<PAGE>
 
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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                               ----------------
 
                                   FORM 10-Q
 
                               ----------------
 
  (Mark
  One)
 
   [X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
 
                      for the period ended March 31, 1999
 
                                      or
 
   [_]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
 
                               ----------------
 
                       Commission File Number 000-25139
 
                                XOOM.COM, INC.
            (exact name of Registrant as specified in its charter)
 
                               ----------------
 
<TABLE>
<S>                                            <C>
                  DELAWARE                                       88-0361536
          (State of incorporation)                  (I.R.S. Employer Identification No.)
</TABLE>
 
                       300 MONTGOMERY STREET, SUITE 300
                        SAN FRANCISCO, CALIFORNIA 94104
                                (415) 288-2500
         (Address and Telephone Number of principal executive offices)
 
       Securities registered pursuant to Section 12(b) of the Act: None
 
          Securities registered pursuant to Section 12(g) of the Act:
 
                        Common Stock, $0.0001 Par Value
                               (Title of Class)
 
                               ----------------
 
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
 
                               Yes [X]   No [_]
 
The number of shares outstanding of Registrant's Common Stock, $0.0001 par
value, was 13,830,588 at March 31, 1999.
 
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<PAGE>
 
                                 XOOM.COM, INC.
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                          Page
 Part I        FINANCIAL INFORMATION                                      ----
 <C>           <S>                                                        <C>
       Item 1. Condensed Consolidated Financial Statements (Unaudited)
               Condensed Consolidated Balance Sheets
               March 31, 1999 and December 31, 1998.....................   1
               Condensed Consolidated Statements of Operations
               Three months ended March 31, 1999 and 1998...............   2
               Condensed Consolidated Statement of Cash Flows
               Three months ended March 31, 1999 and 1998...............   3
               Notes to Condensed Consolidated Financial Statements.....   5
       Item 2. Management's Discussion and Analysis of Financial
               Condition and Results of Operations......................   8
       Item 3. Quantitative and Qualitative Disclosures about Market
               Risk.....................................................  29
 Part II       OTHER INFORMATION
       Item 1. Legal Proceedings........................................  30
       Item 2. Changes in Securities and Use of Proceeds................  30
       Item 4. Submission of Matters to a Vote of Security Holders......  31
       Item 6. Exhibits and Reports on Form 8-K.........................  31
               Signatures...............................................  32
</TABLE>
 
                                       i
<PAGE>
 
                                 XOOM.com, Inc.
 
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In thousands)
 
<TABLE>
<CAPTION>
                                                          March 31,  December 31,
                                                            1999         1998
                                                         ----------- ------------
                                                         (Unaudited)
<S>                                                      <C>         <C>
                         ASSETS
Current assets:
 Cash, cash equivalents and short-term investments......  $ 52,671     $ 56,575
 Accounts receivable, net...............................     1,610        1,368
 Inventories............................................       282          322
 Other current assets...................................       477          308
                                                          --------     --------
   Total current assets.................................    55,040       58,573
Fixed assets, net.......................................     3,248        2,071
Intangibles, net........................................     4,655        5,517
Investments.............................................     1,004          --
Other assets............................................       843          713
                                                          --------     --------
   Total assets.........................................  $ 64,790     $ 66,874
                                                          ========     ========
 
          LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable.......................................  $  2,097     $  1,229
 Accrued compensation and related expenses..............       863          497
 Other accrued liabilities..............................     1,303        1,568
 Notes payable..........................................     1,191        1,276
 Deferred revenue.......................................       411          443
 Contingency accrual....................................     1,000        1,000
                                                          --------     --------
   Total current liabilities............................     6,865        6,013
Long-term liabilities...................................       475          528
 
Commitments and contingencies
 
Stockholders' equity:
 Preferred stock, $0.0001 par value:
  Authorized shares--5,000,000
  Issued and outstanding shares--none in 1999 and 1998..       --           --
 Common stock, $0.0001 par value:
  Authorized shares--40,000,000
  Issued and outstanding shares--13,830,588 and
   13,699,555 in 1999 and 1998, respectively............    75,801       75,606
Deferred compensation...................................      (674)        (904)
Accumulated deficit.....................................   (17,677)     (14,369)
                                                          --------     --------
   Total stockholders' equity...........................    57,450       60,333
                                                          --------     --------
    Total liabilities and stockholders' equity..........  $ 64,790     $ 66,874
                                                          ========     ========
</TABLE>
 
                              See accompanying notes.
 
                                       1
<PAGE>
 
                                 XOOM.com, Inc.
 
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)
                                  (Unaudited)
 
<TABLE>
<CAPTION>
                                                         Three Months Ended
                                                              March 31,
                                                         --------------------
                                                           1999       1998
                                                         ---------  ---------
<S>                                                      <C>        <C>
Net revenue:
 E-commerce............................................. $   2,636  $     677
 Advertising............................................     1,765         83
 Licensing..............................................        21         89
                                                         ---------  ---------
   Total net revenue....................................     4,422        849
 
Cost of e-commerce......................................     2,041        278
Cost of licensing.......................................         1          8
                                                         ---------  ---------
  Cost of net revenue...................................     2,042        286
                                                         ---------  ---------
Gross profit............................................     2,380        563
 
Operating expenses:
 Operating and development..............................     1,149        576
 Sales and marketing....................................     2,434        262
 General and administrative.............................     1,623        316
 Purchased in-process research and development..........       --         330
 Amortization of deferred compensation..................       230         79
 Amortization of intangible assets......................       862        --
                                                         ---------  ---------
   Total operating expenses.............................     6,298      1,563
                                                         ---------  ---------
Loss from operations....................................    (3,918)    (1,000)
 
Other income (expense):
 Interest income........................................       640        --
 Interest expense.......................................       (30)       --
                                                         ---------  ---------
Net loss................................................ $  (3,308) $  (1,000)
                                                         =========  =========
Net loss per share--basic and diluted................... $   (0.24) $   (0.17)
                                                         =========  =========
Number of shares used in per share calculation--basic
 and diluted............................................    13,811      5,884
                                                         =========  =========
</TABLE>
 
                              See accompanying notes.
 
                                       2
<PAGE>
 
                                 XOOM.com, Inc.
 
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                  (Unaudited)
 
<TABLE>
<CAPTION>
                                                               Three Months
                                                                  Ended
                                                                March 31,
                                                             -----------------
                                                               1999     1998
                                                             --------  -------
<S>                                                          <C>       <C>
Cash used in operating activities:
 Net loss................................................... $ (3,308) $(1,000)
 Adjustments to reconcile net loss to net cash used in
  operating activities:
  Purchased in-process research and development.............      --       330
  Depreciation and amortization.............................      328      100
  Amortization of intangible assets.........................      862      --
  Amortization of deferred compensation.....................      230       79
  Issuance of common stock in exchange for Classic Media
   Holdings license rights..................................      --       100
  Issuance of stock options to consultants..................      --         1
  Issuance of common stock to directors and consultants.....      157      --
  Changes in operating assets and liabilities:
   Accounts receivable......................................     (242)    (108)
   Inventories..............................................       40       (6)
   Other current assets.....................................     (169)     (80)
   Other assets.............................................     (181)     (34)
   Accounts payable.........................................      868      282
   Accrued compensation and related expenses................      366       52
   Other accrued liabilities................................     (265)      76
   Deferred revenue.........................................      (32)     --
                                                             --------  -------
 Net cash used in operating activities......................   (1,346)    (208)
 
Cash used in investing activities:
 Purchases of fixed assets..................................   (1,455)    (231)
 Purchase of investments....................................   (8,294)     --
 Business combination, net of cash acquired.................      --       (28)
                                                             --------  -------
 Net cash used in investing activities......................   (9,749)    (259)
 
Cash provided by financing activities:
 Proceeds from issuance of common stock.....................      --       421
 Proceeds from exercise of options..........................       36      --
 Proceeds from issuance of notes payable to stockholders....      --       335
 Principal payments on capital lease obligations............      (11)     --
 Repayment of notes payable.................................     (124)     (30)
                                                             --------  -------
 Net cash provided by (used in) financing activities........      (99)     726
                                                             --------  -------
 Net increase (decrease) in cash............................  (11,194)     259
 Cash and cash equivalents at beginning of period...........   54,575        6
                                                             --------  -------
 Cash and cash equivalents at end of period................. $ 43,381  $   265
                                                             ========  =======
</TABLE>
 
                            See accompanying notes.
 
                                       3
<PAGE>
 
                                 XOOM.com, Inc.
 
          CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
                                 (In thousands)
                                  (Unaudited)
 
<TABLE>
<CAPTION>
                                                            Three Months Ended
                                                                 March 31,
                                                            -------------------
                                                              1999      1998
                                                            -------------------
<S>                                                         <C>      <C>
Supplemental disclosures:
Non-cash transactions:
 Issuance of common stock in exchange for stock
  subscriptions receivable................................. $    --  $      260
                                                            ======== ==========
 Issuance of common stock in exchange for cancellation of
  notes payable to stockholder............................. $    --  $      150
                                                            ======== ==========
Deferred compensation resulting from grant of stock
 options................................................... $    --  $       59
                                                            ======== ==========
 Common stock issued to satisfy Paralogic legal
  obligation............................................... $    --  $      165
                                                            ======== ==========
Issuance of common stock in conjunction with business and
 technology acquisitions: Paralogic Corporation............ $    --  $    1,576
                                                            ======== ==========
Issuance of notes payable in conjunction with business and
 technology acquisitions:
 Paralogic Corporation..................................... $    --  $    1,400
                                                            ======== ==========
Cash paid for interest..................................... $     26 $       --
                                                            ======== ==========
</TABLE>
 
                            See accompanying notes.
 
                                       4
<PAGE>
 
1. Basis of Presentation
 
   The condensed consolidated financial statements at March 31, 1999 and 1998
and for the three-month periods then ended are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The condensed
consolidated financial statements at March 31, 1999 should be read in
conjunction with the consolidated financial statements and notes thereto,
together with management's discussion and analysis of financial condition and
results of operations, contained in the Company's Annual Report to
Stockholders incorporated by reference in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1998. The results of operations
for the three months ended March 31, 1999 are not necessarily indicative of
the results for the entire fiscal year ending December 31, 1999.
 
2. Cash, Cash Equivalents and Short-Term Investments
 
   The Company has classified all short-term investments as available-for-
sale. Available-for-sale securities are carried at amounts that approximate
fair market value based on quoted market prices. Realized gains and losses and
declines in value judged to be other-than-temporary on available-for-sale
securities are included in interest income. Interest on securities classified
as available-for-sale is also included in interest income.
 
   The following is a summary of available-for-sale securities (in thousands):
 
<TABLE>
<CAPTION>
                                                         March 31, December 31,
                                                           1999        1998
                                                         --------- ------------
   <S>                                                   <C>       <C>
   Demand and money market instrument accounts..........  $ 5,172    $ 8,731
   Corporate bonds and notes............................   33,499     36,444
   Market auction preferred stock.......................   14,000     11,400
                                                          -------    -------
                                                           52,671     56,575
   Less amounts included in cash and cash equivalents...    9,290      2,000
                                                          -------    -------
   Short term investments...............................  $43,381    $54,575
                                                          =======    =======
</TABLE>
 
   Unrealized gains and losses at March 31, 1999 and 1998 and realized gains
and losses for the periods then ended were not material. Accordingly, the
Company has not made a provision for the unrealized amounts in its
consolidated balance sheet. The cost of securities sold is based on the
specific identification method. All available-for-sale securities at March 31,
1999 have maturity dates in 1999 or 2000.
 
3. Inventories
 
   Inventories are carried at the lower of cost (determined on the average
cost basis) or market. Inventories consist of products available for sale.
 
4. Net Loss Per Share
 
   Basic and diluted net loss per share is calculated using the weighted
average number of common shares outstanding. Diluted net loss per share is
computed using the weighted average number of common shares outstanding and
dilutive common stock equivalents outstanding during the period. A
reconciliation of the numerators and denominators used in the basic and
diluted net loss per share amounts is as follows:
 
<TABLE>
<CAPTION>
                                                               Three Months
                                                              Ended March 31,
   In thousands, except per share data                        ----------------
                                                               1999     1998
                                                              -------  -------
   <S>                                                        <C>      <C>
   Net loss.................................................. $(3,308) $(1,000)
                                                              =======  =======
   Shares used in per share calculation......................  13,811    5,884
   Basic and diluted net loss per share...................... $ (0.24) $ (0.17)
                                                              =======  =======
</TABLE>
 
 
                                       5
<PAGE>
 
5. Legal Proceedings
 
   In January 1998, the Company became aware that Imageline, Inc.
("Imageline") claimed to own the copyright in certain images that a third
party, Sprint Software Pty Ltd ("Sprint") had licensed to the Company. Some
clip art images that Imageline alleged infringed Imageline's copyright were
included by the Company in versions of the Company's Web Clip Empire product
and licensed by the Company to third parties, including other software clip
publishers. The Company's contracts with such publishers require the Company
to indemnify the publisher if copyrighted material licensed from the Company
infringes a copyright. Imageline claims that the Company's infringement of
Imageline's copyrights is ongoing. The Company and Imageline had engaged in
discussions, but were unable to reach any agreement regarding a resolution of
this matter.
 
