<PAGE>
 
================================================================================
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                             --------------------
                                  FORM 10-QSB

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
    1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1998
                                                               or
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934 FOR THE TRANSITION ERIOD FROM ___________ TO ___________

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

                         FINE.COM INTERNATIONAL CORP.
           Name of small business issuer as specified in its charter



                                    0-22805
                            Commission File Number

       STATE OF WASHINGTON                                91-1657402
    State or Other Jurisdiction of         I.R.S. Employer Identification Number
     Incorporation or Organization


                         1525 FOURTH AVENUE, SUITE 800
                           SEATTLE, WASHINGTON 98101
                    Address of Principal Executive Offices

                                 206-292-2888
                            Issuer Telephone Number
                             --------------------


Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the     Yes [X] No [_] Securities Exchange Act of 1934
during the past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Transitional Small Business Disclosure Format (check one): Yes [_]  No [X]

The number of shares of the registrant's common stock, no par value per share,
outstanding as of December 15, 1998 was 2,669,590.
<PAGE>
 
                         fine.com INTERNATIONAL Corp.

                                  FORM 10-QSB
                    FOR THE QUARTER ENDED OCTOBER 31, 1998

================================================================================
                                     INDEX

PART I -- FINANCIAL INFORMATION                                            PAGE

       Item 1.     Consolidated Financial Statements (Unaudited)              2

       Item 2.     Management's Discussion and Analysis of Financial
                   Condition and Results of Operations                        6

PART II -- OTHER INFORMATION

       Item 2.     Changes in Securities and Use of Proceeds                 10

       Item 6.     Exhibits                                                  10

SIGNATURE PAGE                                                               11
<PAGE>
 
                        PART I -- FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                         fine.com INTERNATIONAL corp.
                          CONSOLIDATED BALANCE SHEETS

<TABLE> 
<CAPTION> 
                                                                                      OCTOBER 31,       JANUARY 31,
                                                                                          1998             1998
                                                                                    ---------------- ----------------
<S>                                                                                 <C>              <C> 
ASSETS                                                                                (unaudited)        (restated)
CURRENT ASSETS:
Cash and cash equivalents                                                             $   377,403        $1,571,861
Marketable securities                                                                     923,745         1,593,032
Accounts receivable, less allowances                                                    2,081,123         1,097,354
Work-in-progress                                                                          141,314           191,841
Prepaid expenses and other                                                                255,126           157,780
Notes receivable from officer                                                              24,442            26,686
                                                                                      -----------        ----------
       TOTAL CURRENT ASSETS                                                             3,803,153         4,638,554
Marketable securities                                                                          --         2,325,236
Other long-term assets                                                                    106,536           103,561
Deferred income tax asset                                                                      --           220,318
Equipment & furniture, net                                                              1,426,166           698,453
                                                                                      -----------        ----------
       TOTAL ASSETS                                                                   $ 5,335,855        $7,986,122
                                                                                      ===========        ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable                                                                      $   461,931        $  395,267
Accrued expenses                                                                          260,954            48,581
Advance payments                                                                               --            70,500
Deferred revenue                                                                          436,004           422,101
Deferred income tax liabilities                                                                --           322,337
Capitalized lease obligations                                                              91,984            71,166
                                                                                      -----------        ----------
       TOTAL CURRENT LIABILITIES                                                        1,250,873         1,329,952

Long-term capital leases                                                                   82,523            70,436

SHAREHOLDERS' EQUITY:
Common Stock, no par value:
       10,000,000 shares authorized; 2,669,590 shares issued and outstanding at
       October 31, 1998 and 2,633,720 shares issued and
       outstanding at January 31, 1998                                                  6,906,409         6,737,929
Accumulated deficit                                                                    (2,903,950)         (122,699)
Accumulated other comprehensive loss                                                           --           (29,496)
                                                                                      -----------        ----------
       Total shareholders' equity                                                       4,002,459         6,585,734
                                                                                      -----------        ----------
       TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                      $5,335,855        $7,986,122
                                                                                      ===========        ==========
</TABLE> 

                            See accompanying notes.

