UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

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

               FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005

/ /   TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT



                        Commission File Number: 00-19813

                               InfoNow Corporation
         ---------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)


             Delaware                                  04-3083360
             --------                                  ----------
     (State of Incorporation)           (I.R.S. Employer Identification No.)

            1875 Lawrence Street, Suite 1100, Denver, Colorado, 80202
            ---------------------------------------------------------
                    (Address of principal executive offices)

                                  303-293-0212
                                  ------------
                           (Issuer's telephone number)

Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 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
                                    -----     -----
As of May 11, 2005, there were 10,055,398 shares of the Issuer's common stock
outstanding.

Transitional Small Business Disclosure Format (Check one):   Yes        No  X
                                                                 -----     -----

<PAGE>


                               INFONOW CORPORATION

                                      INDEX
                                      -----

                                                                        Page No.
                                                                        --------
                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

         Unaudited Balance Sheet - March 31, 2005.............................3

         Unaudited Statements of Operations - For the Three Months
           Ended March 31, 2005 and March 31, 2004............................4

         Unaudited Statements of Cash Flows - For the Three Months
           Ended March 31, 2005 and March 31, 2004............................5

         Notes to Unaudited Financial Statements..............................6


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION...........12

ITEM 3.  CONTROLS AND PROCEDURES.............................................25


                      PART II. OTHER INFORMATION

ITEM 6.  EXHIBITS............................................................26

         SIGNATURES..........................................................27

                                       2
<PAGE>

<TABLE>
<CAPTION>

                          PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements.

                                             INFONOW CORPORATION
                                                BALANCE SHEET
                                 (In Thousands, Except Share Information)
                                                 (Unaudited)

                                                                                          MARCH 31,
                                                                                            2005
                                        ASSETS                                            ---------
                                        ------
<S>                                                                                      <C>
CURRENT ASSETS:
    Cash and cash equivalents                                                             $  3,304
    Accounts receivable:
      Billed, net of allowance of $153                                                       1,289
      Unbilled                                                                                  60
    Prepaid expenses and other current assets                                                  310
                                                                                          --------
         Total current assets                                                                4,963
                                                                                          --------

PROPERTY AND EQUIPMENT, net                                                                    408

OTHER ASSETS AND DEFERRED CHARGES                                                               21
                                                                                          --------

TOTAL ASSETS                                                                              $  5,392
                                                                                          ========

                        LIABILITIES AND STOCKHOLDERS' EQUITY
                        ------------------------------------
CURRENT LIABILITIES:
    Capital leases                                                                        $     38
    Accounts payable                                                                           457
    Payroll related liabilities                                                                621
    Other liabilities                                                                           43
    Short-term deferred revenues                                                             1,510
                                                                                          --------
         Total current liabilities                                                           2,669

    Long-term deferred revenues                                                                 20
    Deferred rent                                                                              125

COMMITMENTS AND CONTINGENCIES (Note 2)

STOCKHOLDERS' EQUITY:
    Preferred stock, $.001 par value; 1,712,335 shares authorized
         Series A Convertible, 213,483 shares authorized, none issued and
         outstanding. - Series B Convertible Participating Preferred Stock,
         550,000 shares authorized, none issued and outstanding                               --
    Common stock, $.001 par value; 40,000,000 shares authorized;
         10,055,398 issued and outstanding                                                      10
    Additional paid-in capital                                                              40,146
    Accumulated deficit                                                                    (37,578)
                                                                                          --------
         Total stockholders' equity                                                          2,578
                                                                                          --------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                $  5,392
                                                                                          ========

                            See notes to the unaudited financial statements.

                                                 3
<PAGE>


                               INFONOW CORPORATION
                            STATEMENTS OF OPERATIONS
                  (In Thousands, Except Per Share Information)
                                   (Unaudited)



                                                        THREE MONTHS ENDED MARCH 31,
                                                           2005          2004
                                                         --------      --------
REVENUES:
     Service and other fees                              $  1,748      $  2,313
     Implementation fees                                      501           568
     Software license fees                                     23           118
                                                         --------      --------
         Total revenues                                     2,272         2,999

COST OF REVENUES                                            1,733         1,315
                                                         --------      --------

GROSS MARGIN                                                  539         1,684

OPERATING EXPENSES:
    Selling and marketing                                     403           587
    Product development                                       199           258
    General and administrative                              1,059           727
                                                         --------      --------
         Total operating expenses                           1,661         1,572
                                                         --------      --------

INCOME (LOSS) FROM OPERATIONS                              (1,122)          112

OTHER INCOME (EXPENSE):
    Interest income                                            15             5
    Interest expense                                           (2)           (3)
                                                         --------      --------
         Total other income                                    13             2
                                                         --------      --------

NET INCOME (LOSS)                                        $ (1,109)     $    114
                                                         ========      ========

NET INCOME (LOSS) PER COMMON SHARE:
    Basic                                                $   (.11)     $    .01
    Fully diluted                                        $   (.11)     $    .01
                                                         ========      ========

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
    Basic                                                  10,052         9,817
    Fully diluted                                          10,052        11,404
                                                         ========      ========

                See notes to the unaudited financial statements.

                                        4
<PAGE>


                                          INFONOW CORPORATION
                                        STATEMENTS OF CASH FLOWS
                                             (in Thousands)
                                               (Unaudited)

                                                                          THREE MONTHS ENDED MARCH 31,
                                                                           2005                 2004
                                                                          -------              -------
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income (loss)                                                     $(1,109)             $   114
    Adjustments to reconcile net income to net cash provided by
         operating activities:
         Depreciation and amortization                                         82                  114
         Loss on asset disposition                                              1                 --
         Allowance for bad debt                                               118                 --
         Changes in operating assets and liabilities:
             Accounts receivable                                              (41)                 (54)
             Other current assets                                             167                  (54)
             Other assets and deferred charges                                  1                    1
             Accounts payable                                                 107                   56
             Payroll related and other liabilities                            108                   36
             Deferred revenue                                                 142                   97
                                                                          -------              -------
         Net cash provided by (used in) operating activities                 (424)                 310

CASH FLOWS FROM INVESTING ACTIVITIES:

    Purchase of property and equipment                                        (28)                 (88)

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from exercise of stock options                                    10                  350
    Principal payments on debt obligations                                    (18)                 (17)
                                                                          -------              -------
         Net cash provided by (used in) financing activities                   (8)                 333

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                         (460)                 555

CASH AND CASH EQUIVALENTS, beginning of period                              3,764                3,299
                                                                          -------              -------

CASH AND CASH EQUIVALENTS, end of period                                  $ 3,304              $ 3,854
                                                                          =======              =======

SUPPLEMENTAL CASH FLOW INFORMATION:
    Cash paid for interest                                                $     1              $     3
                                                                          =======              =======

                           See notes to the unaudited financial statements.

                                                 5
</TABLE>

<PAGE>


                               INFONOW CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)


1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
   ------------------------------------------------------------

   Organization and Business Activity - Unless otherwise indicated, all
   references in this Form 10-QSB to "InfoNow" or the "Company" refer to InfoNow
   Corporation. The Company was incorporated under the laws of the State of
   Delaware on October 29, 1990. The Company provides channel visibility and
   channel management solutions, in the form of software and services, to
   companies that sell their products through complex networks of distributors,
   dealers, resellers, retailers, agents or branches (i.e., "channel partners").
   Companies use InfoNow's software and services to collaborate with their
   channel partners to create demand, increase revenues, lower operating costs,
   calculate sales commissions, and maximize the return on investment of their
   channel strategies.