   On August 27, 1998, the Company filed a lawsuit in the United States
District Court for the Eastern District of Virginia against Imageline, certain
parties affiliated with Imageline, and Sprint regarding the Company's and its
licensees' alleged infringement on Imageline's copyright in certain clip art
that the Company licensed from Sprint. The lawsuit seeks, among other relief,
disclosure of information from Imageline concerning the alleged copyright
infringement, a declaratory judgment concerning the validity and
enforceability of Imageline's copyrights and copyright registrations, a
declaratory judgment regarding damages, if any, owed by the Company to
Imageline, and indemnification from Sprint for damages, if any, owed by the
Company to Imageline. There is no contractual limitation on Sprint's
indemnification. While the Company is seeking indemnification from Sprint for
damages, if any, there can be no assurance that Sprint will be able to fulfill
the indemnity obligations under its license agreements with the Company. In
addition, the Company may be subject to claims by third parties seeking
indemnification from the Company in connection with the alleged infringement
of the Imageline copyrights.
 
   On September 17, 1998, Imageline filed a counterclaim, which Imageline
amended in January 1999, seeking up to $60 million in damages. In March 1999,
the parties completed the discovery process and filed separate motions for
summary judgment. The lawsuit is scheduled for trial on April 23, 1999.
 
   Based on the discussions with Imageline, the Company believes the range of
liability related to this matter is from $0 up to $10,000,000; however, the
Company believes it is unlikely that the liability would exceed $1,000,000.
Accordingly, the Company reserved $1,000,000 for this potential liability, the
expense of which is included in non-recurring charges for the year ended
December 31, 1997. The Company believes that the $1,000,000 accrual represents
a reasonable estimate of the loss that could be incurred in the Imageline
dispute. Based on information available to date management does not believe
that the outcome of this matter will have a material effect on the Company's
financial position, results of operations and cash flows over and above the
$1,000,000 accrued in the 1998 financial statements. If not successful in
defending this claim, the resulting outcome could have a material adverse
impact on the Company's business, results of operations, cash flows and
financial condition.
 
   Zoom Telephonics, Inc. filed a lawsuit against the Company in September
1998 alleging trademark infringement and related statutory violations. The
Company was not served with Zoom Telephonics' complaint until January 1999.
Zoom Telephonics has demanded that the Company stop using the XOOM trademark
and has asked for an unspecified amount of money damages. The Company
responded to the complaint in February 1999. In April 1999, Zoom Telephonics
filed a motion for a preliminary injunction to stop the Company from using any
mark containing "Xoom." The Company intends to oppose the Zoom Telephonics'
motion for preliminary injunction. Although the Company believes that Zoom's
claims are without merit, such litigation could have a material adverse effect
on the Company's business, results of operations and financial condition,
particularly if such litigation forces the Company to make substantial changes
to its name and trademark usage. However, based on information available to
date, the Company does not believe that the ultimate outcome of this matter
will have a material adverse effect on its results of operations, financial
position or cash flows.
 
6. Recent Accounting Pronouncements
 
   The Financial Accounting Standards Board issued Statement No. 131 ("SFAS
131"), "Disclosure about Segments of an Enterprise and Related Information,"
which establishes standards for the way public business enterprises report
information in annual statements and interim financial reports regarding
operating segments,
 
                                       6
<PAGE>
 
products and services, geographic areas and major customers. This statement is
effective for financial statements for periods beginning after December 15,
1997. The adoption of this statement did not have a significant impact on the
way the Company reports information in its annual statements and interim
financial reports.
 
   In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use", which establishes
guidelines for the accounting for the costs of all computer software developed
or obtained for internal use. The Company adopted SOP 98-1 effective January
1, 1999. The adoption of SOP 98-1 has not had a material impact on the
Company's consolidated financial statements.
 
7. Subsequent Events
 
   On April 1, 1999, the Company acquired 100% of the outstanding shares of a
company which operates a global directory of small businesses. The purchase
consideration consisted of 21,894 shares of the Company's common stock with an
estimated fair value of $77.23 per share. The Company will account for this
acquisition as a purchase.
 
   On April 9, 1999, the Company completed a Secondary Public Offering of its
common stock of 4,600,000 shares (including 600,000 shares issued in
connection with the exercise of the underwriter over-allotment option) at a
price of $66.00 per share. Of the 4,600,000 shares of common stock sold in the
Offering, 2,659,800 were sold by the Company and 1,940,200 shares were sold by
existing stockholders. The Company received net proceeds from the offering of
approximately $167 million.
 
   On May 3, 1999, the Company acquired 100% of the outstanding shares of
MightyMail Networks, Inc., a provider of an HTML email messaging service for
web users. The purchase consideration consisted of 268,761 shares of the
Company's common stock with an estimated fair value of $72.10 per share. In
addition, 67,186 shares of the Company's common stock will be placed into an
escrow account. Of the shares held in escrow, 25% will be released in November
1999 and 25% in May 2000, upon the completion of certain performance
objectives, and 50% will be released in May 2000, upon the expiration of
certain indemnification obligations. The Company will account for this
acquisition as a purchase.
 
   On May 5, 1999, the Company acquired 100% of the outstanding shares of Net
Floppy, Inc., a provider of online file storage for web users. The purchase
consideration consisted of 7,528 shares of the Company's common stock with an
estimated fair value of $72.10 per share and $560,467 in cash. In addition,
7,526 shares of the Company's common stock will be placed into an escrow
account. Of the shares held in escrow, 50% will be released upon completion of
certain performance objectives in November 1999 and 50% will be released in
May 2000, upon the expiration of certain indemnification obligations. The
Company will account for this acquisition as a purchase.
 
   On May 9, 1999, the Company, National Broadcasting Company, Inc. and
certain of its affiliates (collectively, "NBC"), CNET, Inc. ("CNET") and SNAP!
LLC entered into a series of definitive agreements (the "Agreements") relating
to the formation of a new company to be named NBC Internet, Inc. ("NBCi") upon
consummation of all the transactions contemplated by the Agreements. NBCi is
expected to include the businesses of the Company, SNAP! LLC and certain of
NBC's internet assets (including NBC.com, Videoseeker.com and NBC Interactive
Neighborhood) and a 10% ownership interest in CNBC.com. The first transaction
will be effected by a merger of the Company with a subsidiary of NBCi followed
by NBCi acquiring CNET's ownership interest in SNAP! LLC. In a subsequent
transaction, Neon Media Corporation ("NMC"), a newly formed entity which will
own the NBC internet assets discussed above, is expected to be merged with
NBCi and NBC's ownership interests in SNAP! LLC are expected to be contributed
to NBCi. In connection with the consummation of all of the transactions
contemplated by the Agreements, the following would occur on successive days:
 
   Initially,
 
     (i) each share of Company common stock will be converted into the right
  to receive 1 share of NBCi Class A common stock (the "Class A Stock"); and
 
                                       7
<PAGE>
 
   (ii) CNET will receive 7,147,584 shares of Class A Stock in exchange for
its ownership interest in SNAP! LLC;
 
   which would result in a new company (NBCi) controlled by the former
stockholders of the Company.
 
   On the succeeding day,
 
     (A) each share of NMC common stock will be exchanged for 1 share of
  Class B common stock ("Class B Stock") of NBCi, which will result in the
  issuance of 13,764,726 shares of Class B Stock; and
 
   (B) a subsidiary of NBC will receive 11,417,569 shares of Class B Stock in
exchange for its ownership interests in SNAP! LLC (including its options to
purchase additional equity interests).
 
   Thereafter, an affiliate of NBC will purchase a $486,894,758 zero coupon
convertible debenture due 2006 (the "Convertible Note") of NBCi for a cash
payment of $30 million and the assignment of an NBC promissory note in the
amount of $340 million (the "NBC Note") to NBCi. The NBC Note has a term of
four years and will bear interest at 5.4% per annum. The Convertible Note may
be converted at a 15% discount by the holder thereof into 4,651,493 shares of
Class B Stock only after one year after its issuance.
 
   Only the Class A Stock will be publicly traded. Separate agreements have
been entered into with respect to the transactions set forth in clauses (i)
and (ii) and with respect to the transactions set forth in clauses (A) and
(B). The closing of the transactions set forth in clauses (i) and (ii) will
occur first and will not be contingent upon the closing of the transactions
set forth in clauses (A) and (B), which are anticipated to occur the following
day. Except for certain specified matters, the Class A Stock and Class B Stock
shall have the same voting rights. Upon consummation of the transactions, the
Company and SNAP! LLC will be wholly-owned by NBCi.
 
   Assuming both transactions were consummated on May 9, 1999, NBC and its
affiliates would own approximately 49.9% of NBCi equity, the Company's former
stockholders and option holders would own approximately 36% of NBCi equity and
CNET would own approximately 14% of NBCi equity. If NBC chooses to convert the
Convertible Note after one year, NBC, through its affiliates, could own
approximately 53% of the currently expected fully-diluted equity of NBCi.
 
   Initially, the holders of the Class B Stock will have the right to appoint
six of the 13 members of the NBCi board of directors (and will retain such
right so long as such holders own 20% of the outstanding shares of common
stock of NBCi) and the holders of the Class A Stock will have the right to
appoint the remaining seven members, with the seventh member requiring the
nomination of at least seven members of the NBCi board of directors. If NBC
converts the Convertible Note, in certain circumstances the holders of the
Class B Stock would have the right to appoint seven of the 13 members of the
NBCi board of directors and the holders of the Class A Stock would have the
right to appoint the remaining six members. As long as the directors elected
by the holders of the Class B Stock do not constitute a majority of the NBCi
board of directors, certain actions by NBCi will require the approval of such
directors. As long as the holders of the Class B Stock have the right to elect
seven directors to the NBCi board of directors, certain actions by NBCi will
require the approval of the directors elected by the holders of the Class A
Stock.
 
   The Company has also entered into an option agreement which provides NBC
with the right to acquire, in the aggregate, up to 19.9% of the outstanding
common stock of the Company upon the occurrence of certain specified events
related to the consummation of the transactions described above (or the lack
thereof). NBC, the Company and Chris Kitze, the Company's Chairman and the
beneficial owner of approximately 20% of the Company's common stock, have
entered into a voting agreement under which Chris Kitze has agreed to vote his
shares in favor of the transactions contemplated by the Agreements.
 
   In connection with the transactions, NBC and a subsidiary of NBC entered
into a licensing agreement (which will be assigned to NBCi upon consummation
of the transactions). Among other rights, the agreement grants such subsidiary
a non-exclusive license to use the trademark "NBC", the NBC multicolor logo
and the
 
                                       8
<PAGE>
 
NBC soundmark in connection with NBC.com, Videoseeker.com and NBC Interactive
Neighborhood and the portal, community and e-commerce services of NBCi. The
license agreement also provides such subsidiary an exclusive license to use,
reproduce and display short excerpts from certain NBC television programs and
to create interactive programs therefrom, in accordance with the terms of the
license, on the NBCi internet sites. In addition, NBCi will purchase at least
$380 million in NBC TV Network advertising over the next four years.
 
   In connection with the transactions, CNET will enter into an agreement with
NBC under which CNET will (i) agree to vote its shares of Class A Stock in the
same manner as NBC with respect to certain change in control transactions
involving NBCi and (ii) provides NBC with a right of first offer to purchase
shares of Class A Stock owned by CNET. NBC and CNET will also enter into
standstill agreements with NBCi under which they will agree not to transfer or
acquire additional shares of NBCi's capital stock except in accordance with
the terms and conditions of the standstill agreements.
 
   The transactions are subject to the approval of the Company's stockholders
as well as receipt of required regulatory approvals, approval for listing on
the Nasdaq National Market system and other customary conditions.
 
   Upon closing of the transactions, it is anticipated that Bob Wright,
President and Chief Executive Officer of NBC, will become Chairman of the
Board of NBCi, and Chris Kitze will become the President and Chief Executive
Officer of NBCi.
 
   The foregoing summary of the Agreements does not purport to be complete and
is subject to, and qualified in its entirety by reference to, the provisions
of the Agreements which will be filed as exhibits to the Company's Current
Report on Form 8-K.
 
 
                                       9
<PAGE>
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS
 
   THE DISCUSSION IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" CONTAINS TREND ANALYSES AND OTHER
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. ALL
STATEMENTS, TREND ANALYSES AND OTHER INFORMATION CONTAINED HEREIN RELATIVE TO
MARKETS FOR XOOM.COM's SERVICES AND PRODUCTS AND TRENDS IN REVENUE, AS WELL AS
OTHER STATEMENTS INCLUDING SUCH WORDS AS "ANTICIPATE," "BELIEVE," "PLAN,"
"ESTIMATE," "EXPECT," "GOAL," AND "INTEND" AND OTHER SIMILAR EXPRESSIONS
CONSTITUTE FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS ARE
SUBJECT TO BUSINESS AND ECONOMIC RISKS, AND XOOM.COM'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS AS A
RESULT OF THE PROPOSED MERGER WITH NBC MEDIA CORPORATION, AND WHICH IS
EXPECTED TO CLOSE IN THE THIRD QUARTER OF 1999, AND OTHER FACTORS SET FORTH
ELSEWHERE HEREIN, INCLUDING "CERTAIN RISK FACTORS WHICH MAY IMPACT FUTURE
OPERATING RESULTS," PAGE 17, AS WELL AS FACTORS SET FORTH IN XOOM.COM'S ANNUAL
REPORT ON FORM 10-K.
 
