<PAGE>
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   -----------

                                    FORM 10-K

(Mark One)
|X|   Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934 for the fiscal year ended December 31, 2000.

                                       OR

|_|   Transition Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934 for the Transition Period from ___________ to
      _________.

                        COMMISSION FILE NUMBER 000-29927

                                IMPROVENET, INC.

             (Exact name of registrant as specified in its charter)

             Delaware                                   77-0452868
             --------                                   ----------
 (State or other jurisdiction of         (I.R.S. Employer Identification Number)
  incorporation or organization)

                             720 Bay Road, Suite 200
                           Redwood City, CA 94063-2469
                    (Address of principal executive offices)

                                 (650) 701-8000
              (Registrant's telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                 YES |X| NO |_|

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|

   The aggregate market value of the voting stock held by non-affiliates of
the registrant, based on the closing sale price of the common stock on
March 1, 2001 was approximately $6,012,251. Shares of common stock held by
each current executive officer and director and by each person who is
known by the registrant to own 5% or more of the outstanding common stock
have been excluded from this computation in that such persons may be
deemed to be affiliates of the Company. This determination of affiliate
status is not a conclusive determination for other purposes.

   The number of shares outstanding of the registrant's common stock, $.001
par value, was 18,132,926 as of March 1, 2001

                 DOCUMENTS INCORPORATED BY REFERENCE

   Items 10 through 13 are incorporated by reference to our Proxy
Statement for the 2001 annual meeting of stockholders to be filed by May 1st,
2001.

<PAGE>

                                ImproveNet, Inc.

                                    Form 10-K

                      For the Year Ended December 31, 2000

                                      Index

                                     PART I

<TABLE>
<CAPTION>
                                                                                                      PAGE

<S>       <C>                                                                                         <C>
Item 1.   Business...............................................................................      1

Item 2.   Properties.............................................................................     12

Item 3.   Legal Proceedings......................................................................     12

Item 4.   Submission of Matters to a Vote of Security Holders....................................     12

                                     PART II

Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters..................     13

Item 6.   Selected Consolidated Financial Data...................................................     14

Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations..     15

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.............................     31

Item 8.   Financial Statements and Supplementary Data............................................     31

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...     31

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant.....................................     32

Item 11.  Executive Compensation.................................................................     32

Item 12.  Security Ownership of Certain Beneficial Owners and Management.........................     32

Item 13.  Certain Relationships and Related Transactions.........................................     32

                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K........................     33

SIGNATURES.......................................................................................     56

</TABLE>


                                       i
<PAGE>

                                     PART I

Item 1. Business

            In addition to historical information, this Annual Report on Form
10-K contains forward-looking statements based on our current expectations
about our company and our industry. You can identify these forward-looking
statements when you see us using words such as "expect," "anticipate,"
"estimate" and other similar expressions. These forward-looking statements
are subject to certain risks and uncertainties that could cause actual
results to differ materially from those reflected in these forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in the section entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operation - Risk Factors
that May Affect Our Results of Operations and Financial Condition" and
elsewhere in this report. We undertake no obligation to publicly update any
forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.

Company Overview

            We provide home improvement information and services on the
Internet. Through out ImproveNet.com and ImproveNetPro.com Web sites,
matching services and targeted advertising, we are creating a national
marketplace for home improvement products and services in which homeowners,
service providers and suppliers of home improvement products benefit from an
organized and efficient online flow of information and communication.

            We generate job leads for service providers from highly
interested homeowners within their geographic area using our proprietary
matching service. In 1999, we received approximately 104,500 job submissions
valued at a total of approximately $2.7 billion, compared to the estimated
total expenditures for the residential home improvement market for 1999 of
approximately $126.7 billion, according to the United States Department of
Commerce. In 2000, we received approximately 136,900 job submissions valued
at a total of approximately $3.3 billion, compared to the estimated
seasonally adjusted total expenditures for the residential home improvement
market for 2000 of approximately $149 billion, according to the United States
Census Bureau. We have designed our services to deliver a satisfying home
improvement experience to homeowners and assist them through the four phases
of the home improvement process: dream and design, plan and budget, hire and
build and fix and maintain. We generate revenues from:

o    service providers who pay us lead fees and win fees for our matching
     service that are included in service revenues; and

o    suppliers of home improvement products and services as well as other
     advertisers who pay us advertising fees for the purchase of advertising
     space on our Web sites that are included in advertising revenues.

                                       1
<PAGE>

Industry Background

The Home Improvement Industry

            According to the United States Census Bureau, there were an
estimated 120.1 million housing units in the United States of America as of
the fourth quarter of 2000. Approximately 106.5 million housing units were
occupied: 71.9 million by owners and 34.6 million by renters. Expenditures
for improvements and repairs of residential properties in the third quarter
2000, the most recently reported period from the US Census, were at a
seasonally adjusted annual rate of $149.0 billion, representing $106.5
billion on larger discretionary projects and $42.5 billion for maintenance
and repair projects. According to the "Improving America's Housing" study
from the Joint Center for Housing Studies at Harvard University, the
residential remodeling industry accounts for about 2% of gross domestic
product.

            The participants in the home improvement market can be grouped into
three categories: homeowners, service providers and suppliers of home
improvement products. These participants face distinct challenges in meeting
their objectives.

            Homeowners

            The appearance and general working condition of their home is
highly important to homeowners. Maintaining and improving the home involves
an ongoing financial and emotional investment to design, budget, hire service
providers, and successfully complete repair and remodeling projects.
Traditionally, homeowners must rely upon books, magazines, local newspaper
articles and advertisements, Yellow Pages and word-of-mouth recommendations
to accomplish these tasks. None of these resources provides immediate,
objective, reliable and personalized information. As a result, homeowners are
often poorly informed and uncertain about how best to identify and locate
reputable, experienced and competitively priced service providers for their
projects.

            Service Providers

            Based upon a compilation of industry sources, we believe there
are up to 900,000 service providers in the United States. The home improvement
industry is characterized by a high rate of turnover among local contractors.
These service providers have few channels to communicate effectively with
homeowners or with one another. There is neither an industry-wide
certification based on work quality nor a code of conduct and ethics for
contractors as there is for architects and designers. As a result, reputable
contractors are often unable to differentiate themselves based on
reliability, adequate capitalization and areas of specialization. Service
providers currently rely on word-of-mouth recommendations, the Yellow Pages
and other traditional mass media advertising that require them to pay upfront
fixed costs. Therefore, service providers must allocate significant time,
money and energy to qualifying and verifying the leads they receive.
Typically, small independent contractors experience difficulty in predicting
lead flow, managing staffing and working capital requirements and
systematically building a stable business.


                                       2
<PAGE>


            Suppliers of Home Improvement Products

            According to REMODELING'S 1998-1999 Buyers Guide, there are
approximately 3,000 suppliers of home improvement products in the United
States. Although there are some well-known brand names supplying a wide array
of home improvement products, the broader industry is comprised of local and
regional firms with limited means to distribute and market their products
effectively to homeowners. Currently, the majority of supplier advertising
dollars is spent on co-marketing and co-branding advertising and print and
broadcast advertising. These traditional media lack a centralized database of
information that can be searched based on specified terms, and the ability to
conduct two-way communications. Although suppliers have often used
traditional media effectively to build brand recognition, they have
difficulty using traditional media to target homeowners who are in the
process of making time-critical purchasing decisions regarding home
improvement products.

The Internet Home Improvement Opportunity

            According to International Data Corporation in September 2000, 44
percent of Americans were online and 68 percent will be online by 2005. The
Pew Internet And American Life Project stated in October 2000 that 80 percent
of people in households earning more than $75,000 have Internet access.

            We believe that an opportunity exists for an online home
improvement marketplace that provides a central repository of information for
the benefit of homeowners, service providers and suppliers. This marketplace
would enable homeowners to access design and planning tools, find service
providers and obtain other project management services. This marketplace
would also enable service providers to access job leads, differentiate
themselves from competitors and communicate with fellow professionals.
Finally, this marketplace would enable suppliers to market their products to
a targeted audience of homeowners at the time they are making time-critical
purchasing decisions.

The ImproveNet Solution

            We provide home improvement information and services on the
Internet. We aggregate and organize information and design tools for
homeowners, generate job leads for service providers and provide home
improvement project information to suppliers. We independently screen and
monitor contractors, designers and architects nationwide to ensure that our
homeowners' qualified job leads are matched with pre-screened service
providers. We offer suppliers coordinated advertising to homeowners and
service providers while they are making home improvement purchasing
decisions. Through our Web sites, matching and advisory services and targeted
advertising, we are creating a national online marketplace for home
improvement products and services.

Our solution offers the following benefits:

            For Homeowners:

            o Access To Quality Service Providers. Our screening process is
              designed to identify the leaders in quality and service in each
              of our local markets. To pass our screening criteria, service
              providers must have a clean credit and legal history, all
              necessary licenses, appropriate insurance and no significant
              negative references from customers or other service providers.
              We re-screen the service providers in our database
              approximately semi-annually. By creating a national database of
              screened service providers, we improve the likelihood that
              homeowners who contact us will hire qualified, experienced and
              reputable service providers.

            o Cost-Effective And Convenient Services. For projects greater
              than $500, our matching process solicits between two and four
              service providers on behalf of homeowners who might otherwise
              settle for a single bid, creating a competitive marketplace for
              their home improvement project. We choose the service providers
              by matching their geographical, job type and job size
              preferences, with the homeowner's job specification. We contact
              selected service providers by fax, e-mail or by posting to
              ImproveNetPro.com. We encourage the selected service providers
              to contact the homeowner directly to discuss the job in detail
              within 48 hours of when we provide the homeowner with the
              service providers' names. In addition, we offer homeowners the
              ability to search for home improvement services and to plan
              their current projects using our interactive planning tools
              from home or work 24 hours a day, seven days a week. We assign
              a personal project advisor to each home improvement project.
              The project advisor is available to guide and advise the
              homeowner and the selected service provider throughout the
              project.

            o Online Project Assistance. We believe our online
              services, including our product showcase, our design gallery
              and our planning and estimating tools, provide answers to
              homeowners' diverse questions and needs regarding home
              improvement and repairs. Our Web site allows each homeowner to
              generate ideas from the product showcase and design gallery
              and access the personal project folder, an archive of previous
              project ideas and communications.

            o Online Financing. In December 2000, we launched a new "Find a
              Lender" program on our site where remodeling homeowners can
              apply online for home equity loans and lines of credit and
              receive instant approval decisions.

            For Service Providers:

            o Quality Job Leads. Our project advisors contact each homeowner
              after we receive a job to confirm that the homeowner is
              interested and to assist with refining the details of the job.
              Service providers who receive leads through our proprietary
              matching service benefit from the likelihood that the
              homeowner's interest is real and that the potential project is
              correctly characterized. In addition, service providers give us
              geographic, job type and job size preferences, which enable us
              to match the service provider to a job that meets its
              preferences and expertise. Service providers can change their
              preferences at any time to reflect their changing needs and
              circumstances.

                                       3

<PAGE>

              Through our ImproveNetPro.com website, we communicate job leads
              in near real-time to the selected service providers.

            o Competitive Differentiation. We believe service providers can
              differentiate themselves from their competitors by successfully
              completing our proprietary screening process and joining our
              network. We identify, contact and recruit service providers
              through many public and private sources. We have used Yellow
              Pages and licensing and trade association lists to identify,
              contact and recruit service providers into our network. We have
              not been able to screen approximately one-third of all service
              providers we have identified. Approximately one-third of the
              service providers who we have identified through lists or
              contacted through our various sources and roughly 50% of those
              we have screened have met our selection standards of
              professionalism and reliability. Currently, we have approximately
              30,000 eligible service providers in our network who have
              indicated an interest in continuing to receive qualified job
              leads from us.

            o Business And Financial Efficiencies. Service providers who
              participate in our matching service pay only for job leads that
              they accept and for jobs that they win, allowing them to reduce
              their upfront marketing costs. New job leads from our matching
              service supplement the flow of work that contractors,
              architects and designers receive from their traditional
              sources, which allows them to plan and operate their businesses
              more efficiently. Furthermore, through our SmartLeads program,
              service providers in our network are able to gain efficient and
              timely access to the most recent product information available.
              In addition, service providers often gain access to special
              product discounts not available to their competitors.

            For Suppliers Of Home Improvement Products:

            o Targeted Advertising To Homeowners. ImproveNet.com is designed
              to attract visitors who are focused on remodeling, repairing
              and maintaining their homes. We believe that this audience is a
              valuable target for suppliers of home improvement products and
              services. Banners, buttons and other forms of advertising allow
              these suppliers to target their message more efficiently and
              cost-effectively to a highly responsive and focused audience.
              Moreover, through our SmartLeads program, suppliers are able to
              reach service providers and homeowners engaged in home
              improvement projects through targeted messages.

            o Targeting Advertising To Service Providers. Through our
              SmartLeads program, we offer our suppliers the opportunity to
              run highly targeted promotions to our network of service
              providers based on detailed attributes including project type,
              cost, timing and location. This focused advertising offers
              suppliers an effective method of selling entire lines and
              specific products to highly interested service providers at the
              time of purchase.

            o Co-Branded Web Sites. We offer suppliers the opportunity to
              place our content and services on their own Web sites or link
              to co-branded Web sites, without having to expend development
              time or resources. These co-branded Web sites allow suppliers
              to offer our content and services to their customers. In many
              of these arrangements, the suppliers share in the revenues from
              jobs referred through their site or the co-branded Web site.


                                       4
<PAGE>

The ImproveNet Strategy

            ImproveNet's strategy is to become America's premiere home
improvement services resource on the Internet.

            The key elements of our strategy are:

Deliver a Satisfying Home Improvement Experience for Homeowners, Service
Providers and Suppliers

      The core of our strategy is to make it easy for homeowners, service
providers and suppliers to work together on a home improvement project. We
believe that achieving this goal will improve the level of professionalism and
reliability among service providers as well as the perception of the home
improvement industry in general. Our focus on quick and easy access to
information, combined with improved project support allows us to change the
current approach and execution of a home improvement project. Through our
online services, including our Web sites and SmartLeads program, and our
offline support services, including our project advisors and professional
services group, we seek to provide increased communication between all
parties to a home improvement project and to create new efficiencies for the
project itself.

            Access to this marketplace allows service providers in our
network to increase their own business and financial efficiencies and
differentiate themselves from their competitors. Similarly, this access
allows suppliers to market their home improvement products and services
within a cost effective advertising medium. We believe that the execution of
our ongoing strategy requires us to:

o    strengthen the pool of high quality information and content on our Web
     sites;

o    strengthen our network of qualified and interested service providers;

o    improve our personal assistance to homeowners through our advisory
     services;

o    strengthen our communication with our network of service providers
     through ImproveNetPro.com and an enhanced, highly knowledgeable team
     of local service personnel; and

o    strengthen our relationships with suppliers through enhanced co-branded
     opportunities and highly targeted advertising products such as our
     SmartLeads program.

Increase the Number of Jobs Submitted to Us and the Percentage of Jobs Won by
Service Providers in our Network

            We define our win rate as the number of jobs won by service
providers in our network divided by the total number of jobs that were
submitted. For 2000 our win rate was 9.0%. We intend to continue to increase
our number of jobs and our job win rate by:

o     extending the breadth and depth of our content to create better quality
      jobs;
o     increasing participation by interested, responsive high-quality service
      providers;
o     building a local presence in major markets to work with our service
      providers; and
o     developing tracking systems and procedures to identify wins that are not
      reported to us by either the service provider or the homeowner.


                                       5
<PAGE>

            We have invested heavily in the development of content design
tools and services and have refined our submission process to increase the
quality of the homeowner experience and the quality and number of jobs
submitted. We have also invested in a more highly targeted matching program,
increasing the project-types from 28 broad categories to more than 400
specific project types. Our locally based professional services group
recruits service providers and monitors their interest, participation and
performance.

Expand Existing Commercial Relationships and Create New Ones with Suppliers of
Home Improvement Products and Services and Related Home Services

            We have multi-year commercial contracts with Cendant, General
Electric Appliances, Microsoft, Owens Corning and Wickes. We believe that
these contracts provide these suppliers of home improvement products and
services with the following benefits:

o     highly targeted, cost-efficient advertising to service providers and
      homeowners;
o     an immediate and enhanced Internet presence in the home improvement
      market; and
o     a focused Internet strategy including co-branding relationships and shared
      content.

            In turn, we realize the following benefits from these commercial
relationships:

o     access to supplier's databases and co-branding opportunities;
o     cost-effective acquisition of homeowners;
o     increased number of job submissions, leads and wins;
o     assistance in building stronger relationships with our network of service
      providers; and
o     additional content and tools for our Web sites.

            For businesses selling to remodeling contractors, ImproveNet
provides marketing and loyalty solutions to its contractor network. The
network has approximately 30,000 professionals representing, by our
estimates, approximately $10 billion in annual product purchases. Our
professional services team makes frequent in-person visits to contractors in
the network, and along with electronic communications tools such as pager,
e-mail, ImproveNetPRO.com and faxes, we can deliver a targeted personalized
marketing campaign on behalf of manufacturers, retailers and other service and
product providers. ImproveNet's member professionals benefit from a rebate
provided to them as part of the program.

Create new services for manufacturers, insurance firms, retailers and other
businesses selling to remodeling contractors, that use our service to
increase job submissions at lower costs.

            We intend to expand our commercial relationships with
manufacturers of home improvement product, insurance firms, home improvement
retailers and other businesses. To that end we are developing the capability
for manufacturers to use our network of service professionals to service
warranty claims. Similarly, we are developing the capability for insurance
firms to use of our network of service providers to service insurance remodel
and repair claims. For home improvement product retailers, a retailer makes a
product sale and uses our network of service professionals to install the
product. We believe that these services will result in increased job
submissions at lower costs as these parties utilize our services.

Continue to Build the ImproveNet Brand

            To enhance public awareness of our home improvement services, we
use our reach through more than 370 websites as the ubiquitous "ingredient"
in home improvement. Existing and future multi-year commercial contracts with
recognized home improvement brands provide us with new opportunities to
promote our brand through promotions and co-branding initiatives such as
Powered by ImproveNet. Such contracts with offline and online publishers
enable us to advertise our services. In addition, these contracts provide us
with the opportunity to use the consumer sales and marketing infrastructure,
expertise and consumer information of these organizations which we could not
otherwise access or afford in our normal course of business. We are also
focused on systematically extending relationships with high traffic Web
sites. We believe in focusing our advertising and promotions on homeowners
during the home improvement planning cycle, the time when we believe
homeowners and service providers are most receptive to brand association.

Services and Information

            We offer several services including ImproveNet.com, our matching
services, ImproveNetPro.com, SmartLeads, SmartPRO and Powered by ImproveNet
co-branded services.