   The accompanying interim condensed financial statements are unaudited but, in
   the opinion of management, reflect all adjustments (consisting of those of a
   normal recurring nature) necessary in order to make the financial statements
   not misleading. The results of operations for any interim period are not
   necessarily indicative of results for the full year. These condensed
   financial statements should be read in conjunction with the financial
   statements and notes thereto contained in the Company's previous filings with
   the U.S. Securities and Exchange Commission.

   Use of Estimates - The preparation of financial statements in conformity with
   accounting principles generally accepted in the United States of America
   requires management to make estimates and assumptions that affect the
   reported amounts of assets and liabilities and disclosure of contingent
   assets and liabilities at the date of the financial statements and the
   reported amounts of revenues and expenses during the reporting period. Actual
   results could differ from those estimates and the differences could be
   material. Significant estimates include the estimate of a client life, over
   which deferred revenue and implementation expenses are recognized; the
   percentage of completion on client contracts; the percentage of hours that
   technical staff devote to activities related to the cost of revenues versus
   product development activities, which drives the allocation of related costs;
   and the allowance for doubtful accounts.

   Cash and Cash Equivalents - The Company considers all highly liquid
   investments with original maturity dates of three months or less to be cash
   equivalents. The Company's excess cash is maintained in a money market fund.

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

   Revenue Recognition - The Company offers its software and services to clients
   in two forms. The first (and historical) method utilizes an application
   service provider, or ASP, model. Under this business model, the Company sells
   the right to use its software for the term of a specific agreement, and it
   implements and hosts that solution to meet specific client requirements.

                                       6

<PAGE>


   Accordingly, the Company charges the client an implementation fee, a managed
   service fee and, in many cases, variable monthly fees. The implementation fee
   and related direct costs are deferred and recognized ratably over the longer
   of the expected client life or contract term. Managed service fees and
   variable monthly fees are recognized as services are performed.

   The second method of delivering software and services is via a license-hosted
   model. Under this model, the Company sells its clients a perpetual license
   for its software. The client can install the software on their own in-house
   systems, or, as is most often the case, the Company will host the software
   and perform related services under a managed services agreement.

   Sales of solutions under the license-hosted model typically include a
   software license fee, an implementation fee, a software maintenance fee, a
   managed service fee and, in many cases, variable monthly fees. The Company
   establishes vendor specific objective evidence, or VSOE, of fair value for
   the software maintenance fee and managed service fee elements of a contract
   based on the following two considerations: 1) they are sold independently of
   the other elements in a contract, and independently of each other; and 2)
   these services generally are, and have historically been, renewed in
   subsequent years (independent of the other elements) at the same fees charged
   when all elements are sold together. Therefore, the VSOE of fair value for
   each of such services can be properly determined by reference to the
   applicable clients' contractual fee rates relating to those services.

   The Company is not, however, currently able to establish VSOE of fair value
   for the software license and implementation fee elements of its contracts.
   Therefore, it uses the residual value method to recognize revenue in
   accordance with Statement of Position 97-2, Software Revenue Recognition
   ("SOP 97-2"). Using this method, revenue from the managed service and
   software maintenance elements of a contract is recognized ratably over the
   term of the managed service arrangement and the software maintenance
   arrangement, respectively. Since the Company is currently unable to establish
   VSOE of fair value for the software license fee and implementation fee
   components of a contract and the installation services are essential to the
   functionality of the software, the Company applies contract accounting to
   both the software license and implementation elements of the arrangement in
   accordance with Accounting Research Bulletin No. 45, Long-Term
   Construction-Type Contracts ("ARB 45") and Statement of Position 81-1,
   Accounting for Performance of Construction-Type and Certain Production-Type
   Contracts ("SOP 81-1"). Accordingly, license and implementation revenues are
   recognized on a percentage of completion basis. As changes occur in the
   estimate of completion percentage, revenue recognition is adjusted
   accordingly. The estimate of completion percentage is based on the ratio of
   the actual effort spent on a project as of the financial statement date to
   the estimate of total effort to complete the implementation. Losses are
   recognized immediately if projected direct costs exceed anticipated revenues.
   During the first quarter of 2005, the Company recognized $70,000 in estimated
   implementation losses related to projects for which direct costs are
   projected to exceed implementation fee revenue. Revenue from variable monthly
   fees is recognized as services are performed.

   The Company has historically sold its solutions primarily through direct
   sales efforts; however, when the Company sells solutions through a reseller
   channel it recognizes revenue consistent with the methods described above.

                                       7

<PAGE>


   Income Taxes - The Company accounts for its income tax assets and liabilities
   in accordance with SFAS No. 109, Accounting for Income Taxes ("SFAS No.
   109"). SFAS No. 109 requires recognition of deferred tax assets and
   liabilities for the expected future income tax consequences of transactions.
   Under this method, deferred tax assets and liabilities are determined based
   on the difference between the financial statement and tax basis of assets and
   liabilities using enacted tax rates in effect for the year in which the
   differences are expected to reverse. Net deferred tax assets are then reduced
   by a valuation allowance for amounts that do not satisfy the realization
   criteria of SFAS No. 109. As a result of the valuation allowance, the Company
   had no net deferred tax assets at March 31, 2005.

   Stock Compensation Expense - The Company records its stock compensation
   expense in accordance with SFAS No. 123, Accounting for Stock-Based
   Compensation ("SFAS No. 123"). SFAS No. 123 specifies a fair value based
   method to measure compensation cost of issued stock options and similar
   instruments issued using a Black-Scholes model or other comparable method.
   However, the Company has elected an option under SFAS No. 123 that allows a
   company to continue to recognize compensation cost for employees and
   directors in accordance with the guidance in Accounting Principles Board No.
   25 and disclose the pro forma results of operations as if SFAS No. 123 had
   been applied to the financial statements. Transactions in which the Company
   issues stock options or other equity instruments to acquire goods or services
   from non-employees are accounted for in accordance with SFAS No. 123. The
   Company accounts for stock compensation for employees via the intrinsic value
   method and for non-employees via the fair value method. The intrinsic value
   method results in no compensation expense for new stock option grants because
   the market value and strike price of the stock option grant are the same on
   the grant date. Had compensation cost for the Company's plans been determined
   consistent with SFAS No. 123, the Company's net loss and loss per share would
   have been increased to the pro forma amounts indicated below:

                                                   Three Months Ended March 31,
                                                         2005          2004
                                                         ----          ----
                                                          (In thousands,
                                                    except per share amounts)

   Net Income (Loss)
      As reported                                      $(1,109)      $   114
      Add: Stock-based employee compensation
        expense included in reported net
        income, net of tax effect of $0                   --            --
      Deduct: Total stock-based employee
        compensation expense determined under
        fair value based method for all
        awards, net of tax effect of $0                   (292)         (342)
                                                       -------       -------
   Pro forma                                           $(1,401)      $  (228)
                                                       =======       =======

   Earnings (loss) per share:
      Basic and diluted-as reported                    $  (.11)      $   .01
      Basic and diluted-pro forma                      $  (.14)      $  (.02)

                                       8

<PAGE>


   The fair value of each grant was determined using the Black-Scholes option
   pricing model with the following assumptions used for grants for 2005 and
   2004: (1) risk-free interest rates of 4.18% in 2005 and 2.80% in 2004; (2) no
   expected dividend yield; (3) expected lives of 5 years; and (4) assumed
   volatility of approximately 97% in 2005 and 120% in 2004.

   In December 2004, the FASB issued SFAS No. 123(R), Share Based Payment, that
   requires companies filing as small business issuers to expense the value of
   employee stock options and similar awards for interim and annual periods
   beginning after December 15, 2005 and applies to all outstanding and unvested
   stock-based awards at a company's adoption date. Accordingly, beginning in
   2006, the expense related to all stock compensation will be included in the
   Company's results of operations.

