secure transmission of confidential  customer information over public
telecommunications  networks.  We employ certain  technology in order to protect
such information,  including customer credit card information. However, there is
no assurance that such information will not be intercepted  illegally.  Advances
in  cryptography  or other  developments  that could  compromise the security of
confidential  customer  information could have a direct negative impact upon our
electronic  commerce  business.  In addition,  the  perception by consumers that
making  purchases over the Internet is not secure,  even if unfounded,  may mean
that fewer consumers are likely to make purchases through that medium.  Finally,
any breach in security,  whether or not a result of our acts or  omissions,  may
cause us to be the subject of litigation, which could be very time-consuming and
expensive to defend.

         WE MAY NOT BE ABLE TO ADAPT TO RAPIDLY CHANGING  TECHNOLOGIES OR WE MAY
INCUR  SIGNIFICANT  COSTS IN DOING SO. The Internet is  characterized by rapidly
changing  technologies,  evolving industry  standards,  frequent new product and
service introductions, and changing customer demands. As a result of the rapidly
changing nature of the Internet business, we may be subject to risks, now and in
the future, of which we are not currently aware. To be successful, we must adapt
to our  rapidly  evolving  market by  continually  enhancing  our  products  and
services and  introducing  new  products and services to address our  customers'
changing  and   increasingly   sophisticated   requirements.   We  may  use  new
technologies   ineffectively   or  we  may   fail  to   adapt   our   e-commerce
transaction-processing systems and infrastructure to meet customer requirements,
competitive   pressures,   or  emerging  industry  standards.   We  could  incur
substantial  costs if we need to modify  our  services  or  infrastructure.  Our
business  could be  materially  and adversely  affected if we incur  significant
costs to adapt, or cannot adapt, to these changes.

         BECAUSE WE DEPEND ON COMPUTER SYSTEMS,  A SYSTEMS FAILURE WOULD CAUSE A
SIGNIFICANT  DISRUPTION TO OUR BUSINESS.  Our business,  financial condition and
results of operations  could be materially  and adversely  affected by any event
that interrupts or delays our operations.  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.  While we have taken precautions against systems failure,
interruptions could result from our failure to maintain our computer systems and
equipment in effective working order, as well as natural disasters,  power loss,
telecommunications  failure,  and similar  events.  We  currently  maintain  our
computer systems at offices located in Arizona, Utah and New York.

         In addition, our users depend on telecommunications providers, Internet
service  providers,  and network  administration  for access to our products and
services. Our systems and equipment could experience outages,  delays, and other
difficulties as a result of system failures unrelated to our systems.

         OUR EQUIPMENT MAY BE UNABLE TO SUPPORT INCREASED VOLUME.  Growth in the
number of users  accessing our Web site may strain or exceed the capacity of our
computer  and  networking  systems  or the  systems of our third  party  service


                                       35
<PAGE>

providers,  which could result in impaired  performance or systems  failure.  If
this occurs,  customer service and satisfaction may suffer,  which could lead to
dissatisfied users, reduced traffic, and an adverse impact on our business.  Our
current  systems may be inadequate to  accommodate  rapid traffic  growth on our
servers.

         WE MAY BECOME SUBJECT TO BURDENSOME GOVERNMENT  REGULATION.  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,  cross-border  commerce,
electronic commerce,  taxation,  copyright infringement,  and other intellectual
property issues.  Moreover,  the  applicability to the Internet of existing laws
governing issues such as property ownership, content, taxation,  defamation, and
personal privacy is uncertain. 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,  mail order
businesses.  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.  Changes in the regulatory  environment  relating to the
Internet  could  have a  material  adverse  effect  on our  business,  financial
condition, and results of operations.

         SECURITY  PROTECTION  FOR OUR NETWORK MAY BE  INSUFFICIENT.  We believe
that concern regarding the security of confidential information,  such as credit
card  numbers,   prevents  many  people  from  engaging  in  online   commercial
transactions.  We face potential  security breaches from within our organization
and from the public at large. If we do not maintain sufficient security,  we may
be subject to additional  legal exposure.  We have taken measures to protect the
integrity  of our  infrastructure  and the privacy of  confidential  information
contained  within  our  infrastructure.   Nonetheless,   our  infrastructure  is
potentially  vulnerable to physical or electronic break-ins,  viruses or similar
problems.  If a  person  circumvents  our  security  measures,  he or she  could
jeopardize  the  security of  confidential  information  stored on our  systems,
misappropriate proprietary information or cause interruptions in our operations.
Although we intend to continue to implement  security  measures,  such  measures
have been circumvented in the past and we cannot provide assurance that measures
we  implemented  will not be  circumvented  in the  future.  Although we do have
"firewalls" protecting our systems from outside circumvention,  such "firewalls"
do not completely protect our systems from our own employees, should one or more
of them become  inclined to inflict damage upon our systems.  We may be required
to make  significant  additional  investments  and efforts to protect against or
remedy  security   breaches.   Security   breaches  that  result  in  access  to
confidential  information could damage our reputation and expose us to a risk of
loss or  liability.  Alleviating  problems  caused by computer  viruses or other
inappropriate  uses or security breaches may require  interruptions,  delays, or
cessation in service to our  customers.  In  addition,  since we expect that our
users will  increasingly  use the Internet for  commercial  transactions  in the
future,  any malfunction or security breach could cause these transactions to be
delayed, not completed at all, or completed with compromised security.