                                      -2-
<PAGE>
 
                         fine.com INTERNATIONAL Corp.
                 CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

<TABLE> 
<CAPTION> 
                                                         Three Months Ended October 31,     Nine Months Ended October 31,
                                                      ------------------------------------ ---------------------------------
                                                              1998             1997               1998          1997
                                                           -----------     ------------       ------------  ----------
<S>                                                   <C>                  <C>             <C>              <C> 
Gross revenue                                             $ 1,889,104       $1,606,759        $ 4,617,513   $4,324,380
Direct salaries and costs                                   1,006,746          973,152          3,004,145    2,787,074
                                                          -----------       ----------        -----------   ----------
Gross profit                                                  882,358          633,607          1,613,368    1,537,306
Selling, general and
       administrative expenses                              2,006,179          612,600          4,628,118    1,524,401
                                                          -----------       ----------        -----------   ----------
Operating income (loss)                                    (1,123,821)          21,007         (3,014,750)      12,905
Interest income                                                32,864           72,237            179,533       72,237
Interest expense                                               (6,533)         (18,664)           (25,229)     (50,385)
                                                          -----------       ----------        -----------   ----------
Income (loss) before income taxes                          (1,097,490)          74,580         (2,860,446)      34,757
Provision (benefit) for income taxes                               --           41,000           (120,000)      77,821
                                                          -----------       ----------        -----------   ----------
Net income (loss)                                        $ (1,097,490)      $   33,580       $ (2,740,446)  $  (43,064)
                                                          ===========       ==========          =========     ========

Basic and diluted net income
       (loss) per share                              $          (0.41)     $      0.01         $    (1.03)  $    (0.03)

Shares used in computation of net income 
 (loss) per share:
Basic                                                       2,669,590        2,414,227          2,668,013    1,681,587
Diluted                                                     2,669,590        2,455,909          2,668,013    1,681,587
</TABLE> 

                            See accompanying notes.

                                      -3-
<PAGE>
 
                         fine.com INTERNATIONAL Corp.
               CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)

<TABLE> 
<CAPTION> 
                                                                                    Nine Months Ended October 31,
                                                                                 ----------------------------------
                                                                                    1998                   1997
                                                                                 ----------------------------------
<S>                                                                               <C>                <C>  
CASH FLOWS USED IN OPERATING ACTIVITIES
   Net loss                                                                       $(2,740,446)       $  (43,064) 
   Depreciation and amortization                                                      246,396           127,058 
   Deferred income tax (benefit)                                                     (117,213)           77,822 
   Non cash stock-based compensation expense                                           25,000                --  
   Interest related to shareholder loan                                                    --           (15,000)
       Net changes in:
       Accounts receivable                                                           (955,919)         (794,026)
       Work-in-process                                                                 50,527          (123,460)
       Prepaid expenses and other                                                    (141,126)         (160,822)
       Accounts payable                                                                66,664            98,852 
       Accrued expenses                                                               141,871           135,425 
       Deferred revenue                                                                13,903           206,506  
                                                                                  -----------        -----------
   Total cash used in operating activities                                         (3,410,343)         (460,709)

CASH FLOWS FROM INVESTING ACTIVITIES
   Investment purchases                                                                    --        (3,962,959)
   Investment sales                                                                 3,039,215                --
   Purchase of equipment and furniture                                               (858,479)         (267,222)
                                                                                  -----------        -----------
   Total cash provided by (used in)
        investing activities                                                        2,180,736        (4,230,181)

CASH FLOWS FROM FINANCING ACTIVITIES
   Increase in note payable to bank                                                        --           276,000
   Change in capital lease obligations                                                 32,905           (15,452)
   Net change in notes receivable from officer                                          2,244           (23,744)
   Accrued offering costs                                                                  --            41,116 
   Cash received from common stock                                                         --         6,331,458  
                                                                                  -----------        -----------
   Total cash provided by financing activities                                         35,149         6,609,378
                                                                                  -----------        -----------
   Net increase (decrease) in cash and cash
       equivalents                                                                 (1,194,458)        1,888,488 
   Cash and cash equivalents at beginning of period                                 1,571,861           159,205  
                                                                                  -----------        -----------
   Cash and cash equivalents at end of period                                     $   377,403        $2,047,693  
                                                                                  ===========        ===========

SUPPLEMENTAL CASH FLOW INFORMATION
Acquisition of Pacific Analysis and Computing, in February 1998, in exchange for
35,870 shares of common stock:
       Common stock                                                                   143,480
       Net current assets                                                              27,850
       Non-current assets                                                             115,630
</TABLE> 

                            See accompanying notes.