   During the three months ended March 31, 2005, the Company received $10,000 of
   proceeds from the exercise of 10,667 options by employees and former
   employees pursuant to the terms of the original options. During the three
   months ended March 31, 2004, the Company received $350,000 of proceeds from
   the exercise of 243,286 options by employees and former employees.

   Net Income Per Common Share - Earnings per share is presented in accordance
   with the provisions of SFAS No. 128, Earnings Per Share. Basic earnings per
   share ("EPS") is calculated by dividing the income or loss available to
   common stockholders by the weighted average number of common shares
   outstanding for the period. Diluted EPS reflects the potential dilution that
   could occur if securities or other contracts to issue common stock were
   exercised or converted into common stock. Stock options, warrants outstanding
   and their equivalents are included in diluted earnings per share computations
   through the "treasury stock method" unless they are antidilutive.

   The components of basic and diluted earnings per share were as follows:

                                                    Three Months Ended March 31,
                                                        2005           2004
                                                        ----           ----
                                                         (In thousands,
                                                    except per share amounts)

   Net income (loss) available for common
      shareholders (A)                               $ (1,109)       $    114
                                                     --------        --------
   Weighted average common shares
      outstanding (B)                                  10,052           9,817
   Dilutive effect of employee stock
      based compensation                                 --             1,587
                                                     --------        --------
   Common stock and common stock
      equivalents (C)                                  10,052          11,404
                                                     ========        ========

   Earnings (loss) per share:
      Basic (A/B)                                    $   (.11)       $    .01
      Diluted (A/C)                                  $   (.11)       $    .01


   As of March 31, 2005 options to purchase 5,687,445 shares of common stock
   were outstanding, but were not included in the computation of loss per share
   for the quarter ended March 31, 2005 because their effect would have been

                                       9

<PAGE>


   antidilutive. As of March 31, 2004, options to purchase 1,607,000 shares of
   common stock were outstanding, but were not included in the computation of
   diluted EPS because the options' exercise price was greater than the average
   market price of the common shares.

   Concentrations of Credit Risk - Financial instruments which potentially
   subject the Company to concentrations of credit risk are cash equivalents and
   accounts receivable. The Company attempts to limit its credit risk associated
   with cash equivalents by placing the Company's financial instruments with a
   major institution. A majority of the Company's cash and cash equivalents
   balance at March 31, 2005 was in excess of federally insured limits. The
   Company's clients are primarily large multi-national entities located
   throughout the U.S. The Company grants credit, generally without collateral,
   to these clients under specific contractual terms. The Company has not
   experienced any material losses related to its accounts receivable to date,
   however, there can be no assurance that it will not experience material
   losses in the future.

   During the three months ended March 31, 2005, the Company earned $863,000, or
   38%, of its revenue from one global organization. This revenue consisted of
   $577,000 from channel visibility solutions and $286,000 from channel
   management solutions. No other organization accounted for more than 10% of
   the Company's revenue during the three months ended March 31, 2005. As of
   March 31, 2005, that same organization accounted for approximately 32%, or
   $407,000, of the Company's net accounts receivable balance. The loss of this
   client, reduction in revenues from this client, or its inability or failure
   to pay would have a material adverse impact on the Company's financial
   condition and results of operations. Four other clients individually
   accounted for more than 10% of the Company's net accounts receivable at March
   31, 2005. These clients represented $265,000, $200,000, $179,000, and
   $133,000, respectively, of the Company's net accounts receivable balance at
   March 31, 2005, which, in the aggregate, represents approximately 60% of the
   Company's total accounts receivable balance. No other clients accounted for
   more than 10% of the Company's accounts receivable balance at March 31, 2005.

   During the three months ended March 31, 2004, the Company earned $1,519,000,
   or 51%, of its revenue from one global organization. This revenue consisted
   of $1,114,000 from channel visibility solutions and $405,000 from channel
   management solutions. No other organization accounted for more than 10% of
   the Company's revenue during the three months ended March 31, 2004.

   As of March 31, 2005, approximately $148,000 of the Company's total monthly
   contracted managed service fees of $588,000 was tied to the Channel Insight
   contract it entered into with its largest client in 2001. These managed
   service fees expire in October 2005. The Company is attempting to negotiate a
   long-term extension of the contract associated with this solution. In
   addition, the Company continues to work with this client for purposes of
   selling new solutions; however, there can be no assurance that it will be
   successful in renewing, extending or expanding solutions for this client.

   Segment Information - The Company operates in a single reportable segment and
   all revenues from clients are primarily from the sale of the Company's
   channel visibility and channel management software and services. The Company
   sells its solutions and services domestically to clients that, in some cases,

                                       10

<PAGE>


   have an international presence. All solutions and services are delivered from
   the Company's Denver, Colorado, office and two data centers located in Denver
   and Thornton, Colorado.

   Recent Accounting Pronouncements - In December 2004, the FASB issued SFAS No.
   123(R), Share Based Payment, that requires companies filing as small business
   issuers to expense the value of employee stock options and similar awards for
   interim and annual periods beginning on or after December 15, 2005 and
   applies to all outstanding and unvested stock-based awards at a company's
   adoption date. The Company believes that the adoption of this standard could
   have a material impact on its financial position and results of operations
   since the Company expects to continue to utilize stock-based compensation to
   motivate employees in the future, and, as a result, the Company expects that
   the implementation of SFAS No. 123(R) will result in increased compensation
   expense in future years.

   In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary
   Assets, which eliminates the exception for nonmonetary exchanges of similar
   productive assets and replaces it with a general exception for exchanges of
   nonmonetary assets that do not have commercial substance. SFAS No. 153 will
   be effective for nonmonetary asset exchanges occurring in fiscal periods
   beginning after June 15, 2005. The Company does not believe the adoption of
   this standard will have a material impact on its financial position or
   results of operations.


2. COMMITMENTS AND CONTINGENCIES
   -----------------------------

   The Company leases approximately 27,000 square feet of office space at a rate
   of $17.00 per square foot through September 2005. The rate increases to
   $18.00 per square foot from October 2005 through September 2007, when the
   lease expires. The lease contains a refurbishment allowance of $326,000, of
   which the Company utilized approximately $35,000 to improve the premises and
   $291,000 to offset a portion of its rent obligations from September 2002
   through May 2003. Rent expense, net of the refurbishment allowance, is
   recognized on a straight-line basis over the term of the lease. The
   difference between cash payments for rent and the straight-line rent expense
   is recorded as deferred rent on the Company's balance sheet.

   From time to time the Company may be involved in litigation that arises in
   the normal course of business operations. As of the date of this report, the
   Company is not a party to any litigation that it believes could reasonably be
   expected to have a material adverse effect on its business or results of
   operations.

   The Company has contracts with certain of its clients that contain
   indemnification clauses, which could require the Company to make payments to
   the client if it is determined that the solution provided under the contract
   infringes any proprietary right of a third party, and such infringement
   cannot be resolved by the Company. The Company does not believe there are
   currently any outstanding obligations related to indemnification clauses and,
   accordingly, there is no liability reflected in the accompanying balance
   sheet for these contingencies.
                                       11

<PAGE>


Item 2. Management's Discussion and Analysis or Plan of Operation.

