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, 2004

/ /  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 10, 2004, there were 9,893,225 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, 2004..............................3

         Unaudited Statements of Operations - For the Three Months
           Ended March 31, 2004 and March 31, 2003.............................4

         Unaudited Statements of Cash Flows - For the Three Months
           Ended March 31, 2004 and March 31, 2003.............................5

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


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

ITEM 3.  CONTROLS AND PROCEDURES..............................................24


                           PART II. OTHER INFORMATION

ITEM 5.  OTHER INFORMATION....................................................25

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.....................................25

         SIGNATURES...........................................................26



                                        2
<PAGE>
<TABLE>
<CAPTION>

                                  PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

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

                                                                                        MARCH 31,
                                                                                          2004
                                                                                        --------
                                     ASSETS
                                     ------
CURRENT ASSETS:
<S>                                                                                     <C>
    Cash and cash equivalents                                                           $  3,854
    Accounts receivable:
          Billed, net of allowance of $3                                                   1,511
          Unbilled                                                                            63
    Prepaid expenses and other current assets                                                665
                                                                                        --------
         Total current assets                                                              6,093
                                                                                        --------

PROPERTY AND EQUIPMENT, net                                                                  565

OTHER ASSETS AND DEFERRED CHARGES                                                             24
                                                                                        --------

TOTAL ASSETS                                                                            $  6,682
                                                                                        ========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------
CURRENT LIABILITIES:
    Capital leases - current portion                                                    $     71
    Accounts payable                                                                         246
    Payroll related liabilities                                                              448
    Other liabilities                                                                        105
    Short-term deferred revenues                                                           1,278
                                                                                        --------
         Total current liabilities                                                         2,148

    Capital leases, net of current portion                                                    38
    Long-term deferred revenues                                                                7
    Deferred rent                                                                            195

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; 15,000,000 shares authorized; 9,883,785 issued
         and outstanding                                                                      10
    Additional paid-in capital                                                            39,952
    Accumulated deficit                                                                  (35,668)
                                                                                        --------
         Total stockholders' equity                                                        4,294
                                                                                        --------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                              $  6,682
                                                                                        ========


                        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,
                                                           2004          2003
                                                         --------      --------
REVENUES:
     Service and other fees                              $  2,313      $  2,369
     Implementation fees                                      568         1,191
     Software license fees                                    118            75
                                                         --------      --------
         Total revenues                                     2,999         3,635

COST OF REVENUES                                            1,315         1,585
                                                         --------      --------

GROSS MARGIN                                                1,684         2,050

OPERATING EXPENSES:
    Selling and marketing                                     587           640
    Product development                                       258           359
    General and administrative                                727           768
                                                         --------      --------
         Total operating expenses                           1,572         1,767
                                                         --------      --------

INCOME FROM OPERATIONS                                        112           283

OTHER INCOME (EXPENSE):
    Interest income                                             5             6
    Interest expense                                           (3)           (5)
                                                         --------      --------
         Total other income (expense)                           2             1
                                                         --------      --------

NET INCOME                                               $    114      $    284
                                                         ========      ========

NET INCOME PER COMMON SHARE:
    Basic                                                $    .01      $    .03
    Fully diluted                                        $    .01      $    .03
                                                         ========      ========

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
    Basic                                                   9,817         9,318
    Fully diluted                                          11,404         9,721
                                                         ========      ========


                See notes to the unaudited financial statements.

                                        4
<PAGE>

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

                                                              THREE MONTHS ENDED MARCH 31,
                                                                   2004        2003
                                                                  -------    -------
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                                    $   114    $   284
    Adjustments to reconcile net income to net cash provided by
         operating activities:
         Depreciation and amortization                                114        186
         Allowance for bad debt                                      --           11
         Changes in operating assets and liabilities:
             Accounts receivable                                      (54)       341
             Other current assets                                     (54)       124
             Other assets and deferred charges                          1         33
             Accounts payable                                          56         48
             Payroll related and other liabilities                     36        106
             Deferred revenue                                          97       (989)
                                                                  -------    -------
         Net cash provided by operating activities                    310        144

CASH FLOWS FROM INVESTING ACTIVITIES:

    Purchase of property and equipment                                (88)       (14)