                                      -4-
<PAGE>
 
                         fine.com INTERNATIONAL Corp.
                         NOTES TO FINANCIAL STATEMENTS


1.  BASIS OF PRESENTATION

       The accompanying unaudited financial statements have been prepared by
fine.com International Corp. (the "Company") in accordance with generally
accepted accounting principles for interim financial statements and with the
instructions to Form 10-QSB and Item 310 of Regulation S-B. Accordingly, they do
not include all of the information and disclosures required by generally
accepted accounting principles for complete financial statements. In the opinion
of the Company's management, all adjustments (consisting of normal recurring
accruals and certain non-recurring charges) necessary for a fair presentation
have been included. For further information, refer to the financial statements
and footnotes thereto for the fiscal year ended January 31, 1998, included with
the Company's Form 10-KSB and Form 8-K/A, as filed with the Securities and
Exchange Commission (the "Commission"). Results of operations for the three-
month and nine-month periods ended October 31, 1998 are not necessarily
indicative of performance for a full fiscal year or for future periods.

       On July 31, 1998, Meta4 Digital Design, Inc. ("Meta4") was merged with
and into a wholly-owned subsidiary of the Company through the issuance of
253,655 shares of Company common stock, which were exchanged for all of the
outstanding shares of Meta4. The merger qualified as a tax-free reorganization
and was accounted for as a pooling-of-interests. Accordingly, the Company's
financial statements have been restated to include the results of Meta4 for all
periods presented.

       New Accounting Pronouncements. In 1997, the Financial Accounting
Standards Board issued SFAS No. 130, "Reporting Comprehensive Income", which
requires disclosure of an additional basis of measuring income. Comprehensive
income for the nine months ended October 31, 1998 was a loss of $2,710,950
and $82,640 for the same period in 1997.

2.   EARNINGS PER SHARE


The following table sets forth the computation of basic and diluted earnings per
share:

<TABLE> 
<CAPTION> 
                                                       Three Months Ended October 31         Nine months Ended October 31
                                                         1998                1997              1998              1997
                                                      ----------          ----------       ------------       ----------
<S>                                                <C>                  <C>               <C>              <C> 
Numerator:
Net income (loss).............................     $ (1,097,490)         $  33,580        $ (2,740,446)    $    (43,064) 
                                                    ===========         ==========         ===========       ==========

Denominator for basic earnings per share -

Weighted average common stock.................        2,669,590          2,414,227           2,668,013        1,681,587

Effect of dilutive securities:
Weighted average convertible preferred stock..                              11,907
Employee stock options........................                              29,775
                                                    -----------         ----------         -----------       ----------
Denominator for diluted earnings per share -          2,669,590          2,455,909           2,668,013        1,681,587

Basic and diluted earnings (loss) per share...      $     (0.41)             $0.01         $     (1.03)      $    (0.03) 
                                                    ===========         ==========         ===========       ==========
</TABLE> 

                                      -5-
<PAGE>
 
3.    BUSINESS REORGANIZATION

         For the three months ended October 31, 1998, additional
non-recurring charges of approximately $628,000 were incurred relating to an
operational restructuring which included severance payments, an increase to the
accounts receivable reserve and write-offs of certain assets and uncollectable
or unbillable work-in-progress.


4.    BANK LINE OF CREDIT


         At October 31, 1998, there were no amounts outstanding under the
 Company's Revolving Line of Credit with its bank. The Company was, at that
 time, out of compliance with certain covenants contained in its Revolving Line
 of Credit with its bank, including requirements for minimum working capital and
 minimum tangible net worth. The Company has renegotiated the terms with its
 bank and has received a commitment letter from the bank to enter into a revised
 credit facility. The terms of the revised credit facility provide for a reduced
 line of credit in the amount of $750,000, to expire on April 1, 1999. Amounts
 outstanding under the revised credit facility will bear interest at the bank's
 prime rate plus 0.25% per annum (an effective rate of 8% at December 15,
 1998). The new facility will be secured by all accounts receivable of the
 Company and such other property and assets of the Company as the bank may
 require, and contains certain covenants and restrictions typical for a credit
 facility of such amount. The Company anticipates that the new credit facility
 will be in place by December 31, 1998.


ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

         This Quarterly Report on Form 10-QSB contains forward-looking
statements which reflect the Company's current plans and views with respect to
future events and financial performance. These forward-looking statements are
subject to certain uncertainties that could cause actual results to differ
materially from historical results or those anticipated. Words used in this
Report such as "anticipate," "expect," "may," "will" and similar expressions are
intended to identify forward-looking statements but are not the exclusive means
of identifying such statements. The Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. The Company does not undertake any
obligation to update or revise these forward-looking statements to reflect any
future events or circumstances. In addition, the disclosures under the caption
"Other Factors that may Affect Operating Results" consist principally of a brief
discussion of risks that may affect future results and are, in their entirety,
forward-looking in nature. Readers are urged to carefully review and consider
the various disclosures made by the Company in this Report, as well as the
disclosures in the "Risk Factors" section appearing in the Form 10-KSB for the
fiscal year ended January 31, 1998 and the Company's registration statement on
Form SB-2, both on file with the Commission, and those described from time to
time in the Company's press releases and other communications, which attempt to
advise interested parties of the risks and factors that may affect the Company's
business (collectively, the "Risk Factors Disclosure").

         The following discussion and analysis of the Company's financial
condition and results of operations should be read in conjunction with (i) the
financial statements and accompanying notes appearing in this Report, (ii) the
Company's financial statements and accompanying notes appearing in the Company's
Form 10-KSB for the fiscal year ended January 31, 1998, as filed with the
Commission and (iii) the Company's pro forma financial statements and
accompanying notes giving effect to the Meta4 acquisition, as filed with the
Commission on Form 8-K/A on October 13, 1998.


OVERVIEW

         Company Business. The Company plans, develops, maintains and hosts Web
sites for major national and international corporate clients and others. In
addition, the Company provides consulting services to its clients as to the
strategic uses of the Internet to further their corporate goals and objectives.
Such services relate to e-commerce, Intranet and Extranet applications, and the
intricacies of utilizing the Internet on an international basis.

         The Company generates the majority of its revenues from fees associated
with the planning and development of commercial Web sites for clients. These
fees are generally earned pursuant to fixed fee, time and materials or cost

                                      -6-
<PAGE>
 
reimbursement contracts (with terms typically ranging from two to seven months).
Revenues generated from these contracts are recognized under the
percentage-of-completion method based upon the attainment of specific contract
milestones (based on the ratio of costs incurred to total estimated project
costs). All other revenue is recorded on the basis of performance of services.
The Company assumes greater financial risk on fixed fee contracts than on either
time-and-material or cost-reimbursable contracts. Failure to anticipate
technical problems, estimate costs accurately or control costs during
performance of a fixed fee contract may reduce the Company's profit or cause a
loss on a particular project.

       The Company's Web site development process utilizes marketing expertise
and state of the art interactive database compilation and dissemination
techniques and technologies. Through the planning, development and maintenance
of interactive Web presentations, the Company enhances clients' marketing
campaigns and fosters the collection of demographic data which is utilized by
clients.

       Through fiscal year 1998, the Company had conducted all of its operations
from its headquarters in Seattle, Washington. In fiscal 1999, the Company began
a process of opening domestic and international service offices, for the
purposes of both better serving existing Company clients as well as expanding
the Company's business in new markets. As of October 31, 1998, the Company had
regional offices located in Bethesda, Maryland, Livingston, New Jersey, and
London, England. In September 1998, the Company closed its regional office in
Santa Monica, California, due to its inability to generate expected levels of
revenues and performance. The Company continues to operate most of its business
and derive most of its revenues from its headquarters in Seattle, Washington.
The Company also has a sales and marketing presence in Tokyo, Japan through the
Company's business arrangements with Mitsui & Co., Ltd.

       On July 31, 1998, the Company acquired Meta4 Digital Design, Inc.
("Meta4"), a private company, which provides Internet-based business solutions.
At October 31, 1998, the Company had 21 employees at its Meta4 office in New
Jersey. The Company's major clients serviced through its Meta4 office include
General Electric, Fuji Film, and WowFactor. The Meta4 acquisition better enables
the Company to provide service to the New York and New Jersey areas, provides
expertise in Unix to complement the Company's historical Microsoft NT expertise
and provides additional resources to execute large operating system projects.