The following discussion and analysis of the financial condition and results of
operations for InfoNow should be read in conjunction with our unaudited
financial statements and related notes appearing elsewhere in this report. This
discussion contains statements that are not historical fact. These
forward-looking statements are based on our current expectations, assumptions,
estimates and projections about our industry and business and include statements
about markets for our software and services, planned development of products and
anticipated expense and revenue levels. These forward-looking statements contain
words such as "anticipate", "believe", "plan", "expect" or similar language.
These forward-looking statements are subject to business and economic risks. Our
actual results could differ materially from those anticipated in such
forward-looking statements as a result of many factors, including those set
forth in this discussion and in other documents we have filed with the
Securities and Exchange Commission.

General Information and Overview

InfoNow provides channel visibility and channel management solutions, in the
form of software and services, to companies that sell their products through
complex networks of distributors, dealers, resellers, retailers, agents or
branches (i.e., "channel partners"). Companies use our software and services to
collaborate with their channel partners to create demand, increase revenues,
lower operating costs and maximize the return on investment of their channel
strategies. Our clients are generally companies with extensive channel partner
networks, and include companies such as Apple, Bank of America, Hewlett-Packard,
Maytag, The Hartford, Visa, Vision Service Plan (VSP) and Wachovia Corporation.


As of March 31, 2005, we had 46 managed services clients, compared to the 42 we
reported as of March 31, 2004. The increase in our client base is primarily
attributable to sales of our Channel Insight solution. Despite the increase in
our client base, our contracted managed service fees, which includes fees that
are currently in a month-to-month contract status, decreased from $812,000 per
month as of March 31, 2004, to $588,000 per month as of March 31, 2005. The
decrease was primarily attributable to a $222,000 per month reduction in service
fees related to the Channel Insight contract with our largest client, as well as
reductions associated with other client contract renegotiations, which were only
partially offset by increases in our contracted managed service fees related to
new clients. Further discussion related to the Channel Insight contract with our
largest client can be found in Results of Operations and Related Business Risks
and Assumptions.

We have experienced extended sales cycles in recent years, which we believe were
caused primarily by the following factors: i) there has been a general decline
in information technology ("IT") spending in recent years and our past efforts
to sell enterprise-level solutions, which typically require a significant
financial commitment on the part of the client, were inconsistent with this
trend; ii) the market for Channel Insight solutions is at an early stage of
adoption; iii) in many instances, our sales prospects have not budgeted for the
solutions we provide and, therefore, require a lengthy evaluation process prior
to purchasing; iv) we have not yet sold our Channel Insight solution to enough
clients to enable us to gain significant sales leverage from client references;
and v) we are susceptible to competitive threats such as clients or prospective
clients outsourcing certain IT functions to other countries or attempting to
implement in-house solutions similar to those that we provide in an effort to
reduce costs.

                                       12
<PAGE>


As a result of these factors, it is difficult for us to accurately predict the
demand for our solutions, as well as the value we will receive upon selling
them. In addition, our implementation cycles have, in some cases, extended
substantially beyond our initial estimates, which has delayed our ability to
recognize license, implementation and service fee revenue in certain periods. As
a result of these challenges, among other things, our revenues can fluctuate
substantially from quarter to quarter.

In an effort to accelerate the sales cycle for Channel Insight we developed a
modular delivery model for this solution during the third quarter of 2003,
wherein a prospective client can access distinct modules related to specific
business needs at lower introductory price points, and add other applications
incrementally. Furthermore, during the fourth quarter of 2004, we launched a
limited Channel Insight offering targeted at mid-market companies. Additionally,
we are working on building leveraged access to clients through strategic partner
relationships. During the first quarter of 2005, we significantly expanded
field-selling trials with a key partner by rolling out Channel Insight to its
North American sales team and by closing our first joint sales opportunity. We
also engaged with two large systems integrators to pursue specific joint
opportunities. As a result of many of these initiatives, as well as other
ongoing sales efforts, we signed five Channel Insight agreements with new
customers in 2004 and two Channel Insight agreements with new customers in the
first quarter of 2005. In addition, we experienced an increase in sales (based
on the first-year value of contracts signed) in the first quarter of 2005
relative to the first quarter of 2004.

Personnel-related costs(1) comprised approximately 75% and 76% of our total
costs in the first quarter of 2005 and 2004, respectively. Because salaries and
related costs are such a significant portion of our overall costs, variation in
the need for technical personnel based on the demand for our solutions, as well
as fluctuations in the cost of attracting and retaining qualified technical
personnel, can significantly impact our operating results.

On February 25, 2005, we completed a workforce reduction. We eliminated four
full-time positions to more effectively align our cost structure with a
previously announced reduction in monthly service fees from our largest client,
among other factors. In addition, we temporarily reassigned the majority of our
product development employees to focus on client implementations and process
improvements. Employees whose employment was terminated received one-time
severance benefits, including salary, accrued vacation and health care benefits.
As a result, the Company paid out approximately $36,000 in cash and recognized a
related pre-tax charge of approximately $26,000 in the first quarter of 2005. In
addition, to further motivate our staff since we anticipate that they will be
required to take on incremental responsibilities as a result of the workforce
reduction and recent attrition, on March 25, 2005 we awarded a total of 352,100
stock options to our employees, which vested immediately.

On March 4, 2005, Michael W. Johnson resigned as our Chief Executive Officer,
President and Chairman of our Board of Directors after having served as such and
in other capacities since October 1995. Mr. Johnson, who beneficially owned as
of March 14, 2005 approximately 15.2% of our common stock (assuming his exercise
in full of his then outstanding vested options and warrants), will remain on our
Board of Directors. In connection with Mr. Johnson's resignation we recognized
approximately $330,000 in severance expense in the first quarter of 2005, of

---------

(1) Personnel-related costs: Includes salaries, vacation, fringe benefits,
payroll taxes and personnel support costs such as office supplies for employees.

                                       13

<PAGE>


which approximately $21,000 was paid during the quarter. We expect to pay the
remaining $309,000 over the period from April 2005 through October 2005. A
current director, Jeffrey Peotter, has been elected Chairman of our Board of
Directors. On March 7, 2005, we amended Harold R. Herbst's employment agreement
to provide for his employment as our interim Chief Executive Officer for a
six-month period commencing on March 4, 2005. Except to the extent necessary to
reflect Mr. Herbst's appointment for six months as our interim Chief Executive
Officer, we did not amend the material terms of Mr. Herbst's employment
agreement, which terms are disclosed in our proxy statement filed with the SEC
in connection with the 2005 annual meeting of stockholders under the caption
"Employment Contracts, Termination of Employment and Change-In-Control
Arrangements" and incorporated herein by reference. On March 25, 2005, we also
issued Mr. Herbst options to purchase 150,000 shares of our common stock.

Critical Accounting Policies

We believe the following accounting policies, which are important to our
financial position and results of operations, require significant judgments and
estimates on the part of management. We believe that the following description
represents our critical accounting policies and estimates used in the
preparation of our financial statements, although it is not all-inclusive.

Revenue Recognition
-------------------

Our solutions are typically sold with annual or multi-year contracts. The
initial term of these agreements range from one to three years and the
agreements are typically renewable upon mutual agreement of InfoNow and the
client. We also provide services to a number of clients under work-order or
purchase-order arrangements.

A typical contract fee could include the following six separate
revenue-producing components:

Software license and implementation fees:

     -    The software license fee applies to all configured application
          software and related functionality used in the client's application.
     -    The implementation fee applies to the configuration of a tailored,
          client-specific software interface to the system and the design and
          configuration of client business rules and databases.

Managed service fees and software maintenance fees:

     -    The managed service fee applies to hosting and provision of the
          service, any reconfiguration or maintenance on the software necessary
          during the contract term, as well as performance of routine
          maintenance to client databases and core systems.
     -    The variable monthly fee includes charges for system usage in excess
          of contracted thresholds.
     -    A software maintenance fee (for clients utilizing a licensed model)
          includes updates to the client's software.