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

NET INCREASE IN CASH AND CASH EQUIVALENTS                             555        130

CASH AND CASH EQUIVALENTS, beginning of period                      3,299      2,490
                                                                  -------    -------

CASH AND CASH EQUIVALENTS, end of period                          $ 3,854    $ 2,620
                                                                  =======    =======

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

NON CASH INVESTING AND FINANCING ACTIVITIES:
    Non-cash purchases of property and equipment                  $  --      $    32
                                                                  =======    =======


                  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," the "Company," "we," or "our"
     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 customer life,
     over which deferred revenue and implementation expenses are recognized, the
     percentage of completion on customer contracts, 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. 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 customer life or
     contract term. Managed service fees and variable monthly fees are
     recognized as services are performed.

                                       6
<PAGE>

     The second method of delivering our 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 customers' 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. 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.

     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

                                        7
<PAGE>

     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, 2004.

     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,
                                                      2004        2003
                                                    --------    --------
                                                       (In thousands,
                                                  except per share amounts)
       Net Income (Loss)
          As reported                               $    114    $    284
          Add: Stock-based employee compensation
            expense included in reported net
            income, net of tax effect                   --          --
          Deduct: Total stock-based employee
            compensation expense determined under
            fair value based method for all
            awards, net of tax effect
                                                        (342)       (440)
                                                    --------    --------
          Pro forma                                 $   (228)   $   (156)
                                                    ========    ========

       Earnings per share:
            Basic and diluted-as reported           $    .01    $    .03
            Basic and diluted-pro forma             $   (.02)   $   (.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 2004 and
     2003: (1) risk-free interest rates of 2.80% in 2004 and 2.78% in 2003; (2)
     no expected dividend yield; (3) expected lives of 5 years; and (4) assumed
     volatility of approximately 120% in 2004 and 99% in 2003.

     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 pursuant to the terms of the original options. There were no
     stock option exercises during the three months ended March 31, 2003.

     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,
                                                  2004       2003
                                                 -------   -------
                                                   (In thousands,
                                             except per share amounts)
          Net income available for common
             shareholders (A)                    $   114   $   284
          Weighted average common shares
             outstanding (B)                       9,817     9,318
          Dilutive effect of employee stock
             based compensation                    1,587       403
                                                 -------   -------
          Common stock and common stock
             equivalents (C)                      11,404     9,721
                                                 =======   =======

          Earnings per share:
          Basic (A/B)                            $   .01   $   .03
          Diluted (A/C)                          $   .01   $   .03


     As of March 31, 2004 and 2003, options to purchase 1,607,000 and 3,432,000
     shares, respectively, 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.

     Reclassifications - The Company's Statement of Cash Flows contains
     categories for changes in Accounts Payable and Payroll Related and Other
     Liabilities. In the Company's quarterly report filed on Form 10-QSB for the
     three months ended March 31, 2003, the change in Accounts Payable included
     the change in Deferred Rent. In the Company's quarterly report filed on
     Form 10-QSB for the three months ended March 31, 2004, the change in
     Deferred Rent has been included in the change in Payroll Related and Other
     Liabilities. As a result, the change in Deferred Rent in the prior year
     financial statements presented in this Form 10-QSB for the three months
     ended March 31, 2004 has been reclassified to the change in Payroll Related
     and Other Liabilities in order to conform to the current year
     classification.

                                       9
<PAGE>

     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 portion of the Company's cash and
     cash equivalents balance at March 31, 2004 was in excess of federally
     insured limits. The Company's customers are primarily large multi-national
     entities located throughout the U.S. The Company grants credit, generally
     without collateral, to these customers under specific contractual terms.
     The Company has not experienced any material losses related to its accounts
     receivable to date.

     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, 2004, that same organization accounted for
     approximately 40%, or $605,000, 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. Another client
     accounted for 21%, or $315,000, of the Company's net accounts receivable
     balance at March 31, 2004. No other customers accounted for more than 10%
     of the Company's accounts receivable balance at March 31, 2004.

     During the three months ended March 31, 2003, the Company earned
     $1,557,000, or 43%, of its revenue from one global organization. No other
     organization accounted for more than 10% of the Company's revenue during
     the three months ended March 31, 2003.