ImproveNet.com

            Our consumer Web site, ImproveNet.com, enables homeowners to browse,
free of charge, our 70,000 pages of ideas and information for use in their home
improvement projects and to use our project tools to help them better understand
their home improvement project. Our design gallery on ImproveNet.com features
color images of the work of leading architects and designers. For most designs,
we provide images, comments from both the designer and our editors and a
detailed list of products used in the design. Our product showcase on
ImproveNet.com contains images of a full range of more than 5,000 distinct home
improvement products and includes brands such as Armstrong, DuPont, General
Electric Appliances, Owens Corning, Price-Pfister, Masco's Kraft Maid and
Merrillat.

            During 2000, we introduced 8 estimators, designed to assist
homeowners through the planning and budgeting stage of the home improvement
process. These interactive applications allow homeowners to calculate prices
for a project based on parameters such as physical dimensions, styles and the
homeowner's zip code.

            Homeowners can register as members, which entitles them to access
to additional products and services. As part of the on-site registration
process, we create a customized interface for each registered member, known
as the personal project folder. The personal project folder permanently
stores all information related to that homeowner's project and allows us to
present custom-tailored information to that homeowner. Homeowners can store
ideas they get from our design gallery, product showcase and product
estimator, in addition to their own thoughts, as they plan and design their
home improvement project.

            Our Web site gives homeowners access to a community of fellow Web
site visitors and to service providers and industry professionals who can
respond to home improvement questions. Visitors may read the more than 5,600
discussions currently on our message boards, and registered members may join in
the discussions or post a new question. This feature gives homeowners who are
now in the home improvement


                                       6
<PAGE>

process a friendly environment in which to educate themselves further and to
reduce their anxiety related to home improvement.

            Guiding homeowners through every stage of the home improvement
process is central to our strategy of imparting information and personal
assistance. Our project advisors are available to guide and advise the homeowner
throughout the job. By personalizing both our Web site and our interactive
communications to homeowners, we provide homeowners a user-friendly and highly
productive environment in which to manage their projects. Furthermore, we
believe that this personalization increases the likelihood that homeowners will
return to us for all their home improvement needs.

ImproveNet's Matching Services

            We offer homeowners the opportunity to submit to us a home
improvement job that we match with contractors, architects or designers who want
to bid on the job. We currently match approximately 74% of the jobs submitted
to us with interested service providers. Homeowners who are starting a home
improvement project begin the process by clicking on our homepage links to "Find
a Contractor" or "Find a Designer" and are then asked to complete a detailed
project request form that specifies the type of job the homeowner desires. Based
on the homeowner's project description, the homeowner's job request is then
categorized by size as follows:

o     a large project, greater than $5,000 in value;
o     a small project, between $5,000 and $500 in value; and
o     a micro project, less than $500 in value.

            Once a fully qualified job has been submitted to us, we assign a
project advisor to guide the homeowner through the entire home improvement
process. We also notify the homeowner immediately that we will begin our
search to match their project with potential service providers interested in
bidding on the project. Our proprietary matching service uses the homeowner's
project description to select the ImproveNet service providers in the
homeowner's geographic area who do the type of work required. We deliver job
leads to selected service providers by fax, email or by posting the leads on
ImproveNetPro.com. Currently, we have approximately 30,000 eligible service
providers in our network who have indicated an interest in continuing to
receive qualified job leads from us. The interested service providers who
first contact us get the opportunity to have their name submitted to the
homeowner on the project. We allow up to four service providers to be matched
on a large project, up to two service providers on a small project and one
service provider on a micro project. We then forward the selected names on a
first-come, first-served basis to the homeowner via e-mail, ideally within 48
hours of submission. The service providers who we refer to the homeowner pay
us a fee for the job lead.

            Service providers contact the homeowner directly by telephone to
discuss the job in detail, ideally within 48 hours of our e-mail. Once the
homeowner and service provider have been matched, the service provider is able
to bid on the project at any time after meeting with the homeowner. If a job
does not receive a contact from an interested service provider within
approximately one week of submission, the project advisor works on behalf of the
homeowner to locate available and interested service providers. The project
advisor sends a series of messages to the homeowner that provide project
management advice, offer premium services and market supplier product offerings.
The homeowner is free to contact his or her project advisor as many times as
needed by e-mail or by telephone. Following the completion of the project, we
solicit a quality-assurance survey to determine the outcome of the matching
process and the level of homeowner satisfaction. We invoice service providers
for a win fee based on a pre-determined percentage of the job's value for every
job they win through our matching service.


                                       7
<PAGE>

            We ask our service providers not to charge the win fee in the bid
quote to the homeowner. We currently collect our win fees directly from service
providers once the service provider or the homeowner informs us that the
homeowner has hired a service provider through our matching service.

ImproveNetPro.com

            Our commercial Web site, ImproveNetPro.com, provides new or enhanced
services to our service providers. ImproveNetPro.com allows us to communicate in
near real-time with participating service providers who are online.
ImproveNetPro.com provides our contractors, architects and designers with
immediate access to new job postings. Once a service provider enters the
password-protected section of ImproveNetPro.com, he or she is immediately
presented with the status of new jobs available to the service provider that
match their location, preferences and expertise. We believe that
ImproveNetPro.com will assist us to enhance the loyalty of our contractors,
architects and designers.

SmartLeads and SmartPRO

            In the course of helping homeowners manage home improvement
projects, we obtain timely and specific information from them regarding the
nature of their home improvement projects. With SmartLeads, and SmartPRO we
offer our suppliers of home improvement products the opportunity to send direct
e-mail messages about their products to service providers and homeowners who are
making purchasing decisions during the home improvement process. Currently, our
service providers cannot opt out of the SmartLeads program, while homeowners may
request that they not be included in the SmartLeads program. We charge suppliers
a fee for each message sent. We believe this is a targeted and cost-effective
means for suppliers to reach homeowners and service providers near the time of
purchase.

Powered by ImproveNet and Find a Contractor

            We provide a customized product superimposing ImproveNet.com content
including our matching services on third-party Web sites so that the content
looks like the third party's own content but is Powered by ImproveNet. This
customized product allows our logo and our products and services to be placed
across a broad spectrum of third-party Web sites related to home improvement,
from online versions of traditional media properties to Web sites related to
manufacturing, finance, real estate and local and regional guides. If a customer
of these third parties uses our matching services, we pay the supplier a portion
of any service revenue from that match. We also advertise on third party Web
sites through our Find a Contractor service. We place a "Find a Contractor"
banner or button on third party Web sites that links the user to ImproveNet.com.
We pay these third parties either a flat fee or on a per referral basis. Since
many of the third-party Web sites that use Powered by ImproveNet and Find a
Contractor are related to the home improvement industry, we believe these
programs will deliver more qualified traffic to our Web site. We also believe
that Web sites that are related to the home improvement industry and will
participate in these programs will benefit from the access to our matching
services.

Multi-year Commercial Contracts

            In September 1999, we entered into an agreement with General
Electric Appliances, a division of the General Electric Company. GE purchased
a package of our advertising products and Powered by ImproveNet including a
private label contractor matching service for $3,000,000 over three years. In
addition, we purchased cooperative and co-branded advertising and access to
GE's direct mail infrastructure, for $3,000,000 over three years. Throughout
the term of the agreement, GE has agreed to pay us ten dollars for each
completed sale we refer to GE, not to exceed $2,500,000 over three years. In
connection with this agreement, we issued to GE Appliances and GE Capital
Equity Investments, Inc. warrants to purchase 326,000 shares of Series D
preferred stock at $0.01 per share.

            In October 1999, we entered into an agreement with Owens Corning.
In October 2000, Owens Corning voluntarily filed a petition for
reorganization under Chapter 11 bankruptcy protection. Owens Corning
purchased a package of our advertising products and Powered by ImproveNet
including a private-label contractor matching service for $3,000,000 over the
first three years. In addition, we purchased cooperative and co-branded
advertising for $2,250,000 over the first three years. We pay Owens Corning
for each job Owens Corning refers to us which exceeds $500 in total job
value. As long as Owens Corning owns at least 500,000 shares of our common
stock, we are obligated to nominate one designee of Owens Corning for
election to our board of directors. In connection with this agreement, we
issued Owens Corning warrants to purchase 150,000 shares of our common stock
at $0.01 per share. The term of the agreement is 12 years. Following the
initial three years of the agreement, Owens Corning may terminate the
agreement upon 12 months prior written notice.

            In December 1999, we entered into an agreement with Microsoft. We
purchased a direct link on Microsoft's HomeAdvisor Web site to a co-branded
Web site Powered by ImproveNet. We will pay Microsoft a fee equal to the
greater of 25%-37 1/2% of revenues realized from the operation of the
co-branded Web site or a guaranteed minimum fee of $6,000,000 over three
years. If Microsoft agrees to host our content on the HomeAdvisor Web site,
Microsoft will pay us a minimum of 25% of all gross revenues received by
Microsoft from operation of the Web site. In addition, we have agreed that
Web pages on our site visited by users linked through the HomeAdvisor Web
site will not contain any advertisements, hyperlinks or other content from a
special class of HomeAdvisor competitors. In connection with this agreement,
we issued to Microsoft warrants to purchase 583,333 shares of our common
stock at $13.50 per share and warrants to purchase 100,000 shares of our
common stock at $0.01 per share. The term of this agreement is three years.

            In December 1999, we entered into an agreement with DuPont.
DuPont purchased a package of our advertising products and our Powered by
ImproveNet service. In addition, we purchased cooperative advertising and
access to DuPont's direct mail infrastructure, the fees for which cannot
exceed the fees we collect from DuPont. Pursuant to this agreement, DuPont
agreed to pay us $1,000,000 in year one and we agreed to pay DuPont
$1,000,000 in year one with fees for subsequent years to be negotiated by the
parties. We agreed to pay DuPont a fifteen dollar fee for each direct
referral to ImproveNet.com for jobs that exceed $500 in total value. The
agreement provides for an exclusive arrangement with respect to other
manufacturers of two DuPont product categories. In connection with this
agreement, we issued to DuPont warrants to purchase 35,000 shares of our
common stock at $0.01 per share. The term of this agreement is four years.
Following the initial year, either party may terminate the agreement without
cause upon 90 days prior written notice.

            In December 1999, we entered into an agreement with Move.com, at
that time an affiliate of Cendant Corporation. In February 2001, Cendant sold
Move.com to Homestore.com. We purchased a direct link on Cendant's Move.com
Web site to a co-branded Web site Powered by ImproveNet. We will pay a fee
over three years equal to the greater of a predetermined share of the revenue
realized from the operation of the co-branded Web site or a guaranteed
minimum fee of $6,000,000 over three years. In addition, we have agreed that
Web pages on our site visited by users linked through the Move.com Web site
will not contain advertisements, hyperlinks or other content from a special
class of Move.com competitors. In connection with this agreement, we issued
to Cendant warrants to purchase 259,263 shares of our common stock at $13.50
per share and warrants to purchase 75,000 shares of our common stock at $0.01
per share.

Sales and Marketing

            We believe that building awareness of the ImproveNet brand is an
important component in our effort to be America's home improvement
destination on the Internet. Our primary means of increasing the number of
homeowners who visit ImproveNet.com and building a broad-based awareness of
our brand among homeowners has been through online advertising arrangements.
We have entered into these arrangements, which are generally one year in
length or cancelable with reasonable notice that obligate us to pay either a
fixed monthly fee, or a variable fee based on won jobs with:

o     frequently visited portals, such as AltaVista, America Online,
      Excite@Home, Lycos, Quicken.com, Ask Jeeves and Yahoo!; and

o     Web sites related to home improvements, such as Better Homes and
      Garden, This Old House, and Microsoft HomeAdvisor.

            In addition, we have supplemented our online advertising with
offline advertising in Yellow Pages, print media and national radio and
through customary public relations initiatives.

            Our five largest advertisers in 2000 were Armstrong, Dupont,
General Electric Appliances, Owens Corning and Wickes. No single advertiser
accounted for more than 10% of our total revenues for any period.

Partnership Services Group

            Our partnership services group focuses on creating demand for
ImproveNet services through commercial relationships and traditional
advertising, promotion and public relations. Since August 1999, we have sold
these companies advertising including a continuous presence on our Web sites
for a fixed annual fee. For example, we have entered into multi-year
commercial contracts with the following third parties: Cendant, DuPont,
General Electric Appliances, Microsoft and Owens Corning. As of December 31,
2000, we had 26 professionals in our partnership services group.

Professional Services Group

            Our professional services group consists of professionals
residing in local markets who are responsible for recruiting and retaining
service providers in their local market and for maintaining and building
business relationships with local service providers with a view to enhance
our match and win rates. We believe that a local professional services
presence will allow us to build and maintain a strong network of service
providers in each geographic area. As of December 31, 2000, we had 129 local
professional advisors in our professional services group.


                                       8
<PAGE>

Project Services Group

            Once a fully qualified job has been submitted to us, we assign a
project advisor to guide the homeowner through the entire home improvement
process. Our project advisors are the primary contact with the homeowner from
the time the homeowner logs in to use our matching services through the end of
the entire home improvement process. We believe that this personal interaction
increases the likelihood that homeowners will return to us for all their home
improvement needs. As of December 31, 2000, we had 69 project advisors.

Product Development

            We seek to maintain and advance our market position by continually
enhancing the performance of our Web sites and expanding the features that we
offer homeowners, service providers and suppliers. We expect that enhancements
to our Web sites and services will come from both internally and externally
developed technologies.

            Our new product development ideas are stimulated by input from our
bulletin boards and commercial relationships. Our current development efforts
focus primarily on identifying, designing and building proprietary products,
features and systems to manage the collection and organization of information
for homeowners and our network of service providers and suppliers of home
improvement products. Additionally, our product development group is
responsible for the ongoing activities related to development of content for
our Web sites and the ability of our systems to handle larger numbers of
visitors, more available pages and our Powered by ImproveNet interfaces.
Future delays or unforeseen problems in these development efforts could delay
the introduction of new products, services or features on our Web sites.

Technology Infrastructure

            Our Web sites are designed to provide fast, reliable, high quality
access to our online services. Our hardware and software systems must assimilate
and process large volumes of visitor traffic and store, process and disseminate
large amounts of user data, and process interactive applications.

            We have implemented a broad array of site management, customer
interaction and processing systems using our own proprietary technologies and,
where appropriate, commercially available licensed technologies. Our systems use
Windows NT and are designed for a high level of automation and performance. We
have redundant power supplies, fail-over machines and fully clustered databases
and Web servers to optimize up-time and user experience. We monitor our network
and machines 24 hours a day for reliability. In 2000, 1999, and 1998 we spent
$5.2 million, $665,000 and $504,000 on product development.

            Our Web sites have been developed internally using a Microsoft
platform. In developing our Web sites we use a variety of tools to support
rapid database/Web application development. Our ability to successfully
receive homeowner job submissions online, provide high-quality homeowner
service, and serve a high volume of advertisements largely depends on the
efficient and uninterrupted operation of our computer and communications
hardware systems. Our Web sites and databases are hosted by Qwest
Communications in Sunnyvale, California. All of our computer,
communications systems and database back-ups are located in our
administrative headquarters in Redwood City. We estimate that we are
currently using up to approximately 20% of our Web sites' server capacity.
Visitor traffic to our Web sites varies significantly. Spikes in visitor
traffic and user demand can affect expected performance of our Web sites and
could cause outages. Since we have been keeping logs on our Web sites, we
believe that our ImproveNet.com Web site has been unintentionally interrupted
for periods ranging from two minutes to one hour, except that on one
occasion, some users experienced interruptions in part of our service for a
period of 48 hours. We believe that we have had no interruptions or outages
of our ImproveNetPro.com Web site since its inception in December 1999. The
primary reason for interruptions in service relate to new content
introductions onto our Web sites, such as our visualizer or estimator tools,
which involve a complex code base. Implementation of increased security
measures, such as additional firewalls, has caused interruptions in our
Internet-based services. We have implemented around-the-clock security,
installed monitoring equipment and hired additional personnel to minimize and
diagnose service problems.

                                       9
<PAGE>

Competition

            We believe that the critical competitive factors in the online home
improvement industry include:

      o     the number of visitors to the Web sites, the number of home
            improvement jobs submitted by those visitors, the time spent by
            those visitors at those Web sites and the resultant loyalty created
            among those visitors, the degree to which Web site content and
            loyalty create allegiance to the service provider referral service
            at the Web site, and, ultimately, the ability to generate repeat
            customers;
      o     the ability to recruit and retain a network of quality service
            providers that have broad trade and geographical coverage so that a
            large number of jobs can be matched with service providers;
      o     the ability to maintain loyalty of service providers and capture
            their capacity for jobs; and
      o     the ability to generate significant traffic from online homeowners
            and qualify their projects so that they can be efficiently handled
            by service providers and so that suppliers can effectively market to
            them.

            We believe that our ability to compete depends on many different
factors, both within and outside our control, including:

      o     the geographical coverage and completeness of our network of service
            providers and the performance of the service providers referred from
            that network;
      o     the strength of our commercial relationships with suppliers of home
            improvement products and services and their interest in entering
            similar relationships with our competitors;
      o     the quality of our Web site content and the tools offered to both
            homeowners and service providers; and
      o     the effectiveness of our marketing strategy and its impact on the
            number of high quality home improvement projects we are able to
            generate from visits to our Web site and through other means.

            Our current competitors include:

      o     Local, primarily phone-based, contractor referral businesses. These
            are generally small operations that take phone requests from
            homeowners that they attract through Yellow Page advertising or
            direct marketing initiatives and that refer projects to contractors
            with whom they often have a personal relationship.
      o     Online referral companies. Some of our competitors such as
            ServiceMagic.com, iMandi, repairnet and OurHouse.com offer a
            publicly accessible online database and other companies such as
            Handyman Online, BidExpress, and Contractor.com have matching
            services but do not have national coverage. Remodel.com, by
            Homestore.com, also offers a matching service.
      o     Suppliers of home improvement products. We expect the number of our
            competitors to increase in the future. For example, retailers of
            home improvement products such as The Home Depot, Lowe's and Sears
            Roebuck & Co. have developed or added home improvement
            competitive features to their Web sites.

            In addition, parties with which we have commercial relationships and
other suppliers of home improvement products could choose to develop their own
Internet strategies or competing home improvement Web sites. Many of our
existing and potential competitors have longer operating histories, greater name
recognition, larger homeowner bases and significantly greater financial,
technical and marketing resources than we do. We believe that we and any
competitor seeking to establish home improvement services on the Internet
confront significant challenges, including the need to:

      o     cost-effectively build a comprehensive network of service providers;
      o     possess an effective process for handling a large volume of
            homeowner requests and delivering a high level of customer service;
      o     develop and offer project modeling tools;
      o     develop a communication channel between homeowners and service
            providers; and
      o     develop relationships or alliances with suppliers of home
            improvement products and services that have strong brand names and
            databases of service providers.