         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  1999,  approximately  42% of our net


                                       36
<PAGE>

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.

         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  product  liability  insurance in the aggregate amount of
$2.0  million  and $1.0  million  per  occurrence.  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,  president  and chief
executive officer, and on the services of certain other executive officers.  The
loss of Mr.  Worsley's  services or of the services of certain  other  executive
officers could have a material adverse effect on our business.

         THE WORSLEYS AND WAND PARTNERS INC. CAN CONTROL MANY IMPORTANT  COMPANY
DECISIONS.  As of March 27,  2000,  Mr.  Worsley  and his wife (the  "Worsleys")
beneficially  owned 4,798,530 shares, or approximately  36.9% of our outstanding
common  stock,  and  Wand  Partners  Inc.   beneficially  owned  1,964,286,   or
approximately  15.1% of our outstanding  common stock. As a result, the Worsleys
and Wand Partners 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 and Wand Partners 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:

         o     new merchant agreements
         o     the  acquisition  or  loss  of one or  more  airline,  electronic
               commerce or other channel partners
         o     fluctuations in our operating  results
         o     analyst reports,  media stories,  Internet chat room discussions,
               news broadcasts and interviews
         o     market conditions for retailers and electronic commerce companies
               in general
         o     changes in airline fuel, paper or our other significant expenses
         o     changes  in the  commissions  we are able to  negotiate  with our
               merchants

         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.  During the
fourth  quarter of 1999,  net  merchandise  sales from the Internet  represented
approximately 30% of our net merchandise  sales.  Accordingly,  the price of our
common stock may be impacted by these or other trends.


                                       37
<PAGE>

         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:

         o     to raise additional  capital or finance  acquisitions;  or
         o     upon the  exercise  or  conversion  of  outstanding  options  and
               warrants

As of March 27, 2000, there were outstanding  warrants and options to acquire up
to 3,554,413  shares of common stock at prices  ranging from $2.13 to $24.50 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 prospectus
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 prospectus.

         WE FACE RISKS  ASSOCIATED  WITH THE YEAR 2000. As of March 27, 2000, we
have not experienced any significant  disruptions or computer  processing errors
or failures related to any Year 2000 Issues.

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

           Our  market  risk  exposure  is  limited  to the  interest  rate risk
associated with out 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  $5 million at December  31,
1999.

           The Company does not have any financial derivative instruments.



                                       38
<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, 1999 and 1998..............  F-2

Consolidated Statements of Operations for the Years Ended
   December 31, 1999, 1998 and 1997.......................................  F-3

Consolidated Statements of Shareholders' Equity for the
   Years Ended December 31, 1999, 1998 and 1997...........................  F-4

Consolidated Statements of Cash Flows for the Years Ended
   December 31, 1999, 1998 and 1997.......................................  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, 1999, 1998 and 1997...................  S-2




                                       39
<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 (the Company),  as of December 31, 1999 and
1998,  and the related  consolidated  statements  of  operations,  shareholders'
equity and cash flows for each of the three years in the period  ended  December
31, 1999.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United  States.  Those  standards  require  that we plan and  perform the
audits 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, 1999 and 1998, and the results of their  operations and their
cash  flows for the three  years in the  period  ended  December  31,  1999,  in
conformity with accounting principles generally accepted in the United States.

ARTHUR ANDERSEN LLP

Phoenix, Arizona
February 25, 2000


                                      F-1
<PAGE>

                                  SKYMALL, INC.

                           CONSOLIDATED BALANCE SHEETS
               (Amounts in thousands, except shares and par value)

                                                                 December 31,
                                                              -----------------
                                                                1999     1998
                                                              -------   -------
                                     ASSETS

Current Assets:
   Cash and cash equivalents                                  $16,060   $ 7,951
   Accounts receivable, net                                    11,994    11,444
   Inventories                                                  1,300       630
   Prepaid media costs                                          2,914     1,513
   Income tax receivable                                          968       --
   Deferred income taxes                                          --        709
                                                              -------   -------
         Total current assets                                  33,236    22,247

Property and equipment, net                                    12,869     6,474
Goodwill, net                                                   2,817     3,022
Other assets, net                                               1,327       182
                                                              -------   -------
         Total assets                                         $50,249   $31,925
                                                              =======   =======

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
   Accounts payable                                          $ 24,136   $11,663
   Accrued liabilities                                          3,979     1,217
   Unearned revenue                                             1,298     3,373
   Income taxes payable                                           --        761
   Current portion of long-term debt and capital leases            28       226
                                                              -------   -------
         Total current liabilities                             29,441    17,240

Deferred income taxes                                             --        209
Long-term debt and capital leases                               5,190       242
                                                              -------   -------
         Total liabilities                                     34,631    17,691
                                                              -------   -------
Commitments and contingencies (Note 7)

Shareholders' equity :
   Preferred stock, $0.001 par value; 10,000,000 shares
     authorized; no shares                                        --        --
   Common stock, $0.001 par value; 50,000,000 shares
     authorized; issued and outstanding shares:
     12,981,425 in 1999 and 9,005,970 in 1998                      13         9
   Additional paid-in capital                                  33,884     8,364
   Retained earnings  (deficit)                               (18,279)    5,861
                                                              -------   -------
         Total shareholders' equity                            15,618    14,234
                                                              -------   -------
         Total liabilities and shareholders' equity           $50,249   $31,925
                                                              =======   =======