     The $10,133,000 contract the Company entered into with its largest customer
     in 2001 and certain of the expanded managed services arrangements
     associated with that contract, which collectively represent $313,000 of the
     Company's monthly contracted managed service fees, expire on October 31,
     2004. One other managed services agreement related to that contract, which
     represents $58,000 of the Company's monthly contracted managed service
     fees, expires on October 31, 2005. Together these agreements comprise
     $371,000, or 82%, of the Company's $454,000 of total monthly service fees
     from this customer. These agreements represent a substantial portion of the
     Company's revenues, net income and cash flow. The Company believes that
     this customer is evaluating alternative solutions to the ones it provides
     under these agreements. While the Company is seeking to renew or modify and
     extend these agreements and enter into new agreements with this client,
     there can be no assurances that it will be able to do so. If the Company is
     unable to renew or extend these arrangements or enter into new arrangements
     under terms acceptable to it, or replace the revenue attributable to this
     business through increased sales to other new or existing customers, the
     Company's financial condition and results of operations would be materially
     adversely affected.

     Segment Information - The Company operates in a single reportable segment
     and all revenues from customers 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, 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.

                                       10
<PAGE>

     Recent Accounting Pronouncements - In January 2003, the Financial
     Accounting Standards Board issued Interpretation No. 46 ("FIN 46"),
     Consolidation of Variable Interest Entities, an Interpretation of ARB No.
     51, and in December 2003 issued FIN 46R. FIN 46 requires certain variable
     interest entities to be consolidated by the primary beneficiary of the
     entity if the equity investors in the entity do not have the
     characteristics of a controlling financial interest or do not have
     sufficient equity at risk for the entity to finance its activities without
     additional subordinated financial support from other parties. FIN 46 is
     effective immediately for all new variable interest entities created or
     acquired after January 31, 2003. FIN 46R requires the adoption of either
     FIN 46 or FIN 46R in financial statements of public entities that have
     interests in structures that are commonly referred to as special purpose
     entities for periods ending after December 15, 2003. Application for all
     other types of variable interest entities is required in financial
     statements for periods ending after March 15, 2004. The adoption of FIN 46
     had no impact on the Company's financial position or results of operation.

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 customers that contain
     indemnification clauses, which could require the Company to make payments
     to the customer 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. 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 (e.g., "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, Avaya, Bank of America,
Hewlett-Packard, Lexmark, Maytag, The Hartford, Visa, Vision Service Plan (VSP)
and Wachovia Corporation.

As of March 31, 2004, we had 42 managed services clients, compared to the 44 we
reported as of March 31, 2003. We have and may continue to experience decreases
in our client count for various reasons, including client consolidation. As a
result of the reduction in the number of clients, as well as reductions in
managed service fees due to client contract renewals, our contracted managed
service fees, which include fees that are currently in a month-to-month contract
status, decreased from $823,000 per month as of March 31, 2003 to $812,000 per
month as of March 31, 2004. The reduction in our contracted managed service fees
resulting from client losses and client contract renegotiations was partially
offset by increased service fees from new client contracts signed in the fourth
quarter of 2003 and the first quarter of 2004.

We have experienced extended sales cycles in recent years, which we believe was
caused primarily by the following factors: i) there has been a general decline
in 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 customer, were inconsistent with this trend; ii) the market for
Channel Visibility solutions is at an early stage of adoption; and iii) we are
susceptible to competitive threats such as clients or prospective clients
outsourcing certain IT functions to other countries in an effort to reduce
costs, as well as companies attempting to implement in-house solutions similar
to those that we provide.

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 customer can access distinct modules related to specific
business needs at lower introductory price points, and add other applications
incrementally. Our Channel Insight solution consists of a platform and five
separate modules, as discussed in our Annual Report on Form 10-KSB for the year
ended December 31, 2003. As a result of implementing this tiered delivery model
and other ongoing sales efforts we signed a number of new Channel Insight
agreements in the first quarter of 2004 and experienced a significant increase
in sales relative to the first quarter of 2003.

                                       12
<PAGE>

Personnel-related costs(1) comprised approximately 76% and 75% of our total
costs in the first quarter of 2004 and 2003, respectively. Because salaries and
related costs are 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.