                                       10
<PAGE>

Government Regulation

            Our business is subject to rapidly changing laws and regulations.
Although our operations are currently based in California, the United States
of America government and the governments of other states and foreign
countries have attempted to regulate activities on the Internet. The
following are some of the evolving areas of law that are relevant to our
business:

      o     Privacy Law. Current and proposed federal, state and foreign privacy
            regulations and other laws restricting the collection, use and
            disclosure of personal information could limit our ability to
            leverage our databases to generate revenues; and
      o     Building Requirements. The activities of our service providers are
            subject to various federal, state and local laws, regulations and
            ordinances relating to, among other things, the licensing of home
            improvement contractors, OSHA standards, building and zoning
            regulations and environmental laws and regulations relating to the
            disposal of demolition debris and other solid wastes. In addition,
            many jurisdictions require the service provider to obtain a building
            permit for each home improvement project.

            Because of this rapidly evolving and uncertain regulatory
environment, we cannot predict how these laws and regulations might affect our
business. In addition, these uncertainties make it difficult to ensure
compliance with the laws and regulations governing the Internet. These laws and
regulations could harm us by subjecting us to liability or forcing us to change
how we do business.

Intellectual Property Rights

            Our success is dependent upon our ability to develop and protect our
proprietary technology and intellectual proprietary rights, including our
databases of homeowners and service providers and our matching criteria and
algorithms. We rely primarily on a combination of contractual provisions,
confidentiality procedures, trade secrets, and copyright and trademark laws to
accomplish these goals. Our databases are trade secrets, and our matching
service is protected by trade secret and copyright laws.

            In addition, we seek to avoid disclosure of our trade secrets by
requiring employees, customers and others with access to our proprietary
information to execute confidentiality agreements. We also seek to protect our
software, documentation and other written materials under trade secret and
copyright laws.

            Despite our efforts to protect our proprietary rights, existing laws
afford only limited protection. Attempts may be made to copy or reverse engineer
aspects of our services or to obtain and use information that we regard as
proprietary. Accordingly, there can be no assurance that we will be able to
protect our proprietary rights against unauthorized third-party copying or use.
Use by others of our proprietary rights could materially harm our business.
Furthermore, policing the authorized use of our product is difficult and
expensive litigation may be necessary in the future to enforce our intellectual
property rights.

            In the ordinary course of business, we have received, and may
receive in the future, notices from third parties claiming infringement of
their proprietary rights. Any claims, with or without merit, could be
time-consuming, result in costly litigation, cause delays or require us to
enter into royalty or licensing agreements, any of which could harm our
business. Patent litigation in particular has complex technical issues and
inherent uncertainties. In the event an infringement claim against us were
successful and we could not obtain a license on acceptable terms, license a
substitute technology or redesign to avoid infringement, our business would
be harmed.

Employees

            As of December 31, 2000, we employed 264 full-time persons. None
of our employees are represented by a labor union. In July 2000 we had a
reduction in force, reducing our staff by approximately 22. In March 2001, we
had a reduction in force, reducing our staff by approximately 60. We have
experienced no work stoppages and believe that our employee relations are
good.

                                       11

<PAGE>

Item 2. Properties

            Our principal administrative offices and systems
operations are located in Redwood City, California in approximately 16,000
square feet of office space under a lease that expires in 2006. We also lease
approximately 5,000 square feet of office space in Redwood City, California
under a lease that expires in 2002. We operate our project services
activities out of approximately 8,000 square feet of office space in Ft.
Lauderdale, Florida under a lease that expires in 2004 and out of
approximately 13,000 square feet of office space in Camarillo, California
under a lease that expires in 2005. In addition, we also lease
office facilities in various other locations in the United States,
each approximating less than 5,000 square feet of space.

            We believe that our facilities are adequate for our current
operations and that additional office space, if required, can be readily
obtained. See Note 5 of the Notes to the Consolidated Financial Statements
for information regarding the Company's lease obligations.

Item 3. Legal Proceedings

            From time to time, we may be involved in litigation relating to
claims arising out of our operations. As of the date of this filing, we are
not engaged in any material legal proceedings.

Item 4. Submission of Matters to a Vote of Security Holders

            No matters were submitted to a vote of security holders during the
fourth quarter of our fiscal year ended December 31, 2000.


                                       12

<PAGE>

                                     PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

            Our Common Stock is traded on The Nasdaq National Market under
the symbol "IMPV" since March 16, 2000. The following table sets forth the
high and low sales prices of the Company's Common Stock for the periods
indicated as reported on The Nasdaq National Market:

--------------------------------------------------------------------------------
                                               High Sale Price    Low Sale Price
                                               ---------------    --------------
--------------------------------------------------------------------------------
Year Ended December 31, 2000
--------------------------------------------------------------------------------
  First Quarter (from March 16, 2000)              $20.0000          $ 6.0000
--------------------------------------------------------------------------------
  Second Quarter                                   $11.0000          $ 2.5000
--------------------------------------------------------------------------------
  Third Quarter                                    $ 3.0625          $ 1.3125
--------------------------------------------------------------------------------
  Fourth Quarter                                   $ 2.2188          $ 0.1875
--------------------------------------------------------------------------------

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


                                       13
<PAGE>

         As of December 31, 2000, we had approximately 202 stockholders
of record.

         We have never paid any cash dividends on our stock, and we
anticipate that we will continue to retain any future earnings, if any, for
use in the operation and expansion of our business and do not anticipate
paying any cash dividends in the foreseeable future.

         There has been no change to the disclosure contained in our report
on Form 10-Q for the nine month period ended September 30, 2000 regarding the
use of proceeds generated by our initial public offering.

Item 6.  Selected Consolidated Financial Data

         The following selected financial information has been derived from the
audited consolidated financial statements. The information set forth below is
not necessarily indicative of results of future operations, and should be read
in conjunction with Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
and related notes thereto included in Item 8 of this Form 10-K in order to fully
understand factors that may affect the comparability of the information
presented below.

<TABLE>
<CAPTION>
===================================================================================================================
(In thousands, except per share                                       Year Ended December 31,
amounts)                                                              -----------------------
-------------------------------------------------------------------------------------------------------------------
                                                    2000          1999          1998          1997          1996
                                                    ----          ----          ----          ----          ----
<S>                                               <C>           <C>           <C>           <C>           <C>
Consolidated Statements of Operations Data:
Total revenues .................................  $  7,454      $  2,065      $    258      $     60      $      2
Operating loss .................................  $(60,347)     $(36,768)     $ (4,199)     $ (1,239)     $   (360)
Net loss attributable to common stockholders ...  $(57,784)     $(36,490)     $ (4,832)     $ (1,328)     $   (359)
Basic and diluted net loss per common share ....  $  (3.65)     $ (23.85)     $  (3.49)     $  (1.08)     $  (0.73)
Weighted Average Shares used in calculating
  basic and diluted net loss per common share ..    15,844         1,530         1,383         1,228           493

===================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
===================================================================================================================
(In thousands)                                                              As of December 31,
                                                                            ------------------
-------------------------------------------------------------------------------------------------------------------
                                                           2000        1999        1998         1997         1996
                                                           ----        ----        ----         ----         ----
<S>                                                      <C>         <C>         <C>          <C>          <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents                                $31,565     $45,291     $ 1,676      $   345      $    20
Working capital (deficit)                                $29,148     $39,891     $   697      $   (79)     $   (11)
Total assets                                             $41,716     $51,542     $ 2,144      $   472      $    71
Long-term liabilities                                    $    99     $   116     $ 6,843      $ 1,252      $    --
Total stockholders' equity (deficit)                     $34,602     $43,862     $(5,714)     $(1,210)     $    40

===================================================================================================================
</TABLE>

                                       14

<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

            The following discussion and analysis should be read with
"Selected Consolidated Financial Data" and our consolidated financial
statements and notes included elsewhere in this Annual Report on Form 10-K.
The discussion in this Annual Report on Form 10-K contains forward-looking
statements that involve risks and uncertainties, such as statements of our
plans, objectives, expectations and intentions. The cautionary statements
made in this Annual Report on Form 10-K should be read as applying to all
related forward-looking statements wherever they appear in this Annual Report
on Form 10-K. Our actual results could differ materially from those discussed
here. Factors that could cause or contribute to these differences include
those discussed in "Business Risks" below as well as those discussed
elsewhere.

OVERVIEW

            Our business started in January 1996 as a regional contractor
matching service, and we spent most of 1996 and 1997 building our service
provider database, developing new services and technology, recruiting personnel
and raising capital. We launched our Web site and homeowner/service provider
matching service on a national scale in August 1997. In December 1998, we began
selling Web site advertising, including SmartLeads services, a way for suppliers
of home improvement products to send targeted messages about their products,
including product promotions, to homeowners at the time of purchase, as well as
to our network of service providers. In March 1999, we began to hire our new
senior management team, including our chief executive officer. In April 1999, we
introduced Powered by ImproveNet, a service that allows third parties to offer
the ImproveNet matching services and content on their Web sites, for national
suppliers of home improvement and repair products. We completed the acquisition
of two regional contractor referral companies, Contractor Referral Service, LLC
and The J.L. Price Corporation, in September and November 1999, these
entities were integrated into our operations during the course of calendar
year 2000. In November 1999, we launched our customized Web site, www.
ImproveNetPro.com, for our network of service providers. From January through
June 2000 we spent substantial amounts primarily on marketing and other
marketing related activities, as well as the development and expansion of our
service and operations infrastructure. In July 2000 we had a reduction in
force, reducing our staff by approximately 7%. During the final two quarters
of the year 2000 our operating expenses (including cost of revenues) declined
by 22% in the third quarter and another 16% in the fourth quarter.

            We generate substantially all of our revenues from service provider
referral services, marketing partnership packages and advertisements placed on
our Web site. We generate service revenues primarily in the form of lead fees
and win fees from our service providers and, to a much lesser extent, other fees
for the enrollment of service providers and premium service fees from
homeowners. We generate marketing revenues from the sale of banner, button and
other advertising on our Web sites, and from the sale to suppliers of SmartLeads
generated from the traffic of homeowners visiting our Web sites and from the
sale of Find-A-Contractor or Powered by ImproveNet products in commercial
agreements. Our marketing revenues generally come from suppliers of home
improvement products.

            Commencing in September 1999, we entered into multi-year commercial
contracts, some of which are with related parties. These commercial contracts
generally provide for a fixed annual fee, an advertising or branding package
that includes a mix of buttons, banners, SmartLeads and other marketing or
branding services, including Find-A-Contractor or Powered by ImproveNet, plus a
continuous presence on our Web sites.


                                       15
<PAGE>

RESULTS OF OPERATIONS

Calendar Years ended December 31, 2000, 1999 and 1998

REVENUES

            Our revenues increased from $258,000 to $2.1 million in the years
ended December 31, 1998 and 1999, and further increased to $7.5 million in
the year ended December 31, 2000. The increases from 1998 to 1999 were
achieved by increased visitors to the ImproveNet site and the continued
building of a network of service providers. The increases from 1999 to 2000
were achieved by increased visitors to the ImproveNet site, the continued
building of a network of service providers and the introduction of commercial
contracts in September 1999.

            The following table and discussion highlights our revenues for the
years ended December 31, 2000, 1999, and 1998 (In thousands):

<TABLE>
<CAPTION>
===============================================================================================
                               Year ended                   Year ended            Year ended
                           December 31, 2000            December 31, 1999     December 31, 1998
-----------------------------------------------------------------------------------------------
                                       % Change                     % Change
                                       --------                     --------
<S>                      <C>           <C>            <C>           <C>            <C>
Revenues:
Service Revenue          $4,697           312%        $1,139           379%        $  238
Marketing Revenue         2,757           198%           926          4530%            20
                         ------        --------       ------        --------       ------
Total Revenue            $7,454           261%        $2,065           700%        $  258
===============================================================================================
</TABLE>

            Service Revenues

            Service revenues increased from $238,000 to $1.1 million in the
years ended December 31, 1998 and 1999, and further increased to $4.7 million
in the year ended December 31, 2000. From inception through October 1999, we
charged to our service providers lead fees ranging from $6 to $10 per lead.
In November 1999, we standardized our lead fees at $10 per lead for all jobs.
The win fees that we charge to our service providers depend on project size
and range from 2% to 10% of the estimated cost of the job, up to a maximum of
$995 per job. Effective March 22, 2001, the win fees we charge our service
providers depend on project size and range from 1% to 10% of the estimated
cost of the job, without a maximum per job. Other fees include an enrollment
fee of $90 that we charge each new service provider who passes our quality
screens to join our national network; however, we often discount or waive
this fee.

            Lead fee revenues are recognized at the time the service providers
and the homeowner are first matched, while win fee revenues are recognized at
the time the service provider or the homeowner notifies us that a job has been
sold. For both lead fees and win fees, the recognition of revenues coincides
with the service providers' obligation to pay us. The following table details
the components of service revenues, based on a percentage of service revenues:

                                      ------------------------------------------
                                       Year ended      Year ended    Year ended
                                      December 31,    December 31,  December 31,
                                          2000            1999          1998
                                      ------------    ------------  ------------
                                           %               %             %
                                          ---             ---           ---
Lead Fees                                  26              32            31
Win Fees                                   60              63            65
Other Fees                                 14               5             4
                                          ---             ---           ---
Total Service Revenues                    100             100           100
                                          ===             ===           ===


                                       16
<PAGE>

            The revenues we generate from lead and win fees are largely a
function of:

-     the number of job submissions;
-     the effectiveness in finding a service provider or match for each job
      submission;
-     the success of the service provider to win a job; and
-     the amount we charge the service provider for a lead or a win.

The following table provides information on some of our key business metrics
(numbers in thousands):

                                       -----------------------------------------
                                        Year ended    Year ended     Year ended
                                       December 31,  December 31,   December 31,
                                           2000          1999           1998
                                       ------------  ------------   ------------

Job submissions                            136.9         104.5          33.5
Matched jobs                               101.0          38.3           9.4
Won jobs                                    12.4           3.3           0.5
                                           ------        ------        ------
Matched jobs as a % of job submissions        74%           37%           28%
                                           ------        ------        ------
Won jobs as a % of job submissions             9%            3%            2%
                                           ======        ======        ======

            Revenues from new service provider enrollment fees are recognized as
revenue ratably over the expected period they participate in our contractor
matching service, which is initially estimated to be one year. Revenues from
premium service fees to homeowners are recognized at the time the service is
provided.

            Marketing Revenues

            Marketing revenues increased from $20,000 to $926,000 in the
years ended December 31, 1998 and 1999, and further increased to $2.8 million
in the year ended December 31, 2000. We generate marketing revenues from the
sale of banner, button and other advertising on our Web sites, and from the
sale to suppliers of SmartLeads generated from the traffic of homeowners
visiting our Web sites and from the sale of Find-A-Contractor or Powered by
ImproveNet products in commercial agreement products and services. Our
marketing revenues generally come from suppliers of home improvement products.

            Revenues from banner, button and other branding are largely a
function of:

-     the number of Web pages that we serve;
-     the percentage of those pages on which we are able to sell advertisements;
      and
-     the amount we charge per advertisement.

            Advertisers pay us to display their banner, button and other
advertisements on the Web pages we serve when a user is visiting our Web sites.
Our marketing revenues historically have been derived from short-term
advertising contracts based on either a guaranteed minimum number of impressions
or a fixed fee per thousand impressions. We anticipate that these advertising
revenues will remain flat or decline during 2000 as advertisers demand better
monetary terms for the same number of impressions or more impressions for the
same dollar amounts.

            Cash Advertising

            Cash advertising revenues generally are derived from short-term
advertising contracts in which we typically guarantee that a minimum number
of impressions will be delivered to our Web site visitors over a specified
period of time for a fixed fee. Cash advertising revenues from banner, button
and other Web site advertisements are recognized at the lesser of the amount
recorded ratably over the period in which the advertising is delivered or the
percentage of guaranteed impressions delivered.


                                       17
<PAGE>

SmartLeads are also paid for in cash and revenues are recognized when the
SmartLeads have been delivered to the customer. Cash advertising is
recognized when we have delivered the advertising, evidence of an agreement
is in place and fees are fixed, determinable and collectible. Cash
advertising totaled $11,000, $746,000 and $877,000 for the years ended 1998,
1999 and 2000.

            Barter Advertising

            Barter advertising comes from two distinct contractual sources:
short-term barter advertising similar in nature to our cash advertising
contracts and multi-year commercial contracts. Barter advertising is
recognized in accordance with EITF No. 99-17, "Accounting for Advertising
Barter Transactions", which we adopted in 1999. Under EITF No. 99-17, we
record advertising transactions at fair value only when we have an
established historical practice of selling similar advertising for cash. The
characteristics of the advertising that must be similar include the duration
of the display of the advertising, the prominence and positioning of the
advertising, the intended audience, the timing of the advertising and its
circulation.

            Short-Term Barter Advertising

            Short-term barter advertising results from the exchange of
advertising space on our Web site for reciprocal advertising space on Web
sites of third parties. Marketing revenues and sales and branding expenses
arising from these transactions are recorded at fair value as we have an
established historical practice of receiving cash for similar short-term
advertising. Short-term barter advertising totaled $180,000 for 1999. We did
not engage in any short-term barter advertising during 1998 or 2000.

            Multi-year Commercial Contracts

            Commencing September 1999, we entered into multi-year commercial
contracts, some of which are with related parties. These commercial contracts
generally provide for a fixed annual fee, an advertising or branding package
that includes a mix of buttons, banners, SmartLeads and other marketing or
branding services, including Find-A-Contractor or Powered by ImproveNet, plus
a continuous presence, on our Web sites. These commercial contracts are for
periods ranging between 2 and 12 years, including renewal options. These
commercial contracts also include cooperative marketing arrangements under
which we are obligated to fund co-operative branding expenditures on
television and in the print media, with or on behalf of the commercial party.
Most commercial contracts provide for us to spend 50% to 100% of the fees
that we expect to receive. In return, we expect to receive significant
marketing and branding benefits including better advertising rates, stronger
brand recognition, and access to customer databases, direct mail inserts and
marketing resources - all designed to generate more traffic to sites and jobs
to proprietary matching services.

            We do not have an established historical practice of selling
advertising for cash for similar multi-year commercial contracts, we have not
assigned any value to the exchange of services or barter element of these
transactions and accordingly, we have not recorded either revenue or sales and
branding expense for the barter element. However, some of these multi-year
commercial contracts do generate an overall net cash component, and in these
cases we have recorded revenue based on the cash received or receivable under
the contract, net of the obligation, if any, to reimburse the commercial party
for the cooperative branding and other marketing services. These revenues are
recognized over the term of the commercial contract once advertising and other
services have been delivered to the commercial party and collection of the
resulting net receivable is deemed probable. Multi-year commercial contracts
totaled $1.88 million, net of warrant charges, in 2000.

         Furthermore, in connection with certain of these multi-year commercial
contracts, we issued warrants to purchase shares of our common stock to the
commercial parties. These warrants have been valued by us using the Black
Scholes option pricing model. As the fair value of these warrants represent an
additional rebate on the revenue otherwise recorded under the contracts, the
amortization of the warrants is further netted against this revenue over the
term of the respective commercial contract. To the extent that there is
insufficient revenues, the remaining amortization of warrant stock-based
compensation is expensed and characterized as sales and branding expense.