General
 
   Xoom.com is one of the fastest growing direct e-commerce companies on the
Internet. We attract members to our community site with a variety of free
services, including homepages, e-mail, chat rooms, electronic newsletters,
clip art and software libraries, page counters and online greeting cards. Our
members can also join topical communities where they can exchange ideas and
information. Members may also enter specialized forums such as Investor Place,
Women's Circle or Health & Fitness, where they can gain access to professional
content and special product and service offers available only on our Web site.
Upon registration, members agree to receive periodic offers of products and
services via e-mail. These competitively priced and continuously updated
offers include computer software, computer accessories and peripherals,
consumer electronics, clip art on CD-ROM and collectible items. In addition,
we offer services such as a travel club, long distance telephone services and
a DVD club. Our new offerings will include services such as home and auto
insurance, wireless telecommunications services and membership clubs, and
products such as magazine subscriptions, appliances, games, photography
supplies and gardening tools, among others. We believe that our rapidly
growing base of self-qualified members provides us with highly attractive e-
commerce opportunities. In addition, we believe that our high levels of
traffic and the number of unique users that visit our site or affiliated sites
on which we offer services on a monthly basis, often referred to as reach,
present an attractive platform for advertising.
 
   We were incorporated in April 1996 and commenced offering products for sale
on our Web site in March 1997. From inception through December 1996, we had no
sales and our operating activities related primarily to developing necessary
computer infrastructure, recruiting personnel, raising capital and initial
planning and development of the Xoom.com site. For the period beginning with
the operation of the Xoom.com site through December 31, 1997, we continued
these activities and focused on building sales momentum, establishing
relationships with manufacturers, marketing the Xoom.com brand and
establishing customer service and fulfillment operations.
 
   From inception through March 31, 1999, we generated total net revenue of
approximately $13.6 million. Since January 1998, the number of members has
grown from 100,000 to 7.3 million as of April 23, 1999.
 
   We have not achieved profitability on a quarterly or annual basis to date,
and anticipate that we will incur net losses for the foreseeable future. The
extent of these losses will depend, in part, on the amount and rates of growth
in our net revenue from e-commerce and advertising. We expect our operating
expenses to increase significantly, especially in the areas of sales and
marketing and brand promotion. As a result, we will need to increase our
quarterly net revenue to achieve profitability. We believe that period-to-
period comparisons of our operating results are not meaningful and that you
should not rely upon the results for any period as an indication
 
                                      10
<PAGE>
 
of future performance. Our business, results of operations and financial
condition will be materially and adversely affected if:
 
  . net revenue does not grow at anticipated rates;
 
  . increases in operating expenses are not offset by commensurate increases
    in net revenue; or
 
  . we are unable to adjust operating expense levels in light of net revenue.
 
   We expect operating expenses will continue to increase in the future as we
continue to seek to expand our business. To the extent that these expenses are
not accompanied by an increase in net revenue, our business, results of
operations and financial condition could be materially adversely affected. Our
operating losses might increase in the future, and we cannot guarantee that we
will ever achieve or sustain profitability. See "Certain Risk Factors Which
Might Impact Future Operating Results--We cannot assure you that we will be
profitable because we have operated our business only for a short period of
time."
 
   To date, we have entered into various business and technology acquisitions,
license arrangements and strategic alliances in order to build our
communities, provide community-specific content, generate additional traffic,
increase the number of members and establish additional sources of net
revenue. In March 1998, we acquired Paralogic, a chat service, for a purchase
price of approximately $3.0 million. We also acquired Sitemail, an HTML-based
e-mail product, through our purchases of Global Bridges and certain assets of
Revolutionary Software in June 1998. Global Bridges, which we purchased for
approximately $1.2 million, owned the exclusive selling rights to Sitemail.
Revolutionary Software, from which we purchased certain assets for
approximately $1.7 million, developed Sitemail and had licensed it to Global
Bridges. Also in June 1998, we purchased from ArcaMax an exclusive, perpetual
license to use Greetings Online, an online greeting card service, for
approximately $644,000. Additionally, in July 1998, we acquired Pagecount, a
Web page counter and guestbook service, for approximately $1.5 million.
 
   Because most Internet business acquisitions involve the purchase of
significant amounts of intangible assets, acquisitions of such businesses also
result in goodwill and purchased technology and significant charges for
purchased in-process research and development. During the three months ended
March 31, 1999 and 1998, we expensed $0 and $330,000 for purchased in-process
research and development and approximately $862,000 and $0 for the
amortization of goodwill and purchased technology, repsectively.
 
   We intend to continue making acquisitions to increase online reach and
membership and to seek additional strategic alliances with content and
distribution partners, including alliances that create co-branded sites
through which we market our services. Acquisitions carry numerous risks and
uncertainties, including:
 
  . difficulties in integrating operations, personnel, technologies, products
    and the information systems of the acquired companies;
 
  . diversion of management's attention from other business concerns;
 
  . risks of entering geographic and business markets in which we have little
    or no prior experience; and
 
  . potential loss of key employees of acquired entities.
 
   We cannot guarantee that we will be able to successfully integrate any
businesses, products, technologies or personnel that might be acquired in the
future. A failure to successfully integrate acquired entities or assets could
have a material adverse effect on our business, results of operations and
financial condition. In addition, we cannot guarantee that we will be
successful in identifying and closing transactions with potential acquisition
candidates. See "Certain Risk Factors Which Might Impact Future Operating
Results--If we are unable to successfully integrate future acquisitions into
our operation, then our business and results of operations could be adversely
affected."
 
                                      11
<PAGE>
 
   International sales comprised approximately 21% and 27% of total net
revenue for the three months ended March 31, 1999 and 1998, respectively. This
consisted of $929,000 and $140,000 in net revenue, respectively, during such
periods. See "Certain Risk Factors Which Might Impact Future Operating
Results--Our international operations are subject to risks that could have a
material adverse effect on our results of operations."
 
   We will need to increase our inventory levels in the future to support a
wider base of e-commerce products and to take advantage of volume purchase
discounts. We contract with a third party warehousing and order fulfillment
company to stock inventory and ship products directly to customers. We take
title to this inventory, have responsibility for this inventory, and record
inventory on our balance sheet until the final shipment to customers or other
disposition of the inventory. There are inherent risks and costs in stocking
inventory and coordinating with a third party warehousing and order
fulfillment company. These risks include, but are not limited to, product
obsolescence, excess inventory, inventory shortages resulting in unfulfilled
orders, which could materially adversely affect operating results in the
future. See "Certain Risk Factors Which Might Impact Future Operating
Results--Any failure of our network infrastructure could have a material
adverse effect on our results of operations" and "--We depend on our vendors
and suppliers."
 
   As a strategic response to changes in the competitive environment, we might
from time to time make certain pricing, service or marketing decisions or
pursue business combinations that could have a material adverse effect on our
business, results of operations and financial condition. In order to
accelerate the promotion of the Xoom.com brand, we intend to significantly
increase our marketing budget, which could materially and adversely affect our
business, results of operations and financial condition. We expect to
experience seasonality in our business, with user traffic on the Xoom.com site
potentially being lower during the summer and year-end vacation and holiday
periods when overall usage of the Web is lower. Additionally, seasonality may
significantly affect our advertising revenue during the first and third
calendar quarters, as advertisers historically spend less during these
periods. Because Web-based commerce and advertising is an emerging market,
additional seasonal and other patterns may develop in the future as the market
matures. Any seasonality is likely to cause quarterly fluctuations in our
operating results, and these patterns could have a material adverse effect on
our business, results of operations and financial condition.
 
                                      12
<PAGE>
 
Recent Events
 
   On April 1, 1999, we acquired 100% of the outstanding shares of a company,
which operates a global directory of small businesses. The purchase
consideration consisted of 21,894 shares of our common stock with an estimated
fair value of $77.23 per share. We will account for this acquisition as a
purchase.
 
   On April 9, 1999, we completed a Secondary Public Offering of our common
stock and issued 4,600,000 shares (including 600,000 shares issued in
connection with the exercise of the underwriter over-allotment option) at a
price of $66.00 per share. Of the 4,600,000 shares of common stock sold in the
Offering, 2,659,800 shares were sold by Xoom.com, Inc. and 1,940,200 shares
were sold by existing shareholders. We received net proceeds from the offering
of approximately $167 million.
 
   On May 3, 1999, we acquired 100% of the outstanding shares of MightyMail
Networks, Inc., a provider of an HTML email messaging service for web users.
The purchase consideration consisted of 268,761 shares of our common stock
with an estimated fair value of $72.10 per share. In addition, we will place
67,186 shares of our common stock into an escrow account. Of the shares held
in escrow, 25% will be released in November 1999 and 25% in May 2000, upon the
completion of certain performance objectives, and 50% will be released in May
2000, upon the expiration of certain indemnification obligations. We will
account for this acquisition as a purchase.
 
   On May 5, 1999, we acquired 100% of the outstanding shares of Net Floppy,
Inc., a provider of online file storage for web users. The purchase
consideration consisted of 7,528 shares of our common stock with an estimated
fair value of $72.10 per share and $560,467 in cash. In addition, we will
place 7,526 shares of our common stock into an escrow account. Of the shares
held in escrow, 50% will be released upon completion of certain performance
objectives in November 1999 and 50% will be released in May 2000, upon the
expiration of certain indemnification obligations. We will account for this
acquisition as a purchase.
 
   On May 9, 1999, the Company, National Broadcasting Company, Inc. and
certain of its affiliates (collectively, "NBC"), CNET, Inc. ("CNET") and SNAP!
LLC entered into a series of definitive agreements (the "Agreements") relating
to the formation of a new company to be named NBC Internet, Inc. ("NBCi") upon
consummation of all the transactions contemplated by the Agreements. NBCi is
expected to include the businesses of the Company, SNAP! LLC and certain of
NBC's internet assets (including NBC.com, Videoseeker.com and NBC Interactive
Neighborhood) and a 10% ownership interest in CNBC.com. The first transaction
will be effected by a merger of the Company with a subsidiary of NBCi followed
by NBCi acquiring CNET's ownership interest in SNAP! LLC. In a subsequent
transaction, Neon Media Corporation ("NMC"), a newly formed entity which will
own the NBC internet assets discussed above, is expected to be merged with
NBCi and NBC's ownership interests in SNAP! LLC are expected to be contributed
to NBCi. In connection with the consummation of all of the transactions
contemplated by the Agreements, the following would occur on successive days:
 
   Initially,
 
    (i) each share of Company common stock will be converted into the right
        to receive 1 share of NBCi Class A common stock (the "Class A
        Stock"); and
 
    (ii) CNET will receive 7,147,584 shares of Class A Stock in exchange
         for its ownership interest in SNAP! LLC;
 
which would result in a new company (NBCi) controlled by the former
stockholders of the Company.
 
   On the succeeding day,
 
     (A) each share of NMC common stock will be exchanged for 1 share of
  Class B common stock ("Class B Stock") of NBCi, which will result in the
  issuance of 13,764,726 shares of Class B Stock; and
 
                                      13
<PAGE>
 
 
   (B) a subsidiary of NBC will receive 11,417,569 shares of Class B Stock in
exchange for its ownership interests in SNAP! LLC (including its options to
purchase additional equity interests).
 
   Thereafter, an affiliate of NBC will purchase a $486,894,758 zero coupon
convertible debenture due 2006 (the "Convertible Note") of NBCi for a cash
payment of $30 million and the assignment of an NBC promissory note in the
amount of $340 million (the "NBC Note") to NBCi. The NBC Note has a term of
four years and will bear interest at 5.4% per annum. The Convertible Note may
be converted at a 15% discount by the holder thereof into 4,651,493 shares of
Class B Stock only after one year after its issuance.
 
   Only the Class A Stock will be publicly traded. Separate agreements have
been entered into with respect to the transactions set forth in clauses (i)
and (ii) and with respect to the transactions set forth in clauses (A) and
(B). The closing of the transactions set forth in clauses (i) and (ii) will
occur first and will not be contingent upon the closing of the transactions
set forth in clauses (A) and (B), which are anticipated to occur the following
day. Except for certain specified matters, the Class A Stock and Class B Stock
shall have the same voting rights. Upon consummation of the transactions, the
Company and SNAP! LLC will be wholly-owned by NBCi.
 
   Assuming both transactions were consummated on May 9, 1999, NBC and its
affiliates would own approximately 49.9% of NBCi equity, the Company's former
stockholders and option holders would own approximately 36% of NBCi equity and
CNET would own approximately 14% of NBCi equity. If NBC chooses to convert the
Convertible Note after one year, NBC, through its affiliates, could own
approximately 53% of the current fully diluted equity of NBCi.
 
   Initially, the holders of the Class B Stock will have the right to appoint
six of the 13 members of the NBCi board of directors (the "Board") (and will
retain such right so long as such holders own 20% of the outstanding shares of
common stock of NBCi) and the holders of the Class A Stock will have the right
to appoint the remaining seven members, with the seventh member requiring the
nomination of at least seven members of the Board. If NBC converts the
Convertible Note, in certain circumstances the holders of the Class B Stock
would have the right to appoint seven of the 13 members of the Board and the
holders of the Class A Stock would have the right to appoint the remaining six
members. As long as the directors elected by the holders of the Class B Stock
do not constitute a majority of the Board, certain actions by NBCi will
require the approval of such directors. As long as the holders of the Class B
Stock have the right to elect seven directors to the Board, certain actions by
NBCi will require the approval of the directors elected by the holders of the
Class A Stock.
 