Other fees:

     -    Variable fees included under this heading are pass-through charges for
          voice recordings, faxes, geocoding, and telecommunications charges,
          which are typically billed with an incremental administrative fee in
          addition to the direct charge we incur to provide these services.

                                       14

<PAGE>


We offer our solutions to clients in two forms. The first (and historical)
method utilizes an application service provider, or ASP, model. Under this
business model, we sell the right to use our software for the term of a specific
agreement, and we implement and host that solution to meet specific client
requirements. Accordingly, we charge the client an implementation fee, a managed
service fee and, in many cases, variable monthly fees. The implementation fee
and related direct costs are deferred and recognized ratably over the longer of
the expected client life or contract term in accordance with SAB 104. Because
most of our initial sales contracts range from one to three years in duration,
the client life is typically the longer deferral period and is estimated to be
three years. This estimate is based on a number of factors, including client
turnover and the rate of change for the technology underlying our solutions. We
evaluate the estimate of a client life on an ongoing basis in consideration of
these factors and the estimate of three years has remained constant since the
adoption of SAB 104. If, based upon our evaluations, the estimate of a client
life were to increase, deferred revenue balances would be recognized over a
longer time period. A reduction in the estimate of a client life would,
conversely, result in accelerated recognition of deferred revenues relative to
prior years. Because our deferred revenues balances have declined as a result of
our selling more licensed solutions, this estimate has decreased in significance
relative to prior years. We expect to continue selling primarily licensed
solutions; therefore, we anticipate that the estimate of a client life will
continue to decrease in significance in future periods. Revenue from managed
service fees and variable monthly fees is recognized as services are performed.

The second method of delivering our software and services is via a
license-hosted model. We began offering this model in 2001 and it has become our
predominant business model. Under this model, we sell our clients a perpetual
license for our software. They can install our software on their own in-house
systems, utilize third-party service providers for hosting, or, as is most often
the case, we will host the software and perform related services under a managed
services agreement.

Sales of our solutions under the license-hosted model typically include a
software license fee, an implementation fee, a software maintenance fee, a
managed service fee and, in many cases, variable monthly fees. We establish
vendor specific objective evidence, or VSOE, of fair value for the software
maintenance fee and managed service fee elements of a contract based on the
following two considerations: 1) they are sold independently of the other
elements in a contract, and independently of each other; and 2) these services
generally are, and have historically been, renewed in subsequent years
(independent of the other elements) at the same fees, or the current market
value of those fees, charged when all elements are sold together. Therefore, the
VSOE of fair value for each of such services can be properly determined by
reference to the applicable clients' contractual fee rates relating to those
services.

We are not, however, currently able to establish VSOE of fair value for the
software license and implementation fee elements of our contracts. Therefore, we
use the residual value method to recognize revenue in accordance with SOP 97-2.
Using this method, revenue from the managed service and software maintenance
elements of a contract is recognized ratably over the term of the managed
service arrangement and the software maintenance arrangement, respectively.
Because we are currently unable to establish VSOE of fair value for the software
license fee and implementation fee components of a contract and our installation
services are essential to the functionality of the software, we apply contract
accounting to both the software and implementation elements of the arrangement
in accordance with ARB No. 45 and SOP 81-1. Accordingly, license and
implementation revenues are recognized on a percentage of completion basis. In

                                       15

<PAGE>


the future, if we are able to establish VSOE of fair value for the software
license and implementation elements of our solutions, license fees will
generally be recognized at the time of contract signing, assuming all revenue
recognition criteria are met, instead of on a percentage of completion basis. As
changes occur in our estimate of completion percentage, revenue recognition is
adjusted accordingly. Our estimate of completion percentage is based on the
ratio of the actual effort spent on a project as of the financial statement date
to the estimate of total effort to complete the implementation. Fluctuations in
the estimate of total effort to complete an implementation can significantly
impact revenue recognition on a project in a given period. The estimate of total
effort to complete an implementation involves significant judgment regarding the
time required to perform the tasks associated with a project, such as coding and
testing the solution. In many cases, our estimates are based on past experience;
however, because certain of our solutions are in an early stage of development
and in most cases involve client-specific configuration and/or customization, we
may not always have direct past experience to draw from, which could result in
material changes in the estimate of effort to complete an implementation. In
addition, implementing our solutions generally involves a high degree of
interaction with our clients; therefore, the level of client personnel's
technical understanding and changes in a client's requirements or expectations
can also affect the estimate of effort to implement a solution. However, we
believe our prior experience in developing and implementing complex solutions
provides an appropriate basis for developing our estimates. If, for any solution
implementation, we determine that we are unable to estimate the effort to
implement a solution with a high degree of certainty we defer recognition of the
revenue and related cost until project completion in accordance with SOP 81-1.
Revenue from variable monthly fees is recognized as services are performed.

We have historically sold our solutions primarily through direct sales efforts
and reseller channels. When we sell solutions through a reseller channel we
recognize revenue consistent with the methods described above.

Technical Personnel Cost Allocation
-----------------------------------

Certain members of our technical staff have the necessary skills to contribute
in solution implementation and maintenance roles, as well as in product
development roles. As such, we distribute our technical resources among these
efforts based on the needs of the organization at a given time. The costs
associated with these employees are allocated either to the cost of revenues or
product development based on the estimate of hours devoted to each category in a
given period. The estimate of hours by category is derived from the data
maintained in our time tracking system, which reflects the time charged by each
employee to a particular project. For certain projects and ongoing system
maintenance efforts, we must use judgment in designating the effort as either a
cost of revenues or a product development expense. A misclassification in this
regard could result in a significant impact to our gross margin; however, we
believe we apply the necessary diligence in the process of designating projects
to provide a reasonable basis for our estimates.

                                       16



<PAGE>


The following table summarizes the distribution of our employees on a full-time
equivalent basis as of March 31, 2005 and March 31, 2004:

                                              March 31, 2005      March 31, 2004
                                              --------------      --------------

Staff related to the Cost of Revenues               60                  58
Selling and Marketing                                6                  10
Product Development                                  4                  10
General and Administrative                          10                  11
                                                    --                  --
   Total Employees                                  80                  89

Included in the table above are 73 full-time employees and 7 full-time
equivalent part-time employees at March 31, 2005, and 78 full-time employees, 9
full-time equivalent temporary employees and 2 part-time employees at March 31,
2004.

The following table summarizes the Company's results of operations for the
periods indicated ($ amounts in thousands):
<TABLE>
<CAPTION>

                                       Three Months Ended March 31,

                                         2005               2004              Change               %Change
                                        -------            -------            -------              -------

<S>                                     <C>                 <C>               <C>                  <C>
REVENUES:

Software license fees                   $    23            $   118            $   (95)               (81%)
Implementation fees                         501                568                (67)               (12%)
Monthly service fees & software
   maintenance fees                       1,724              2,295               (571)               (25%)
Other fees                                   24                 18                  6                 33%
                                        -------            -------            -------

       Total revenues                     2,272              2,999               (727)               (24%)

COST OF REVENUES                          1,733              1,315                418                 32%
                                        -------            -------            -------

GROSS MARGIN                                539              1,684             (1,145)               (68%)

OPERATING EXPENSES:
Selling and marketing                       403                587               (184)               (31%)
Product development                         199                258                (59)               (23%)
General and administrative                1,059                727                332                 46%
                                        -------            -------            -------
       Total operating expenses           1,661              1,572                 89                  6%
                                        -------            -------            -------

INCOME (LOSS) FROM OPERATIONS            (1,122)               112             (1,234)            (1,102%)

OTHER INCOME (EXPENSE):
Interest income                              15                  5                 10                200%
Interest expense                             (2)                (3)                 1                 33%
                                        -------            -------            -------
       Total other income                    13                  2                 11                550%
                                        -------            -------            -------

NET INCOME (LOSS)                       $(1,109)           $   114            $(1,223)            (1,073%)
                                        =======            =======            =======

                                                      17
</TABLE>



<PAGE>


Results of Operations

Comparison of the Three Months Ended March 31, 2005 with the Three Months Ended
March 31, 2004.