         Total revenues may be analyzed as follows (in thousands):

<TABLE>
<CAPTION>

                                       Year Ended December 31
                                  2000          1999         1998
                                 ---------------------------------
<S>                              <C>            <C>          <C>
Service revenues                 $4,696        $1,139        $258

Marketing revenues                5,303         1,399          20
                                 ------        ------        ----
                                  9,999         2,538         258
Amounts invoiced
and accrued under
multi-year commercial
contracts with related parties   (2,209)         (408)          -

Amortization of
warrant stock-based
compensation                       (336)          (65)          -
                                 ------        ------        ----
Total revenues                   $7,454        $2,065        $258
                                 ------        ------        ----

</TABLE>


                                       18
<PAGE>

OPERATING EXPENSES

Cost of Revenues

            Our cost of revenues increased from $816,000 to $2.6 million in
the years ended December 31, 1998 and 1999, and further increased to $5.6
million in the year ended December 31, 2000.

            Cost of revenues consists of payroll and related costs and
occupancy, telecommunications and other administrative costs for our project
service group, which is responsible for all phases of our proprietary
matching services and includes our project advisors. In addition, cost of
revenues includes an allocation of direct Web site operations costs,
consisting of payroll and related costs, data transmission costs and
equipment depreciation. We anticipate that our cost of revenues will remain
constant or decline during 2001, as compared to year 2000 as we plan to
leverage our existing infrastructure.

            Cost of Service Revenues

            Our cost of service revenues increased from $767,000 to $2.0
million in the years ended December 31, 1998 and 1999, and further increased
to $5.2 million in the year ended December 31, 2000.

            The increase in cost of service revenues is largely attributable
to our investment in the expansion and staffing of our project services
infrastructure to support volume increases in traffic and jobs to our site.
The increase in cost of service revenues included payroll and related costs
such as recruiting. In addition, the increase in cost of service revenues
included facilities and office expenses related to the full build-out,
started in the first quarter of 2000 and completed in July 2000, of our
second support center located in Camarillo, California.

            Cost of Marketing Revenues

            Our cost of marketing revenues increased from $49,000 to $567,000 in
the years ended December 31, 1998 and 1999, and declined to $400,000 in the year
ended December 31, 2000.

            Cost of marketing revenue includes an allocation of direct Web site
operations costs, consisting of payroll and related costs, data transmission
costs and equipment depreciation. The increase in cost of advertising revenue in
1999 was primarily attributable to the growth in staffing, services and
equipment required to maintain the Web site operations. The decline in 2000
related to a reduction in the staffing required for our Web site operations.

            Sales and Marketing

            Our sales and marketing expense increased from $1.7 million to
$25.8 million in the years ended December 31, 1998 and 1999, and further
increased to $40.5 million in the year ended December 31, 2000.

            Our sales and marketing expense includes all of our online and
offline direct marketing and advertising, public relations and trade show
expenses. Sales and branding expenses also include payroll and related costs,
support staff expenses, travel costs and other general expenses of our
marketing, professional services and partnership services departments.

            The increase in sales and marketing revenues in 1999 and 2000 was
primarily attributable to the growth in online and offline brand advertising,
the staffing of our professional services infrastructure and the staffing of our
partnership services group.

            At the end of June 2000, we redirected our sales and marketing
resources by executing more projects internally and negotiating or
transitioning new or existing agreements from a high fixed cost formula to a
variable performance-based formula keyed to won jobs. We significantly
decreased sales and

                                       19
<PAGE>

marketing expenses in the fourth quarter of 2000 and fully anticipate that these
expenses will decline during 2001, as compared to year 2000 as we plan to
leverage our existing infrastructure and to continue the process of negotiating
or transitioning agreements from a high fixed cost formula to a variable
performance-based formula keyed to won jobs.

Product Development

            Our product development expenses increased from $504,000 to
$665,000 in the years ended December 31, 1998 and 1999 and further increased
to $5.2 million in the year ended December 31, 2000.

            Our product development costs include the payroll and related costs
of our editorial and technology staff, fees for contract content providers, and
other costs of Web site design and new technologies required to enhance the
performance of our Web sites.

            The increases in product development expenses were primarily
attributable to increased payroll and related costs, recruiting and contract
content providers. The increases were incurred in order to expand our
infrastructure of engineers and editorial staff to design, test and implement
expanded content, including management of content, and tools, for example,
estimators, visualizers, calculators, as well as the development of new
products and services. A major portion of product development costs for the
first half of 2000 was almost entirely attributable to a major new product
and service that has been terminated. We expect a decline in our product
development expenses during 2001, as compared to year 2000 as we have
completed most of the major development efforts that we had planned.

General and Administrative

            Our general and administrative expenses increased from $1.1
million to $4.2 million in the years ended December 31, 1998 and 1999, and
further increased to $9.1 million in the year ended December 31, 2000.

            Our general and administrative expenses include payroll and related
costs and travel, recruiting, professional and advisory services and other
general expenses for our executive, finance and human resource departments.

            The increases in general and administrative expenses are
primarily attributable to salary and related expenses and our aggressive
recruiting initiatives through the end of June 2000 for additional personnel
hired to support the growth of our businesses, as well as the development of
an infrastructure necessary to support the activity of a publicly traded
company. We also made an allowance of $1.3 million against notes receivable
from our Chairman and Chief Executive Officer which was included as a charge
in general and administrative expenses during the last quarter of fiscal
2000. We expect that in future periods we will not be recruiting at our
historical rate as we have completed our base level of departmental staffing.
We expect a decline in our general and administrative expenses during 2001,
as compared to year 2000 as these expenses are correlated with the reductions
in all of our other expense categories.

Stock-based Compensation

            Our stock-based compensation expenses increased from $326,000 to
$5.6 million in the years ended December 31, 1998 and 1999, and further
increased to $7.4 million in the year ended December 31, 2000.

             In connection with certain employee and non-employee stock option
grants during 1998 and 1999, the Company recorded unearned stock-based
compensation totaling $13,835,000, which is being amortized over the vesting
periods of the related options, generally four years using the method set out
in FASB Interpretation No. 28 ("FIN 28"). Under the FIN 28 method, each
vested tranche of options is accounted for as a separate option grant awarded
for past services. Accordingly, the compensation expense is recognized over
the period during which the services have been provided. This method results
in higher compensation expense in the earlier vesting periods of the related
options. Stock based compensation charges associated with employees who
terminate their employment with the Company and have unvested options are
reversed.


                                       20
<PAGE>

Interest Income

            Our interest income increased from $84,000 to $517,000 in the
years ended December 31, 1998 and 1999, and further increased to $2.6 million
in the year ended December 31, 2000.

            The increase in interest income is attributable to an increase in
our average invested cash balance as a result of the sale of our preferred
stock in March 1999, September 1999 and December 1999, as well as to the net
proceeds received from our initial public offering in March 2000. We expect a
decline in our interest income during 2001, as compared to 2000 as this
income directly correlates with a decline in our cash and cash equivalents
during the year 2001.


                                       21
<PAGE>

Quarterly Results of Operations

The following table presents our operating results for each of the eight
quarters in the period ending December 31, 2000. The information for each of
these quarters is unaudited and has been prepared on the same basis as the
audited financial statements. In the opinion of management, all necessary
adjustments (consisting only of normal recurring adjustments) have been
included to present fairly the unaudited quarterly results when read in
conjunction with our audited consolidated financial statements and the notes
thereto appearing elsewhere in this Annual Report on Form 10-K. These
operating results are not necessarily indicative of the results of any future
period.

      (Unaudited, in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                    For the Quarters Ended
                               =====================================================================================================
                                Q4 2000     Q3 2000     Q2 2000       Q1 2000    Q4 1999       Q3 1999        Q2 1999      Q1 1999
                               =====================================================================================================
<S>                            <C>         <C>         <C>           <C>         <C>           <C>           <C>           <C>
REVENUES
  Service revenues             $  1,364    $  1,277    $  1,273      $    782    $    420      $    312      $    251      $    156
  Marketing revenues                724         778         746           510         360           268           175           123
                               ----------------------------------------------------------------------------------------------------
    Total revenues                2,088       2,055       2,019         1,292         780           580           426           279
COST OF
REVENUES
  Cost of service
  revenues                        1,487       1,409       1,309         1,007         893           638           261            192
  Cost of marketing
  revenues                          118         107         128            47         260           158            88            61
    Total cost of
    revenues                      1,605       1,516       1,437         1,054       1,153           796           349           253
                               ----------------------------------------------------------------------------------------------------
Gross profit (loss)                 483         539         582           238        (373)         (216)           77            26
OPERATING
EXPENSES
  Sales and marketing             7,757       9,759      12,496        10,464      11,421         8,870         3,748         1,745
  Product development             1,058       1,004       1,904         1,240         248           151           120           146
  General and
  administrative                  2,526       2,240       2,788         1,584       2,723           719           475           297
  Stock-based
  compensation                    1,630       1,278       1,750         2,711       2,784         1,460           909           466
                               -----------------------------------------------------------------------------------------------------
    Total operating
    expenses                     12,971      14,281      18,938        15,999      17,176        11,200         5,252         2,654
                               -----------------------------------------------------------------------------------------------------
Operating loss                  (12,488)    (13,742)    (18,356)      (15,761)    (17,549)      (11,416)       (5,175)       (2,628)
Interest income                     521         817         830           395         193           138           184             2
                               -----------------------------------------------------------------------------------------------------
Net loss                        (11,967)    (12,925)    (17,526)      (15,366)    (17,356)      (11,278)       (4,991)       (2,626)
Accretion of convertible
preferred stock                      --          --          --          --            --            --            --          (239)
                               -----------------------------------------------------------------------------------------------------
Net loss attributable
to common
stockholders                   $(11,967)   $(12,925)   $(17,526)     $(15,366)   $(17,356)     $(11,278)     $ (4,991)     $ (2,865)
Basic and diluted net
loss per common share          $  (0.72)   $  (0.79)   $  (1.08)     $  (3.42)   $ (10.46)     $  (7.12)     $  (3.40)     $  (2.04)
Shares used in
calculating basic and
diluted net loss per
common share                     16,618      16,446      16,284         4,491       1,659         1,585         1,467         1,406

</TABLE>


                                       22
<PAGE>

Liquidity and Capital Resources

            Cash and cash equivalents totaled $31.6 million at December 31,
2000, a decrease of $13.7 million from $45.3 million at December 31, 1999.
Most of the decrease came from the $49.3 million cash used in operations, the
$4.7 million net cash used in investing activities, including purchases of
property and equipment, offset by the $40.2 million net cash provided by
financing activities, primarily the proceeds from the March 2000 initial
public offering.

            Since our inception, we have primarily financed our operations
through private sales of our convertible preferred stock and common stock. In
March 2000, we closed our initial public offering that generated net cash
proceeds of approximately $39.7 million. Our primary capital needs have been to
fund our operating losses; the prepayment of our large media purchases and to
make capital expenditures.

            Net cash used in operating activities was $25.9 million in 1999
and $49.3 million in 2000. Net cash used in operating activities resulted
primarily from our net loss before non-cash charges for amortization of
stock-based compensation, depreciation, amortization, allowances for doubtful
accounts and notes receivable from related party written off, offset by
increases in accounts receivable and prepaid expenses and in 1999 also by the
benefits received from changes in accounts payable balances. Net cash used in
operating activities in 1998 was $3.2 million which represented the net loss
for the period.

            Net cash used in investing activities was $273,000 in 1998, $3.5
million in 1999 and $4.7 million in 2000. Net cash used in investing
activities was a result of an increase in the purchase of property and
equipment related to new leased facilities, increased personnel and hardware
to support, monitor and control increased traffic and jobs. In addition, we
provided loans collateralized by our common stock to the Chief Executive
Officer, in the amounts of $500,000 and $1.0 million in 1999 and 2000.

            Net cash provided by financing activities was $4.8 million in
1998, $73.0 million in 1999 and $40.3 million in 2000. Net cash provided by
financing activities was primarily due to the net proceeds from the issuance
of convertible preferred stock in 1998, 1999 and the net proceeds from our
initial public offering in 2000.

            Our capital requirements depend on numerous factors, including
the success of our strategies for generating revenues and the amount of
resources we devote to operating activities, including sales, marketing and
brand promotion and investments in our technology. Our expenditures have
substantially increased since inception as our operations and staff have
grown. Based on the realignment of our resources, we expect a decrease in
most of our operating expenses categories detailed above for the year 2001 as
compared to year 2000. Additionally, we expect our capital expenditures for
2001 to decrease significantly. We do expect to experience ongoing operating
losses for the foreseeable future. We currently anticipate that our operating
expenses, primarily sales and branding expenditures, and payroll and related
costs will constitute a material use of our current cash resources. Based on
the restructuring of our resources that occurred in March 2001 we expect a
decrease in most of our operating expense categories detailed above during
2001 as compared to 2000.

            Our limited operating history and operating losses have limited our
ability to obtain vendor credit or extended payment terms and bank financing on
favorable terms; accordingly, we depend on our cash and cash equivalent balances
to fund our operations.

            We currently believe that our available cash resources will be
sufficient to meet our anticipated needs for operations and capital
expenditures for at least the next 12 months. We will strive to make ongoing
realignments, as required, to achieve positive cash flow with our existing
cash resources. We are currently restructuring our operations and we have
reduced our headcount during the year and also subsequent to the year end
with cumulative savings of approximately 32%. We are additionally decreasing
our marketing expenditures to assist us in maintaining our available cash
resources. We may need to raise additional funds, however, in order to fund
more rapid expansion, to develop new or enhance existing services, to respond
to competitive pressures or to acquire complementary businesses, services or
technologies. If we raise additional funds by selling equity securities, the
percentage ownership of our stockholders will be reduced. We cannot be sure
that additional financing will be available on terms favorable to us, or at
all. If adequate funds are not available on acceptable terms, our ability to
fund expansion, react to competitive pressures, or take advantage of
unanticipated opportunities would be substantially limited. If this occurred,
our business would be significantly harmed. We will continue to evaluate our
needs for funds based on our assessment of access to public or private
capital markets and the


                                       23
<PAGE>

timing of our need for funds. Although we have no present intention to conduct
additional public equity offerings, we may seek to raise these additional funds
through private or public debt or equity financings.

RISK FACTORS THAY MAY AFFECT OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION

This document contains certain forward-looking statements. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "anticipates',
"believes", "continue", "could", "estimates", "expects", "intends", "plans",
"potential", "predicts", "should" or "will" or the negative of these terms or
other comparable terminology which are intended to identify certain of these
forward-looking statements. The cautionary statements made in this document
should be read as being applicable to all related forward-looking statements
wherever they appear in this document. The Company's actual results could differ
materially from those discussed in this document. Factors that could cause or
contribute to such differences include those discussed below, as well as those
discussed in the Company's Prospectus dated March 15, 2000.

We have large accumulated losses, we expect future losses, and we may not
achieve or maintain profitability.

            We have incurred substantial losses and used substantial cash to
support our operations as we have expanded our sales and marketing programs,
funded the development of our services, promoted our Web sites and matching
service and expanded our operations infrastructure. As of December 31, 2000,
our accumulated loss was approximately $99.8 million. We expect our
expenditures on sales and marketing activities, support field services and
the development of new products, services and technologies to continue at
a reduced rate, as we restructured our business in March 2001. This
restructuring included operational efficiencies caused by headcount
reductions of approximately 25%. We will continue to lose money unless we
significantly increase our revenues. We cannot predict when, if ever, we will
operate profitably.

We are an early stage company and we have recently expanded our business to
offer new services. As a result, we have a limited history, which makes it
difficult to evaluate our business.

            We were incorporated in January 1996; however, we did not begin
offering home improvement services on the Internet until August 1997. In
December 1998, we began selling Web site advertising. Until March 1999, we
focused primarily on building our network of service providers and refining
our matching services processes. In March 1999, we hired our Chief Executive
Officer and commenced recruiting our senior management. In April 1999, we
introduced Powered by ImproveNet, a service that allows third parties to
offer the ImproveNet matching services and content on their Web sites, for
national suppliers of home improvement and repair products. In November 1999,
we launched our customized Web site for service providers. We completed the
acquisition of two regional contractor referral companies, Contractor
Referral Service, LLC and The J.L. Price Corporation, in September and
November 1999. We experienced reductions in force in July 2000 and March
2001. In the second half of 2000 we significantly reduced our marketing
expenditures. As a result, we have a limited history upon which you can
evaluate our business and the performance of our senior management team.
Furthermore, even if our business is successful, we may change our business
to enter into new business areas, including areas in which we do not have
extensive experience.

If we are unable to maintain our Nasdaq National Market listing, the liquidity
of our common stock would be seriously limited.

            On January 4, 2001, we received a Nasdaq Staff Determination
indicating that we have failed to comply with the minimum bid price
requirement for continued listing, and are subject to delisting from the
Nasdaq National Market. We plan to request a hearing before the Nasdaq
Qualifications Panel ("Panel") to review the staff determination. There can
be no assurance that the Panel will decide to allow us to remain listed or
that our actions will prevent the delisting of our common stock. We will not
be notified until the Panel makes a formal decision. Until then, our shares
will continue to trade on the Nasdaq National Market. In the event our shares
are delisted from the Nasdaq National Market, we will attempt to have our
common stock traded on the NASD over-the-counter Bulletin Board. If our
common stock is delisted, it would seriously limit the liquidity of our
common stock and limit our potential to raise future capital through the sale
of our common stock, which could seriously harm our business.


                                       24
<PAGE>

Our financial results will be affected by seasonality and cyclical fluctuations
in the home improvement industry.

            Our limited operating history and rapid growth make it difficult to
assess the impact of seasonal factors on our business. However, our business is
dependent upon the home improvement industry. As a result, we expect that our
revenues may be lower during the first and fourth quarters since more homeowners
commit to home improvement projects during the spring and summer months. Being
dependent on the home improvement industry exposes us to cyclical movements in
the economy in general, especially as they relate to consumers willingness to
make large expenditures that are mostly discretionary. Our limited operating
history and the state of the economy for most of our existence make it difficult
to assess the impact of cyclical factors on our business.

Failure to raise additional capital or generate the significant capital
necessary to expand our operations and invest in new products and services
could reduce our ability to compete and result in lower revenues.

            We expect that currently available funds will be sufficient to
meet our working capital and capital expenditure needs for at least the next
12 months. If we are unable to generate sufficient cash flows from operations
to meet our anticipated needs for working capital and capital expenditures,
we will need to raise additional funds after 12 months to fund brand
promotions, develop new or enhanced services or respond to competitive
pressures. We cannot be certain that we will be able to obtain additional
financing on favorable terms, or at all. If we need additional capital and
cannot raise it on acceptable terms, we may not be able, among other things,
to:

- develop or enhance our services;

- develop or acquire new technologies, products or businesses;

- expand operations in the United States or internationally;

- hire, train and retain employees; or

- respond to competitive pressures or unanticipated capital requirements.

            Our failure to do any of these things could result in lower
revenues and could harm our business or cause us to discontinue operations.