   The Company has also entered into an option agreement which provides NBC
with the right to acquire, in the aggregate, up to 19.9% of the outstanding
common stock of the Company upon the occurrence of certain specified events
related to the consummation of the transactions described above (or the last
thereof). NBC, the Company and Chris Kitze, the Company's Chairman and the
beneficial owner of approximately 20% of the Company's common stock, have
entered into a voting agreement under which Chris Kitze has agreed to vote his
shares in favor of the transactions contemplated by the Agreements.
 
   In connection with the transactions, NBC and a subsidiary of NBC entered
into a licensing agreement (which will be assigned to NBCi upon consummation
of the transactions). Among other rights, the agreement grants such subsidiary
a non-exclusive license to use the trademark "NBC", the NBC multicolor logo
and the NBC soundmark in connection with the Contributed Sites and the portal,
community and e-commerce services of NBCi. The license agreement also provides
such subsidiary an exclusive license to use, reproduce and display short
excerpts from certain NBC television programs and to create interactive
programs therefrom, in accordance with the terms of the license, on the
Contributed Sites. In addition, NBCi will purchase at least $380 million in
NBC TV Network advertising over the next four years.
 
   In connection with the transactions, CNET will enter into an agreement with
NBC under which CNET will (i) agree to vote its shares of Class A Stock in the
same manner as NBC with respect to certain change in control
 
                                      14
<PAGE>
 
transactions involving NBCi and (ii) provides NBC with a right of first offer
to purchase shares of Class A Stock owned by CNET. NBC and CNET will also
enter into standstill agreements with NBCi under which they will agree not to
transfer or acquire additional shares of NBCi's capital stock except in
accordance with the terms and conditions of the standstill agreements.
 
   The transactions are subject to the approval of the Company's stockholders
as well as receipt of required regulatory approvals, approval for listing on
the Nasdaq National Market system and other customary conditions.
 
   Upon closing of the transactions, it is anticipated that Bob Wright,
President and Chief Executive Officer of NBC, will become Chairman of the
Board of NBCi, and Chris Kitze will become the President and Chief Executive
Officer of NBCi.
 
   The foregoing summary of the Agreements does not purport to be complete and
is subject to, and qualified in its entirety by reference to, the provisions
of the Agreements which will be filed as exhibits to the Company's Current
Report on Form 8-K.
 
 
                                      15
<PAGE>
 
Results of Operations
 
   The following table presents certain consolidated statement of operations
data for the periods indicated as a percentage of total net revenue.
 
<TABLE>
<CAPTION>
                                                                Three Months
                                                                   Ended
                                                                 March 31,
                                                                --------------
                                                                1999     1998
                                                                -----   ------
<S>                                                             <C>     <C>
Net revenue:
  E-commerce...................................................  59.6%    79.9%
  Advertising..................................................  39.9      9.8
  Licensing....................................................   0.5     10.5
                                                                -----   ------
    Total net revenue.......................................... 100.0    100.0
Cost of net revenue(1):
  Cost of e-commerce...........................................  46.1     32.8
  Cost of licensing............................................   0.1      0.9
                                                                -----   ------
 Cost of net revenue...........................................  46.2     33.7
                                                                -----   ------
Gross profit...................................................  53.8     66.3
Operating expenses:
  Operating and development....................................  26.0     67.8
  Sales and marketing..........................................  55.0     30.9
  General and administrative...................................  36.7     37.2
  Purchased in-process research and development................   --      38.9
  Amortization of deferred compensation........................   5.2      9.3
  Amortization of intangible assets............................  19.5      --
                                                                -----   ------
    Total operating expenses................................... 142.4    184.1
                                                                -----   ------
Loss from operations........................................... (88.6)  (117.8)
Interest income................................................  14.5      --
Interest expense...............................................  (0.7)     --
                                                                -----   ------
Net loss....................................................... (74.8)% (117.8)%
                                                                =====   ======
</TABLE>
 
Net revenue
 
   Total net revenue for the three months ended March 31, 1999 was $4.4
million, an increase of approximately $3.6 million over revenues of $849,000
for the three months ended March 31, 1998. The increase in net revenue was
primarily due to the following three factors: (A) the expansion of our
membership base; (B) an increase in the frequency of e-mail offerings and
broader product offerings (which resulted in an increase in product sales
through e-commerce); and (C) an increase in Web-based advertising (our higher
Web site traffic increased our attractiveness to advertisers).
 
E-commerce revenue
 
   E-commerce revenue increased to $2.6 million in the three months ended
March 31, 1999 from $677,000 in the three months ended March 31, 1998. The
increase in net revenue was primarily due to the expansion of our membership
base, which resulted in an increase in product sales, as well as expansion of
the breadth of products offered. The percentage of our total net revenue
attributable to e-commerce revenue decreased to 59.6% in the three months
ended March 31, 1999 from 79.9% in the three months ended March 31, 1998. We
expect e-commerce revenue to continue to account for a large percentage of net
revenue as we expand our product offerings and increase our direct e-commerce
response rates through better member demographic information and targeting of
product offers.
 
                                      17
<PAGE>
 
   We believe that offering our customers attractive prices is an essential
component of our business strategy. We may in the future increase the
discounts we offer our customers and may otherwise alter our pricing
structures and policies. We anticipate that any increase in discounts or price
reductions will reduce gross margins below those we experienced for the three
months ended March 31, 1999 and 1998.
 
Advertising revenue
 
   Advertising revenue increased to $1.8 million in the three months ended
March 31, 1999 from $83,000 in the three months ended March 31, 1998. The
increase in advertising revenue is primarily a result of the increase in our
membership, site traffic and expansion of our advertising sales force. The
percentage of our total net revenue attributable to advertising revenue
increased to 39.9% in the three months ended March 31, 1999 from 9.8% in the
three months ended March 31, 1998.
 
Licensing revenue
 
   Licensing revenue decreased to $21,000 in the three months ended March 31,
1999 from $89,000 in the three months ended March 31, 1998. As we expand our
e-commerce and advertising revenue, license fees and other revenue will
continue to represent a smaller percentage of net revenue.
 
Cost of net revenue
 
   Gross margins decreased to 53.8% in the three months ended March 31, 1999
from 66.3% in the three months ended March 31, 1998, as a result of the
increase in e-commerce revenue as a percentage of total net revenue. As a
percentage of total net revenue, the cost of e-commerce increased to 46.1% of
net revenue in the three months ended March 31, 1999 from 32.8% of net revenue
in the three months ended March 31, 1998. There were no material costs of net
revenue associated with advertising.
 
Cost of e-commerce revenue
 
   Cost of e-commerce consists primarily of the costs of merchandise sold to
customers, credit card commissions, product fulfillment, and outbound shipping
and handling costs. Cost of e-commerce was $2.0 million and $278,000 for the
three months ended March 31, 1999 and 1998, respectively. As a percentage of
e-commerce revenue, the cost of e-commerce was 77% and 41.1% for the three
months ended March 31, 1999 and 1998, respectively. The increase was primarily
attributable to the fact that in 1998 we broadened our product offerings. Our
new product offerings included items with higher costs than in the prior year.
 
Cost of licensing revenue
 
   Cost of license fees and other consists primarily of royalties on net
revenue of license fees. Cost of license fees were $1,600 and $8,000 for the
three months ended March 31, 1999 and 1998, respectively. Cost of license fees
and other should continue to be a small percentage of total cost of revenues
as compared to the cost of e-commerce revenues.
 
   The mix of products we sell will impact our gross margins and the overall
mix of e-commerce revenue, advertising revenue and license and other fees. We
typically recognize higher gross margins on advertising revenue and license
and other fees, which are expected to comprise a lower percentage of total net
revenue in the future. Therefore, we expect shifts in the mix of sales will
adversely impact our overall gross margin and could materially adversely
impact our business, results of operations and financial condition.
 
Operating and development expenses
 
   Operating and development expenses consist primarily of payroll and related
expenses for development and network operations personnel and consultants,
costs related to systems infrastructure including Web site hosting, and costs
of acquired content to enhance our Web site. Operating and development
expenses increased to
 
                                      18
<PAGE>
 
$1.1 million in the three months ended March 31, 1999 from $576,000 in the
three months ended March 31, 1998. Operating and development costs decreased
as a percentage of total net revenue to 26.0% in the three months ended March
31, 1999 from 67.8% in the three months ended March 31, 1998 because of the
growth in net revenue.
 
   We believe operating and development expenses will increase significantly
in the future, especially in relation to Web site hosting costs, as our
membership grows, thus requiring additional bandwidth to support the many free
services offered to members. We believe that we will need to make significant
investments in our Web site to remain competitive. Therefore, we expect that
our operating and development expenses will continue to increase in absolute
dollars for the foreseeable future.
 
Sales and marketing expenses
 
   Sales and marketing expenses consist primarily of payroll and related
expenses for personnel engaged in sales, marketing, publishing and customer
support, as well as advertising and promotional expenditures. Sales and
marketing expenses increased to $2.4 million in the three months ended March
31, 1999 from $262,000 in the three months ended March 31, 1998. The absolute
dollar increases from period to period in sales and marketing expenses were
primarily attributable to increased personnel and related expenses required to
implement our sales and marketing strategy as well as increased public
relations and other promotional expenses. Sales and marketing costs increased
as a percentage of total net revenue to 55.0% in the three months ended March
31, 1999 from 30.9% in the three months ended March 31, 1998. We expect to
continue hiring additional personnel and to pursue a branding and marketing
campaign. Therefore, we expect marketing and sales expenses to increase
significantly in absolute dollars.
 
General and administrative expenses
 
   General and administrative expenses consist primarily of payroll and
related costs for general corporate functions, including finance, accounting,
business development, human resources, investor relations, facilities and
administration, as well as legal fees, insurance, and fees for professional
services and directors. General and administrative expenses increased to $1.6
million in the three months ended March 31, 1999 from $316,000 in the three
months ended March 31, 1998. The absolute dollar increases from period to
period in general and administrative expenses were primarily due to increases
in the number of general and administrative personnel, professional services,
directors fees and facility expenses to support the growth of our operations.
General and administrative expenses decreased as a percentage of total net
revenue to 36.7% in the three months ended March 31, 1999 from 37.2% in the
three months ended March 31, 1998. We expect general and administrative
expenses to increase in absolute dollars in future periods as we expand our
staff, incur additional costs related to our operations, and are subject to
the requirements of being a publicly traded company.
 
Purchased in-process research and development
 
   We did not recognize purchased in-process research and development charges
for the three months ended March 31, 1999. For the three months ended March
31, 1998, we recognized the cost of purchased in-process research and
development of $330,000 in connection with the acquisition of Paralogic.
 
   In connection with the Paralogic acquisition, we acquired Paralogic's chat
technology, called ParaChat. ParaChat is designed to provide Web sites with an
option to offer chat technology without requiring Web site hosts to buy the
software, maintain or upgrade the software, or learn any additional skills
beyond what is necessary to construct a Web site. The chat software is
maintained on ParaChat's server and the Web site host is provided bits of
source code or "tags" that are incorporated into the Web site. The tags
interface via the Internet with the ParaChat server, and thus provide the Web
site with chat capabilities. In exchange for the free service, the Web site
host allows banner advertising on its site.
 
                                      19
<PAGE>
 
   As of the time of acquisition, ParaChat was not completely functional as a
commercially viable product. The nature, amount and timing of the remaining
estimated efforts necessary to develop the acquired, incomplete ParaChat
technology into a commercially viable product included:
 
   As of the date of the technology's valuation, we estimated that 55% of the
research and development effort had been completed at the date of acquisition
and expected the remaining research and development efforts relating to the
completion of the ParaChat technology would require approximately six months
of effort from the date of valuation through its release date of September 1,
1998. As of the date of valuation, we expected the benefit of the acquired
project to begin immediately after the estimated completion date. We expected
that the in-process project would be developed to technological feasibility
concurrent with the September 1998 release date. We estimated that three full-
time engineers would be required to complete the in-process projects. These
projects included the use of one full-time engineer for six months to work on
the external database connectivity efforts, one full-time engineer for six
months to work on the client layout efforts, and one full-time engineer for
six months to work on the management and control interface efforts.
Accordingly, it was determined that total estimated research and development
costs-to-complete for the ParaChat in-process project were $112,500. We
completed the project by the scheduled date and the actual costs of completion
were not materially different than estimated.
 
Amortization of deferred compensation
 
   We have recorded deferred stock compensation charges of $0 and $1,450
during the three months ended March 31, 1999 and 1998. The deferred
compensation charges account for the difference between the exercise price and
the deemed fair value of certain stock options we granted to our employees. We
cannot guarantee that we will not accrue additional charges, which could have
a material adverse effect on our business, results of operations and financial
condition.
 
   Deferred compensation expense reflects the amortization of stock
compensation charges resulting from stock options and restricted stock
purchase agreements. We have recorded deferred compensation expense of
$230,000 and $79,000, during the three months ended March 31, 1999 and 1998,
respectively.
 
Amortization of intangible assets
 
   Amortization of intangible assets totaled $862,000 for the three months
ended March 31, 1999. This amount represents amortization of intangible assets
and goodwill resulting from our acquisitions of Paralogic, Global Bridges and
Pagecount and the purchase of certain assets of Revolutionary Software,
amortized over periods ranging from 24 to 42 months.
 