During the third quarter of 2003, we took steps to reduce our costs, which
resulted in a 14-person reduction in regular full-time personnel. The reduction
in full-time personnel consisted of an 11-person reduction in staff related to
software implementation, system operations and client support, a 2-person
reduction in our marketing staff and a 1-person reduction in product development
personnel. The impact of these cost reductions on our operating results is
discussed more fully in "Results of Operations."

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 generally sold with annual or multi-year contracts. The
initial term of these agreements is typically one to three years and they are
generally renewable upon mutual agreement between InfoNow and the client.

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.

Monthly 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 customers utilizing a licensed model)
          includes updates to the client's software.

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

                                       13
<PAGE>

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.

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 customer life or contract term in accordance with SAB 101. Because
most of our initial sales contracts range from one to three years in duration,
the customer life is typically the longer deferral period and is estimated to be
three years. This estimate is based on a number of factors, including customer
turnover, the rate of change for the technology underlying our solutions and the
expectation that our customers will continue to convert from the ASP model to
our license-hosted model, under which software, implementation fees and direct
costs are not deferred, but are recognized on a percentage of completion basis
in accordance with ARB No. 45 and SOP 81-1. We evaluate the estimate of a
customer life on an ongoing basis in consideration of these factors and the
estimate of three years has remained constant since the adoption of SAB 101. If,
based upon our evaluations, the estimate of a customer life were to increase,
deferred revenue balances would be recognized over a longer time period. A
reduction in the estimate of a customer life would, conversely, result in
accelerated recognition of deferred revenues relative to prior years. Because we
expect deferred revenues to continue to decline in future periods assuming we
sell more licensed solutions, we anticipate that this estimate will decrease in
significance going forward. 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 we expect it to
be our predominant methodology going forward. Under this model, we sell our
clients a perpetual license for our software. They can install our software on
their own in-house systems, 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 customers' 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

                                       14
<PAGE>

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. Since 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 the future, if we are able to establish VSOE of fair value for the software
and implementation elements of our solutions, license fees will generally be
recognized at the time of contract signing 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 increased volatility
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. 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.

The following table summarizes the distribution of our employees as of March 31,
2004 and March 31, 2003:

                                             March 31, 2004       March 31, 2003
                                             --------------       --------------
Staff related to the Cost of Revenues              64                   71
Selling and Marketing                              10                   19
Product Development                                10                   16
General and Administrative                         11                   12
   Total Employees                                 95                  118

Included in the table above are 78 full-time employees, 15 temporary employees
and 2 part-time employees at March 31, 2004, and 106 full-time employees and 12
temporary employees at March 31, 2003.

                                       15
<PAGE>

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

                                       Three Months Ended
                                           March 31,
                                        2004       2003      Change     % Change
                                       -------    -------    -------    --------
REVENUES:

Software license fees                  $   118    $    75    $    43        57%
Implementation fees                        568      1,191       (623)      (52%)
Monthly service fees & software
   maintenance fees                      2,295      2,337        (42)       (2%)
Other fees                                  18         32        (14)      (44%)
                                       -------    -------    -------
       Total revenues                    2,999      3,635       (636)      (17%)

COST OF REVENUES                         1,315      1,585       (270)      (17%)
                                       -------    -------    -------

GROSS MARGIN                             1,684      2,050       (366)      (18%)

OPERATING EXPENSES:
Selling and marketing                      587        640        (53)       (8%)
Product development                        258        359       (101)      (28%)
General and administrative                 727        768        (41)       (5%)
                                       -------    -------    -------
       Total operating expenses          1,572      1,767       (195)      (11%)
                                       -------    -------    -------

INCOME FROM OPERATIONS                     112        283       (171)      (60%)

OTHER INCOME (EXPENSE):
Interest income                              5          6         (1)      (17%)
Interest expense                            (3)        (5)         2        40%
                                       -------    -------    -------

       Total other income (expense)          2          1          1       100%
                                       -------    -------    -------

NET INCOME                             $   114    $   284    $  (170)      (60%)
                                       =======    =======    =======


Results of Operations

Comparison of the Three Months Ended March 31, 2004 with the Three Months Ended
March 31, 2003.

Revenues: Our revenues consist primarily of implementation fees, software
license fees and monthly service fees from new and existing customers. Total
revenues decreased by $636,000 or 17%, to $2,999,000 for the three months ended
March 31, 2004, from $3,635,000 for the three months ended March 31, 2003.