              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,
                                               -----------------------------------------
                                                    1999           1998           1997
<S>                                            <C>            <C>            <C>
Revenues:
   Merchandise sales, net                      $    60,880    $    49,320    $    42,844
   Placement fees and other                         18,061         22,722         23,532
                                               -----------    -----------    -----------
         Total revenues                             78,941         72,042         66,376
Cost of goods sold                                  46,422         39,292         40,657
                                               -----------    -----------    -----------
Gross margin                                        32,519         32,750         25,719

Operating expenses:
   Media expenses                                   13,587         11,353          9,082
   Selling expenses                                  4,482          3,474          3,450
   Customer service and fulfillment expenses         7,123          5,567          4,438
   General and administrative expenses              32,149          8,767          6,340
                                               -----------    -----------    -----------
         Total operating expenses                   57,341         29,161         23,310
                                               -----------    -----------    -----------
Income (loss) from operations                      (24,822)         3,589          2,409

Interest expense                                      (283)           (32)           (71)
Interest expense to shareholders                      --             --              (28)
Interest and other income                               52            436            561
                                               -----------    -----------    -----------

Income (loss) before taxes                         (25,053)         3,993          2,871
Provision (benefit) for income taxes                  (913)         1,707            300
                                               -----------    -----------    -----------
Net income (loss)                              $   (24,140)   $     2,286    $     2,571
                                               ===========    ===========    ===========
Basic income (loss) per common share           $     (2.60)   $       .27    $       .30
                                               ===========    ===========    ===========
Diluted income (loss) per common share         $     (2.60)   $       .27    $       .30
                                               ===========    ===========    ===========
Basic weighted average shares outstanding        9,271,330      8,583,195      8,620,482
                                               ===========    ===========    ===========
Diluted weighted average shares outstanding      9,271,330      8,602,177      8,675,803
                                               ===========    ===========    ===========
</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, 1996             --      $  --       8,654,000       $      9    $     7,588      $   1,004    $     8,601

Repurchase of common
  stock                                --         --        (137,400)          --             (865)          --             (865)
Net income                             --         --            --             --             --            2,571          2,571
                                  --------------------------------------------------------------------------------------------------
Balance, December 31, 1997             --         --       8,516,600              9          6,723          3,575         10,307

Repurchase of common
  stock                                --         --         (27,000)          --             (127)          --             (127)
Stock option plans and other,
  net of mature shares
  exchanged                            --         --         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

Stock option plans                     --         --         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
                                  ==================================================================================================
</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,
                                                                         -------------------------------
                                                                           1999         1998       1997
                                                                         --------    --------   --------
<S>                                                                      <C>         <C>        <C>
Cash flows provided by (used in) operating activities:
   Net income (loss)                                                     $(24,140)   $  2,286   $  2,571
   Adjustments to reconcile net income (loss) to net cash
      (used in) provided by operating activities:
      Depreciation and amortization                                         2,360       1,118        609
      Provision for doubtful accounts                                         859         281        343
      Loss on disposal of property and equipment                              469         --         --
      Deferred income taxes and other tax effects, net                        500         878       (391)
      Change in assets and liabilities, net of effects of
        acquisition:
          (Increase) decrease in:
             Accounts receivable                                           (1,409)       (423)    (6,620)
             Inventories                                                     (670)         22        --
             Prepaid media costs                                           (1,401)        351        51
             Income tax receivable                                           (968)        --         --
             Other assets                                                  (1,317)        117       (174)
          (Decrease) increase in:
             Accounts payable                                              12,473      (2,256)     5,046
             Accrued liabilities                                            2,762      (1,413)     1,071
             Unearned revenue                                              (2,075)      2,911        --
             Income taxes payable                                            (761)        205        276
             Reserve for restructure charges                                  --          --        (165)
                                                                         --------    --------   --------
            Net cash (used in) provided by operating activities           (13,318)      4,077      2,617
                                                                         --------    --------   --------
Cash flows used in investing activities:
   Purchase of property and equipment                                      (8,847)     (3,193)    (2,760)
   Payments for acquisition, net of cash acquired                             --       (2,900)       --
                                                                         --------    --------   --------
            Net cash used in investing activities                          (8,847)     (6,093)    (2,760)
                                                                         --------    --------   --------
Cash flows provided by (used in) financing activities:
   Proceeds from long-term debt                                             7,500         195        --
   Payments on long-term debt                                              (2,550)        (60)      (951)
   Payments on notes payable to shareholders                                  --          --        (120)
   Proceeds from issuance of preferred stock, net of
     issuance costs                                                        15,727         --         --
   Proceeds from issuance of common stock, net of issuance costs            9,597         547        --
   Repurchase of common shares                                                --         (127)      (865)
                                                                         --------    --------   --------
            Net cash provided by (used in) financing activities            30,274         555     (1,936)
                                                                         --------    --------   --------
Increase (decrease) in cash and cash equivalents                            8,109      (1,461)    (2,079)