Interest income
 
   Interest income represents interest we earned on our cash and short-term
cash investments. We have recorded approximately $640,000 and $0 in interest
income in the three months ended March 31, 1999 and 1998, respectively. This
increase was primarily due to the increased cash balances available to invest
resulting from the Company's initial public offering in December 1998.
 
Interest expense
 
   Interest expense represents interest charges related to notes payable and
capital leases. Interest expense recorded in the three months ended March 31,
1999 and 1998 was approximately $30,000 and $0, respectively.
 
Liquidity and Capital Resources
 
   Prior to our initial public offering, we financed our operations primarily
through the private placement of common stock. On December 9, 1998, we
completed our initial public offering of common stock, in which we issued
4,600,000 shares of common stock at a price of $14.00 per share. Proceeds from
the offering were approximately $57.3 million, net of offering costs.
 
 
                                      20
<PAGE>
 
   At March 31, 1999, we had cash and cash equivalents and short-term
investments of approximately $52.7 million. We regularly invest excess funds
in short-term money market funds, government securities and commercial paper.
 
   Net cash used in operating activities for the three months ended March 31,
1999 and 1998 was $1.3 million and $208,000, respectively. Cash used in
operating activities in each period was primarily the result of net losses and
an increase in accounts receivable related to the growth of advertising
revenues, partially offset by amortization of intangible assets related to our
acquisitions, amortization of deferred compensation incurred in connection
with the granting of options to employees to purchase common stock, and an
increase in current liabilities as a result of the growth of our business.
Additionally, in the three months ended March 31, 1998, cash used in operating
activities were offset by a $330,000 charge to in process research and
development related to the acquisition of Paralogic.
 
   Net cash used in investing activities for the three months ended March 31,
1999 and 1998 was $9.7 million and $259,000, respectively. Cash used in
investing activities in each period was primarily related to purchases of
fixed assets, except for the three months ended March 31, 1999, in which cash
used in investing activities also included $8.3 million for the purchase of
short-term investments. From time to time, we expect to evaluate the
acquisition of products, businesses and technologies that complement our
business. These acquisitions may involve cash investments.
 
   Net cash used in financing activities for the three months ended March 31,
1999 was $99,000, and net cash provided by financing activities in the three
months ended March 31, 1998 was $726,000. Cash used in financing activities in
the three months ended March 31, 1999 was primarily related to the repayment
of notes payable. Cash provided by financing activities in the three months
ended March 31, 1998 was primarily attributable to net proceeds from the
issuance of common stock and the issuance of notes payable to stockholders.
 
   We believe that we have the financial resources needed to meet our
presently anticipated business requirements, including capital expenditure and
strategic operating programs, for at least the next 12 months. Thereafter, if
cash generated by operations is insufficient to satisfy our liquidity
requirements, we may need to sell additional equity or debt securities or
obtain additional credit facilities. The sale of additional equity or
convertible debt securities may result in additional dilution to our
stockholders. We may not be able to raise any such capital on terms acceptable
to us or at all.
 
Disclosures About Market Risk
 
   Our exposure to market risk is principally confined to our short-term
available-for-sale securities, which have short maturities and, therefore,
minimal and immaterial market risk.
 
Year 2000 Compliance
 
   Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. As a result, software
that records only the last two digits of the calendar year may not be able to
distinguish whether "00" means 1900 or 2000. This may result in software
failures or the creation of erroneous results.
 
   We have conducted an internal review of software systems which we use for
site management, network monitoring, quality assurance, transaction processing
and fulfillment services. Because we developed these software systems
internally, beginning at inception in 1996 when the Year 2000 problem already
had some visibility, we were largely able to anticipate four digit
requirements. In conjunction with ongoing reviews of our own products and
services, we are also reviewing our computer infrastructure, including network
equipment and servers. We do not anticipate material problems with network
equipment, as our current configuration was installed within the last three
years. Similarly, we purchased most of our servers in 1997 and 1998. With this
relatively current equipment, we do not anticipate material Year 2000
compliance problems, and we will replace
 
                                      21
<PAGE>
 
any servers that cannot be updated either in the normal replacement cycle or
on an accelerated basis. We have also internally standardized our personal
computers on Windows NT 4.0, using reasonably current service packs, which we
are advised by our vendor are Year 2000 compliant. We use multiple software
systems for internal business purposes, including accounting, e-mail,
development, human resources, customer service and support and sales tracking
systems. All of these applications have been purchased within the last three
years.
 
   We have made inquiries of vendors of systems we believe to be mission
critical to our business regarding their Year 2000 readiness. Although we have
received various assurances, we have not received affirmative documentation of
Year 2000 compliance from any of these vendors and we have not performed any
operational tests on our internal systems. We generally do not have
contractual rights with third party providers should their equipment or
software fail due to Year 2000 issues. If this third party equipment or
software does not operate properly with regard to Year 2000, we may incur
unexpected expenses to remedy any problems. These expenses could potentially
include purchasing replacement hardware and software. We have not determined
the state of compliance of certain third-party suppliers of services such as
warehousing and fulfillment services, phone companies, long distance carriers,
financial institutions and electric companies, the failure of any one of which
could severely disrupt our ability to carry on our business.
 
   We anticipate that our review of Year 2000 issues and any remediation
efforts will continue throughout calendar 1999. The costs incurred to date to
remediate our Year 2000 issues have not been material. If any Year 2000 issues
are uncovered with respect to these systems or our other internal systems, we
believe that we will be able to resolve these problems without material
difficulty, as replacement systems are available on commercially reasonable
terms. We presently estimate that the total remaining cost of addressing Year
2000 issues will not exceed $150,000. We derived these estimates using a
number of assumptions, including the assumption that we have already
identified our most significant Year 2000 issues. However, these assumptions
may not be accurate, and actual results could differ materially from those
anticipated. In view of our Year 2000 review and remediation efforts to date,
the recent development of our products and services, the recent installation
of our networking equipment and servers, and the limited activities that
remain to be completed, we do not consider contingency planning to be
necessary at this time.
 
   Our applications operate in complex network environments and directly and
indirectly interact with a number of other hardware and software systems. We
are unable to predict to what extent our business may be affected if our
systems or the systems that operate in conjunction with them experience a
material Year 2000 failure. Known or unknown errors or defects that affect the
operation of our software and systems could result in delay or loss of
revenue, interruption of services, cancellation of contracts and memberships,
diversion of development resources, damage to our reputation, increased
service and warranty costs, and litigation costs, any of which could adversely
affect our business, financial condition and results of operations. The most
likely worst case scenario is that the Internet fails and we are unable to
offer any services on our community site or make any of our direct e-commerce
offerings.
 
Recent Accounting Pronouncements
 
   The Financial Accounting Standards Board issued Statement No. 131 ("SFAS
131"), "Disclosure about Segments of an Enterprise and Related Information,"
which establishes standards for the way public business enterprises report
information in annual statements and interim financial reports regarding
operating segments, products and services, geographic areas and major
customers. This statement is effective for financial statements for periods
beginning after December 15, 1997. The adoption of this statement did not have
a significant impact on the way we report information in our annual statements
and interim financial reports.
 
   In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use", which establishes
guidelines for the accounting for the costs of all computer software developed
or obtained for internal use. We adopted SOP 98-1 effective January 1, 1999.
The adoption of SOP 98-1 has not had a material impact on our consolidated
financial statements.
 
                                      22
<PAGE>
 
CERTAIN RISK FACTORS WHICH MAY IMPACT FUTURE OPERATING RESULTS
 
   This report on Form 10-Q contains forward looking statements which involve
risks and uncertainties. Our actual results could differ materially from those
anticipated by such forward looking statements as a result of certain factors,
including those set forth below.
 
We cannot assure you that we will be profitable because we have operated our
business only for a short period of time
 
   Xoom.com was founded in April 1996 and has a limited operating history. An
investor in our common stock must consider the risks and difficulties
frequently encountered by early stage companies in new and rapidly evolving
markets, particularly those involved in e-commerce and the Internet. These
risks include:
 
  . the level of use of the Internet and online services and consumer
    acceptance of the Internet and other online services, particularly direct
    e-mail marketing, for the purchase of consumer products such as those we
    offer;
 
  . the lack of broad acceptance of the community model on the Internet;
 
  . our inability to generate significant e-commerce revenue or premium
    service revenue from our members;
 
  . our inability to maintain and increase levels of traffic on the Xoom.com
    Web site;
 
  . our failure to continue to develop and extend the Xoom.com brand;
 
  . our inability to attract or retain members;
 
  . our inability to meet minimum guaranteed impressions under advertising
    agreements;
 
  . our failure to anticipate and adapt to a developing market;
 
  . our inability to upgrade and develop our systems and infrastructure and
    attract new personnel in a timely and effective manner;
 
  . the failure of our server and networking systems to efficiently handle
    our Web traffic; and
 
  . our inability to effectively manage rapidly expanding operations.
 
   We cannot be certain that our business strategy will be successful or that
we will successfully address these risks.
 
   As of March 31, 1999, we had an accumulated deficit of $17.7 million.
Although we have experienced growth in our net revenue, members, customers and
reach in recent periods, these growth rates are not sustainable and will
decrease in the future. To date, we have not been profitable on either a
quarterly or an annual basis, and we expect to incur net losses for the
foreseeable future. We expect our operating expenses to increase
significantly, especially in the areas of sales and marketing and brand
promotion, and, as a result, we will need to increase our revenue to become
profitable. If our revenue does not grow as expected or increases in our
expenses are not in line with forecasts, there could be a material adverse
effect on our business, results of operations and financial condition.
 
The unpredictability of our quarter-to-quarter results could cause our stock
price to be volatile or decline
 
   Our operating results have fluctuated in the past and will likely continue
to do so in the future. Some of the factors that could cause our operating
results to fluctuate are:
 
  . the level of demand for the services and products offered in our direct
    e-mail marketing and our ability to meet the demand in a timely manner;
 
  . consumers' receptiveness to e-commerce and to direct e-mail marketing in
    particular;
 
  . developments relating to advertising on the Web;
 
                                      23
<PAGE>
 
  . timely deployment and expansion of our network and network architectures;
 
  . new services offered by our competitors that affect the level of traffic
    on our Web site and the continuing expansion of our membership base;
 
  . our ability to predict demand for products and services we offer and to
    optimize inventory levels accordingly;
 
  . marketing costs that we will need to incur in order to maintain and
    enhance the Xoom.com brand name;
 
  . the loss of key business relationships;
 
  . the mix of domestic and international sales;
 
  . the costs of acquiring technology or businesses and our ability to
    integrate them into our operations; and
 
  . economic conditions generally, as well as those specific to the Internet
    and related industries.
 
   To respond to these and other factors, we may need to make business
decisions that could have a material adverse effect on our quarterly operating
results.
 
   Our business fluctuates on a seasonal basis. Traffic on our site has
historically been lower during the summer and year-end vacation and holiday
periods when people tend to spend less time on the Internet. Advertising
revenue also varies with the seasons. Typically, advertisers spend less during
the first and third calendar quarters. Web-based commerce and advertising are
relatively new, which means that new trends may develop that could affect the
results of our operations.
 
   As a relatively new company, it is difficult for us to plan or anticipate
our operating expenses based on our limited historical financial data. If our
actual revenue is lower than predicted, we may be unable to adjust our
operating expenses accordingly.
 
   A substantial portion of our net revenue is from short-term advertising
contracts, usually one to two months in length. That means our quarterly net
revenue is a function of the contracts we enter into within the quarter and
our ability to adjust spending in light of any net revenue shortfalls. To
date, our advertising revenue comes from a small group of customers whose
composition periodically changes. For example, during the three months ended
March 31, 1999, our five largest advertisers accounted for approximately 35%
of our total advertising revenue. As a result, the cancellation of even a
small number of these advertising contracts could affect our operating
results. Advertising revenue is also linked to the level of traffic on our Web
site, so if traffic is less than the level expected by our advertising
customers, our revenue from this source could be affected. We have guaranteed
our advertisers a minimum number of impressions on our Web site. Reduced
traffic on our Web site would cause us to fall short in meeting this minimum
requirement and as a result we may give credits to our advertisers and reduce
advertising rates, which would lead to a reduction in our revenue from
advertising.
 
   The Internet has not been available for a sufficient period of time to
gauge its effectiveness as an advertising medium when compared with
traditional media. Notwithstanding, there is intense competition among sellers
of advertising space on the Web. This makes it difficult to project pricing
models or to anticipate whether we will be successful in selling advertising
space and relying on advertising as a substantial source of revenue.
 
   Due to the foregoing factors, we believe that period-to-period comparisons
of our operating results are not necessarily meaningful, you should not view
them as indicators of our future performance. If our operating results in any
period fall below the expectations of securities analysts and investors, the
market price of our shares would likely decline.
 
 
                                      24
<PAGE>
 
Because our business model is unproven and depends on maintaining and
expanding our membership base, we do not know whether our business model will
ultimately be viable and profitable
 
   Our business model relies on using our community platform and membership
base to generate revenues from different sources. To be profitable, we will
need to provide goods and services that are attractive to our members,
advertisers and vendors. We have relied on member-generated content and the
"grassroots" voluntary promotional efforts of our members to develop and
maintain our profile as a community site. A decline in voluntary promotional
activities by our members or member-generated content could make our Web site
less attractive. We cannot be sure that Internet users will continue to be
interested in communities on the Web, or that direct e-mail marketing will
prove to be a profitable or effective method of selling goods and services.
 