Revenues: Our revenues consist primarily of implementation fees, software
license fees and monthly service fees from new and existing clients. Total
revenues decreased by $727,000 or 24%, to $2,272,000 for the three months ended
March 31, 2005, from $2,999,000 for the three months ended March 31, 2004.

Monthly Service Fees and Software Maintenance Fees - Monthly service fees and
software maintenance fees were $1,724,000 during the first quarter of 2005, a
decrease of $571,000, or 25%, from $2,295,000 in the first quarter of 2004. The
decrease is primarily due to a $666,000 reduction in service fees related to the
Channel Insight contract with our largest client. In the fourth quarter of 2004
we reached an agreement with this client to extend many of the services
associated with this contract, which included a reduction in managed service
fees of $222,000 per month. The decrease in our monthly service fees related to
the Channel Insight contract with our largest client was partially offset by
increases in service fees primarily associated with new clients and increases in
variable monthly fees as a result of increased system usage by certain of our
clients. Monthly service fees and software maintenance fees comprised 76% of
total revenue during the three months ended March 31, 2005, compared to 77%
during the three months ended March 31, 2004.

Implementation Fees - Revenues generated from implementation fees during the
three months ended March 31, 2005 decreased by $67,000, or 12%, to $501,000 from
$568,000 during the three months ended March 31, 2004. The decrease in
implementation fees is primarily attributable to $46,000 lower revenue as a
result of attaining lower levels of completion percentage on new Channel Insight
projects in the first quarter of 2005 compared to first quarter of 2004. The
remaining $21,000 reduction in implementation fee revenue is due to a decrease
in the recognition of previously deferred implementation fees from $25,000
during the three months ended March 31, 2004 to $4,000 during the three months
ended March 31, 2005. This decrease can be attributed to the continued migration
in our business from ASP contracts to license-hosted contracts, for which
implementation fee revenue is generally recognized on a percentage of completion
basis, as opposed to being deferred under SAB 104, as discussed above.
Implementation fees represented approximately 22% of our total revenue during
the first quarter of 2005, compared to 19% during the first quarter of 2004.

Software License Fees - Software license fees were $23,000 in the first quarter
of 2005, a decrease of $95,000 from the $118,000 of license fees during the
first quarter of 2004. This decrease is primarily attributable to a reduction in
the value of licenses sold in the first quarter of 2005 compared to the first
quarter of 2004. Software license fees represented approximately 1% of total
revenue during the three months ended March 31, 2005, compared to 4% of revenue
during the three months ended March 31, 2004.

Other Fees - Other fees increased by $6,000, or 33%, to $24,000 during the three
months ended March 31, 2005, from $18,000 during the three months ended March
31, 2004. The increase in other fees is primarily attributable to an increase in
travel costs that we incurred on behalf of certain of our clients, which we were
contractually permitted to pass through to those clients.

Cost of Revenues: Our cost of revenues includes technical personnel salaries and
related personnel costs, data royalties, depreciation for server equipment,
reimbursable expenses such as telecommunications and contract labor related to

                                       18

<PAGE>


specific projects, co-location facility fees and other direct costs related to
operating our data centers, as well as the recognition of previously deferred
implementation expenses. Cost of revenues was 76% of revenues in the first
quarter of 2005, compared to 44% of revenues in the first quarter of 2004. Total
cost of revenues increased $418,000 to $1,733,000 during the three months ended
March 31, 2005 from $1,315,000 during the three months ended March 31, 2004.
This was primarily due to a $235,000 increase in personnel and personnel support
costs as a result of an increase in the number of technical staff, as well as
allocating more product development personnel to support implementation efforts
in the first quarter of 2005. The increase in personnel and personnel support
costs is also due to severance expense associated with the workforce reduction
that was completed in February 2005. As a result of this workforce reduction, we
anticipate that our personnel related costs will decrease over the remainder of
2005 unless the sale of new solutions dictates the hiring of incremental
technical resources. Also contributing to the increase in our cost of sales was
a $118,000 increase in bad debt expense during the first quarter of 2005
primarily due to variable monthly fees that we believe could be uncollectible as
a result of client contract renegotiations. In addition, our data center costs
increased $48,000 primarily due to higher data royalties and telecommunications
expenses associated with increased system usage. The remaining $17,000 increase
in our cost of sales was primarily attributable to an increase in travel costs
that we incurred on behalf of certain of our clients, as well as an increase in
the recognition of previously deferred implementation expense. As discussed
above, the travel costs incurred for our clients were passed through to those
clients and are included in other revenue.

Operating Expenses:
-------------------

Selling and Marketing Expenses - Selling and marketing expenses consist of
sales, pre-sales, marketing and business development personnel costs and related
expenses, travel and entertainment, sales commissions, and advertising and
promotion costs. These costs decreased to 18% of revenues during the three
months ended March 31, 2005 from 20% of revenues during the three months ended
March 31, 2004. The total amount of selling and marketing expenses decreased by
$184,000, or 31%, to $403,000 during the three months ended March 31, 2005 from
$587,000 during the three months ended March 31, 2004. The change is primarily
attributable to an $84,000 decrease in commissions primarily as a result of the
reduction in our revenue. We also experienced an $82,000 decrease in personnel
and personnel support costs primarily as a result of attrition related to our
sales and marketing staff. In addition, public relations and advertising and
promotion consulting costs decreased by $9,000. The remaining $9,000 decrease in
our selling and marketing expenses was due to a reduction in travel and
entertainment costs.

Product Development Expenses - Product development expenses consist of time
spent on development of our channel visibility and channel management software
that is not specifically associated with a client contract. Product development
expenses are primarily made up of salaries and related costs. For the three
months ended March 31, 2005, product development expenses decreased $59,000, or
23%, to $199,000 from $258,000 for the three months ended March 31, 2004. This
change was primarily due to a reduction in personnel and personnel support costs
as a result of allocating more of our existing resources to support
implementation efforts. Product development expenses represented 9% of revenues
during the three months ended March 31, 2005 and 2004.

General and Administrative Expenses - General and administrative expenses relate
to the personnel costs of our executive management, finance, investor relations,
human resources and other corporate functions, general expenses such as legal

                                       19

<PAGE>


and accounting fees, insurance and costs related to our facilities. These costs
increased to 47% of revenues for the three months ended March 31, 2005, from 24%
of revenues for the three months ended March 31, 2004. The total amount of
general and administrative costs over the same period increased $332,000, or
46%, to $1,059,000 during the first quarter of 2005 from $727,000 during the
first quarter of 2004. This increase was primarily attributable to a $342,000
increase in personnel and personnel support costs mainly as a result of
severance expenses incurred in conjunction with the separation agreement we
entered into with our former Chief Executive Officer during the first quarter of
2005. In addition, professional fees increased $10,000 mainly due to higher
audit and legal fees in the first quarter of 2005 compared to the first quarter
of 2004. The increases in general and administrative expenses associated with
personnel costs and professional fees were partially offset by reductions in
investor relations costs and travel expenses of $9,000 and $7,000, respectively.
The remaining $4,000 reduction in our general and administrative expenses was
primarily due to a reduction in our facilities costs, which was mainly due to
lower depreciation expense since many of our older assets are now fully
depreciated.