Cash and cash equivalents, beginning of  year                               7,951       9,412     11,491
                                                                         --------   ---------   --------
Cash and cash equivalents, end of year                                   $ 16,060   $   7,951   $  9,412
                                                                         ========   =========   ========
Income taxes paid                                                        $    --    $     623   $    415
                                                                         ========   =========   ========
Total interest paid                                                      $    283   $      32   $     99
                                                                         ========   =========   ========
Interest paid to shareholders                                            $    --    $     --    $     28
                                                                         ========   =========   ========
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, 1999

(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 an integrated
specialty  retailer that markets high quality  products and services via various
media,  including the SkyMall  in-flight  print  catalogs,  workplace  catalogs,
multi-media    CD-ROM    and    on    the    Internet    at     WWW.SKYMALL.COM,
WWW.SKYMALLTRAVEL.COM,  WWW.DURHAM.SKYMALL.COM  and WWW.SKYDISC.COM. The Company
maintains  minimum  levels of  inventory  related to products  sold  through the
Company's  channels.  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.

(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 and Disc
Publishing,  Inc. All significant  inter-company  accounts and transactions have
been eliminated.

         USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS

The  preparation  of  consolidated   financial  statements  in  conformity  with
generally accepted  accounting  principles 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.

         RECLASSIFICATIONS

Certain  reclassifications  have  been  made to the 1998  and 1997  consolidated
financial statements to conform with the 1999 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.


                                      F-6
<PAGE>

         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, 1999 and 1998, 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, 1999 and 1998,
was approximately $744,000 and $1,205,000, respectively.

         INVENTORIES

Inventories are stated at the lower of cost or market.  Cost is determined using
the first-in,  first-out method. Such 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.

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 $5,520,120 for 1999.

         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
method over 15 years.  Amortization  expense for 1999 and 1998 was  $204,947 and
$52,192,  respectively.  Accumulated  amortization at December 31, 1999 and 1998
was $257,139  and $52,192,  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 1999, 1998 or 1997.


                                      F-7
<PAGE>

         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.

         INCOME TAXES

The Company uses the asset and liability  method of 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  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 shipment of
product 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 product  shipment  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.  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. Revenue and expenses recognized
from barter  transactions were  approximately  $370,000 in 1999. The Company did
not recognize barter revenue and expenses in 1998 and 1997.

         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 generally accepted
accounting   principles  for  revenue  recognition  in  consolidated   financial
statements.  The  issuance of SAB No. 101 did not have a material  impact on the
revenue recognition method of the Company.


                                      F-8
<PAGE>

         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

Statement of Financial  Accounting  Standards  ("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 Accounting Principles Board
("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. The Company does not have material financial
instruments with off-balance sheet risk.


                                      F-9
<PAGE>

(3)      PROPERTY AND EQUIPMENT:

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

                                            Estimated
                                           Useful Life     December 31
                                           ----------- --------------------
                                             (Years)     1999        1998
                                           ----------- ---------  ----------
     Equipment and software                    2-10    $ 13,747    $  6,461
     Buildings and leasehold improvements     15-40       3,347       2,735
     Furniture, fixtures and other             3-7          991         668
                                                       --------    --------
                                                         18,085       9,864
     Accumulated depreciation                            (5,216)     (3,390)
                                                       --------    --------
                                                       $ 12,869    $  6,474
                                                       ========    ========


(4)      OTHER ASSETS:

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

                                            Estimated
                                           Useful Life     December 31
                                           ----------- --------------------
                                             (Years)     1999        1998
                                           ----------- ---------  ----------

     Purchased airline contracts               3-10    $ 1,323    $   323
     Other                                                 425        108
                                                       -------    -------
                                                         1,748        431
     Accumulated amortization                             (421)      (249)
                                                       -------    -------
                                                       $ 1,327    $   182
                                                       =======    =======


 (5)     LONG-TERM DEBT AND CAPITAL LEASES:

Long-term  debt  and  capital  leases  consist  of  the  following  (amounts  in
thousands):


                                      F-10
<PAGE>

                                                        December 31,
                                                    ------------------
                                                      1999       1998
                                                    -------    --------
     Revolving line of credit                       $ 5,000    $  --

     Note payable to employee, interest at 6%,
     due October 2001                                   180        198

     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              38         70

     Note payable, interest at 9%, paid in 1999        --          200
                                                    -------    -------
                                                      5,218        468
     Less current portion                               (28)      (226)
                                                    -------    -------
                                                    $ 5,190    $   242
                                                    =======    =======

At December 31, 1999,  aggregate annual maturities of long-term debt and capital
leases were as follows (amounts in thousands):

     2000                                           $   28
     2001                                            5,190
                                                    ------
                                                    $5,218
                                                    ======

In June 1999, the Company  obtained a $10 million  revolving line of credit (the
"Line") from a bank that matures in May 2001. At the Company's option,  advances
made  on the  Line  bear  interest  at  either  Prime  or  LIBOR.  The  Line  is
collateralized  by  substantially  all  assets  of  the  Company,  and  contains
covenants that require  maintenance  of certain  financial  ratios.  The balance
outstanding on the Line at December 31, 1999 was $5,000,000.