            In addition, we may seek to raise additional funds, finance
acquisitions or develop commercial relationships by issuing equity or
convertible debt securities, which would reduce the percentage ownership of
existing stockholders. Furthermore, any new securities could have rights,
preferences or privileges senior to those of our common stock.

Our market is competitive and we may suffer price reductions, be unable to
attract homeowners to our Web site, be unable to maintain our service provider
network or enter into new multi-year commercial contracts if we do not compete
effectively.

            The market for our services is intensely competitive, evolving
and subject to rapid technological change. To remain competitive, we must
continue to enhance and improve the ease of use, responsiveness,
functionality and features of our online and offline services in order to
attract homeowners to our Web site and maintain our service provider network.
We expect the intensity of competition to increase in the future. Increased
competition may result in changes in our pricing model, fewer homeowners
visiting our Web site, service providers leaving our network, less marketing
revenue, reduced gross margins and loss of market share, any one of which
could significantly reduce our future profitability. In addition,
technological barriers to entry are relatively low. As a result, current
competitors, including local referral businesses and online referral companies
including ServiceMagic.com, iMandi, repairnet, OurHouse.com, Handyman Online,
Bid Express, Contractor.com and Remodel.com, a part of the Homestore.com
family of sites and potential competitors such as The Home Depot, Lowe's and
Sears Roebuck & Company have launched Web sites similar to ours that could
gain broader market acceptance based on content, products and services.

            Some of our competitors have more resources and broader and deeper
customer access than we do. In addition, many of these competitors have or can
readily obtain extensive knowledge of the home improvement industry. Our
competitors may be able to respond more quickly than we can to new technologies
or changes in Internet user preferences and devote greater resources than we can
to the development, promotion and sale of their services. We may not be able to
maintain our competitive position against current and future competitors,
especially those with significantly greater resources and brand recognition.

Homeowners and service providers may be reluctant to accept an Internet-based
service provider matching service.

            Currently most homeowners use traditional means including
word-of-mouth referrals, Yellow Pages and local contractor matching services to
obtain service providers for their home improvement projects. In addition, many
service providers do not use the Internet for business purposes and may be
reluctant to become part of a network of service providers on an Internet-based
service provider matching service. If homeowners do not use our matching service
or service providers do not join our network, we will not be able to generate
significant revenues from either services or branding, or be able to enter into
new multi-year commercial contracts.

If we do not attract and retain a network of high quality service providers, our
business could be harmed.

            We expect to derive the majority of our revenues from our network of
service providers in the form of payments for each homeowner referral that we
provide to them and for each home improvement project that they win. Our
business is highly dependent on homeowners' use of our Web site to find service
providers for their home improvement projects so that service providers will
achieve a satisfactory return on their participation in the ImproveNet program.

            A key element of the growth of our business is the pace at which
service providers adopt the ImproveNet matching process. This adoption includes
responding to homeowner inquiries within 72 hours, providing a competitive, firm
quote to homeowners quickly, and paying the service fees to ImproveNet. We
devote significant effort and resources to screening and supporting
participating service providers and to developing programs that monitor service
providers' job wins and that collect service fees from service providers for
these wins. Our inability to screen and support service providers effectively,
or the failure of our service providers to respond professionally and in a
timely manner to homeowner inquiries, could result in low homeowner satisfaction
and harm our business. In addition, the failure of our service providers to win
home improvement projects, report their wins to us, or pay us service fees could
harm our business.


                                       25
<PAGE>

            We must actively recruit new service providers and retain and
motivate our current service providers to ensure that we continually have
adequate coverage. We believe that service providers in the home improvement
industry suffer from a relatively high failure or turnover rate which makes it
difficult for us to retain service providers. Accordingly, we expect that not
all of our service providers will remain active participants in our network. If
we are unable to achieve low turnover among our network of service providers our
business could be harmed.

If homeowners fail to report, and service providers fail to report and to pay to
us win fees, directly or indirectly, our business would be harmed.

            Our service providers are responsible for paying us a win fee for
each job that they obtain from us. We ask service providers not to pass on the
cost of the win fee to the homeowner. However, we do not currently provide any
guarantee to the homeowner that our service providers have not raised their
rates to cover the win fee nor do we audit or plan to audit our service
providers to confirm that they have not raised their rates. Homeowners may
believe that they are indirectly paying us our win fee through the higher rates
of service providers and, therefore, choose to select service providers through
word-of-mouth referrals, Yellow Pages, local contractor matching services or
other means rather than using our matching service. If homeowners choose not to
use our service, we will lose service revenues and visitors to our Web sites and
our business will be harmed.

            We depend on our service providers to report that they have won a
job and pay us our win fee. We rely on personal relationships with our service
providers and the incentive to receive future leads from us to encourage service
providers to report wins and pay win fees. Currently, we do not have a control
or an oversight mechanism in place with either service providers or homeowners
to ensure that they report wins and pay win fees. If service providers do not
report wins or pay us win fees, we will lose service revenues and our business
will be harmed.

We depend on third-party relationships to attract visitors to our Web sites.

            We have entered into multi-year commercial contracts with
suppliers of home improvement products and services to generate revenues and
increase the number of visitors to our Web sites. Under these contracts,
suppliers have placed links to our Web site from their Web sites to allow
their customers to visit our Web site if the customers are interested in
obtaining home improvement information or searching for a service provider.
We believe that increasing the number of visitors to our Web sites will
increase the number of job submissions. We cannot assure you that these
contracts will lead to increased visits to our Web sites or that increased
visits to our Web sites will result in increased job submissions. If we do
not maintain our existing multi-year commercial contracts on terms as
favorable as currently in effect or if we are not able to establish new
contracts on commercially reasonable terms, our business could be harmed.

            Companies that we may pursue for a multi-year commercial contract
may offer services competitive with suppliers with which we currently have
multi-year contracts. As a result, these suppliers may be reluctant to enter
into multi-year commercial contracts with us.

            We purchase preferential advertising placement on high-traffic Web
sites. We believe these Web sites can help us to increase the number of visitors
to ImproveNet.com. For example, in 1999 and 2000, approximately 20% and 11%, of
our Web site traffic originated from AltaVista, America Online, Excite@Home,
Lycos, Microsoft HomeAdvisor and Yahoo! There is intense competition for
preferential placements on these Web sites. If we lose our relationships with
any one of these Web sites, the traffic on ImproveNet.com may decrease and we
may not be able to enter into commercially reasonable contracts with replacement
high-traffic Web sites, if at all.

We depend on third-party relationships to provide software tools and
infrastructure.

            We integrate third-party software into our service offerings on our
Web sites. We would be harmed if the providers from which we license software
ceased to deliver and support reliable products, to enhance


                                       26
<PAGE>

their current products, or to respond to emerging industry standards. In
addition, third-party software may not continue to be available to us on
commercially reasonable terms or at all. The loss of, or inability to maintain
or obtain, this software could limit the features available on our Web sites,
which could harm our business.

If we fail to attract and retain qualified personnel, our ability to compete
could be harmed.

            We depend on the continued service of our key technical, sales and
senior management personnel. In particular, the loss of the services of Ronald
B. Cooper, our President and Chief Executive Officer, or other senior management
personnel, individually or as a group, could cause us to incur increased
operating expenses and divert other senior management time in searching for
their replacements. We do not have employment agreements with any employee,
except Mr. Cooper, and we do not maintain any key person life insurance policies
for any of our key employees, except for Mr. Cooper. The loss of any of our key
technical, sales or senior management personnel could harm our business.

            In addition, we must attract, retain and motivate highly skilled
employees. We face significant competition for individuals with the skills
required to develop, market and support our services. We may not be able to
recruit and retain sufficient numbers of highly skilled employees, and as a
result our business could suffer.

If we fail to adequately protect our proprietary rights, we could lose these
rights and our business could be harmed.

            We depend upon our ability to develop and protect our intellectual
property rights, including our databases of homeowners and service providers and
our internally-developed matching criteria and algorithms, to distinguish our
services from our competitors' services. We rely on a combination of copyright,
trademark and trade secret laws, as well as confidentiality agreements and
licensing arrangements, to establish and protect our proprietary rights. We have
no issued patents. Our databases are protected by trade secret laws and our
matching service is protected primarily by trade secret and copyright laws.
Existing laws afford only limited protection of intellectual property rights.
Attempts could be made to copy or reverse engineer aspects of our processes or
services or to obtain and use information that we regard as proprietary.
Accordingly, we may not be able to protect our intellectual property rights
against unauthorized third-party copying or use. Furthermore, policing the
unauthorized use of our intellectual property is difficult, and expensive
litigation may be necessary in the future to enforce our intellectual property
rights. The use by others of our proprietary rights could harm our business.

Our services could infringe the intellectual property rights of others causing
costly litigation and the loss of significant rights.

            Third parties could claim that we have infringed their intellectual
property rights by claiming that our matching service infringes their patents,
trade secrets or copyrights. In the ordinary course of business, we have
received, and may receive in the future, notices from third parties claiming
infringement of their proprietary rights. In addition, providers of goods and
services over the Internet are increasingly subject to claims that they infringe
patents that cover basic elements of electronic commerce. The resolution of any
claims could be time-consuming, result in costly litigation, delay or prevent us
from offering our services or require us to enter into royalty or licensing
agreements, any of which could harm our business. In the event an infringement
claim against us is successful and we cannot obtain a license on acceptable
terms, license a substitute technology or redesign our services, our business
would be harmed. Furthermore, former employers or our current and future
employees may assert that our employees have improperly disclosed to us or are
using confidential or proprietary information in our business.

If we experience system failures, our reputation would be harmed and users might
seek alternative service providers, causing us to lose revenues.

            We depend on the efficient and uninterrupted operation of our
computer and communications hardware and software systems. Substantially all of
our computer hardware for operating our Web sites is currently located at Qwest
Communications in Sunnyvale, California, with backups located at our facility
in


                                       27
<PAGE>

Redwood City, California. These systems and operations are vulnerable to damage
or interruption from earthquakes, floods, fires, power loss, telecommunication
failures and similar events. They are also subject to break-ins, sabotage,
intentional acts of vandalism and similar misconduct. We do not have fully
redundant systems, a formal disaster recovery plan or alternative providers of
hosting services, and we do not carry business interruption insurance to
compensate us for losses that could occur. Despite any precautions we may take,
the occurrence of a natural disaster or other unanticipated problems either at
Qwest or at our facility could result in interruptions in our services. Any
damage to or failure of our systems could result in interruptions in our
service. In addition to placing an increased burden on our engineering staff,
any system failure could create user questions and complaints that must be
responded to by our customer support personnel. The system failures of various
third-party Internet service providers, online service providers and other Web
site operators could result in interruptions in our service to those users who
require the services of these third-party providers and operators to access our
Web sites. These interruptions could reduce our revenues and profits, and our
future revenues and profits will be harmed if our users believe that our system
is unreliable. Since we have been keeping logs of our Web sites, our
ImproveNet.com Web site has been unintentionally interrupted for periods ranging
from two minutes to one hour, the latter prior to February 2000. On one
occasion, prior to February 2000, some users experienced interruptions in part
of our service for a period of 48 hours.

We rely on a continuous power supply to conduct our business, and
California's current energy crisis could disrupt our operations and increase
our expenses.

            California is in the midst of an energy crisis that could disrupt
our operations and increase our expenses. In the event of an acute power
shortage, which occurs when power reserves for the State of California fall
below 1.5%, California has on occasion implemented, and may in the future
continue to implement, rolling blackouts throughout the state. If blackouts
interrupt the power supply of our hosting provider, we would be subject to
reduced access to our Web sites. Additionally, we currently do not have
backup generators or alternate sources of power in the event of a blackout,
and our current insurance does not provide coverage for any damages we or our
customers may suffer as a result of any interruption in our power supply or
that of our hosting provider. If blackouts interrupt our power supply, we
would be temporarily unable to continue operations at our facilities. This
could damage our reputation, harm our ability to retain existing customers
and to obtain new customers, and could result in lost revenue, any of which
could substantially harm our business and results of operations.

            Furthermore, the regulatory changes affecting the energy industry
instituted in 1996 by the State of California has caused power prices to
increase. Under the revised regulatory scheme, utilities were encouraged to
sell their plants, which traditionally had produced most of California's
power, to independent energy companies that were expected to compete
aggressively on price. Instead, due in part to a shortage of supply,
wholesale prices have increased dramatically over the past year. If wholesale
prices continue to increase, our operating expenses will likely increase, as
our principal facilities and those of our web hosting provider are located in
California.

We may have capacity restraints that could limit the growth of or reduce our
revenues.

            The satisfactory performance, reliability and availability of our
Web sites, processing systems and network infrastructure are critical to our
reputation and our ability to attract and retain large numbers of users. If the
volume of traffic, including at peak times, on our Web sites increases, we will
need to expand and upgrade our technology, transaction processing systems and
network infrastructure. We may not be able to accurately project the rate or
timing of these increases, if any, in the use of our services or to expand or
upgrade our systems and infrastructure in a timely manner to accommodate these
increases.

            We use internally developed systems for operating our services and
processing our transactions, including billing and collections processing. We
must continually improve these systems in order to accommodate the level of use
of our Web sites. In addition, if we add new features and functionality to our
services, we could be required to develop or license additional technologies.
Our inability to add additional software and hardware or upgrade our technology,
transaction processing systems or network infrastructure could cause
unanticipated system disruptions, slower response times, degradation in levels
of customer support, impaired quality of the users' experience, delays in
accounts receivable collection or losses of recorded financial information. Our
failure to provide new features or functionality also could result in these
consequences. The required hardware may not be readily available or affordable
and we may be unable to effectively upgrade and/or expand our systems in a
timely manner or to integrate smoothly any newly developed or purchased
technologies with our existing systems. These difficulties could harm or limit
our ability to expand our business.


                                       28
<PAGE>

We could be held liable for products and services referred by means of our Web
site.

            We could be subject to claims relating to products and services that
we refer through our Web site. Homeowners may bring claims against us for
referring service providers who may have, among other things, provided them with
poor workmanship or caused bodily injury or damage to property. Our existing
insurance coverage may not cover all potential claims, may not adequately cover
all costs incurred in defense of potential claims, may not indemnify us for all
liability that may be imposed or may not be renewable in future periods or
renewable on terms and conditions satisfactory to us. In addition, claims, with
or without merit, would result in diversion of our financial resources and
management resources.

We depend on the increasing use of the Internet. If the use of the Internet does
not grow, our revenues may not grow and could decline and our business could be
harmed.

            We depend on increased acceptance and use of the Internet. In
particular, our matching service depends upon service providers being willing to
use the Internet to find jobs through our service. We believe that service
providers generally have not traditionally used computers or the Internet to
operate their businesses. Demand and market acceptance for recently introduced
products and services over the Internet are subject to a high level of
uncertainty. As a result, acceptance and use of the Internet may not develop or
a sufficiently broad base of users may not adopt or continue to use the Internet
as a medium of commerce.

The Internet is characterized by rapidly changing technologies, frequent new
product and service introductions and evolving industry standards.

            To succeed, we will need to adapt effectively to rapidly changing
technologies and continually improve the performance features and reliability of
our services. We could incur substantial costs in modifying our products,
services or infrastructure to adapt to these changes, and we may also lose
customers and revenues if our services fail to adapt to the rapid changes
characteristic of the Internet.

            Conversely, if the Internet experiences increased growth in number
of users, frequency of use and bandwidth requirements, the Internet
infrastructure may be unable to support the demands placed on it. The success of
our business will rely on the Internet providing a convenient means of
interaction and commerce. Our business depends on the ability of users to access
information without significant delays or aggravation.

Future government regulations and legal uncertainties pertaining to the Internet
could decrease the demand for our services or increase the cost of doing
business.

            There is, and will likely continue to be, an increasing number of
laws and regulations pertaining to the Internet. These laws and regulations may
relate to liability for information retrieved from or transmitted over the
Internet, online content, user privacy, taxes or the quality of services. Any
new law or regulation pertaining to the Internet, or the adverse application or
interpretation of existing laws, could decrease the demand for our services or
increase our cost of doing business.

            We are not certain how our business may be affected by the
application of existing laws governing issues such as property ownership,
copyrights, encryption and other intellectual property issues, taxation, libel,
obscenity and export or import matters. The vast majority of these laws was
adopted prior to the advent of the Internet. As a result, they do not
contemplate or address the unique issues created by the Internet and related
technologies. Changes in laws intended to address these issues could create
uncertainty for or adversely affect companies doing business on the Internet.
This could reduce demand for our services or increase the cost of doing
business.

Legislative and regulatory initiatives regarding the collection and use of our
users' personal information may result in liability and expenses.


                                       29
<PAGE>

            Current computing and Internet technology allows us to collect
personal information about our users. In the past, the Federal Trade Commission
has investigated companies that have sold personal information to third parties
without permission or in violation of a stated privacy policy. Currently, we
collect personal information only with the users' consent and under our privacy
policy. If we begin collecting or selling personal information without
permission or in violation of our privacy policy, we could face potential
liability for compiling and providing information to third parties.

The imposition of additional state and local taxes on Internet-based
transactions would increase our cost of doing business and harm our ability to
become profitable.

            We file state tax returns as required by law based on principles
applicable to traditional businesses. However, one or more states could seek to
impose additional income tax obligations or sales and use tax collection
obligations on out-of-state companies such as ours that engage in or facilitate
Internet-based commerce. A number of proposals have been made at state and local
levels that could impose taxes on the sale of products and services through the
Internet or the income derived from those sales. These proposals, if adopted,
could substantially impair the growth of Internet-based commerce and harm our
ability to become profitable.

            United States of America federal law limits the ability of the
states to impose taxes on Internet-based transactions. Until October 21,
2001, state and local taxes on Internet-based commerce that are
discriminatory against Internet access are prohibited, unless the taxes were
generally imposed and actually enforced before October 1, 1998. It is
possible that this tax moratorium will not be renewed by October 21, 2001 or
at all. Failure to renew this legislation would allow various states to
impose taxes on Internet-based commerce. The imposition of state and local
taxes could harm our ability to become profitable.

                                       30
<PAGE>

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

            The primary objective of ImproveNet's investment activities is to
preserve principal while at the same time maximizing yields without
significantly increasing risk. To achieve this objective, we maintain
our portfolio of cash and cash equivalents in a variety of securities, including
both government and corporate obligations and money market funds.

            Our exposure to market risk for changes in interest rates relates
primarily to increases or decreases in the amount of interest income we earn
on our investment portfolio and on increases or decreases in the amount of
interest expense we must pay with respect to any outstanding debt
instruments. We mitigate default risk by investing in only high credit
quality securities that we believe to be low risk and by positioning our
portfolio to respond appropriately to a significant reduction in a credit
rating of any investment issuer or guarantor.

            We do not hold derivative financial instruments as of December 31,
2000, and have never held such instruments in the past. In addition, we
had no debt instruments outstanding as of December 31, 2000. We currently
transact all of our revenues, which are all traded in the United States of
America, in U.S. dollars.