Monthly Service Fees and Software Maintenance Fees - Monthly service fees and
software maintenance fees were $2,295,000 during the first quarter of 2004, a
decrease of $42,000, or 2%, from $2,337,000 in the first quarter of 2003. The
decrease is primarily due to a $210,000 reduction in service fees as a result of
client contract terminations. This reduction was partially offset by a $136,000
increase in monthly service fees associated with a Channel Insight solution that
was sold to an existing customer during the fourth quarter of 2002 for which
implementation was not completed until the second quarter of 2003. Accordingly,
we did not recognize any service fee revenue from this solution in the first
quarter of 2003. The remaining $32,000 increase in service fees was generated
primarily by new Channel Management solutions sold to existing customers.
Monthly service fees and software maintenance fees comprised 77% of total
revenue during the three months ended March 31, 2004, compared to 64% during the
three months ended March 31, 2003.

                                       16
<PAGE>

Implementation Fees - Revenues generated from implementation fees during the
three months ended March 31, 2004 decreased by $623,000, or 52%, to $568,000
from $1,191,000 during the three months ended March 31, 2003. The decrease in
implementation fees is primarily attributable to a $751,000 decrease in the
recognition of previously deferred implementation fees from $775,000 during the
three months ended March 31, 2003 to $24,000 during the three months ended March
31, 2004. This change is mainly due to the recognition of $587,000 of
implementation fees for our largest client in the first quarter of 2003 that
were deferred in previous years under the ASP model. During the first quarter of
2003, this client converted the term licenses related to its Referral/Locator
and Lead Generation and Management solutions to perpetual licenses, which
required the recognition of previously deferred implementation fees. The
decrease in implementation fee revenue associated with the recognition of
previously deferred revenue was partially offset by increases in revenue caused
primarily by an increase in the sales of our Channel Insight solution to new
clients during the fourth quarter of 2003 and the first quarter of 2004.

Software License Fees - Software license fees were $118,000 in the first quarter
of 2004, an increase of $43,000 from the $75,000 of license fees during the
first quarter of 2003. This increase in license fees is primarily attributable
to an increase in the sales of our Channel Insight solutions to new clients
during the fourth quarter of 2003 and the first quarter of 2004. Software
license fees represented approximately 4% of total revenue during the three
months ended March 31, 2004, compared to 2% of revenue during the three months
ended March 31, 2003. We anticipate that a higher percentage of contracts will
be executed under license-hosted arrangements as it becomes our predominant
business model over time. Therefore, we expect that our software license fees
will increase in the future.

Other Fees - Other fees decreased by $14,000, or 44%, to $18,000 during the
three months ended March 31, 2004, from $32,000 during the three months ended
March 31, 2003. The decrease in other revenues is attributable to a decrease in
the number of contracts with charges for voice recordings, faxes, geocoding and
telecommunications charges, as well as a reduction in interactive voice response
transaction volume and negotiated rate reductions in our telecommunications
charges.

Through March 31, 2004, we have recognized total revenue of $8,556,000 on the
$10,133,000 Channel Insight contract we entered into with our largest customer
in the second quarter of 2001, consisting of $7,213,000 in managed service fees,
$1,072,000 in implementation fees and $271,000 in software license fees. The
unrecognized balance of $1,577,000 under this contract consists of managed
service fees that we expect to recognize over the period from April 1, 2004
through October 31, 2004 as we perform services. In addition, as a result of
expanding the services we provide in conjunction with this client's Channel
Insight solution we expect to recognize in approximately equal monthly
installments an aggregate of an additional $1,017,000 of managed service fees
during the period from April 1, 2004 through October 31, 2004 and $696,000
during the period from November 1, 2004 through October 31, 2005 as we perform
services through the respective terminations of these agreements. For a further
discussion of potential risk associated with this contract see "Related Business
Risks and Assumptions."