(6)      SEGMENT AND RELATED INFORMATION:

The Company is an integrated  e-commerce specialty retailer that provides a vast
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,  employee logo and corporate  recognition  merchandise and
advertising  media to  other  businesses  through  loyalty  catalogs,  workplace
catalogs,  CD-ROM,  DVD and the  Company's  Web site.  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.


                                      F-11
<PAGE>

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 the  consolidated  financial  statements.
Inter-segment transactions are not significant.

Revenues and gross margin for the business  segments are as follows  (amounts in
thousands):

                           Business-to-    Business-to-
December 31,                Consumer         Business      Corporate     Total
--------------------------------------------------------------------------------
1999

Revenues                    $70,018          $ 8,923        $  --       $78,941
Gross margin                 29,491            3,028           --        32,519
Operating expenses              --               --         57,341       57,341
Income (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
Income (loss) from
  operations                                                              3,589
--------------------------------------------------------------------------------
1997

Revenues                    $66,376          $    --         $  --      $66,376
Gross margin                 25,719               --            --       25,719
Operating expenses              --                --        23,310       23,310
Income (loss) from
  operations                                                              2,409
--------------------------------------------------------------------------------

Identifiable  assets  available  to support the  Company's  business-to-business
segment  approximate  $4,587,000  and  $4,371,000 at December 31, 1999 and 1998,
respectively.  There were no  identifiable  assets for the  business-to-business
segment at December 31, 1997. The remaining assets which are combined to support
the  Company's  two  reportable  business  segments,   approximate  $45,662,000,
$27,554,000 and $26,634,000 at December 31, 1999, 1998 and 1997, respectively.

 (7)     COMMITMENTS AND CONTINGENCIES:

         LITIGATION

The Company is from time-to-time subject to complaints and claims arising in the
ordinary  course of business.  Management  believes  that none of the claims and
complaints of which it is currently aware will  materially  affect its business,
financial  position,  or future operating results,  although no assurance can be
given with respect to the ultimate outcome of any such claims or with respect to
the occurrence of any future claims.

         A  purchaser  of  products  through a SkyMall  catalog  filed an action
alleging  that SkyMall  improperly  collected  from her certain  state and local
taxes  relating  to her  purchase.  Plaintiff  brought  the  action on behalf of
herself  and a class of persons in the United  States  similarly  situated.  She
alleged causes of action for unjust enrichment,  fraud, breach of contract,  and


                                      F-12
<PAGE>

declaratory  judgment,  and seeks return of allegedly unlawful revenue collected
with interest,  an injunction against collecting taxes improperly,  compensatory
and punitive damages,  and attorneys' fees and costs. While the Company believed
her claims  were  substantially  without  merit,  in order to  minimize  overall
litigation risks and ongoing litigation costs, and to reduce the management time
and attention  required to be devoted to this matter, the Company entered into a
Settlement  Agreement  with  Plaintiff and the alleged  class.  As a part of the
agreement, the Company has agreed, among other things, to offer discounts during
2000 to SkyMall  customers who purchased  merchandise  from the Company prior to
December 31, 1998.  The agreement also calls for SkyMall to issue to Plaintiff's
attorneys  approximately  65,000  shares of common  stock valued at $600,000 and
$100,000 cash. The Company recorded a reserve for this settlement amount and the
related  expenses in the second quarter of 1999 in the amount of $1.436 million,
representing  approximately  $700,000 payable to Plaintiff's  attorneys in stock
and cash, $356,000 in anticipated  customer discounts  associated with the offer
to customers and $380,000 in professional fees incurred.

         A  securities  class action  complaint  was filed  against  SkyMall and
Robert Worsley,  the Company's Chief Executive  Officer,  Chairman and principal
shareholder,  in  connection  with  certain  disclosures  made by the Company in
December 1998 relating to its Internet  sales.  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
has filed a Motion to Dismiss.  SkyMall believes that the allegations against it
and Mr. Worsley are substantially without merit and intends to vigorously defend
the lawsuit.

         RGC  International  Investors,  LDC,  the  parent  company of Rose Glen
Capital Management,  filed a complaint alleging that the Company was required to
close on a  transaction  for an equity  investment  in SkyMall.  The Company has
filed a Petition for Removal to move the case to Delaware Federal Court, and has
filed a motion  for  dismiss on the basis  that the  complaint  fails to state a
claim upon which relief can be granted.  SkyMall  believes that the  allegations
against it are substantially without merit and intends to vigorously defend this
lawsuit.

         LEASES

The  Company  has  entered  into  several  operating  leases for  equipment  and
facilities.  As of December 31, 1999,  the future  minimum  payments under these
leases are as follows (amounts in thousands):

         2000                                      $  1,840
         2001                                         1,316
         2002                                           730
         2003                                            91
         2004                                            55
         Thereafter                                     512
                                                   --------
                                                   $  4,544
                                                   ========

Other equipment and property are leased on a monthly basis.  Total lease expense
for the  years  ended  December  31,  1999,  1998  and  1997  was  approximately
$1,299,000, $141,000, and $106,000, respectively.