       As previously announced, on November 24, 1998 the Company began
implementation of an operational restructuring focused on strategically growing
sales, increasing its internal productivity, decreasing its overhead cost
structure, analyzing its existing contracts and examining its receivable and
asset base. As a result, the Company is refocusing its sales initiatives on the
high-end, interactive Web development market to leverage the skills and scale of
its Internet development teams. In addition, the Company is taking steps to
improve internal productivity and staff utilization levels and has implemented a
revised organizational structure including the hiring of a new Executive Vice
President of Finance and Operations. In an effort to reduce administrative
costs, the Company has decreased its non-billable administrative staff by eight
people, which the Company expects will result in annualized cost savings of
approximately $600,000. Finally, in connection with the restructuring, the
Company has recorded certain non-recurring charges to earnings in the third
quarter of fiscal 1999 of approximately $628,000. These non-recurring charges
consist primarily of (i) severance payments and salary adjustments of $120,000,
(ii) an increase of $220,000 to the accounts receivable reserves for accounts
considered by management to be uncollectable or unrealizable and (iii) write-
offs in the amount of $288,000 for certain assets and work-in-progress
considered by management to be uncollectable or unbillable.



RESULTS OF OPERATIONS FOR THREE MONTHS ENDED OCTOBER 31, 1998 AND 1997

       Gross Revenue. Consolidated gross revenue for the three months ended
October 31, 1998 and 1997 was $1,889,000 and $1,607,000, respectively. The 18%
increase was due to the addition of new clients and a general increased level of
sophistication of the projects undertaken.

       Direct Salaries and Costs. Direct salaries and costs include all internal
labor costs and other direct costs related to project performance, such as
project specific independent contractor fees, supplies and specific project-
related expenditures. The Company's consolidated direct salaries and costs were
$1,007,000 and $973,000 for the three months ended October 31, 1998 and 1997,
respectively, representing a 3% increase from the prior period. As a percentage
of

                                      -7-

<PAGE>
 
gross revenues, direct sales and costs were 53% for the three months ended
October 31, 1998, as compared to 61% for the prior period. These costs consisted
primarily of direct salaries, payroll taxes and benefits of $742,000 and
$369,000 for the three months ended October 31, 1998 and 1997, respectively,
and, secondarily, other direct costs which are incurred and primarily charged
through to the Company's clients of $265,000 and $604,000, respectively.

       Selling, General and Administrative Expenses. Consolidated selling,
general and administrative expenses were $2,006,000 and $613,000 for the three
months ended October 31, 1998 and 1997, respectively. For the three months ended
October 31, 1998, additional non-recurring charges of approximately $628,000
were incurred relating to an operational restructuring which included severance
payments, an increase to the accounts receivable reserve and write-offs of
certain assets and uncollectable or unbillable work-in-progress. The substantial
increase in such expenses from the comparable periods in fiscal 1998 to fiscal
1999 is primarily a result of implementing the Company's operational
restructuring and secondarily of increased marketing and business development
activities, hiring administrative personnel and office expansion, professional
fees incurred in connection with the Meta4 transaction and other expenses in
connection with being a publicly traded company. Management recognizes that its
selling, general and administrative expenses have increased at a rate in excess
of its revenue growth and, accordingly, the Company is undertaking initiatives
to lower these costs. These operational restructuring steps include among
others, reduction in the size of the Company's administrative staff by eight
people, which the Company expects will result in annualized cost savings of
approximately $600,000.

       Taxes. The Company's effective tax rate for the third quarter of fiscal
1999 differed from the statutory 34% tax rate due to operating losses for which
no tax benefit was recorded. The Company has recorded a valuation allowance for
the entire deferred tax asset as a result of the uncertainties regarding the
realization of the balance.

       Net Income (Loss). The Company recognized a consolidated net loss of
$1,097,000 for the three-month period ending October 31, 1998, which includes
the non-recurring charge of $628,000 in connection with the Company's
operational restructuring, compared to net income of $34,000 for the same period
in fiscal 1998. The decrease in profitability is due to the factors discussed
above.


RESULTS OF OPERATIONS FOR NINE MONTHS ENDED OCTOBER 31, 1998 AND 1997

       Gross Revenue. Consolidated gross revenue for the nine months ended
October 31, 1998 and 1997 was $4,618,000 and $4,324,000, respectively. The 7%
increase was due to the addition of new clients and a general increased level of
sophistication of the projects undertaken.