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

                                       17
<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 44% of revenues in the first
quarter of 2004 and 2003. Total cost of revenues decreased $270,000 to
$1,315,000 during the three months ended March 31, 2004 from $1,585,000 during
the three months ended March 31, 2003. This was primarily due to a $154,000
reduction in personnel and personnel support costs primarily as a result of the
cost reduction measures taken during the third quarter of 2003. In addition, we
have gained efficiencies in implementing our solutions and, therefore, have
experienced a reduction in the need for technical personnel in the short-term.
Recognition of implementation expense on contracts that were deferred in
previous periods under ASP arrangements also decreased by $86,000 mainly due to
the recognition of implementation expense in the first quarter of 2003 as a
result of the conversion of our largest customer from the ASP model to the
license-hosted model. Bad debt expense decreased $10,000 due to a reduction in
the estimate of our accounts receivable that we believe has a high likelihood of
being uncollectible. We also experienced a $10,000 reduction in our cost of
revenues due to a decline in our data center costs, which was driven primarily
by lower depreciation expense related to our data center hardware and software
since many of our older assets are now fully depreciated. The remaining $10,000
decline in our cost of sales was mainly because of lower telecommunications
charges as a result of negotiated rate reductions and lower system usage due to
the decline in our customer base.

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 increased to 20% of revenues during the three
months ended March 31, 2004 from 18% of revenues during the three months ended
March 31, 2003. The total amount of selling and marketing expenses decreased by
$53,000, or 8%, to $587,000 during the three months ended March 31, 2004 from
$640,000 during the three months ended March 31, 2003. The change is primarily
attributable to a $127,000 decrease in personnel and personnel support costs
partly as a result of attrition related to our sales and marketing staff and
partly due to the cost savings measures taken during the third quarter of 2003.
The decrease in personnel and personnel support costs is net of a $56,000
increase in salaries as a result of hiring our Executive Vice President of
Sales, Marketing and Business Development in the fourth quarter of 2003. We also
experienced an $18,000 reduction in public relations and advertising and
promotion consulting costs. The decreases in our selling and marketing expenses
associated with personnel costs and consulting expenses was partially offset by
an $87,000 increase in commission expense as a result of an increase in the
sales of our solutions, as well as incremental commissions for our Executive
Vice President of Sales, Marketing and Business Development. The remaining
$5,000 increase in our selling and marketing expenses was due to an increase 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, 2004, product development expenses decreased $101,000, or
28%, to $258,000 from $359,000 for the three months ended March 31, 2003. 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, as well as the cost reduction measures taken during the
third quarter of 2003.

                                       18
<PAGE>

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
and accounting fees, insurance and costs related to our facilities. These costs
increased to 24% of revenues for the three months ended March 31, 2004, from 21%
of revenues for the three months ended March 31, 2003. The total amount of
general and administrative costs over the same period decreased $41,000, or 5%,
to $727,000 during the first quarter of 2004 from $768,000 during the first
quarter of 2003. The decrease was primarily attributable to a $33,000 reduction
in our facilities costs, which was mainly due to lower depreciation expense
since many of our older assets are now fully depreciated. We also experienced
$13,000 lower personnel related costs primarily as a result of attrition related
to our administrative staff. In addition, our insurance costs decreased $4,000
due to a reduction in the cost of our commercial insurance policy. The decreases
in general and administrative expenses associated with facilities costs,
personnel related expenses and insurance costs were partially offset by a $9,000
increase in Board of Directors expenses as a result of a new Board of Directors
compensation plan that was implemented beginning in 2004.

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 $2,000 during the three months
ended March 31, 2004, compared to net other income of $1,000 for the three
months ended March 31, 2003. The increase of $1,000 is primarily attributable to
lower interest expense due to a reduction in our capital lease obligations. The
reduction in interest expense was partially offset by lower interest income on
cash and cash equivalents resulting from lower interest rates during the first
quarter of 2004 relative to the first quarter of 2003.

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 income for the three months ended March 31, 2004 was
$114,000 compared to net income of $284,000 for the three months ended March 31,
2003, a $170,000 decrease. This decrease is primarily attributable to a
$636,000, or 17%, decrease in total revenues, which was partially offset by a
$465,000, or 14%, decrease in total expenses, as well as a $1,000 increase in
other income for the three months ended March 31, 2004, compared to the three
months ended March 31, 2003, as discussed above in this Item 2.