In the future, we expect that our head count levels, and related costs, in all
functional areas will change commensurate with our needs as we execute against
our business strategy.

Other Income/Expense: We had net other income of $13,000 during the three months
ended March 31, 2005, compared to net other income of $2,000 for the three
months ended March 31, 2004. The increase of $11,000 is primarily attributable
to higher interest income on cash and cash equivalents resulting from higher
interest rates during the first quarter of 2005 relative to the first quarter of
2004. In addition, we experienced lower interest expense due to a reduction in
our capital lease obligations.

Income Taxes: InfoNow has paid no income taxes since its inception and has not
recorded a benefit for income taxes due to valuation allowances provided against
net deferred tax assets, which consist primarily of operating loss
carryforwards.

Net Income/Loss: Net loss for the three months ended March 31, 2005 was
$1,109,000 compared to net income of $114,000 for the three months ended March
31, 2004, a $1,223,000 decrease. This decrease is primarily attributable to a
$727,000, or 24%, decrease in total revenues, as well as a $507,000, or 18%,
increase in total expenses, which were partially offset by an $11,000 increase
in other income for the three months ended March 31, 2005, compared to the three
months ended March 31, 2004, as discussed above in this Item 2.


Liquidity and Capital Resources

Since our initial public offering, we have financed our operations primarily
through the placements of private equity securities and, to a lesser extent,
through borrowing and equipment leasing arrangements. We have received a total
of approximately $13,800,000 from private offerings and have received an
additional $3,653,000 from the exercise of stock options and warrants since we
began offering our channel management solutions in 1995. We also have a bank
credit facility with both a $1,000,000 revolving line of credit to support our
future operating needs and a $1,000,000 equipment facility to support our future
investing needs. The bank credit facility requires that we meet various
covenants. We have failed to meet certain of the financial covenants in the
past; however, we have obtained waivers for all instances of non-compliance. We
are not permitted to draw on the bank credit facility if we are out of

                                       20

<PAGE>


compliance with any of the covenants. As of the date of this report we are in
compliance with all covenants and we have no outstanding debt under this
facility. The interest rate on the revolving line of credit is the prime rate
plus 1 percent, and the interest rate on the equipment facility is the U.S.
Treasury note yield to maturity for a term equal to 36 months as quoted in the
Wall Street Journal plus 587 basis points.

We had cash and cash equivalents of $3,304,000 at March 31, 2005, compared to
$3,854,000 at March 31, 2004. Our total cash use for the three months ended
March 31, 2005 was $460,000 compared to $555,000 in cash generated during the
three months ended March 31, 2004. The decrease of $1,015,000 was primarily due
to a $734,000 decrease in cash flows from our operating activities, which was
caused primarily by our net loss in the first quarter of 2005. In addition, cash
flows from our financing activities decreased $341,000 primarily as a result of
a decrease in proceeds from stock option exercises in the first quarter of 2005
relative to the first quarter of 2004. The decreases in our cash flow associated
with our operating and financing activities were partially offset by a $60,000
reduction in cash used in investing activities mainly due to a reduction in the
purchase of property and equipment for our data centers and corporate office.
The changes in our total cash flow for the first quarter of 2005 compared to the
first quarter of 2004 are discussed below in more detail.

Net cash used by operating activities during the first quarter of 2005 was
$424,000, compared to $310,000 of cash generated by operating activities during
the first quarter of 2004. The decrease of $734,000 was primarily due to the
$1,223,000 increase in our net loss. Changes in the adjustments to reconcile net
income to net cash provided by operating activities are as follows:

     o    $221,000 decrease in other current assets mainly due to prepaid
          expense recognition in the first quarter of 2005 related to insurance,
          data royalties, and software license maintenance;
     o    $118,000 increase in the allowance for bad debt primarily due to
          variable monthly fees that we believe could be uncollectible as a
          result of client contract renegotiations;
     o    $72,000 increase in payroll related and other liabilities primarily
          due to an accrual for the cost we incurred in conjunction with the
          separation agreement we entered into with our former Chief Executive
          Officer during the first quarter of 2005;
     o    $51,000 increase in accounts payable primarily due to an increased in
          accrued audit fees;
     o    $45,000 increase in deferred revenues mainly as a result of solutions
          sold during the first quarter of 2005 for which implementation has not
          yet been completed;
     o    $13,000 increase in accounts receivable mainly due to an increase in
          billings for sales that occurred late in the first quarter of 2005;
     o    $1,000 increase in the loss on asset disposition in the first quarter
          of 2005; and
     o    $32,000 reduction in depreciation and amortization since many of our
          data center and corporate office assets have become fully depreciated
          without proportionate asset purchases.


Cash used in investing activities decreased to $28,000 for the three months
ended March 31, 2005 compared to $88,000 for the three months ended March 31,
2004. The change of $60,000 is due to a decrease in purchases of computer
hardware and software for our data centers and corporate office. We have plans
to increase our capital expenditures throughout 2005 primarily to upgrade or
replace existing data center hardware and software, as well as to add new
equipment to support anticipated growth in our client base.

                                       21

<PAGE>


Net cash used in financing activities during the first quarter of 2005 was
$8,000, compared to cash generated by financing activities of $333,000 during
the first quarter of 2004. The decrease was caused by a $340,000 decrease in
cash received from stock option exercises and a $1,000 increase in capital lease
payments.

Variation in the timing of our cash receipts and disbursements can significantly
impact our overall cash flow for a given period and there can be no assurance
that our current cash balance will be sufficient to fund operations.

If we believe it is advisable, we may seek additional funding to continue our
operations. Our ability to successfully complete an offering to obtain
additional funding is dependent on a number of factors. There can be no
assurances that we can successfully complete an equity or debt placement, or
that a placement can be concluded on the terms and conditions that would be
acceptable to us.

The following table summarizes the Company's contractual payments and
obligations by period (amounts in thousands):
<TABLE>
<CAPTION>

Contractual Obligations                                             Payment Due by Period
                                          Total        Less Than 1        1-3            4 - 5          After 5
                                                         year            years           years           years

<S>                                      <C>             <C>             <C>             <C>             <C>
Capital Lease Obligations                $   39          $   39          $ --            $ --            $ --
Operating Leases                          1,226             483             743            --              --
Minimum Royalties                           138              12              24              24              78
                                         ------          ------          ------          ------          ------
Total Contractual Cash Obligation        $1,403          $  534          $  767          $   24          $   78
</TABLE>


We lease approximately 27,000 square feet of office space at a rate of $17.00
per square foot through September 2005. The rate increases to $18.00 per square
foot from October 2005 through September 2007, when the lease expires.


Recent Accounting Pronouncements
--------------------------------

In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment, which
will be effective for our fiscal year beginning January 1, 2006. We believe the
adoption of this standard could have a material impact on our financial position
and results of operations.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets,
which will be effective for fiscal periods beginning after June 15, 2005. We do
not believe the adoption of this standard will have a material impact on our
financial position or results of operations.

For a more complete description of these accounting pronouncements, please refer
to Note 1 to the accompanying financial statements.