   Our future success also depends on the continued growth in the use of the
Internet and the Web. Use of the Internet for retail transactions is a recent
development, and the continued demand and growth of a market for services and
products via the Internet is uncertain. For the three months ended March 31,
1999, e-commerce was the source of approximately 60% of our total net revenue.
The Internet may ultimately prove not to be a viable commercial marketplace
for a number of reasons, including:
 
  . unwillingness of consumers to shift their purchasing from traditional
    retailers to online purchases;
 
  . lack of acceptable security for data and concern for privacy of personal
    information;
 
  . limitations on access and ease of use;
 
  . congestion leading to delayed or extended response times;
 
  . inadequate development of Web infrastructure to keep pace with increased
    levels of use;
 
  . increased or excessive government regulation; and
 
  . problems regarding intellectual property ownership.
 
   Because of these factors, we do not know whether our business model will
ultimately be viable and profitable.
 
Our international operations are subject to risks that could have a material
adverse effect on our results of operations
 
   We market and sell our products in the United States and internationally.
Approximately 21% of our net revenue during the first quarter of 1999 came
from sales outside the United States. We plan to establish additional
operations or form business partnerships in other parts of the world. The
expansion of our existing international operations and entry into additional
international markets will require substantial management attention and
financial resources. We cannot be certain that our investment in establishing
operations in other countries will produce the desired levels of revenue. In
addition, international operations are subject to other inherent risks and
problems, including:
 
  . the impact of recessions in economies outside the United States;
 
  . greater difficulty in accounts receivable collections;
 
  . unexpected changes in regulatory requirements;
 
  . difficulties and costs of staffing and managing foreign operations;
 
  . reduced protection for intellectual property rights in some countries;
 
  . political and economic instability;
 
  . the introduction of the euro;
 
  . fluctuations in currency exchange rates; and
 
  . difficulty in maintaining effective communications due to distance,
    language and cultural barriers.
 
   Some or all of the above factors could have a material adverse effect on
the results of our operations.
 
 
                                      25
<PAGE>
 
Any failure of our network infrastructure could have a material adverse effect
on our results of operations
 
   Our success depends upon the capacity, reliability and security of our
networking hardware and software infrastructure. We have developed an open
standard hardware and software system that is designed for reliability. System
architecture is based on a distributed model that is highly scalable, flexible
and modular, emphasizing extensive automation and a high degree of redundancy
that is designed to minimize single points of failure. The system integrates
site management, network monitoring, quality assurance, transaction processing
and fulfillment services. Currently, the system has 2.5 terabytes of
unformatted disk space, supports over 25 million hits per day, has a peak
bandwidth of over 90 megabits per second and transfers 350 megabytes of data
each day.
 
   We must continue to expand and adapt our system infrastructure to keep pace
with the increase in the number of our members who use the free services we
provide. Demands on our infrastructure that exceed our current forecasts could
result in technical difficulties with our Web site. Any system failure that
interferes with the access to our Web site and the use of the free services we
provide could diminish the level of traffic on our Web site. Continuing or
repeated system failures could impair our reputation and brand name and reduce
our commerce and advertising revenue. At present, we do not know if we will be
able to scale our systems to handle a larger amount of traffic at higher
transmission speeds. Expanding our network infrastructure will require
substantial financial, operational and management resources in the remainder
of 1999 and future periods, all of which could affect the results of our
operations.
 
   We developed our systems for maintaining our Web site, processing
transactions and managing orders internally. If, in the future, we cannot
modify these systems to accommodate increased traffic and an increased volume
of transactions and orders, we could suffer slower response time, problems
with customer service and delays in reporting accurate financial information.
Any of these factors could significantly and adversely impact the results of
our operations
 
   We use network servers that are housed separately by application at Exodus
Communications, Inc. in Santa Clara, California and Frontier Global Center in
Sunnyvale, California. Our site is connected to the Internet via multiple DS-3
and OC-3 links on a 24 hour-a-day, seven days per week basis by Exodus and
Frontier Global Center. Exodus and Frontier Global Center also provide and
manage power and environmentals for our networking and server equipment. We
manage and monitor our servers and network remotely from our headquarters in
San Francisco, California. We strive to rapidly develop and deploy high-
quality tools and features into our system without interruption or degradation
in service.
 
   Although the agreements we have with our hosting companies give us remedies
for service interruptions, we cannot guarantee that:
 
  . we will have uninterrupted access to the Internet;
 
  . our members will be able to reach our Web site; or
 
  . communications via our Web site will be secure.
 
   Any disruption in the Internet access provided by Exodus or Frontier Global
Center, or any interruption in the service that Exodus or Frontier Global
Center receives from other providers, or any failure of Exodus or Frontier
Global Center to handle higher volumes of Internet users to the Xoom.com site
could have a material adverse effect on our business, results of operations
and financial condition.
 
   Despite precautions taken by us and by the companies that host our Web
site, our system is susceptible to natural and man-made disasters such as
earthquakes, fires, floods, power loss and sabotage. Our system is also
vulnerable to disruptions from computer viruses and attempts by hackers to
penetrate our network security. Hackers have succeeded in penetrating our
network security in the past, and we expect such attempts to continue from
time to time.
 
 
                                      26
<PAGE>
 
   We are covered for loss of income from some of the events listed above by a
$1.0 million insurance policy, but this insurance may not be adequate to cover
all instances of system failure. We have insurance coverage of $1.25 million
against loss of income due to earthquakes, but this amount may be
insufficient, especially given the frequency of earthquakes in Northern
California.
 
   Any of the events listed above could cause us interference, delays, or
service interruptions and adversely affect our business and results of
operations.
 
Breaches of our network security could also disrupt the operation of our Web
site and jeopardize the security of confidential information stored in our
servers
 
   Our system is also vulnerable to disruptions from computer viruses and
attempts by hackers to penetrate our network security. Hackers have succeeded
in penetrating our network security in the past, and we expect such attempts
to continue from time to time. We may need to devote substantial capital and
resources to protect against the threat of unauthorized penetration of our
network security. Breaches of our network security could also disrupt the
operation of our Web site and jeopardize the security of confidential
information stored in our servers. The occurrence of any of the events listed
above could cause us to lose members and also expose us to liability and
result in litigation, all of which could have an adverse effect on our
operations.
 
We depend on our vendors and suppliers
 
   We rely on other companies for critical aspects of our business. Banta
Corporation is primarily responsible for fulfilling orders for products and
services sold via our Web site and in response to direct e-mail marketing.
Substantially all of our revenue from e-commerce comes from these sales. We do
not have a written agreement with Banta. If our relationship with Banta were
to terminate without sufficient advance notice, our operations would be
negatively affected, even if we were able to establish a relationship with a
comparable vendor to fulfill orders. An unanticipated termination of our
relationship with Banta would be particularly damaging during the fourth
calendar quarter, in which a high percentage of our annual sales are made. We
would also be affected by problems experienced by Banta, such as insufficient
capacity and damage from human error, sabotage, fire, flood, power loss and
other similar man-made or natural disasters. The success of our specific e-
mail direct e-commerce campaigns depends on the timely supply of inventory by
the manufacturers and suppliers of the products we offer for sale to our
members. In particular, we rely on Logic General, Inc. for all of our CD-ROM
products, DVDs and DVD-ROMs that contain software, clip art and classic
movies. The failure of Logic General or other suppliers on whom we depend
would adversely affect the results of our operations.
 
   Imposition of new taxes or fees by the Federal government of the United
States or by foreign governments on Internet transactions or on the use of the
Internet as a means of communication could also adversely affect us
 
   We do not currently collect sales or similar taxes for goods that we ship
into states other than California and New York. Imposition of sales or other
similar taxes on our sales of merchandise by states or countries where we ship
goods could have a material adverse effect on our results of operations.
Imposition of new taxes or fees by the Federal government of the United States
or by foreign governments on Internet transactions or on the use of the
Internet as a means of communication could also adversely affect us.
 
Difficulties we may encounter dealing with our growth and expansion could
adversely affect the results of our operations
 
   Our rapid rate of growth places a significant strain on our resources due
to:
 
  . the need to manage relationships with various strategic partners,
    technology licensors, members, advertisers, and other third parties;
 
  . difficulties in hiring and retaining skilled personnel necessary to
    support our business;
 
  . the need to train and manage our growing employee base; and
 
  . pressures for the continued development of our financial and information
    management systems.
 
                                      27
<PAGE>
 
   Difficulties we may encounter dealing successfully with the above risks
relating to our rapid growth could adversely affect the results of our
operations.
 
The loss of key personnel, or the inability to attract and retain additional,
qualified personnel, could have a material adverse effect on our results of
operations
 
   Our success depends to a significant degree upon the continued
contributions of our executive management team, most of whom have worked
together only for a short time. We do not carry key man life insurance on the
lives of any of our employees, including senior management. Our success will
also depend upon the continued service of our senior management team as well
as technical, marketing and sales personnel. Competition for qualified
employees is intense. Our employees may voluntarily terminate their employment
with us at any time. Our success also depends upon our ability to attract and
retain additional highly qualified management, technical, sales and marketing
and customer support personnel. Locating personnel with the combination of
skills and attributes required to carry out our strategy is often a lengthy
process. The loss of key personnel, or the inability to attract and retain
additional, qualified personnel, could have a material adverse effect on our
results of operations.
 
   The results of our operations could be adversely affected if our investment
of financial and other resources in promoting our brand does not generate a
corresponding increase in net revenue, or if the expense of promoting our
brand name becomes excessive
 
   As the number of Internet sites grow, brand recognition will play an
increasingly important role. Establishing and promoting the Xoom.com brand in
the face of pressures from our competitors will be critical to developing our
member base and strategic and commercial relationships. We will be required to
continue to devote substantial financial and other resources to maintaining
the distinctiveness of our brand to our members, advertisers and commerce
partners through:
 
  . Web advertising and marketing;
 
  . traditional media advertising campaigns in print, radio, billboards and
    television; and
 
  . providing a high quality community experience.
 
   The results of our operations could be adversely affected if our investment
of financial and other resources in promoting our brand does not generate a
corresponding increase in net revenue, or if the expense of promoting our
brand name becomes excessive. Changes in the quality and type of services we
offer and the character of our company as perceived by our members could make
our Web site less attractive to our members, advertisers, and strategic
partners, all of which would have a material adverse effect on the results of
our operations.
 
If we are unable to integrate new technologies and standards effectively, the
results of our operations could be adversely affected
 
   Our ability to remain competitive in our area of business will depend, in
part, on our ability to:
 
  . enhance and improve the responsiveness, functionality and features of our
    Web site;
 
  . continue to develop our technical expertise;
 
  . develop and introduce new services and technology to meet changing
    customer needs and preferences;
 
  . influence and respond to emerging industry standards and other
    technological changes in a timely and cost effective manner; and
 
  . license leading technologies useful in our business.
 
   We cannot assure you that we will be successful in responding to the above
technological and industry challenges in a timely and cost-effective way. If
we are unable to integrate new technologies and standards effectively, there
could be an adverse effect on our results of our operations.
 
                                      28
<PAGE>
 
Privacy concerns, government regulation and legal uncertainties could have an
adverse effect on our business and results of operations
 
   Laws and regulations that apply directly to communications or commerce over
the Internet are becoming more prevalent. The most recent session of the
United States Congress resulted in Internet laws regarding children's privacy,
copyrights, taxation and the transmission of sexually explicit material. The
European Union recently enacted its own privacy regulations. The law of the
Internet, however, remains largely unsettled, even in areas where there has
been some legislative action. It may take years to determine whether and how
existing laws that govern intellectual property, privacy, libel and taxation
apply to the Internet. The development of laws governing these areas may
decrease the growth in the use of the Internet, which could adversely impact
our business. In addition, the growth and development of the e-commerce market
may prompt calls for more stringent consumer protection laws, both in the
United States and abroad, that may impose additional burdens on companies
conducting business online. The adoption or modification of laws or
regulations relating to the Internet could adversely affect our business.
 
   The Federal Communications Commission ("FCC") is currently reviewing its
regulatory positions on data transmissions over telecommunications networks
and could seek to impose some form of telecommunications carrier regulation on
telecommunications functions of information services. State public utility
commissions generally have declined to regulate information services, although
the public service commissions of some states continue to review potential
regulation of such services. Future regulation or regulatory changes could
have an adverse effect on our business and results of operations.
 
Our failure to attract advertising revenue in quantities and at rates that are
satisfactory to us could have a material adverse effect on our business,
results of operations and financial condition
 
   We have derived a material portion of our net revenue to date from the sale
of advertisements, including banner advertising revenue. For the three months
ended March 31, 1999, advertising revenue represented approximately 40% of our
total net revenue. During the same period, our five largest advertising
customers accounted for approximately 35% of advertising revenue
(approximately 14% of total net revenue). We intend to continue to rely on
advertising as a significant source of revenue.
 
   It is uncertain whether Web advertising will continue to grow at a rate
that will support expansion in our net revenue. The Internet as a marketing
and advertising medium has not been available for a sufficient period of time
to gauge its effectiveness as compared with traditional media. Many of our
suppliers and advertisers have only limited experience with the Web as a sales
and advertising medium. Advertisers have not yet devoted a significant portion
of their advertising budgets to Web-based advertising and may not find such
advertising to be effective for promoting their products and services relative
to traditional print and broadcast media.
 