                                      F-13
<PAGE>

         LEASE REVENUE

The Company  leases  certain of its  facilities  to others under  non-cancelable
leases and month-to-month  agreements.  Lease revenue of approximately $185,000,
$74,000  and  $99,000  for the years ended  December  31,  1999,  1998 and 1997,
respectively,  is  included  in interest  and other  income in the  accompanying
consolidated financial statements. As of December 31, 1999, future minimum lease
payments to be received under  non-cancelable  leases are as follows (amounts in
thousands):

         2000                                      $    176
         2001                                           179
         2002                                           117
         2003                                           105
         2004                                           105
                                                   --------
                                                   $    682
                                                   ========

         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,
1999,  1998 and  1997  were  approximately  $116,000  ,  $77,000,  and  $33,000,
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 $850,000 for 2000 and 2001.

(8)      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 1,500,000  shares of common stock at an exercise
price of not less than fair market value at the date of grant.

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.


                                      F-14
<PAGE>

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  limitations.  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, 1999,  1998 and
1997, and changes  during the years ended December 31, 1999,  1998 and 1997, are
presented in the table below (share amounts in thousands):
<TABLE>
<CAPTION>
                                                              December 31,
                                     ----------------------------------------------------------------
                                            1999                  1998                   1997
                                     ------------------    -------------------    -------------------
                                               Average                Average                Average
                                               Exercise               Exercise               Exercise
                                     Shares    Price       Shares     Price       Shares     Price
                                     ------    --------    ------     --------    ------     --------
<S>                                  <C>       <C>         <C>        <C>         <C>        <C>
Outstanding at beginning of period      544    $   5.82       604     $   6.39       458     $   6.21
Granted                                 636       13.42       312         4.66       319         6.52
Exercised                               (13)       3.62      (106)        6.89       --          --
Forfeited                              (159)      10.63      (266)        6.67      (173)        6.13
Expired                                 --         --         --          --         --          --
                                     ------    --------    ------     --------    ------     --------
Outstanding at end of period          1,008    $   9.88       544     $   5.82       604     $   6.39
                                     ======    ========    ======     ========    ======     ========
</TABLE>


Stock options  outstanding  and exercisable at December 31, 1999, are as follows
(option amounts in thousands):

                               Outstanding                Exercisable
                        --------------------------    ------------------
          Exercise                         Average               Average
           Price                 Average  Exercise              Exercise
           Range        Options  Life(a)    Price     Options    Price
     ---------------    -------  -------  --------    -------   --------
     $ 2.13   $ 5.56       336      8.67   $ 4.46         226    $ 4.65
       7.00    12.81       468      8.99     9.43         129      9.12
      13.19    24.50       204      9.26    19.83         --        --
     ---------------    ------    ------   ------     -------    ------
     $ 2.13   $24.50     1,008      8.93   $ 9.88         355    $ 6.27
     ===============    ======    ======   ======     =======    ======

     (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


                                      F-15
<PAGE>

interest rate of 5.5%,  expected  life of 1 to 10 years,  dividend rate of zero,
and expected  volatility of approximately 107%, 77%, and 45% for 1999, 1998, and
1997, respectively. Using these assumptions, the fair value of the stock options
granted in 1999,  1998,  and 1997 is  approximately  $5,200,000,  $930,000,  and
$709,000,  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,
                                                              -----------------------------------
                                                                 1999          1998        1997
                                                              ----------     --------   ---------
<S>                                                           <C>            <C>        <C>
     Net income (loss) available to common shareholders:
       As reported                                            $  (24,140)    $  2,286   $   2,571
       Pro forma                                                 (25,182)       2,167       2,378

     Basic net income (loss) per common share:
       As reported                                            $    (2.60)    $    .27    $    .30
       Pro forma                                                   (2.72)         .25         .28

     Diluted net income (loss) per common share:
       As reported                                            $    (2.60)    $    .27    $    .30
       Pro forma                                                   (2.72)         .25         .27
</TABLE>

         STOCK WARRANTS

A summary of the status of the Company's Stock Purchase Warrants at December 31,
1999,  1998 and 1997, and changes during the years ended December 31, 1999, 1998
and 1997, are presented in the table below (share amounts in thousands):
<TABLE>
<CAPTION>
                                                              December 31,
                                     ----------------------------------------------------------------
                                            1999                  1998                   1997
                                     ------------------    -------------------    -------------------
                                               Average                Average                Average
                                               Exercise               Exercise               Exercise
                                     Shares    Price       Shares     Price       Shares     Price
                                     ------    --------    ------     --------    ------     --------
<S>                                  <C>       <C>         <C>        <C>         <C>        <C>
Outstanding at beginning of period      358    $   8.18       539     $   8.59       439     $   8.73
Granted                               2,499        8.04       --          --         100         8.00
Exercised                              (294)       8.21      (181)        9.42       --           --
Expired                                 (14)       8.00       --          --         --           --
                                     ------    --------   -------     --------    ------     --------
Outstanding at end of period          2,549    $   8.04       358     $   8.18       539     $   8.59
                                     ======    ========   =======     ========    ======     ========
</TABLE>

The Company has 2,548,746 warrants outstanding warrants to purchase common stock
at prices  ranging from $7.00 to $9.60 per share with an average  exercise price
of $8.04 per share.  These warrants  expire five years from the date of issuance
and have an average contractual life remaining of 4.29 years.