       Direct Salaries and Costs. Direct salaries and costs include all internal
labor costs and other direct costs related to project performance, such as
project specific independent contractor fees, supplies and specific project-
related expenditures. The Company's consolidated direct salaries and costs were
$3,004,000 and $2,787,000 for the nine months ended October 31, 1998 and 1997,
respectively, representing an 8% increase from the prior period. As a percentage
of gross revenues, direct sales and costs were 65% for the nine months ended
October 31, 1998, as compared to 64% for the prior period. These costs consisted
primarily of $2,193,000 and $1,080,000 for the nine months ended October 31,
1998 and 1997, respectively, paid as direct salaries, payroll taxes and benefits
and, secondarily, of $811,000 and $1,707,000, respectively, as other direct
costs which are incurred and primarily charged through to the Company's clients.

       Selling, General and Administrative Expenses. Consolidated selling,
general and administrative expenses were $4,628,000 and $1,524,000 for the nine
months ended October 31, 1998 and 1997, respectively. These expenses consisted
of sales and administrative salaries, office rent and related occupancy costs,
marketing and new business development costs, depreciation of fixed assets,
professional fees, telephone and related Internet connectivity fees, computer
network costs, office expenses and supplies. The amounts for the nine months
ended October 31, 1998, include additional non-recurring charges of
approximately $628,000 incurred in the third quarter of fiscal 1999 relating to
an operational restructuring which included severance payments, an increase to
the accounts receivable reserve and write-offs of certain assets and
uncollectable or unbillable work-in-progress. As a percentage of gross revenues,
the selling, general and administrative expenses increased from 35% to 100%. The
increase in selling, general and administrative expenses was
                                      -8-
<PAGE>
 
primarily a result of the non-recurring charges in connection with the Company's
operational restructuring and secondarily of increased sales and administrative
salaries, transaction costs related to mergers and acquisitions, marketing and
new business development costs, depreciation of fixed assets, professional fees,
office rent and related occupancy costs, and costs related to SEC reporting and
other regulatory requirements.

         Taxes. During the first nine months of fiscal 1999, the Company
recorded a tax benefit of $120,000, which represented the tax benefit associated
with the carryback of the operating losses to previous years. No future income
tax benefit has been recorded for remaining deferred tax assets given that these
represent net operating loss carryforwards and the uncertainty as to their
future realizability.

         Net Income (Loss). The Company recognized a consolidated net loss of
$2,740,000 for the first nine months of fiscal 1999 as compared to a net loss of
$43,000 for the same period in fiscal 1998. The decrease in profitability is due
to the factors discussed above.


CAPITAL RESOURCES AND LIQUIDITY

         The Company funded its operating activities in the first nine months of
fiscal 1999 primarily through earnings and proceeds from the Company's public
offering. The Company has historically funded its capital requirements through
earnings, borrowings from affiliates and commercial lenders and equity financing
and private placements of its capital stock. The Company had cash, cash
equivalents, short term and long term marketable securities in the aggregate
amount of $1,301,000 at October 31, 1998 and $5,490,000 at January 31, 1998.

         The Company's working capital decreased $756,000 from $3,309,000 at
January 31, 1998 to $2,552,000 at October 31, 1998. Operating activities for the
nine months ended October 31, 1998 required net cash in the amount of
$3,410,000, primarily due to the net loss incurred and increases in accounts
receivable. Accounts receivable increased $984,000, from $1,097,000 at January
31, 1998 to $2,081,000 at October 31, 1998. As part of its operational
restructuring, the Company implemented a plan to examine its assets and
receivables and to increase collections of its accounts receivable. To date, the
Company has collected approximately $658,000 of the third quarter-end accounts
receivable balance.

         During the nine months ended October 31, 1998, the Company purchased
certain equipment and furniture, requiring cash expenditures in the amount of
$858,000. These equipment purchases were primarily for computer hardware and
software, furniture, fixtures and leasehold improvements to accommodate an
increase in Company personnel. Net cash provided from financing activities was
$35,000.