Item 8. Financial Statements and Supplementary Data

            Annual Financial Statements: See Part IV, Item 14 of this Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

            None.


                                       31

<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

            The information regarding directors and executive officers is
incorporated by reference from our definitive Proxy Statement to be
filed with the Securities and Exchange Commission within 120 days of the end
of the fiscal year.

Item 11. Executive Compensation

            The information regarding executive compensation is incorporated
by reference from our definitive Proxy Statement to be filed with the
Securities and Exchange Commission within 120 days of the end of the fiscal
year.

Item 12. Security Ownership of Certain Beneficial Owners and Management

            The information required by Item 12 is incorporated by reference
from our definitive Proxy Statement to be filed with the Securities
and Exchange Commission within 120 days of the end of the fiscal year.

Item 13. Certain Relationships and Related Transactions

            The information required by Item 13 is incorporated by reference
from our definitive proxy statement to be filed with the Securities
and Exchange Commission within 120 days of the end of the fiscal year.


                                       32
<PAGE>


                                     PART IV

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

1. Consolidated Financial Statements

The following consolidated financial statements are filed as part of this
report:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
                                                                                Page
------------------------------------------------------------------------------------
<S>                                                                            <C>
Report of Independent Accountants                                                35
------------------------------------------------------------------------------------
Consolidated Financial Statements:
------------------------------------------------------------------------------------
     Balance Sheets as of December 31, 2000 and 1999                             36
------------------------------------------------------------------------------------
     Statements of Operations for the years ended December 31, 2000, 1999,
and 1998                                                                         37
------------------------------------------------------------------------------------
     Statements of Stockholders' Equity (Deficit) and Mandatorily
Redeemable Convertible Preferred Stock for the years ended December 31,
2000, 1999 and 1998                                                              38
------------------------------------------------------------------------------------
      Statements of Cash Flows for the years ended December 31, 2000, 1999,
and 1998                                                                         39
------------------------------------------------------------------------------------
     Notes to Consolidated Financial Statements                                  40
------------------------------------------------------------------------------------
</TABLE>

2. Financial Statement Schedules

Schedule II - Valuation and Qualifying Accounts

All other financial statement schedules are omitted because the information
called for is not required or is shown either in the consolidated financial
statements or the notes to the consolidated financial statements.


3. Exhibits

<TABLE>
<CAPTION>

EXHIBIT
NUMBER         DESCRIPTION OF DOCUMENT
-------        -----------------------
<S>            <C>
2.1**          Stock Purchase Agreement by and between the Registrant and
               The J.L. Price Corporation.

2.2**          Asset Purchase Agreement by and between the Registrant and
               Contractor Referral Service, LLC.

3.1**          Form of Third Amended and Restated Certificate of
               Incorporation of the Registrant.

3.2**          Fourth Amended and Restated Certificate of Incorporation of
               the Registrant.

3.3**          Bylaws of the Registrant.

3.4**          Amended and Restated Bylaws of the Registrant.

4.1**          Specimen Stock Certificate.

4.2**          Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4 hereof.

10.1**         Amended and Restated 1996 Stock Option Plan.

10.2**         Form of 1999 Equity Incentive Plan.

10.3**         Form of 1999 Employee Stock Purchase Plan.

10.4**         Commercial Office Lease by and between Florcor I Limited
               Partnership and the Registrant.

10.5**         Commercial Office Lease by and between Chestnut Bay LLC and
               the Registrant.

10.6**         Employment agreement by and between the Registrant and
               Ronald Cooper.

10.7**         Series A Preferred Stock and Warrant Purchase Agreement by
               and between the Registrant and certain investors of the
               Registrant dated June 30, 1997.

10.8**         Series B Preferred Stock and Warrant Purchase Agreement by
               and between the Registrant and certain investors of the
               Registrant dated March 17, 1998.

10.9**         Series C Preferred Stock Agreement by and between the
               Registrant and certain investors of the Registrant dated
               March 29, 1999.


                                       33
<PAGE>

10.10**        Series D Preferred Stock Purchase Agreement by and between
               the Registrant and certain investors of the Registrant
               dated September 10, 1999.

10.11**        First Series E Preferred Stock Purchase Agreement by and
               between the Registrant and certain investors of the
               Registrant dated November 23, 1999.

10.12**        Second Series E Preferred Stock Purchase Agreement by and
               between the Registrant and certain investors of the
               Registrant dated November 23, 1999.

10.13**        Form of Warrant Purchase Agreement by and between the
               Registrant and certain investors of the Registrant dated
               December 7, 1999.

10.14**        Fourth Amended and Restated Voting Agreement by and between
               the Registrant and certain investors of the Registrant
               dated November 23, 1999.

10.15**        Form of Indemnity Agreement by and between the Registrant
               and each of its directors and executive officers.

10.16**        Internet-based Service Agreement between the Registrant and
               Owens Corning dated October 1, 1999.

10.17**        Collaboration Agreement between the Registrant and E.I. du
               Pont de Nemours and Company dated December 3, 1999.

10.18**        Internet Development, Marketing and Distribution Agreement
               between the Registrant and General Electric Appliances
               dated September 10, 1999.

10.19**        Relationship Agreement between the Registrant and Microsoft
               HomeAdvisor dated December 7, 1999.

10.20**        Agreement between the Registrant and CompleteHome
               Operations, Inc. dated December 13, 1999.

10.21**        Form of 1996 Stock Option Plan Grant Notice.

10.22**        Form of 1999 Equity Incentive Plan Stock Option Agreement.

10.23**        Form of Warrant to Purchase an aggregate of 420,000 shares
               of common stock.

10.24**        Form of Warrant to Purchase an aggregate of 10,000 shares of
               common stock.

10.25**        Form of Warrant to Purchase an aggregate of 842,596 shares
               of common stock.

10.26**        Form of Warrant to Purchase an aggregate of 96,400 shares of
               Series A preferred stock.

10.27**        Form of Warrant to Purchase an aggregate of 47,009 shares of
               Series B preferred stock.

10.28**        Form of Warrant to purchase 47,167 shares of Series C
               preferred stock.

10.29**        Form of Warrant to purchase an aggregate of 326,000 shares
               of Series D preferred stock.

10.30**        Fourth Amended and Restated Investor Rights Agreement by and
               between the Registrant and certain investors of the
               Registrant dated November 23, 1999.

10.31**        Promissory Note between the Registrant and William E. Crosby
               dated December 14, 1999.

10.32**        Promissory Note between the Registrant and Richard A. Roof
               dated December 14, 1999.

10.33**        Promissory Note between the Registrant and William A.
               Phillips Jr. dated December 14, 1999.

10.34**        Promissory Note and Stock Pledge Agreement between
               ImproveNet, Inc. and Ronald B. Cooper dated April 14, 2000

10.35          Commercial Office Lease by and between Bennett Center, LLC and
               the Registrant

23.1           Consent of PricewaterhouseCoopers LLP, Independent Accountants

24.1           Power of Attorney (see page 56)

</TABLE>

** Previously Filed


4.  Reports on Form 8-K

No reports on Form 8-K were filed with the Securities and Exchange Commission
during the three months ended December 31, 2000.


                                       34
<PAGE>

Report of Independent Accountants

To the Board of Directors and Stockholders of ImproveNet, Inc:

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(1) on page 31 present fairly, in all material
respects, the financial position of ImproveNet, Inc. and its subsidiaries at
December 31, 2000 and 1999, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2000,
in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 14(2) on page 31 presents
fairly, in all material respects, the information set forth therein when read
in conjunction with the related consolidated financial statements. These
financial statements and financial statement schedule are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements and financial statement schedule based on our
audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.







PricewaterhouseCoopers LLP
San Jose, California
February 15, 2001


                                       35
2<PAGE>

                                             IMPROVENET, INC.
                                        CONSOLIDATED BALANCE SHEETS
                                 (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                  December 31,    December 31,
                                                                                      2000            1999
                                                                                  ------------    ------------
<S>                                                                               <C>             <C>
                                      Assets
Current Assets:
      Cash and cash equivalents                                                     $  31,565      $  45,291
      Accounts receivable, net of allowances
        of $1,525 in 2000 and  $148 in 1999, respectively                               2,309          1,023
      Prepaid expenses                                                                  2,289          1,141
                                                                                    ---------      ---------

      Total current assets                                                             36,163         47,455
Property and equipment, net                                                             4,261          1,970
Other assets                                                                            1,292          2,117
                                                                                    ---------      ---------

      Total assets                                                                  $  41,716      $  51,542
                                                                                    =========      =========

                          Liabilities & Stockholders' Equity

Current Liabilities:
      Accounts payable                                                              $   2,796      $   4,139
      Accrued liabilities                                                               3,970          3,333
      Deferred revenue                                                                    249             92
                                                                                    ---------      ---------

      Total current liabilities                                                         7,015          7,564
      Long-term liabilities                                                                99            116
                                                                                    ---------      ---------

      Total liabilities                                                                 7,114          7,680
                                                                                    ---------      ---------

Commitments and contingencies (Note 5)

Stockholders' equity
      Convertible preferred stock, $0.001 par value:
          Authorized: 5,000 in 2000, 12,483 in 1999
          Issued and outstanding: none in 2000, 11,383 in 1999                             --             12
      Common stock, $0.001 par value:  Authorized: 100,000
          Issued and outstanding: 18,016 shares in 2000, 2,337 in 1999                     18              2
      Additional paid-in capital                                                      146,334        108,656
      Notes receivable from stockholders                                                   --           (633)
      Unearned stock-based compensation                                               (11,999)       (22,208)
      Accumulated deficit                                                             (99,751)       (41,967)

                                                                                    ---------      ---------
      Total stockholders' equity                                                       34,602         43,862
                                                                                    ---------      ---------

      Total liabilities and stockholders' equity                                    $  41,716      $  51,542
                                                                                    =========      =========

          The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                       36
<PAGE>

                                                 IMPROVENET, INC.
                                       CONSOLIDATED STATEMENTS OF OPERATIONS
                                       (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                                       Years Ended December 31,
                                                                                                 ----------------------------------
                                                                                                   2000         1999         1998
                                                                                                 --------     --------     --------
<S>                                                                                              <C>          <C>          <C>
Revenues
       Service revenues                                                                          $  4,697     $  1,139     $    238
       Marketing revenues                                                                           2,757          926           20
                                                                                                 --------     --------     --------
                Total revenues                                                                      7,454        2,065          258
                                                                                                 --------     --------     --------

Cost of revenues
       Cost of service revenues (excludes stock-based compensation of $639 in 2000, $610 in
       1999 and $55 in 1998)                                                                        5,212        1,984          767
       Cost of marketing revenues (excludes stock-based compensation of $261 in 2000, $189 in
       1999 and $37 in 1998)                                                                          400          567           49
                                                                                                 --------     --------     --------
                 Total cost of revenues                                                             5,612        2,551          816
                                                                                                 --------     --------     --------

                                                                                                 --------     --------     --------
Gross profit (loss)                                                                                 1,842         (486)        (558)
                                                                                                 --------     --------     --------

Operating expenses:
       Sales and marketing (excludes stock-based compensation of  $5,573 in 2000, $2,608 in
       1999 and $155 in 1998)                                                                      40,476       25,784        1,669
       Product development (excludes stock-based compensation of ($20) in 2000, $88 in 1999
       and $14 in 1998)                                                                             5,208          665          504
       General and administrative (excludes stock-based compensation of $916 in 2000,
       $2,124 in 1999 and $65 in 1998)                                                              9,136        4,214        1,142
       Stock-based compensation                                                                     7,369        5,619          326
                                                                                                 --------     --------     --------
                  Total operating expenses                                                         62,189       36,282        3,641
                                                                                                 --------     --------     --------

Operating loss                                                                                    (60,347)     (36,768)      (4,199)

Interest income                                                                                     2,563          517           84
                                                                                                 --------     --------     --------

Net loss                                                                                         ($57,784)    ($36,251)    ($ 4,115)

Accretion of mandatorily redeemable convertible preferred stock                                        --         (239)        (717)
                                                                                                 --------     --------     --------

Net loss attributable to common stockholders                                                     ($57,784)    ($36,490)    ($ 4,832)
                                                                                                 ========     ========     ========

Basic and diluted net loss per common share                                                      ($  3.65)    ($ 23.85)    ($  3.49)
                                                                                                 ========     ========     ========

Weighted average shares used in calculating basic and diluted net loss per common share            15,844        1,530        1,383
                                                                                                 ========     ========     ========

                 The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


                                       37
<PAGE>

                                          IMPROVENET, INC.
                       CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                        AND MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
                                          (In thousands)

<TABLE>
<CAPTION>
                                                                 Mandatorily                    Convertible
                                                              Convertible Stock               Preferred Stock
                                                              -----------------               ---------------
                                                            Shares         Amount         Shares           Amount
                                                            ------         ------         ------           ------
<S>                                                         <C>            <C>            <C>              <C>
                                                            ------------------------------------------------------
 Balances, January 1, 1998                                   1,205         $ 1,252   |        --            $--
                                                            ------------------------------------------------------
 Exercise of common stock options                               --             --    |        --             --
 Issuance of Series B mandatorily redeemable                                         |
    convertible preferred stock, net of issuance                                     |
    costs of $20                                             1,935          4,855    |        --             --
    Accretion of Series A mandatorily redeemable                                     |
convertible preferred stock                                     --            192    |        --             --
Accretion of Series B mandatorily redeemable                                         |
convertible preferred stock                                     --            525    |        --             --
Unearned stock-based compensation for service                                        |
providers                                                       --             --    |        --             --
Amortization of stock-based compensation for                                         |
service providers                                               --             --    |        --             --
Unearned employee stock-based compensation                      --             --    |        --             --
Amortization of unearned employee stock-based                                        |
compensation                                                    --             --    |        --             --
Net loss                                                        --             --    |        --             --
                                                            ------------------------------------------------------
Balances, December 31, 1998                                  3,140          6,824    |        --             --
                                                            ------------------------------------------------------
                                                                                     |
Exercise of common stock options                                --             --    |        --             --
Issuance of common stock in exchange for                                             |
notes receivable                                                --             --    |        --             --
Exercise of Series A convertible preferred                                           |
stock warrant                                                   --             --    |         2             --
Accretion of Series A mandatorily redeemable                                         |
convertible preferred stock                                     --             52    |        --             --
Accretion of Series B mandatorily redeemable                                         |
convertible preferred stock                                     --            187    |        --             --
Conversion of Series A mandatorily redeemable                                        |
convertible preferred stock into Series A                                            |
convertible preferred stock                                 (1,205)        (1,496)   |     1,205              1
Conversion of Series B mandatorily redeemable                                        |
convertible preferred stock into Series B                                            |
convertible preferred stock                                 (1,935)        (5,567)   |     1,935              2
Issuance of Series C convertible preferred stock,                                    |
net of issuance costs of $1,049                                 --             --    |     3,538              4
Issuance of Series D convertible preferred stock,                                    |
net of issuance costs of $57                                    --             --    |     2,101              2
Issuance of Series E convertible preferred stock,                                    |
net of issuance costs of $68                                    --             --    |     2,597              3
Issuance of Series C convertible preferred stock                                     |
for services                                                    --             --    |         5             --
Payment received in settlement of stockholder notes                                  |
receivable                                                      --             --    |        --             --
Issuance of Series D convertible preferred stock                                     |
warrant to strategic stockholders                               --             --    |        --             --
Issuance of common stock warrants to strategic                                       |
stockholders                                                    --             --    |        --             --
Amortization of stock-based compensation from                                        |
warrants granted to strategic                                                        |
stockholders                                                    --             --    |        --             --
Unearned employee stock-based compensation                      --             --    |        --             --
Amortization of unearned employee stock-based                                        |
compensation                                                    --             --    |        --             --
Net loss                                                        --             --    |        --             --
                                                            ------------------------------------------------------
Balances, December 31, 1999                                     --             --    |    11,383             12
                                                            ------------------------------------------------------
Exercise of common stock options                                --             --    |        --             --
Issuance of Series A convertible preferred stock                                     |
upon exercise of warrants                                       --             --    |         6             --
Issuance of Series A convertible preferred stock                                     |
upon exercise of warrants-cashless                              --             --    |        75             --
Issuance of Series B convertible preferred stock                                     |
upon exercise of warrants                                       --             --    |        40             --
Issuance of Series C convertible preferred stock                                     |
upon exercise of warrants                                       --             --    |        47             --
Issuance of Series D convertible preferred stock                                     |
upon exercise of warrants                                       --             --    |       209             --
Issuance of common stock from Initial Public                                         |
Offering, net of issuance costs of $4,468                       --             --    |        --             --
Conversion of convertible preferred stock                                            |
into common stock at IPO                                        --             --    |   (11,760)           (12)
Issuance of common stock from employee stock                                         |
purchase program (ESPP)                                         --             --    |        --             --
Issuance of common stock in exchange for notes                                       |
receivable                                                      --             --    |        --             --
Payment received in settlement of stockholder                                        |
notes receivable                                                --             --    |        --             --
Foregiveness of notes receivable from stockholders              --             --    |        --             --
Amortization of unearned employee stock based                                        |
compensation                                                    --             --    |        --             --
Unearned employee stock-based compensation - terminated                              |
employees                                                       --             --    |        --             --
Issuance of restricted stocks in exchange for common                                 |
stock options                                                   --             --    |        --
Net loss                                                        --             --    |        --             --
                                                            ------------------------------------------------------
Balance at December 31, 2000                                    --             --    |        --             --
                                                            ======================================================


<CAPTION>
                                                                                   Additional Paid-    Receivable
                                                                Common Stock              In              From
                                                           Shares           Amount      Capital       Stockholders
                                                           ------           ------
<S>                                                        <C>              <C>    <C>                <C>
                                                           -------------------------------------------------------
Balances, January 1, 1998                                   1,379            $ 1      $    394          $  (4)
                                                           -------------------------------------------------------
Exercise of common stock options                               27             --             2             --
Issuance of Series B mandatorily redeemable
convertible preferred stock, net of issuance
costs of $20                                                   --             --            --             --
Accretion of Series A mandatorily redeemable
convertible preferred stock                                    --             --          (192)            --
Accretion of Series B mandatorily redeemable
convertible preferred stock                                    --             --          (525)            --
Unearned stock-based compensation for service
providers                                                      --             --           120             --
Amortization of stock-based compensation for
service providers                                              --             --            --             --
Unearned employee stock-based compensation                     --             --           935             --
Amortization of unearned employee stock-based
compensation                                                   --             --            --             --
Net loss                                                       --             --            --             --
                                                           -------------------------------------------------------
Balances, December 31, 1998                                 1,406              1           734             (4)
                                                           -------------------------------------------------------