Liquidity and Capital Resources

InfoNow has financed its 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 $3,459,000 from the exercise
of stock options and warrants since we began offering our Enterprise 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

                                       19
<PAGE>

credit facility requires that we meet various covenants. We are not permitted to
draw on the bank credit facility if we are out of 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 $3,854,000 at March 31, 2004, compared to
$2,620,000 at March 31, 2003. Our total cash flow for the three months ended
March 31, 2004 was $555,000 compared to $130,000 for the three months ended
March 31, 2003. The increase of $425,000 was due in part to a $333,000 increase
in cash provided by our financing activities primarily as a result of an
increase in stock option exercises in the first quarter of 2004. In addition,
cash provided by operating activities increased $166,000 mainly due to strong
collections of our trade accounts receivable and reductions to our cost
structure in the first quarter of 2004 compared to the first quarter of 2003.
The increases in cash flow associated with our financing and operating
activities was partially offset by a $74,000 increase in cash used in investing
activities due to an increase in purchases of property and equipment for our
data centers and corporate office. The changes in our total cash flow for the
first quarter of 2004 compared to the first quarter of 2003 are discussed below
in more detail.

Net cash generated by operating activities during the three months ended March
31, 2004, was $310,000, compared to $144,000 during the three months ended March
31, 2003. The increase of $166,000 is generally due to improved cash collections
of our accounts receivable, as well as lower overall costs. More specifically,
the increase in cash generated by operating activities is attributable primarily
to a $1,086,000 change in deferred revenue. This change was driven primarily by
an increase in deferred implementation fees associated with new Channel Insight
contracts that were entered into late in the first quarter of 2004 for which
implementation is not expected to be complete until the second quarter of 2004.
In addition, we experienced significant recognition of previously deferred
implementation fees in the first quarter of 2003 because our largest client
obtained perpetual licenses for its Referral/Locator and Lead Generation and
Management solutions during 2003, which required the recognition of the deferred
implementation fees associated with those solutions. The change in operating
cash flow associated with deferred revenue was partially offset by a $395,000
increase in our accounts receivable balance. This was caused by billings in the
first quarter of 2004 related to new Channel Insight contracts. Because those
contracts were entered into late in the first quarter of 2004, we had not yet
collected the related accounts receivable balances associated with them by the
end of the quarter. In addition, our other current assets increased by $178,000
mainly as a result of prepayments related primarily to our directors and
officers insurance policy, as well as certain software license fees.
Depreciation and amortization also decreased by $72,000 since many of our data
center and corporate office assets have become fully depreciated without
proportionate asset purchases during that time period, and our payroll related
and other liabilities declined by $70,000 mainly because of the reductions in
our cost structure. In addition, our other assets and deferred charges decreased
by $32,000 mainly because of a reduction in our deferred implementation expense
balance. Our bad debt expense also decreased by $11,000. The remaining $162,000
change in our operating cash flow was primarily attributable to the reduction in
net income, as discussed above in "Results of Operations." In order to meet our
fiscal management needs we may, from time to time, accelerate or defer payments
of our trade payables and accrued liabilities, and, in some cases, we may prepay
certain of our future operating expenses. In the first quarter of 2004 we
prepaid future operating expenses and accelerated trade accounts payable
payments totaling approximately $215,000. The most significant of these payments
were for our directors and officers insurance policy, data license royalties,
consulting fees and legal fees. These prepayments and accelerated payments will
benefit our operating cash flow in the second quarter of 2004.

                                       20
<PAGE>

Cash used in investing activities increased to $88,000 for the three months
ended March 31, 2004 compared to $14,000 for the three months ended March 31,
2003. The change of $74,000 is due to an increase in purchases of computer
hardware and software for our data centers and corporate office. We have plans
to increase our capital expenditures throughout 2004 primarily to upgrade or
replace existing data center hardware and software, as well as to add new
equipment to support anticipated growth in our customer base.

Net cash provided by financing activities during the first quarter of 2004 was
$333,000. We had no cash flows from financing activities during the first
quarter of 2003. The increase was caused primarily by a $350,000 increase in
cash received from stock option exercises, which was partially offset by a
$17,000 increase in principal payments on debt obligations. We did not have
principal payments on debt obligations in the first quarter of 2003 because we
prepaid those obligations during the fourth quarter of 2002.