   It is also possible that in the future certain Internet access providers
will act to block or limit the use of e-mail direct e-commerce solicitations,
whether at their own behest or at the request of users. Members may also
choose not to receive our e-mail offerings or may fail to respond to such
offerings. Moreover, "filter" software programs that limit or remove
advertising from a Web user's desktop are available. If these programs become
popular, there could be a material adverse effect upon the viability of
advertising on the Web and on our business, results of operations and
financial condition.
 
Any increase in competition could adversely affect our ability to maintain or
improve our position in the market relative to that of our competitors, which
could have a material adverse effect on our business and results of operations
 
   The market for community-based direct selling channels on the Internet is
new and rapidly evolving. Competition for members, consumers, visitors and
advertisers is intense and is expected to increase over time. Barriers to
entry are relatively low. Other companies that are primarily focused on
creating Web-based communities on the Internet and with whom we compete are
Tripod and WhoWhere, subsidiaries of Lycos,
 
                                      29
<PAGE>
 
GeoCities, recently acquired by Yahoo!, and theglobe.com. We also face
competition and compete for visitors and traffic with Web directories, search
engines, shareware archives, content sites, online service providers, and
traditional media companies such as ABC, America Online, CBS, CNET, Excite,
Infoseek, Lycos, NBC, Netscape, Microsoft, Time Warner and Yahoo!.
 
   We also expect intense competition in the e-commerce market from an ever
increasing number of companies selling goods and services over the Internet,
particularly goods and services that relate to the use of computers. These
competitors include:
 
  . traditional computer retailers including CompUSA and Micro Electronics's
    MicroCenter;
 
  . various mail-order retailers including CDW Computer Centers, Micro
    Warehouse, Insight Enterprises, Inc., PC Connection, Inc. and Creative
    Computers;
 
  . internet-focused retailers including Amazon.com, Egghead's Egghead.com,
    software.net, and New England Circuit Sales' NECX Direct;
 
  . manufacturers that sell directly over the Internet including Dell
    Computer, Gateway 2000, Apple Computer and many software companies;
 
  . a number of online service providers including America Online and the
    Microsoft Network that offer computer products directly or in partnership
    with other retailers;
 
  . some non-computer retailers such as Wal-Mart Stores that sell a limited
    selection of computer products in their stores; and
 
  . computer products distributors that may develop direct sales channels to
    the consumer market.
 
   Increased competition from these and other sources could require us to
respond to competitive pressures by establishing pricing, marketing and other
programs or seeking out additional strategic alliances or acquisitions that
may be less favorable to us than we could otherwise establish or obtain, and
thus could have a material adverse effect on our business, prospects,
financial condition and results of operations.
 
   Many of our competitors have longer operating histories in the Web market,
greater name recognition, larger customer bases and significantly greater
financial, technical and marketing resources. In addition, substantially all
of our current advertising customers and strategic partners also have
established collaborative relationships with some of our competitors or other
high-traffic Web sites. Our advertising customers might also conclude that
other Internet businesses, such as search engines, commercial online services
and sites that offer professional editorial content, are more effective sites
for advertising. Moreover, we may be unable to maintain the high level of
traffic on our Web site or our member base, which would make our site less
attractive than those of our competitors. Any of these factors could adversely
affect our ability to maintain or improve our position in the market relative
to that of our competitors.
 
Our inability to protect our intellectual property rights could have a
material adverse effect on our business and financial condition
 
   We view our technology as proprietary and try to protect it under existing
United States and international laws relating to protection of intellectual
property. We have also developed internal procedures to control access and
dissemination of our proprietary information. Despite our precautions, third
parties may succeed in misappropriating our intellectual property or
independently developing similar intellectual property. Protecting our
intellectual property against infringement could result in substantial legal
and other costs and could divert our limited management resources and
attention. This could adversely impact our business and the results of our
operations.
 
   Some of the technology incorporated in our Web site is based on technology
licensed from third parties. As we continue to introduce new services, we may
need to license additional technology. If we are unable to timely license
needed technology on commercially reasonable terms, we could experience delays
and reductions in the
 
                                      30
<PAGE>
 
quality of our services, all of which could adversely affect our business and
results of operations. Our reputation and the value of our proprietary
information could also be adversely affected by actions of third parties to
whom we license our proprietary information and intellectual property. If
someone asserts a claim relating to proprietary technology or information
against us, we may seek licenses to such intellectual property. We cannot
assure you, however, that we could obtain licenses on commercially reasonable
terms, if at all. The failure to obtain the necessary licenses or other rights
could have a material adverse effect on our business and results of
operations.
 
   Although we do not believe we infringe the proprietary rights of any third
parties, we cannot assure you that third parties will not assert claims
against us in the future. From time to time, we have been subject to claims of
alleged infringement of intellectual property rights of others on the basis of
our actions and the content generated by our members. These categories of
claims, whether or not meritorious, could result in litigation and become a
drain on our management and financial resources. If successful, claims of this
nature could subject us to liability, injunctive relief restricting our use of
intellectual property important to our operations, and could ultimately cause
us to lose rights to some of our intellectual property. Any of these events
could have a material adverse effect on our business and results of
operations.
 
We could be subject to liability for online content that may not be covered by
our insurance
 
   The nature and breadth of information disseminated on our Web site and
through the sites of our members could expose us to liability in various
areas, including claims relating to:
 
  . product information and reviews we offer;
 
  . the content and publication of various materials based on defamation,
    libel, negligence, personal injury and other legal theories;
 
  . copyright or trademark infringement and wrongful action due to the
    actions of third parties;
 
  . use of third party content made available through our Web site or through
    content and material posted by members on their home pages or in chat
    rooms and bulletin boards; and
 
  . damages arising from the use or misuse of the free e-mail services we
    offer.
 
   Claims of these kinds against us would result in our incurring substantial
costs and would also be a drain on our financial and other resources. If there
were a sufficient number or severity of claims of this nature, we would need
to implement measures to reduce our exposure and potential liability. In
addition to being a drain on our resources, this may also require taking
measure that could make our services less attractive to our members and
visitors. This in turn could reduce traffic on our Web site, negatively impact
our member base, and reduce our revenue from e-commerce and advertising. We
carry general liability insurance in the aggregate amount of $2.0 million and
umbrella coverage in an aggregate amount of $5.0 million. This coverage may be
insufficient to cover expenses and losses arising in connection with any
claims against us. To the extent our insurance coverage does not cover
liability or expenses we incur, our business and results of operations would
be adversely affected.
 
We could face liability from legal proceedings that could adversely affect our
business and results of operations
 
   We are litigating a dispute with Imageline, Inc., which claims to own the
copyright in certain clip art images licensed to us by Sprint Software Pty
Ltd, an unrelated third party. Some of the disputed images were included in
versions of our Web Clip Empire CD-ROM product licensed by us to third
parties, including other software clip publishers. The images licensed from
Sprint Software generated less than 1.0% of our total net revenue in 1998, and
since September 30, 1998, we have not received any net revenue for images
licensed from Sprint Software.
 
   To resolve this matter, we filed a lawsuit against Imageline in August 1998
in the United States District Court for the Eastern District of Virginia. We
asked for a declaration with respect to Imageline's allegations of copyright
infringement regarding the clip art images. In September 1998 Imageline filed
a counterclaim, which
 
                                      31
<PAGE>
 
they amended in January 1999, seeking up to $60 million in damages. In March
1999, the parties completed the discovery process and filed separate motions
for partial summary judgment. On April 5, 1999, the court granted one of our
motions for partial summary judgment and stayed the case to allow Imageline to
file all necessary copyright registration applications to cover the clip art
images.
 
   We believe that the claims asserted in Imageline's counterclaim are without
merit and continue to defend against them vigorously. As part of the lawsuit,
we are seeking to enforce our right to indemnification under our license
agreement with Sprint Software for any damages that may be imposed on us,
although we do not know whether Sprint Software will be able to fulfill its
indemnity obligations. Depending on the outcome of the litigation, we may also
need to indemnify third parties for damages in connection with the use of the
Imageline images. An unfavorable outcome in this litigation could adversely
affect our business and results of operations.
 
   Zoom Telephonics, Inc. filed a lawsuit against us in September 1998 in the
United States District Court for the District of Massachusetts alleging
trademark infringement and related statutory violations. We were not served
with Zoom Telephonics' complaint until January 1999. Zoom Telephonics has
demanded that we stop using the XOOM trademark and has asked for an
unspecified amount of money damages. We responded to the complaint in February
1999. In April 1999, Zoom Telephonics filed a motion for preliminary
injunction to stop us from using any mark containing "Xoom." We intend to
oppose Zoom Telephonics' motion for preliminary injunction. We believe that
the claims asserted by Zoom Telephonics are without merit and intend to defend
against them vigorously. We cannot assure you, however, that the results of
this litigation will be favorable to us. An adverse result of the litigation
could have a material adverse effect on our business and results of
operations, particularly if the litigation forces us to make substantial
changes to our name and trademark usage. Any name change could result in
confusion to consumers and investors, which could adversely affect the results
of our operations and the market price of our common stock.
 
If we are unable to successfully integrate future acquisitions into our
operation, there could be an adverse effect on our business and results of
operations
 
   Acquiring complementary businesses, products and technologies is an
integral part of our business strategy. Some of the risks attendant to this
acquisition strategy are:
 
  . difficulties and expenses of integrating the operations and personnel of
    acquired companies into our operations while preserving the goodwill of
    the acquired entity;
 
  . the additional financial resources that may be needed to fund the
    operations of acquired companies;
 
  . the potential disruption of our business;
 
  . our management's ability to maximize our financial and strategic position
    by incorporating acquired technology or businesses;
 
  . the difficulty of maintaining uniform standards, controls, procedures and
    policies;
 
  . the potential loss of key employees of acquired companies;
 
  . the impairment of relationships with employees and customers as a result
    of changes in management; and
 
  . increasing competition with other entities for desirable acquisition
    targets.
 
   Any of the above risks could prevent us from realizing significant benefits
from our acquisitions. In addition, the issuance of our common stock in
acquisitions will dilute our stockholder interests in our company, while the
use of cash will deplete our cash reserves. Finally, if we are unable to
account for our acquisitions under the "pooling of interests" method of
accounting, we may incur significant, one-time write-offs and amortization
charges. These write- offs and charges could decrease our future earnings or
increase our future losses. Due to all of the foregoing, implementing our
acquisition strategy may have a material adverse effect on our business and
results of operations.
 
 
                                      32
<PAGE>
 
If our capital is insufficient to promote our business, and if we cannot
obtain needed financing, we will be unable to promote our brand name, exploit
acquisition opportunities and otherwise maintain our position relative to that
of our competitors
 
   We believe that the proceeds from our initial public offering and our
offering in April 1999, will be sufficient to support our operations for the
next 12 months. Notwithstanding, we may need to raise additional funds to
maintain and develop our position in the marketplace. It may be difficult or
impossible for us to obtain financing on favorable terms. Raising funds by
issuing equity securities or convertible debt securities will dilute the
percentage ownership of our current stockholders. Also, new securities we may
issue may have rights senior to the rights of our common stock. If we cannot
obtain needed financing, we will be unable to promote our brand name, exploit
acquisition opportunities and otherwise maintain our position relative to that
of our competitors.
 
If important strategic relationships are discontinued for any reason, there
would be a material adverse effect on our business and financial condition
 
   Although our strategic relationships are a key factor in our overall
business strategy, our strategic partners may not view their relationships
with us as significant to their own business. There is a risk that parties
with whom we have strategic alliance agreements may not perform their
obligations as agreed. Our arrangements with strategic partners generally do
not establish minimum performance requirements but instead rely on the
voluntary efforts of our partners. In addition, most of our agreements with
strategic partners may be terminated by either party with little notice. If
important strategic relationships are discontinued for any reason, our
business and results of operations may be adversely affected.
 
Year 2000 issues could negatively affect our business
 
   Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. As a result, software
that records only the last two digits of the calendar year may not be able to
distinguish whether "00" means 1900 or 2000. This may result in software
failures or the creation of erroneous results.
 
   We have conducted an internal review of software systems which we use for
site management, network monitoring, quality assurance, transaction processing
and fulfillment services. Because we developed these software systems
internally, beginning at inception in 1996 when the Year 2000 problem already
had some visibility, we were largely able to anticipate four digit
requirements. In conjunction with ongoing reviews of our own products and
services, we are also reviewing our computer infrastructure, including network
equipment and servers. We do not anticipate material problems with network
equipment, as our current configuration was installed within the last three
years. Similarly, we purchased most of our servers in 1997 and 1998. With this
relatively current equipment, we do not anticipate material Year 2000
compliance problems, and we will replace any servers that we cannot update
either in the normal replacement cycle or on an accelerated basis. We have
also internally standardized our personal computers on Windows NT 4.0, using
reasonably current service packs, which we are advised by our vendor are Year
2000 compliant. We use multiple software systems for internal business
purposes, including accounting, e-mail, development, human resources, customer
service and support and sales tracking systems. All of these applications have
been purchased within the last three years.
 