Exercise of common stock options                              706              1           148             --
Issuance of common stock in exchange for
notes receivable                                              225             --           633           (633)
Exercise of Series A convertible preferred
stock warrant                                                  --             --             2             --
Accretion of Series A mandatorily redeemable
convertible preferred stock                                    --             --           (52)            --
Accretion of Series B mandatorily redeemable
convertible preferred stock                                    --             --          (187)            --
Conversion of Series A mandatorily redeemable
convertible preferred stock into Series A
convertible preferred stock                                    --             --         1,495             --
Conversion of Series B mandatorily redeemable
convertible preferred stock into Series B
convertible preferred stock                                    --             --         5,565             --
Issuance of Series C convertible preferred stock,
net of issuance costs of $1,049                                --             --        22,046             --
Issuance of Series D convertible preferred stock,
net of issuance costs of $57                                   --             --        16,118             --
Issuance of Series E convertible preferred stock,
net of issuance costs of $68                                   --             --        34,991             --
Issuance of Series C convertible preferred stock
for services                                                   --             --            37             --
Payment received in settlement of stockholder notes
receivable                                                     --             --            --              4
Issuance of Series D convertible preferred stock
warrant to strategic stockholders                              --             --         2,507             --
Issuance of common stock warrants to strategic
stockholders                                                   --             --        11,299             --
Amortization of stock-based compensation from
warrants granted to strategic
stockholders                                                   --             --            --             --
Unearned employee stock-based compensation                     --             --        13,320             --
Amortization of unearned employee stock-based
compensation                                                   --             --            --             --
Net loss                                                       --             --            --             --
                                                           -------------------------------------------------------
Balances, December 31, 1999                                 2,337              2       108,656           (633)
                                                           -------------------------------------------------------
Exercise of common stock options                              117             --            39             --
Issuance of Series A convertible preferred stock
upon exercise of warrants                                      --             --             6             --
Issuance of Series A convertible preferred stock
upon exercise of warrants-cashless                             --             --            --             --
Issuance of Series B convertible preferred stock
upon exercise of warrants                                      --             --             2             --
Issuance of Series C convertible preferred stock
upon exercise of warrants                                      --             --            --             --
Issuance of Series D convertible preferred stock
upon exercise of warrants                                      --             --           308             --
Issuance of common stock from Initial Public
Offering, net of issuance costs of $4,468                   2,760              3        39,693             --
Conversion of convertible preferred stock
into common stock at IPO                                   11,760             12            --             --
Issuance of common stock from employee stock
purchase program (ESPP)                                       156             --           207             --
Issuance of common stock in exchange for notes
receivable                                                     --             --           (74)            74
Payment received in settlement of stockholder notes
receivable                                                     --             --            --              3
Foregiveness of notes receivable from stockholders             --             --            --            556
Amortization of unearned employee stock based
compensation                                                   --             --            --             --
Unearned employee stock-based compensation - terminated
employees                                                      --             --        (2,503)            --
Issuance of restricted stocks in exchange for common
stock options                                                 886              1            --             --
Net loss                                                       --             --            --             --
                                                           -------------------------------------------------------
 Balance at December 31, 2000                              18,016            $18      $146,334          $  --
                                                           =======================================================


Balance December 31, 2000

<CAPTION>
                                                          Stock Based   Accumulated
                                                         Compensation     Deficit      Total
                                                                          -------      -----
<S>                                                      <C>            <C>            <C>
                                                         ---------------------------------------
Balances, January 1, 1998                                      --       $ (1,601)      $ (1,210)
                                                         ---------------------------------------
Exercise of common stock options                               --             --              2
Issuance of Series B mandatorily redeemable
convertible preferred stock, net of issuance
costs of $20                                                   --             --
Accretion of Series A mandatorily redeemable
convertible preferred stock                                    --             --           (192)
Accretion of Series B mandatorily redeemable
convertible preferred stock                                    --             --           (525)
Unearned stock-based compensation for service
providers                                                    (120)            --             --
Amortization of stock-based compensation for
service providers                                             100             --            100
Unearned employee stock-based compensation                   (935)            --             --
Amortization of unearned employee stock-based
compensation                                                  226             --            226
Net loss                                                       --         (4,115)        (4,115)
                                                         ---------------------------------------
Balances, December 31, 1998                                  (729)        (5,716)        (5,714)
                                                         ---------------------------------------

Exercise of common stock options                               --             --            149
Issuance of common stock in exchange for
notes receivable                                               --             --             --
Exercise of Series A convertible preferred
stock warrant                                                  --             --              2
Accretion of Series A mandatorily redeemable
convertible preferred stock                                    --             --            (52)
Accretion of Series B mandatorily redeemable
convertible preferred stock                                    --             --           (187)
Conversion of Series A mandatorily redeemable
convertible preferred stock into Series A
convertible preferred stock                                    --             --          1,496
Conversion of Series B mandatorily redeemable
convertible preferred stock into Series B
convertible preferred stock                                    --             --          5,567
Issuance of Series C convertible preferred stock,
net of issuance costs of $1,049                                --             --         22,050
Issuance of Series D convertible preferred stock,
net of issuance costs of $57                                   --             --         16,120
Issuance of Series E convertible preferred stock,
net of issuance costs of $68                                   --             --         34,994
Issuance of Series C convertible preferred stock
for services                                                   --             --             37
Payment received in settlement of stockholder notes
receivable                                                     --             --              4
Issuance of Series D convertible preferred stock
warrant to strategic stockholders                          (2,507)            --             --
Issuance of common stock warrants to strategic
stockholders                                              (11,299)            --             --
Amortization of stock-based compensation from
warrants granted to strategic
stockholders                                                  517             --            517
Unearned employee stock-based compensation                (13,320)            --             --
Amortization of unearned employee stock-based
compensation                                                5,130             --          5,130
Net loss                                                       --        (36,251)       (36,251)
                                                         ---------------------------------------
Balances, December 31, 1999                               (22,208)       (41,967)        43,862
                                                         ---------------------------------------
Exercise of common stock options                               --             --             39
Issuance of Series A convertible preferred stock
upon exercise of warrants                                      --             --              6
Issuance of Series A convertible preferred stock
upon exercise of warrants-cashless                             --             --             --
Issuance of Series B convertible preferred stock
upon exercise of warrants                                      --             --              2
Issuance of Series C convertible preferred stock
upon exercise of warrants                                      --             --             --
Issuance of Series D convertible preferred stock
upon exercise of warrants                                      --             --            308
Issuance of common stock from Initial Public
Offering, net of issuance costs of $4,468                      --             --         39,696
Conversion of convertible preferred stock
into common stock at IPO                                       --             --             --
Issuance of common stock from employee stock
purchase program (ESPP)                                        --             --            207
Issuance of common stock in exchange for notes
receivable                                                     --             --             --
Payment received in settlement of stockholder notes
receivable                                                     --             --              3
Foregiveness of notes receivable from stockholders             --             --            556
Amortization of unearned employee stock based
compensation                                                7,706             --          7,706
Unearned employee stock-based compensation - terminated
employees                                                   2,503             --             --
Issuance of restricted stocks in exchange for common
stock options                                                  --             --              1
Net loss                                                       --        (57,784)       (57,784)
                                                         ---------------------------------------
Balance at December 31, 2000                             $(11,999)      $(99,751)     $  34,602
                                                         =======================================

    The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


                                       38
<PAGE>

                                                       IMPROVENET, INC.
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                        (In thousands)

<TABLE>
<CAPTION>
                                                                                           Years Ended December 31,
                                                                                      ------------------------------------

                                                                                        2000          1999          1998
                                                                                        ----          ----          ----
<S>                                                                                   <C>           <C>           <C>
Cash flows from operating activities:
Net loss                                                                              ($57,784)     ($36,251)     ($ 4,115)
Adjustments to reconcile net loss to net cash used in
         operating activities:
         Depreciation and amortization                                                   1,430           204            52
         Loss on disposals                                                                 255            --            --
         Allowance for doubtful accounts                                                 1,377           140             5
         Amortization of stock-based compensation                                        7,369         5,619           326
         Warrant charges amortized                                                         336            65            --
         Notes receivable written-off                                                      556            --            --
         Notes receivable from related party written-off                                 1,261            --            --
Change in operating assets and liabilities:
         Accounts receivable                                                            (2,663)       (1,064)          (30)
         Prepaid expenses                                                               (1,148)       (1,019)          (94)
         Other assets                                                                      308          (314)           --
         Accounts payable and other accrued liabilities                                   (706)        6,663           618
         Deferred revenue                                                                  157            92            --
         Long-term liabilities                                                              --            16            --
                                                                                      --------      --------      --------
                    Net cash used in operating activities                              (49,252)      (25,849)       (3,238)
                                                                                      --------      --------      --------

Cash flows from investing activities:
         Purchase of property and equipment                                             (3,687)       (1,828)         (224)
         Issuance of notes receivable to related party                                  (1,000)         (500)           --
         Restricted cash                                                                   (33)         (400)          (49)
         Payments for acquisitions                                                          --          (792)           --
                                                                                      --------      --------      --------
                    Net cash used in investing activities                               (4,720)       (3,520)         (273)
                                                                                      --------      --------      --------

Cash flows from financing activities:
         Proceeds from issuance of common stock, net of offering costs                  39,693           149             2
         Proceeds from the issuance of preferred stock, net offering costs                  --        73,166         4,705
         Proceeds from the issuance of convertible bridge notes                             --            --           150
         Proceeds from exercise of stock options and warrants                              567            --
         Borrowings under lines of credit                                                   --            --           298
         Principal payments under lines of credit                                           --          (335)         (313)
         Payment of long-term debt                                                         (17)           --            --
         Repayment of notes receivable                                                       3             4            --
                                                                                      --------      --------      --------
                    Net cash provided by financing activities                           40,246        72,984         4,842
                                                                                      --------      --------      --------

Net (decrease) increase in cash and cash equivalents                                   (13,726)       43,615         1,331

Cash and cash equivalents, beginning of period                                          45,291         1,676           345
                                                                                      --------      --------      --------
Cash and cash equivalents, end of period                                              $ 31,565      $ 45,291      $  1,676
                                                                                      ========      ========      ========

Supplemental non cash transaction disclosures
         Unearned stock-based compensation relating to employee stock
          option grants                                                               $     --      $ 13,320      $  1,055
         Unearned stock-based compensation relating to Series D warrant
          grant to strategic stockholders                                                   --         2,507            --
         Unearned stock-based compensation relating to common stock
          warrant grant to strategic stockholders                                           --        11,299            --
         Accretion of Series A mandatorily redeemable convertible preferred stock           --            52           192
         Accretion of Series B mandatorily redeemable convertible preferred stock           --           187           525
         Issuance of common stock in exchange for stockholder notes receivable              --           633            --
         Conversion of convertible notes into convertible preferred stock             $     --      $     --      $    150

                   The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                       39
<PAGE>

IMPROVENET, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Basis of presentation

            Nature of the business

            ImproveNet, Inc. ("ImproveNet" or the "Company") (formerly
Netelligence, Inc.) was incorporated in California in January 1996 and
reincorporated in Delaware in September 1998. The Company is a source for home
improvement information and services on the Internet. Through its ImproveNet.com
and ImproveNetPro.com Web sites, matching services and targeted advertising, the
Company is creating a national marketplace for home improvement products and
services in which homeowners, service providers and suppliers of home
improvement products and related services benefit from an organized and
efficient online flow of information and communication. The Company generates
quality job leads for architects, designers and contractors, or service
providers, from interested homeowners within their geographic area using its
proprietary matching service. The Company's online features are complemented by
personal assistance from a professional staff of personal project advisors and
regional and area managers who offer support throughout each phase of the home
improvement process.

            Formation and Basis of Presentation

            During 1998, the Company emerged from the development stage.
Although no longer in the development stage, the Company continues to be subject
to risks and challenges similar to other companies in a comparable stage of
development. These risks include, but are not limited to, dependence on key
individuals, successful development, marketing and branding of products and
services, the ability to obtain adequate financing to support growth, and
competition from larger companies with greater financial, technical, management
and marketing resources.

            In March 2000, the Company completed the initial public offering
("IPO") of its common stock. Pursuant to this offering, a total of 2,760,000
shares of common stock were sold at the IPO price of $16.00 per share,
generating total net proceeds of approximately $39.7 million. Upon completion
of the Company's IPO, all outstanding convertible preferred stock was
converted into common stock on a share for share basis. Additionally,
warrants to purchase convertible preferred stock were converted to warrants
to purchase an equivalent number of shares of the Company's common stock.

            The Company has completed several rounds of private equity
financing and raised, in its initial public offering, approximately $39.7
million, net of issuance costs, in March 2000. However, the Company has
incurred substantial and negative cash flows from operations in every fiscal
period since inception. For the year ended December 31, 2000, the Company
incurred a loss from operations of approximately $57.8 million and negative
cash flows from operations of $49.3 million. As of December 31, 2000 the
Company had an accumulated deficit of approximately $99.8 million.
Management expects operating losses and negative cash flows to continue for
the foreseeable future. The Company expects that losses will decrease from
fiscal year 2000 levels due to new sales initiatives and also operational
cost efficiencies, through decreased marketing expenditure and reductions in
headcount. Operational cost efficiency restructuring has already been
initiated - the Company reduced headcount by 7% in July 2000. If working
capital decreases significantly the Company could further reduce expenses by
further reductions in headcount. The Company has $31.6 million of cash and
cash equivalents at December 31, 2000 and management believes that the
Company has sufficient cash funds to operate for the next 12 months. Failure
to generate sufficient revenues, raise additional capital or reduce certain
operational discretionary spending could have a material adverse effect on
the Company's ability to continue as a going concern and to achieve its
intended business objectives.

Note 2 - Summary of Significant Accounting Policies

Reclassifications

            Certain items have been reclassified  to be consistent with
current presentation. The reclassifications have no effect on previously
disclosed net loss or stockholders' equity.

Principles of consolidation

            The financial statements include the accounts of the Company and
its wholly-owned subsidiaries from the date of acquisition. All significant
intercompany balances and transactions have been eliminated.

Use of Estimates

            The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.


                                       40
<PAGE>

Cash and cash equivalents

            The Company considers all highly liquid investments purchased with
original or remaining maturities of three months or less to be cash equivalents.

Restricted cash

            At December 31, 2000 and 1999, cash balances of approximately
$482,000 and $449,000, respectively, were restricted from withdrawal and held
by a bank in the form of certificates of deposit. These certificates of
deposit serve as collateral supporting standby letters of credit issued to
the Company's landlords as security deposits and will not be available until
the leases for the Company's facilities expire. Restricted cash is included
in other assets in the accompanying consolidated balance sheets.

Fair value of financial instruments

            The reported amounts of certain of the Company's financial
instruments, including cash and cash equivalents, restricted cash, accounts
receivable, accounts payable and other accrued liabilities, approximate fair
value due to their short maturities. Based on borrowing rates available to the
Company for loans with similar terms, the carrying values of the lines of credit
approximate fair value.

Property and equipment

            Property and equipment are stated at cost less accumulated
depreciation. Depreciation is computed on a straight-line basis over the
estimated useful lives of three to seven years. Amortization of leasehold
improvements is computed on a straight-line basis over the shorter of the
facility lease term or the estimated useful lives of the improvements. Major
additions and improvements are capitalized, while replacements, maintenance and
repairs that do not improve or extend the life of the assets are charged to
operations. In the period assets are retired or otherwise disposed of, the costs
and related accumulated depreciation and amortization are removed from the
accounts, and any gain or loss on disposal is included in results of operations.

Goodwill and intangible assets

            Goodwill and intangible assets consists of the excess of purchase
price paid over the fair market value of acquired companies and non-compete
agreements, which are amortized from the date of acquisition using the
straight-line method over the expected period to be benefited, estimated at
three to five years. The Company assesses the recoverability of goodwill, as
well as other long-lived assets, in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," which requires
the Company to review the carrying value of an asset for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
might not be recoverable. Valuation of goodwill and intangible assets are
reassessed periodically to conform to changes in management's estimates of
future performance giving consideration to existing and anticipated economic
conditions. Cash flow forecasts used in the evaluation of goodwill and
intangible assets are based on trends of historical performance and management's
estimate of future performance.

Revenue recognition

            Revenues are derived from two sources: service provider fees and
marketing from the Company's Web sites.


                                       41
<PAGE>

Service revenues

            Service revenues include lead fees, win fees and enrollment fees.
Lead fees are recognized at the time a homeowner and contractor are matched by
the Company and the service provider becomes obligated to pay such fee. Win fees
are recognized at the time the service provider or the homeowner notifies the
Company that a job has been sold and the service provider becomes obligated to
pay such fee. Enrollment fees from service providers are recognized as revenue
ratably over the expected period they participate in our contractor matching
service, which is initially estimated to be between one and two years. Payments
of enrollment fees received in advance of providing services are deferred until
the period the services are provided. This deferred revenue is included in
current liabilities. The Company establishes a refund reserve and allowance for
doubtful accounts at the time of revenue recognition based on the Company's
historical experience.

Marketing revenues

            Marketing revenues include the sale of banner, SmartLeads and other
Web site advertisements. Currently marketing revenues are comprised of:

            o     Cash advertising; barter advertising; and

            o     Multiyear commercial contracts

            Cash advertising

            Cash advertising revenues generally are derived from short-term
advertising contracts in which the Company typically guarantees that a minimum
number of impressions will be delivered to its Web site visitors over a
specified period of time for a fixed fee. Cash marketing revenues from banner,
button and other Web site advertisements are recognized at the lesser of the
amount recorded ratably over the period in which the advertising is delivered or
the percentage of guaranteed impressions delivered. SmartLeads revenues are also
paid for in cash and are recognized when the SmartLeads have been delivered to
the customer. Cash marketing is recognized when the Company has delivered the
advertising, evidence of an agreement is in place and fees are fixed,
determinable and collectible.

            Barter advertising

            Barter advertising revenues come from two distinct contractual
sources: short-term barter advertising similar in nature to the Company's
cash advertising contracts and multi-year commercial contracts. Barter
marketing is recognized in accordance with EITF No.99-17, "Accounting for
Advertising Barter Transactions", which was adopted by the Company in 1999.
Under EITF No. 99-17, the Company records advertising transactions at fair
value only when the Company has an established historical practice of selling
similar advertising for cash. The characteristics of the advertising that
must be similar include the duration of the display of the advertising, the
prominence and positioning of the advertising, the intended audience, the
timing of the advertising and its circulation.

            Short-term barter marketing

            Short-term barter marketing revenues results from the exchange by
the Company of advertising space on the Company's Web site for reciprocal
advertising space on Web sites of third parties. Marketing revenues and sales
and marketing expenses arising from these transactions are recorded at fair
value as the Company has an established historical practice of receiving cash
for similar short-term marketing. Sales and marketing expenses arising from
these barter transactions are recognized when the Company's advertisements
are delivered on the reciprocal Web site which is typically in the same
period in which advertisements are delivered on the Company's Web site.