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):

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

Capital Lease Obligations            $  117   $   78    $   39   $ --     $ --

Operating Leases                      1,482      272       965      245     --

Minimum Royalties                       150       12        24       24       90

Total Contractual Cash Obligation    $1,749   $  362    $1,028   $  269   $   90


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. 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.

                                       21
<PAGE>

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

In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51 ("FIN 46"), and in
December 2003 issued FIN 46R. The adoption of this standard did not have an
impact on our financial position or results of operations.

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 customers, none of whom are obligated to renew, modify
          or extend their contractual relationships with the Company, and
          attract new customers;
     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    Continue to serve new and existing customers;
     o    Improve our operational and financial systems in order to address
          planned growth in our operations;
     o    Maintain pricing and adequate 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
          customers migrating to lower cost solutions, such as offshore IT
          development and service functions; 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, 2003, 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.

                                       22
<PAGE>

In March 2004 the Financial Accounting Standards Board ("FASB") issued an
Exposure Draft, Share-Based Payment, an Amendment of FASB Statements No. 123 and
95, which proposes a change in accounting for stock-based compensation to
replace existing guidance under SFAS No. 123 and APB No. 25 and require
companies to treat share-based compensation the same as other forms of
compensation by recognizing the related cost in the company's income statement.
We do not currently recognize an expense in our income statement for stock-based
compensation. If we are required to do so in the future, we believe it would
have a material adverse impact on our results of operations.

The $10,133,000 Channel Insight contract we entered into with our largest
customer in 2001 and certain of the expanded managed services arrangements
associated with that contract, which collectively represent $313,000 of our
monthly contracted managed service fees, expire on October 31, 2004. One other
managed services agreement related to that contract, which represents $58,000 of
our monthly contracted managed service fees, expires on October 31, 2005.
Together these agreements comprise $371,000, or 82%, of the Company's $454,000
of total monthly service fees from this customer. These agreements represent a
substantial portion of our revenues, net income and cash flow. We believe this
customer is evaluating alternative solutions to the ones we provide under these
agreements. While we are seeking to renew or modify and extend these agreements
and enter into new agreements with this client, there can be no assurances that
we will be able to do so. If we are unable to renew or extend these arrangements
or enter into new arrangements under terms acceptable to us, or replace the
revenue attributable to this business through increased sales to other new or
existing customers, our financial condition and results of operations would be
materially adversely affected.

For a more comprehensive discussion of the risk factors associated with our
business, please refer to the section entitled "Related Business Risks and
Assumptions:" beginning on page 29 of our Annual Report filed with the
Securities and Exchange Commission on Form 10-KSB for the fiscal year ended
December 31, 2003.









                                       23
<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, 2004, pursuant to Rule 13a-15(b) under the Exchange
Act. Based upon that evaluation, our Certifying Officers concluded that, as of
March 31, 2004, 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, 2004 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.








                                       24
<PAGE>

                           PART II. OTHER INFORMATION

Item 5. Other Information

     On May 10, 2004 the Company entered into a separation agreement with its
     Executive Vice President, Development and Services, Jim Brandt. The
     agreement provides that Mr. Brandt will remain employed through June 30,
     2004 and that he will receive severance payments totaling $87,500 through
     December 31, 2004.


Item 6. Exhibits and Reports on Form 8-K

     (a) Exhibits

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

         31                    Rule 13a-14(a)/15d-14(a) certifications

         32                    Section 1350 certifications


     (b) Reports on Form 8-K.

          On January 21, 2004, the Company furnished a Form 8-K to the SEC under
          item 12 (Results of Operations and Financial Condition).

          On March 17, 2004, the Company furnished a Form 8-K to the SEC under
          item 12 (Results of Operations and Financial Condition).



                                       25
<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 14, 2004                               By: /s/ Michael W. Johnson
                                                  --------------------------
                                                  Michael W. Johnson, Chief
                                                  Executive Officer



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


May 14, 2004        Chief Financial Officer and            /s/ Harold R. Herbst
                    Executive Vice President               --------------------
                    (Principal Financial Officer)          Harold R. Herbst


May 14, 2004        Vice President, Controller and         /s/ James L. Medina
                    Treasurer                              --------------------
                    (Principal Accounting Officer)         James L. Medina







                                       26