         At October 31, 1998, there were no amounts outstanding under the
Company's Revolving Line of Credit with its bank. The Company was, at that time,
out of compliance with certain covenants contained in its Revolving Line of
Credit with its bank, including requirements for minimum working capital and
minimum tangible net worth. The Company has renegotiated the terms with its bank
and has received a commitment letter from the bank to enter into a revised
credit facility. The terms of the revised credit facility provide for a reduced
line of credit in the amount of $750,000, to expire on April 1, 1999. Amounts
outstanding under the revised credit facility will bear interest at the bank's
prime rate plus 0.25% per annum (an effective rate of 8% at December 15,
1998). The new facility will be secured by all accounts receivable of the
Company and such other property and assets of the Company as the bank may
require, and contains certain covenants and restrictions typical for a credit
facility of such amount. The Company anticipates that the new credit facility
will be in place by December 31, 1998.

         The Company believes that its existing cash and cash equivalent
balances, cash generated from operations, together with the remaining proceeds
from the initial public offering, and its revised credit facility will be
sufficient to fund its operations through the next fiscal year. The Company's
liquidity position, however, will depend in part on its ability to collect
outstanding accounts receivable and to implement the cost-reduction measures of
its operational 

                                      -9-
<PAGE>
 
restructuring plan. To the extent that the Company experiences any additional
significant losses, it may be required to attempt to obtain additional
borrowings, sales of equity or debt securities or sales of assets.



OTHER FACTORS THAT MAY AFFECT OPERATING RESULTS

         The Company's operating results may fluctuate due to a number of
factors, including, but not limited to any of the following: the ability of the
Company's office in Seattle, Washington and its regional offices in Maryland,
New Jersey, and London, England and its marketing presence in Tokyo, Japan to
generate revenues or profitability in accordance with management's timetable or
expectations; collection of the Company's accounts receivable on a timely basis;
changes in the level of operating expenses; the Company's ability to increase
internal productivity and staff utilization levels; the volume and timing of
sales; the ability of the Company to manage and integrate operations from its
regional offices; the ability of the Company to develop strategic relationships
with third parties; changes in management and personnel; the ability of the
Company to hire qualified development personnel and its ability to generate
revenue from such personnel; the availability of additional financing or capital
resources; and general economic conditions in the Internet industry. All of the
above factors are difficult for the Company to forecast, and can materially
adversely affect the Company's business, capital resources and operating results
for one quarter or a series of quarters.




                         PART II -- OTHER INFORMATION

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

         From the effective date of the Company's Registration Statement on Form
SB-2, as amended (file number 333-26855), relating to the Company's initial
public offering of the Company's common stock, through the end of the Company's
fiscal quarter ended October 31, 1998, the Company has applied its net proceeds
as follows:

<TABLE> 
     <S>                                                                                                    <C>    
     Net proceeds from IPO.........................................................                         $ 6,228,042
     Accounts receivable, work-in-process and other working capital
         requirements..............................................................                          (2,645,608)
     Capital expenditures for fixed assets ........................................                          (1,737,769)
     Repayment of indebtedness.....................................................                            (545,031)
                                                                                                             ----------
     Unapplied proceeds held in money market funds and marketable
         securities at October 31, 1998............................................                          $1,299,634
                                                                                                             ==========
</TABLE> 


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

           (a)  EXHIBITS
                    10.1     Employment Agreement dated November 24, 1998 with 
                             Timothy J. Carroll
                    27.1     Financial data schedule

           (b)  REPORTS ON FORM 8-K
       The Company filed a report on Form 8-K on August 13, 1998 to report the
acquisition of Meta4 Digital Design, Inc., which was effective July 31, 1998.
Subsequently, on October 13, 1998, the Company filed an amended report on Form
8-K/A reporting certain historical financial information of Meta4 and the pro
forma financial information for the acquisition.

                                     -10-
<PAGE>
 
SIGNATURES


       Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

       Dated December 14, 1998.


                                         fine.com International Corp.
                                  -----------------------------------------
                                                (Registrant)



                          By                /s/ Daniel M. Fine
                                  -----------------------------------------
                                               Daniel M. Fine
                                    President and Chief Executive Officer
                                        (principal executive officer)



                          By               /s/ Timothy J. Carroll
                                  -----------------------------------------
                                           Timothy J. Carroll
                             Executive Vice President of Finance and Operations
                                        (principal accounting officer)

                                     -11-
<PAGE>
 
                               INDEX TO EXHIBITS

EXHIBIT
NUMBER         DESCRIPTION
-------
     10.1   Employment Agreement dated November 24, 1998 with Timothy J. Carroll
     27.1   Financial data schedule