                                       22

<PAGE>


Related Business Risks and Assumptions
--------------------------------------

Our actual results may vary materially from the forward-looking statements made
above, which have been made pursuant to the Private Securities Litigation Reform
Act of 1995. We intend that such statements be subject to the safe harbor
provisions of the Securities Act of 1933 and the Securities Exchange Act of
1934. Our forward-looking statements include the plans and objectives of
management for future operations and relate to a variety of factors, including
management's assumptions about our ability to:

     o    Gain market acceptance of our services;
     o    Retain existing clients, none of whom are obligated to renew, modify
          or extend their contractual relationships with the Company, and
          attract new clients;
     o    Accurately forecast and meet demands for our services, including our
          ability to maintain technical performance of the system as new clients
          are added;
     o    Maintain and improve our network assets as necessary;
     o    Continue to serve new and existing clients;
     o    Improve our operational and financial systems in order to address
          planned growth in our operations;
     o    Develop cost-effective delivery processes for our new solutions;
     o    Maintain or develop adequate pricing and profit margins on our
          products and services;
     o    Retain and attract qualified technical personnel;
     o    Develop future enhancements to our services and control development
          costs of those enhancements;
     o    Operate our business in accordance with our operating budget;
     o    Obtain patent protection for our intellectual property;
     o    Respond to competitive threats, including the possibility of our
          clients migrating to lower cost solutions, such as offshore IT
          development and service functions;
     o    Maintain the listing of our common stock on the Nasdaq Stock Market;
          and
     o    Raise additional capital, if needed.


If we are unable to manage the risks enumerated above, or those discussed in our
Annual Report filed with the Securities and Exchange Commission on Form 10-KSB
for the year ended December 31, 2004, our financial condition and results of
operations could be materially adversely affected.

Our assumptions are based on judgments with respect to, among other things,
future economic, competitive and market conditions, and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond our ability to control.

We believe that the assumptions underlying our forward-looking statements are
reasonable. However, our assumptions may prove to be inaccurate and therefore
there can be no assurance that the results contemplated in forward-looking
statements will be realized. You should not regard any statements made in this
report on Form 10-QSB as a representation by InfoNow or any other person that we
will achieve our objectives.

Our common stock is currently listed on the Nasdaq Stock Market. This listing is
dependent on our maintaining certain minimum listing standards, including, among
others, minimum bid price and minimum stockholders' equity standards. On May 5,
2005, we received a notice from Nasdaq indicating we are not in compliance with

                                       23
<PAGE>


the Minimum Bid Price Rule because, for 30 consecutive business days, the bid
price of our common stock closed below the $1.00 minimum per share. In
accordance with the Nasdaq Marketplace Rules, we will be provided 180 calendar
days, or until November 1, 2005, to regain compliance with the Minimum Bid Price
Rule. If at any time before November 1, 2005, the bid price of our common stock
closes at $1.00 per share or more for a minimum of 10 consecutive business days,
Nasdaq will notify us that we have achieved compliance with the Minimum Bid
Price Rule, although the Nasdaq staff has the discretion to require compliance
for a period in excess of 10 consecutive business days, which is generally no
more than 20 consecutive business days, under certain circumstances. If we do
not regain compliance with the Minimum Bid Price Rule, by November 1, 2005,
Nasdaq will notify us that our common stock will be delisted from the Nasdaq
Stock Market. The notification we received from Nasdaq on May 5, 2005 has no
effect on the listing of our common stock on the Nasdaq Stock Market at this
time and we have not yet determined to take any action in response to the
notice. In addition, based on our current estimated financial projections, we
may not satisfy the $2,500,000 minimum stockholders' equity balance requirement
as of the end of the second quarter of 2005. While we are evaluating
alternatives to remain in compliance with this requirement, there can be no
assurances that we will be able to do so. If our stockholders' equity balance
were to fall below the minimum requirement, we would expect to receive a
deficiency letter from Nasdaq's Listings Qualifications Department indicating we
are out of compliance. If our common stock were to be delisted, trading in our
common stock would then be conducted in the over-the-counter market on the OTC
Bulletin Board.

As of March 31, 2005, approximately $148,000 of our total monthly contracted
managed service fees of $588,000 was tied to the Channel Insight contract we
entered into with our largest client in 2001. These managed service fees expire
in October 2005. We are working with this client to negotiate a long-term
extension of their Channel Insight contract. In addition, we continue to work
with this client for purposes of selling new solutions; however, there can be no
assurance that we will be successful in renewing, extending or expanding
solutions for this client.

For a more comprehensive discussion of the risk factors associated with our
business, please refer to the section entitled "Related Business Risks and
Assumptions" in our Annual Report filed with the Securities and Exchange
Commission on Form 10-KSB for the fiscal year ended December 31, 2004.

                                       24

<PAGE>


Item 3. Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed by us in the reports that we file or submit
to the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized and reported within the
time periods specified by the SEC's rules and forms, and that information is
accumulated and communicated to our management, including our principal
executive and principal financial officers (whom we refer to in this periodic
report as our Certifying Officers), as appropriate to allow timely decisions
regarding required disclosure. Our management evaluated, with the participation
of our Certifying Officers, the effectiveness of our disclosure controls and
procedures as of March 31, 2005, pursuant to Rule 13a-15(b) under the Exchange
Act. Based upon that evaluation, our Certifying Officers concluded that, as of
March 31, 2005, our disclosure controls and procedures were effective.

There were no changes in our internal control over financial reporting that
occurred during our fiscal quarter ended March 31, 2005 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.

                                       25
<PAGE>


                           PART II. OTHER INFORMATION

Item 6.   Exhibits

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

         10.1             Summary of the retainer compensation package for the
                          nonemployee directors and Board of Director
                          committee members. (A)

         10.45            Employment agreement between the Company and Don Kark
                          dated January 28, 2005. (B)

         10.46            Amendment to employment agreement between the Company
                          and Harry Herbst dated March 7, 2005. (B)

         10.47            Separation agreement between the Company and
                          Michael W. Johnson dated March 22, 2005. (B)

         10.48            Loan Modification Agreement between the Company and
                          Silicon Valley Bank dated May 14, 2005.

         31.1             Rule 13a-14(a)/15d-14(a) certification of Principal
                          Executive Officer.

         31.2             Rule 13a-14(a)/15d-14(a) certification of Principal
                          Financial Officer.

         32               Section 1350 certifications

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

          (A)  Incorporated by reference to the Company's Current Report filed
               on Form 8-K on March 8, 2005.

          (B)  Incorporated by reference to the Company's Annual Report filed on
               Form 10-KSB for the year ended December 31, 2004.

                                       26
<PAGE>


                                   SIGNATURES


In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.



                                        INFONOW CORPORATION



Date:  May 13, 2005                     By: /s/ Harold R. Herbst
                                            ----------------------------------
                                                Harold R. Herbst
                                                Interim Chief Executive Officer



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



May 13, 2005      Interim Chief Financial Officer           /s/ James L. Medina
                  (Principal Financial and Accounting)      --------------------
                  Officer)                                  James L. Medina

                                       27

<PAGE>


                                  EXHIBIT INDEX


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


         10.1            Summary of the retainer compensation package for the
                         nonemployee directors and Board of Director
                         committee members. (A)

         10.45           Employment agreement between the Company and Don Kark
                         dated January 28, 2005. (B)

         10.46           Amendment to employment agreement between the Company
                         and Harry Herbst dated March 7, 2005. (B)

         10.47           Separation agreement between the Company and
                         Michael W. Johnson dated March 22, 2005. (B)

         10.48           Loan Modification Agreement between the Company and
                         Silicon Valley Bank dated May 14, 2005.

         31.1            Rule 13a-14(a)/15d-14(a) certification of Principal
                         Executive Officer.

         31.2            Rule 13a-14(a)/15d-14(a) certification of Principal
                         Financial Officer.

         32              Section 1350 certifications

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

          (A)  Incorporated by reference to the Company's Current Report filed
               on Form 8-K on March 8, 2005.

          (B)  Incorporated by reference to the Company's Annual Report filed on
               Form 10-KSB for the year ended December 31, 2004.

                                       28