                                      F-16
<PAGE>

(9)      INCOME TAXES:

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

<TABLE>
<CAPTION>
                                                             Year Ended
                                                            December 31,
                                                -----------------------------------
                                                   1999          1998        1997
                                                ----------     --------   ---------
<S>                                             <C>            <C>        <C>
       Current:
         Federal                                $     (917)    $  1,374   $     587
         State                                        (496)         364         104
                                                ----------     --------   ---------
                Total current                       (1,413)       1,738         691
                                                ----------     --------   ---------
       Deferred:
            Federal                                    425          (26)       (332)
            State                                       75           (5)        (59)
                                                ----------      -------   ---------
                Total deferred                         500          (31)       (391)
                                                ----------      -------   ---------
       Provision (benefit) for income taxes     $     (913)     $ 1,707   $     300
                                                ==========      =======   =========
</TABLE>

The provision (benefit) for income taxes is different from the statutory Federal
income tax rate primarily due to the following:
<TABLE>
<CAPTION>
                                                             Year Ended
                                                            December 31,
                                                -----------------------------------
                                                   1999          1998        1997
                                                ----------     --------   ---------
<S>                                                <C>            <C>         <C>
       Federal statutory rate                      (34)%          34%         34%
       Change in deferred tax asset
         valuation allowance                        37            --         (32)
       State taxes, net of federal benefit          (5)            6           6
       Other                                        (2)            3           2
                                                   -----          ---        ---
       Income tax  provision (benefit)              (4)%          43%        10%
                                                   =====          ===        ===
</TABLE>

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


                                      F-17
<PAGE>
                                                                 December 31,
                                                             ------------------
                                                              1999       1998
                                                            -------    --------

       Deferred tax assets:

            Nondeductible charges including bad
              debts, sales returns and other                $1,163     $   526
            Accrued liabilities                                319         113
            Other                                              138          70
            Net operating loss carry forward                 8,261         --
            Valuation allowance                             (9,317)        --
                                                            ------     -------
       Deferred tax assets                                     564         709
                                                            ------     -------
       Deferred tax liabilities:

            Tax depreciation in excess of book
              depreciation                                     564         209
                                                            ------     -------
       Net deferred tax assets                              $  --      $   500
                                                            ======     =======

The  valuation  allowance  for  deferred  tax assets as of December 31, 1999 was
$9,317,000. As of December 31, 1999, the Company has approximately $20.6 million
of federal net operating loss  carryforwards  which may be used to offset future
taxable income. These loss carryforwards begin to expire in 2019.

(10)     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:

       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
                                             ==========

                                      F-18
<PAGE>

The following  unaudited  consolidated pro forma  information is presented as if
the Durham & Company  acquisition  had occurred at the  beginning of the periods
presented.

                                                                  Year Ended
                                                                 December 31,
                                                             ------------------
                                                              1999       1998
                                                            -------    --------

       Total revenues                                       $74,974    $ 70,798
       Net income                                             2,124       2,453
       Basic income per common share                            .25         .28
       Diluted income per common share                          .25         .28

The 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 periods  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).

<TABLE>
<CAPTION>
                                                             Year Ended
                                                            December 31,
                                                -----------------------------------
                                                   1999          1998        1997
                                                ----------     --------   ---------
<S>                                             <C>            <C>          <C>
       REVENUES:
       SkyMall, Inc.                            $  78,710      $ 72,042     $ 66,376
       Disc Publishing, Inc.                          231           --           --
                                                ---------      --------     --------
                Total revenues                  $  78,941      $ 72,042     $ 66,376
                                                =========      ========     ========

       NET INCOME (LOSS):
       SkyMall, Inc.                            $(23,437)      $  2,551     $  2,571
       Disc Publishing, Inc.                        (703)          (265)         --
                                                --------       --------     --------
                Total net income (loss)         $(24,140)      $  2,286     $  2,571
                                                ========       ========     ========
</TABLE>


(11)     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


                                      F-19
<PAGE>

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.

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.  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.


                                      F-20
<PAGE>

(12)     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,
                                                   -----------------------------------
                                                      1999          1998        1997
                                                   ---------      --------   ---------
<S>                                                <C>            <C>        <C>
       Basic income (loss) per common share:
         Income (loss) available to common
           shareholders                            $ (24,140)     $  2,286   $   2,571
                                                   =========      ========   =========
         Weighted average shares outstanding           9,271         8,583       8,621
                                                   =========      ========   =========
         Basic income (loss) per common share      $   (2.60)     $    .27   $     .30
                                                   =========      ========   =========
</TABLE>
<TABLE>
<CAPTION>
                                                                Year Ended
                                                               December 31,
                                                   -----------------------------------
                                                      1999          1998        1997
                                                   ----------     --------   ---------
<S>                                                <C>            <C>        <C>
       Diluted income (loss) per common share:
            Income (loss) available to common
              shareholders                         $ (24,140)     $  2,286    $  2,571
                                                   =========      ========    ========
            Weighted average shares outstanding        9,271         8,583       8,621
            Dilutive effect of options and
              warrants assumed converted                 --             19          55
                                                   ---------      --------   ---------
            Total weighted average shares
              outstanding plus assumed
              conversions                              9,271         8,602       8,676
                                                   =========      ========    ========

            Diluted income (loss) per common share $   (2.60)     $    .27    $    .30
                                                   =========      ========    ========
</TABLE>

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

(13)     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, 1999,
1998 and 1997, is as follows:

                                                      Year Ended
                                                     December 31,
                                         -----------------------------------
                                            1999          1998        1997
                                         ----------     --------   ---------

       Number of merchants                    2             2          2
       Percentage of total merchandise
         sales and placement fees            21%           21%        24%


                                      F-21
<PAGE>

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

Net merchandise sales originating from the Company's five largest  participating
airlines  approximated  51%, 72% and 79% for the years ended  December 31, 1999,
1998 and 1997, respectively.