   We have made inquiries of vendors of systems we believe to be mission
critical to our business regarding their Year 2000 readiness. Although we have
received various assurances, we have not received affirmative documentation of
Year 2000 compliance from any of these vendors and we have not performed any
operational tests on our internal systems. We generally do not have
contractual rights with third party providers should their equipment or
software fail due to Year 2000 issues. If this third party equipment or
software does not operate properly with regard to Year 2000, we may incur
unexpected expenses to remedy any problems. These expenses could potentially
include purchasing replacement hardware and software. We have not determined
the state of compliance of certain third-party suppliers of services such as
warehousing and fulfillment services, phone companies, long distance carriers,
financial institutions and electric companies, the failure of any one of which
could severely disrupt our ability to carry on our business.
 
                                      33
<PAGE>
 
   We anticipate that our review of Year 2000 issues and any remediation
efforts will continue throughout calendar 1999. The costs incurred to date to
remediate our Year 2000 issues have not been material. If any Year 2000 issues
are uncovered with respect to these systems or our other internal systems, we
believe that we will be able to resolve these problems without material
difficulty, as replacement systems are available on commercially reasonable
terms. We presently estimate that the total remaining cost of addressing Year
2000 issues will not exceed $150,000. We derived these estimates using a
number of assumptions, including the assumption that we have already
identified our most significant Year 2000 issues. However, these assumptions
may not be accurate, and actual results could differ materially from those
anticipated. In view of our Year 2000 review and remediation efforts to date,
the recent development of our products and services, the recent installation
of our networking equipment and servers, and the limited activities that
remain to be completed, we do not consider contingency planning to be
necessary at this time.
 
   Our applications operate in complex network environments and directly and
indirectly interact with a number of other hardware and software systems. We
are unable to predict to what extent our business may be affected if our
systems or the systems that operate in conjunction with it experience a
material Year 2000 failure. Known or unknown errors or defects that affect the
operation of our software and systems could result in delay or loss of
revenue, interruption of services, cancellation of contracts and memberships,
diversion of development resources, damage to our reputation, increased
service and warranty costs, and litigation costs, any of which could adversely
affect our business, financial condition and results of operations. The most
likely worst case scenario is that the Internet fails and we are unable to
offer any services on our community site or make any of our direct e-commerce
offerings.
 
Our stock price has been and may continue to be volatile
 
   The trading price of our common stock has been and is likely to be highly
volatile. Our stock price could be subject to wide fluctuations in response to
a variety of factors, including:
 
  . actual or anticipated variations in quarterly operating results;
 
  . announcements of technological innovations;
 
  . new products or services offered by us or our competitors;
 
  . changes in financial estimates by securities analysts;
 
  . conditions or trends in the e-commerce market;
 
  . our announcement of significant acquisitions, strategic partnerships,
    joint ventures or capital commitments;
 
  . additions or departures of key personnel;
 
  . sales of common stock; and
 
  . other events or factors that may be beyond our control.
 
   In addition, the Nasdaq National Market, where most publicly held Internet
companies are traded, has recently experienced extreme price and volume
fluctuations. These fluctuations often have been unrelated or disproportionate
to the operating performance of these companies. The trading prices of many
Internet companies' stocks are at or near historical highs and these trading
prices and multiples are substantially above historical levels. These trading
prices and multiples may not be sustainable. These broad market and industry
factors may materially adversely affect the market price of our common stock,
regardless of our actual operating performance. In the past, following periods
of volatility in the market price of a company's securities, securities class
action litigation often has been instituted against that company. Litigation
like this, if instituted, could result in substantial costs and a diversion of
management's attention and resources.
 
                                      34
<PAGE>
 
                          PART II. OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
   We are litigating a dispute with Imageline, Inc., which claims to own the
copyright in certain clip art images licensed to us by Sprint Software Pty
Ltd, an unrelated third party. Some of the disputed images were included in
versions of our Web Clip Empire CD-ROM product licensed by us to third
parties, including other software clip publishers. The images licensed from
Sprint Software generated less than 1.0% of our total net revenue in 1998, and
since September 30, 1998, we have not received any net revenue for images
licensed from Sprint Software.
 
   To resolve this matter, we filed a lawsuit against Imageline in August 1998
in the United States District Court for the Eastern District of Virginia. We
asked for a declaration with respect to Imageline's allegations of copyright
infringement regarding the clip art images. In September 1998 Imageline filed
a counterclaim, which they amended in January 1999, seeking up to $60 million
in damages. In March 1999, the parties completed the discovery process and
filed separate motions for partial summary judgment. On April 5, 1999, the
court granted one of our motions for partial summary judgment and stayed the
case to allow Imageline to file all necessary copyright registration
applications to cover the clip art images.
 
   We believe that the claims asserted in Imageline's counterclaim are without
merit and continue to defend against them vigorously. As part of the lawsuit,
we are seeking to enforce our right to indemnification under our license
agreement with Sprint Software for any damages that may be imposed on us,
although we do not know whether Sprint Software will be able to fulfill its
indemnity obligations. Depending on the outcome of the litigation, we may also
need to indemnify third parties for damages in connection with the use of the
Imageline images. An unfavorable outcome in this litigation could adversely
affect our business and results of operations.
 
   Zoom Telephonics, Inc. filed a lawsuit against us in September 1998 in the
United States District Court for the District of Massachusetts alleging
trademark infringement and related statutory violations. We were not served
with Zoom Telephonics' complaint until January 1999. Zoom Telephonics has
demanded that we stop using the XOOM trademark and has asked for an
unspecified amount of money damages. We responded to the complaint in February
1999. In April 1999, Zoom Telephonics filed a motion for preliminary
injunction and request for oral argument to stop us from using any mark which
contains "Xoom." We intend to oppose Zoom Telephonics' motion for preliminary
injunction. We believe that the claims asserted by Zoom Telephonics are
without merit and intend to defend against them vigorously. We cannot assure
you, however, that the results of this litigation will be favorable to us. An
adverse result of the litigation could have a material adverse effect on our
business and results of operations, particularly if the litigation forces us
to make substantial changes to our name and trademark usage. Any name change
could result in confusion to consumers and investors, which could adversely
affect the results of our operations and the market price of our common stock.
 
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
 
   Use of Proceeds from Sales of Registered Securities. We commenced our
Initial Public Offering ("IPO") on December 9, 1998 pursuant to a Registration
Statement on Form S-1 (File No. 333-62395). In the IPO we sold an aggregate of
4,600,000 shares of our common stock (including 600,000 shares sold pursuant
to the exercise of the Underwriters' over--allotment option) at an initial
price of $14 per share.
 
   The sale of the 4,600,000 shares of Common Stock generated aggregate gross
proceeds of $64,400,000. The aggregate net proceeds to us were approximately
$57,342,000, after deducting underwriting discounts and commissions of
$4,508,000 and our expenses of the offering of approximately $2,550,000. Of
the net proceeds, we used $2.8 million for general corporate purposes,
including working capital and capital expenditures. Additionally, we used a
portion of the net proceeds to repay notes payable and capital lease
obligations of $2.7 million. Finally, in connection with the acquisition of
Global Bridges Technologies, Inc. and the purchase of certain assets of
Revolutionary Software, Inc., we paid a cash consideration of $130,000 and
$260,000 respectively, upon completion of the offering. The remaining
$54,431,000 of the net proceeds shall be used for general corporate purposes,
 
                                      35
<PAGE>
 
including working capital, capital expenditures, potential acquisitions and
promotional campaigns. The amounts actually expended by us for such purposes
may vary significantly and will depend on a number of factors, including our
future revenue and cash generated by operations and the other factors
described under "Certain Risk Factors Which May Impact Future Operating
Results." Accordingly, our management retains broad discretion in the
allocation of the net proceeds of the offering. A portion of the net proceeds
may also be used to acquire or invest in complementary businesses,
technologies or product offerings. In the ordinary course of business, we
evaluate potential acquisitions of such businesses, technologies and product
offerings. However, we have no current material agreements or commitments with
respect to any such acquisitions.
 
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
    (a) EXHIBITS
 
     The exhibits listed in the accompanying Index to Exhibits are filed as
  part of this Report on Form 10-Q.
 
    (b) REPORTS ON FORM 8-K
 
     None.
 
                                      36
<PAGE>
 
                                   SIGNATURE
 
   Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized,
 
                                          XOOM.com, Inc.
Date: May 14, 1999
 
                                          By:      /s/ John Harbottle
                                            -----------------------------------
                                                      John Harbottle
                                               Vice President of Finance and
                                                  Chief Financial Officer
                                               (duly authorized officer and
                                               principal financial officer)
 
                                       37
<PAGE>
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
                                                                    Sequentially
 Exhibit                                                              Numbered
 Number  Description                                                    Page
 ------- -----------                                                ------------
 <C>     <S>                                                        <C>
  3.1    Restated Certificate of Incorporation of the
          Registrant**...........................................
 
  3.2    Amended and Restated Bylaws of the Registrant**.........
 
  4.1    Reference is made to Exhibits 3.1 and 3.2**.............
 
  4.2    Warrant to purchase common stock made by the Registrant
          in favor of Sand Hill Capital, LLC, dated as of
          November 3, 1998**.....................................
 
  4.3    Specimen Stock Certificate of the Registrant**..........
 
 10.1    Form of Indemnification Agreement between the Registrant
          and each of its executive officers and directors**.....
 
 10.2    Agreement of Sublease between the Registrant and
          Cornerstone Internet Solutions Company d/b/a USWeb
          Cornerstone dated August, 1998**.......................
 
 10.3    Assignment of Lease by Xaos Tools, Inc. and Acceptance
          of Assignment and Assumption of Lease by the
          Registrant, dated July 31, 1998**......................
 
 10.4    Registrant's 1998 Stock Incentive Plan, including forms
          of agreements..........................................
 
 10.5    Registrant's 1998 Employee Stock Purchase Plan,
          including forms of agreements thereunder**.............
 
 10.6    Employment Agreement between the Registrant and Russell
          Hyzen dated July 20, 1998**............................
 
 10.7    Employment Agreement between the Registrant and Vijay
          Vaidyanathan, dated March 10, 1998 and Addendum No. 1
          thereto, dated August 12, 1998**.......................
 
 10.8    Employment Agreement between the Registrant and Laurent
          Massa, dated July 1, 1998**............................
 
 10.9    Employment Agreement between the Registrant and John
          Harbottle dated August 4, 1998**.......................
 
 10.10   Agreement and Plan of Merger, among the Registrant, XOOM
          Chat, Inc., Paralogic Corporation and shareholders of
          Paralogic Corporation, dated March 10, 1998**..........
 
 10.11   Agreement and Plan of Merger, among the Registrant, Xoom
          GBT Merger Corp., Global Bridges Technologies, Inc. and
          Robert Kohler, dated June 11, 1998**...................
 
 10.12   Asset Purchase Agreement, between the Registrant and
          Revolutionary Software, Inc., dated June 11, 1998**....
 
 10.13   Purchase and License Agreement between the Registrant
          and ArcaMax, Inc., dated June 18, 1998**...............
 
 10.14   Asset Purchase Agreement between the Registrant and
          Pagecount, Inc., dated as of July 24, 1998**...........
 
 10.15   First Amendment, dated July 27, 1998, to Asset Purchase
          Agreement, between the Registrant and Revolutionary
          Software, Inc., dated June 11, 1998** Registrant, Xoom
          GBT Merger Corp., Global Bridges Technologies, Inc. and
          Robert Kohler, dated June 11, 1998**...................
 
 10.17   Letter Agreement between the Registrant and Robert
          Ellis, dated August 4, 1997**..........................
 
 10.18   Consulting Agreement between the Registrant and James
          Heffernan, dated May 15, 1998**........................
 
 10.19   Letter Agreement between the Registrant and Jeffrey
          Ballowe, dated July 28, 1998, as amended by letter
          agreement dated December 2, 1998**.....................
 
 10.20   Letter Agreement between the Registrant and Philip
          Schlein, dated July 28, 1998, as amended by letter
          agreement dated December 2, 1998**.....................
 
</TABLE>
<PAGE>
 
<TABLE>
<CAPTION>
                                                                    Sequentially
 Exhibit                                                              Numbered
 Number  Description                                                    Page
 ------- -----------                                                ------------
 <C>     <S>                                                        <C>
 10.21   Letter Agreement between the Registrant and Robert C.
          Harris, Jr., dated July 28, 1998, as amended by letter
          agreement dated December 2, 1998**.....................
 
 10.22   Equipment Financing Agreement between the Registrant and
          Pentech Financial Services, Inc, dated October 1,
          1998**.................................................
 
 10.23   Loan Agreement between the Registrant and Sand Hill
          Capital, LLC, dated as of November 3, 1998**...........
 
 10.24   Agreement of Lease between the Registrant and Eleven
          Penn Plaza, dated as of March 16, 1999*................
 
 10.25   Employment Agreement between the Registrant and Marc
          Sznajderman, effective December 8, 1999................
 
 10.26   Employment Agreement between the Registrant and Rajesh
          Aji, effective December 8, 1999........................
 
 21.1    Subsidiaries of the Registrant**........................
 
 27.1    Financial Data Schedule.................................
</TABLE>
--------
 * Incorporated by reference from Xoom.com, Inc.'s Registration Statement on
   Form S-1 (No. 333-74441).
** Incorporated by reference from Xoom.com, Inc.'s Registration Statement on
   Form S-1 (No. 333-62395).