(14)     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  $485,000,  $343,000  and  $200,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.

At  December  31,  1998,  the  Company   recorded  an  employee   receivable  of
approximately  $401,000 for the exercise price of employee  stock options.  This
receivable was collected in 1999.

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, 1999 and 1998 the balance
outstanding was $180,000 and $198,000, respectively.

The  Company  has an  agreement  with a  company,  which  is owned by one of the
Company's officers, to provide professional  services.  Expenses related to this
agreement totaled $97,000 during 1999.

The  Company  has 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 $45,000 during 1999.

The  Company  has  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 $71,000 in 1999.


                                      F-22
<PAGE>





                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To SkyMall, Inc.:

We have audited, in accordance with auditing standards generally accepted in the
United States, the financial  statements of SKYMALL,  INC. AND SUBSIDIARIES (the
Company)  included in this Annual Report filed on Form 10-K, and have issued our
report  thereon dated  February 25, 2000.  Our audit was made for the purpose of
forming an  opinion  on the basic  financial  statements  taken as a whole.  The
schedule 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 is not part of the  basic  financial  statements.  This
schedule has been subjected to the auditing  procedures  applied in the audit of
the  basic  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 financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Phoenix, Arizona
February 25, 2000




                                       S-1
<PAGE>


                                  SKYMALL, INC.

                                   SCHEDULE II

                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

           FOR THE FISCAL YEARD ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>

                                    Balance at                  Charged                             Balance at
                                    Beginning     Expense       to Other                              End of
                                    of Period     Recorded      Accounts           Other            of Period
                                    --------------------------------------------------------------------------
<S>                                 <C>          <C>           <C>             <C>                  <C>
Allowance for doubtful accounts:
   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
   Year ended December 31, 1997      2,140,562       342,764          --         (2,060,996)(1)         422,330

General Reserves(3):
   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
   Year ended December 31, 1997           --         200,000          --                --              200,000
</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


                                      S-2

<PAGE>

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

         Not applicable.











                                       40
<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 9, 2000 (the "2000
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 2000
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 2000 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 2000 Annual Meeting.


                                       41
<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,
                     1999 and 1998                                         F-2
                  Consolidated Statements of Operations for the
                     Years Ended December 31, 1999, 1998 and 1997          F-3
                  Consolidated Statements of Shareholders' Equity
                     for the Years Ended December 31, 1999, 1998
                     and 1997                                              F-4
                  Consolidated Statements of Cash Flows for the
                     Years Ended December 31, 1999, 1998 and 1997          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,
                     1999, 1998 and 1997                                   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)


                                       42
<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)
10.3     Employment Agreement between the Company and Curtis D. Brown    (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)


                                       43
<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)


                                       44
<PAGE>

EXHIBIT                                                               METHOD OF
NUMBER   DESCRIPTION                                                   FILING

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)
21       Subsidiaries of Registrant                                       *
23       Consent of Independent Public Accountants                        *
24       Powers of Attorney                                              See
                                                                       Signature
                                                                         Page
27       Financial Data Schedule                                          *

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

*    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

         The Company  filed one report on Form 8-K during the fourth  quarter of
1999, as follows:

         o     Form 8-K filed October 5, 1999 to report the  acquisition of Disc
               Publishing, Inc.


                                       45
<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
                                           President 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 MARK E. TRUXAL, 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, 2000
------------------------    President and Chief Executive
Robert M. Worsley           Officer (Principal Executive
                            Officer)

/s/ Mark E. Truxal          Vice President and Controller      March 30, 2000
------------------------    (Principal Financial and
Mark E. Truxal              Accounting Officer)


/s/ Lyle R. Knight           Director                          March 30, 2000
------------------------
Lyle R. Knight


                                       46
<PAGE>

     Signature                      Title                            Date
     ---------                      -----                            ----


/s/ Thomas J. Litle          Director                          March 30, 2000
------------------------
Thomas J. Litle


/s/ Randy Petersen           Director                          March 30, 2000
------------------------
Randy Petersen


/s/ David J. Callard         Director                          March 30, 2000
------------------------
David J. Callard



                                       47
<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)
10.3     Employment Agreement between the Company and Curtis D. Brown    (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)


                                       48
<PAGE>

EXHIBIT                                                               METHOD OF
NUMBER   DESCRIPTION                                                   FILING

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)
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)


                                       49
<PAGE>

EXHIBIT                                                               METHOD OF
NUMBER   DESCRIPTION                                                   FILING

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)
10.17(d) Form of Advisory Fee Warrant issued to Wand Partners Inc.
         pursuant to the December 30, 1999 Private Placement             (12)
21       Subsidiaries of Registrant                                       *
23       Consent of Independent Public Accountants                        *
24       Powers of Attorney                                              See
                                                                       Signature
                                                                         Page
27       Financial Data Schedule                                          *

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

*    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).


                                       50