                                       42
<PAGE>

            Multi-year commercial contracts

            Commencing in September 1999, the Company has entered into
multi-year commercial marketing contracts, some of which are with related
parties. These commercial contracts generally provide for a fixed annual fee, an
advertising or branding package that includes a mix of buttons, banners,
SmartLeads and other marketing or branding services, including Find-A-Contractor
or Powered by ImproveNet, plus a continuous presence, as defined, on the
Company's Web sites. These commercial contracts are for periods ranging between
2 and 12 years, including renewal options. These commercial contracts also
include cooperative marketing arrangements under which the Company is obligated
to fund, as defined, co-operative branding expenditures on television and in the
print media, with or on behalf of the commercial party. Most commercial
contracts provide for the Company to spend 50% to 100% of the fees the Company
expects to receive. In return, the Company expects to receive significant
marketing and branding benefits including better advertising rates, stronger
brand recognition, and access to customer databases, direct mail inserts and
marketing resources - all designed to generate more traffic to its sites and
jobs to its proprietary matching services.

            As the Company does not have an established historical practice of
selling advertising for cash for similar multi-year commercial contracts, the
Company has not assigned any value to the exchange of services or barter element
of these transactions and accordingly, the Company has not recorded either
revenue or sales and branding expense for the barter element. However, some of
these multi-year commercial contracts do generate an overall net cash component
to the Company, and in these cases, the Company has recorded revenue based on
the cash received or receivable under the contract, net of the obligation, if
any, to reimburse the commercial party for the cooperative branding and other
marketing services. These revenues are recognized over the term of the
commercial contract once marketing and other services have been delivered to the
commercial party and collection of the resulting net receivable is deemed
probable.

            Furthermore, in connection with certain of these multi-year
commercial contracts, the Company also issued warrants to purchase shares of the
Company's common stock to the commercial parties. These warrants have been
valued by the Company using the Black Scholes option pricing model. As the fair
value of these warrants represent an additional rebate on the revenue otherwise
recorded under the contracts, the amortization of the warrants is further netted
against this revenue over the term of the respective commercial contract. To the
extent that there is insufficient revenues, the remaining amortization of
warrant stock-based compensation is expensed and characterized as sales and
branding expense.

Business Risk and Concentration of Credit Risk

            We operate in the Internet industry which is rapidly evolving and
intensely competitive.

            The Company's cash, cash equivalents and restricted cash are held
with major financial institutions and such deposits exceed federally insured
limits.

            The Company's customers consist of homeowners, service providers
and suppliers of home improvement products and related services within the
United States of America. The Company performs ongoing credit evaluations of
its customers' financial condition. The Company does not require collateral.
The Company maintains an allowance for doubtful accounts receivable based
upon the expected collectibility of accounts receivable. During the year
ended December 31, 2000, three customers accounted for more than 10% of net
accounts receivable and during the year ended December 31, 1999, two
customers accounted for more than 10% of net accounts receivable. Each of
these customers have reciprocal marketing agreements with the Company where
we have agreed to purchase advertisements from the customer in amounts from
75% to 100% of the revenues earned from the customer.


                                       43
<PAGE>

Product Development Costs

            Product development costs are expensed as incurred by the
Company. Costs incurred in the design, creation and maintenance of content,
graphics and user interface of the Company's Web sites are expensed as
incurred in accordance with SOP 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use."

Advertising

            The Company recognizes advertising expenses in accordance with
SOP 93-7 "Reporting on Advertising Costs." As such, the Company expenses
advertising costs as the services are provided. Advertising expenses totaled
$18.4 million, $15.9 million, and $761,000 during the years ended December 31,
2000, 1999, and 1998, respectively.

Business segments

            The Company follows SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS No. 131 requires publicly held
companies to report financial and other information about key revenue segments
of the entity for which this information is available and is utilized by the
chief operating decision maker. The Company conducts its business within one
business segment primarily within the United States of America. Revenues from
customers outside of the United States of America were insignificant for all
periods presented in the accompanying consolidated statements of operations.

Income taxes

            Deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Valuation allowances are established
when necessary to reduce deferred tax assets to the amounts expected to be
realized.

Comprehensive loss

            The Company follows SFAS No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"). SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components in a full set of general-purpose
financial statements. There was no difference between the Company's net loss and
its comprehensive loss for any of the periods presented in the accompanying
consolidated statements of operations.

Stock-based compensation

            The Company follows the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." The Company has elected to
continue accounting for stock-based compensation issued to employees using
APB No. 25, "Accounting for Stock Issued to Employees," and, accordingly, pro
forma disclosures required under SFAS No. 123 have been presented (see Note
8). Under APB No. 25, compensation expense is based on the difference, if
any, on the date of the grant, between the fair value of the Company's stock
and the exercise price of the option. Stock options and warrants for stock
issued to non-employees have been accounted for in accordance with the
provisions of SFAS No. 123 and EITF No. 96-18, "Accounting for Equity
Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services."

            The Company presents stock-based compensation expense as a
separate line item in its consolidated statements of operations, except to
the extent that it represents a rebate of revenue and is applied against
marketing revenue.

            In connection with the granting of stock options to employees
and certain non-employees, the Company has recorded stock-based compensation
which is included as a component of stockholders' equity and is being
amortized by charges to operations over the vesting period of the related
options on an accelerated

                                       44
<PAGE>

basis. The amortization of the remaining deferred stock-based compensation at
December 31, 2000 will result in additional charges to operations through the
year ended December 31, 2003. Future compensation charges would be reduced if
any employee terminates employment prior to the expiration of the option
vesting period. During the year ended December 31, 2000, certain employees
terminated their employment with the Company. As a result, $1,400,000 of
previously recognized stock-based compensation expense associated with
unvested options was reversed. Additionally, the unamortized portion of the
deferred stock-based compensation charges relating to these terminated
employees in the amount of $1,100,000 was reversed, with a corresponding
adjustment to additional paid-in-capital.

Net Loss Per Common Share

            Basic net loss per common share is calculated by dividing net
loss by the average number of outstanding common shares during the period.
Diluted net loss per common share is calculated by adjusting the average
number of outstanding common shares assuming conversion of all potentially
dilutive stock options and warrants under the treasury stock method. For all
fiscal years presented, potentially dilutive convertible preferred stock,
stock options and warrants were excluded from the calculation of diluted net
loss per common share, as their effect would have been anti-dilutive.

Recent Accounting Pronouncements

            In June 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." In June 1999, the FASB issued SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities: Deferral of the effective date
of FASB Statement No. 133. An amendment of FASB Statement 133, SFAS No. 133
is effective for fiscal years beginning after June 15, 2000 and requires that
all derivative instruments be recorded on the balance sheet at fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and the type of hedge transaction.
We do not expect the adoption of FAS No. 133 to have a material impact on our
financial position or results of operations.

            In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin ("SAB"). No. 101, "Revenue Recognition in
Financial Statements." SAB 101 discusses certain generally accepted
accounting principles regarding revenue recognition in financial statements,
including the specification of certain criteria that should be met before
revenue is recognized. These criteria include: persuasive evidence that a
arrangement exists, delivery has occurred or services have been rendered, the
sellers price to the buyer is fixed or determinable, and collectibility is
reasonably assured. In March 2000, the SEC issued SAB No. 101A, "Amendment:
Revenue Recognition in Financial Statements," and SAB No. 101B, "Second
Amendment: Revenue Recognition in Financial Statements," to defer for the
effective date of implementation of SAB No. 101 until no later than the
fourth fiscal quarter of fiscal years beginning after December 15, 1999, with
earlier application encouraged. We adopted SAB No. 101, as amended, in the
quarter ended December 31, 2000. The adoption of SAB No. 101, as amended,
has not had a material effect on our financial position or results of
operations.


                                       45
<PAGE>

Note 3 - Balance Sheet Components

Prepaid expenses

<TABLE>
<CAPTION>
                                                             December 31,
                                                             ------------
                                                        2000               1999
                                                        ----               ----
                                                             (in thousands)
<S>                                                    <C>                <C>
Prepaid marketing expenses                             $1,721             $  595
Other prepaid expenses                                    568                546
                                                       ------             ------
                                                       $2,289             $1,141
                                                       ------             ------
</TABLE>

            Prepaid marketing expenses consist of payments made in advance for
online and offline advertising for services to be delivered in the following
year.

Property and equipment

<TABLE>
<CAPTION>
                                                             December 31,
                                                             ------------
                                                         2000             1999
                                                         ----             ----
                                                             (in thousands)
<S>                                                     <C>             <C>
Computer equipment                                      $ 2,390         $ 1,060
Software                                                    371              30
Furniture, fixtures and other equipment                   1,849             726
Leasehold improvements                                      817             370
                                                        -------         -------
                                                          5,427           2,186
Less: accumulated depreciation and amortization          (1,166)           (216)
                                                        -------         -------

                                                        $ 4,261         $ 1,970
                                                        -------         -------
</TABLE>

Other assets

<TABLE>
<CAPTION>
                                                                December 31,
                                                                ------------
                                                             2000          1999
                                                             ----          ----
                                                                (in thousands)
<S>                                                         <C>           <C>
Goodwill, net of amortization of $247 in 2000
and $38 in 1999                                             $  420        $  629
Non-competition agreements, net of amortization
of $107 in 2000 and $27 in 1999                                 43           123
Deferred IPO professional services fees                         --           352
Restricted cash                                                482           449
Notes receivable from related party, net of
   allowance of $1,261 in 2000                                 239           500
Other assets                                                   108            64
                                                            ------        ------
                                                            $1,292        $2,117
                                                            ------        ------
</TABLE>


                                       46
<PAGE>

Accrued liabilities

<TABLE>
<CAPTION>
                                                              December 31,
                                                              ------------
                                                         2000              1999
                                                         ----              ----
                                                              (in thousands)
<S>                                                     <C>               <C>
Accrued payroll costs                                   $2,716            $1,407
Accrued IPO professional services fees                      --               398
Other accrued liabilities                                1,254             1,528
                                                        ------            ------
                                                        $3,970            $3,333
                                                        ------            ------
</TABLE>

NOTE 4 - Acquisitions

    On September 9, 1999, the Company completed the acquisition of all the
assets and business of Contractor Referral Services, LLC ("CRS"), which operated
a toll-free telephone contractor referral service. The total acquisition cost
was $650,000 and consisted of a cash payment of $550,000 and a holdback of
$100,000 retained by the Company. The acquisition was accounted for using the
purchase method. Accordingly, the results of operations for CRS have been
included in the Company's consolidated statement of operations only from the
date of acquisition. At December 31, 1999, the $100,000 holdback was included in
other long-term liabilities as it is not payable until 2001.

    The purchase price was allocated to the acquired assets based on fair values
as follows (in thousands):




<TABLE>
<S>                                                           <C>
Accounts receivable and other assets........................  $ 64
Licensing right.............................................   125
Non-competition agreement...................................    50
Goodwill....................................................   411
                                                              ----
  Total.....................................................  $650
                                                              ====
</TABLE>

     On November 1, 1999, the Company acquired all of the outstanding shares
of The J.L. Price Corporation, a regional contractor referral service,
incorporated in California. The total acquisition cost was $249,000. The
acquisition was accounted for using the purchase method. Accordingly, the
results of operations for The J.L. Price Corporation have been included in
the Company's consolidated statement of operations only from the date of
acquisition.

     The purchase price was allocated to the acquired assets and liabilities
based on fair value as follows (in thousands):

<TABLE>
<S>                                                           <C>
Current liabilities.........................................  $  (107)
Non-competition agreement...................................      100
Goodwill....................................................      256
                                                              -------
  Total.....................................................  $   249
                                                              =======
</TABLE>


Note 5 - Commitments and Contingencies

Operating leases

            In June 1999, the Company entered into a seven-year lease
agreement for another office facility in Redwood City, California. Total
future minimum lease payments for the new facility totaled $3,871,000 at the
date the agreement was signed. Under the terms of the leases, the Company
provided letters of credit as security deposits. In September 1999, the
Company assumed the lease obligation of an office facility in Santa Ana,
California in connection with the purchase of Consolidated Referred Service.
The term of the lease is three years. Total future minimum lease payments
totaled $66,284 at the date the lease obligation was assumed. In September
1999, the Company entered into a five-year lease agreement for an office
facility in Fort Lauderdale, Florida. Total future minimum lease payments
totaled $556,000 at the date the agreement was signed. In May 2000, the
Company entered into a five-year lease agreement for an office facility in
Camarillo, California. Total future minimum lease payments for the new
facility totaled $706,000 at the date the agreement was signed.

            Future minimum lease payments under non-cancelable operating
leases subsequent to December 31, 2000 are as follows (in thousands):

<TABLE>
<CAPTION>
Year Ending December 31,
<S>                                                                       <C>
2001                                                                      $  970
2002                                                                         880
2003                                                                         825
2004                                                                         794
2005                                                                         639
Thereafter                                                                   402
                                                                          ------
                                                                          $4,510
                                                                          ------
</TABLE>

Rent expense in the years ended December 31, 2000, 1999, and 1998 totaled
$1,025,000, $383,000, and $80,000, respectively.

Sales and Marketing Agreements

            The Company has entered into a number of agreements with Internet
media companies to purchase online advertising and linkages. The Company
expenses the amounts as sales and marketing expenses ratably over the respective
terms of the agreements.


                                       47
<PAGE>

         In September 1999, the Company began entering into marketing package
agreements under which the Company will exchange marketing services for
marketing services with investors in Series D and Series E convertible preferred
stock. The minimum future payments under sales and marketing and multi-year
commercial contracts as of December 31, 2000 are as follows (in thousands):

<TABLE>
<CAPTION>
Year Ending December 31,
<S>                                                                      <C>
2001                                                                     $ 6,728
2002                                                                       5,079
2003                                                                         356
2004                                                                         352
                                                                         -------
                                                                         $12,515
                                                                         =======
</TABLE>

Note 6 - Convertible Preferred Stock

            Upon closing of the Company's IPO in March 2000, each share
of outstanding convertible preferred stock was converted automatically into
one share of common stock. Under the Company's Certificate of Incorporation,
as amended on closing of the Company's IPO, the Company is authorized to
issue 5,000,000 shares of preferred stock, $0.001 par value. The Company has
no present plans to issue any shares of preferred stock.

Note 7 - Common Stock

            In fiscal 2000 the Company raised $39.7 million, net of issuance
costs, from an IPO of 2,760,000 shares of common stock.

            The Company has not declared or paid cash dividends as of December
31, 2000.

            In December 1999, certain employees exercised stock options to
purchase 650,381 shares of the Company's common stock at the weighted average
exercise price of $0.99. Under the terms of the options, the Company has the
right to repurchase the unvested shares of common stock at the original issue
price. In the event the employees terminate their employment with the
Company, the repurchase rights lapse 90 days after the date of termination.
At December 31, 1999, 630,416 shares of common stock were subject to
repurchase rights. As consideration for the exercise of these options, the
Company accepted promissory notes in the amount of $633,000 from certain
officers and employees. These non-recourse promissory notes accrued interest
at a rate of 6.2% per annum, and were payable in full in 2002. During 2000,
promissory notes of $77,000 were exchanged for common stock. In October 2000,
the board of directors approved the forgiveness of the remaining promissory
notes in the amount of $556,000 plus interest of $26,000 from certain
officers and employees in connection with their exercise of stock options. As
a result of the forgiveness of the promissory notes, an additional expense of
$582,000 was recorded in the year ended December 31, 2000.

                                       48
<PAGE>

Note 8 - Stock Options

1996 Stock Option Plan

            Under the Company's 1996 Stock Option Plan, as amended, the Company
may issue incentive stock options or non-statutory stock options to purchase up
to 2,700,000 shares of common stock. Incentive stock options may be granted to
employees at exercise prices not lower than fair market value at the date of
grant, as determined by the Board of Directors. Non-statutory stock options may
be granted to employees, directors and consultants, at exercise prices not lower
than 85% of fair market value at the date of grant, as determined by the Board
of Directors. The Board also has the authority to set the term of the options up
to a maximum of ten years. Options granted generally vest over four years.
Unexercised options expire three months after termination of employment with the
Company.

1999 Equity Incentive Plan

            The Company's Board of Directors adopted the 1999 Equity Incentive
Plan (the "Incentive Plan") on December 3, 1999 under which 1,300,000 shares
have been reserved for issuance. The number of shares reserved under the
Incentive Plan will automatically increase on January 1 of each year by the
lesser of 5% of the total number of shares outstanding or 1,300,000 shares. The
Board of Directors implemented a program of automatic option grants to each
non-employee director such that each non-employee director will receive options
to purchase 20,000 shares of common stock upon commencement of service as a
director, which will vest monthly over three years and 5,000 shares annually
thereafter, which will vest monthly over twelve months.

Employee Stock Purchase Plan

            The Company's Board of Directors adopted the Employee Stock
Purchase Plan (the "Purchase Plan") on December 3, 1999 under which 300,000
shares have been reserved for issuance. The Purchase Plan was effected upon
the effective date of the Company's initial public offering ("IPO"). The
number of shares reserved under the Purchase Plan will automatically increase
on January 1 of each year by the lesser of an amount equal to 1% of the total
number of shares outstanding, or 300,000 shares. Under the Purchase Plan,
eligible employees may purchase common stock valued at the lesser of $25,000
or 15% of their compensation. The purchase price per share will be 85% of the
common stock fair value at the lower of certain plan defined dates.

A summary of the activity under the plans is set forth below.

<TABLE>
<CAPTION>
                                                  Outstanding Options
                                 --------------------------------------------------------
                                                                                 Weighted
                                    Shares                        Aggregate      Average
                                   Available        Number         Exercise      Exercise
                                   For Grant      of Shares         Price         Price
                                                                 (in thousands)
                                 --------------   ------------   --------------  --------
<S>                              <C>              <C>             <C>            <C>
Balances, January 1, 1998         150,845          444,155        $   52          $  0.12

Additional shares authorized      400,000
Options granted                  (643,000)         643,000           161             0.25
Options exercised                      --          (27,250)           (2)            0.10
Options canceled                  295,937         (295,937)          (50)            0.17
                               ----------       ----------     ---------

Balances, December 31, 1998       203,782          763,968           161             0.21

Additional shares authorized    3,000,000
Options granted                (2,377,302)       2,377,302         7,698             3.24
Options exercised                      --         (930,327)         (782)            0.84
Options canceled                  352,876         (352,876)         (161)            0.46
                               ----------       ----------     ---------

Balances, December 31, 1999     1,179,356        1,858,067         6,916             3.72
                               ----------       ----------     ---------

Options granted                  (710,353)         710,353         5,935             8.36
Options exercised                      --         (117,460)          (39)            0.34
Options canceled                  826,319         (826,319)       (5,220)            6.32
Options canceled to RSGP        1,147,661       (1,147,661)       (5,899)            5.14
                               ----------       ----------     ---------           ------

Balances, December 31, 2000     2,442,983          476,980         1,693           $ 3.55
                               ----------       ----------     ---------           ------

</TABLE>


                                       49
<PAGE>

The following table summarizes information with respect to stock options
outstanding at December 31, 2000:

<TABLE>
<CAPTION>
                  Options Outstanding                  Options Exercisable
            ------------------------------         --------------------------------
                                Weighted
                                 Average                               Weighted
                                Remaining                              Average
Exercise      Number           Contractual            Number           Exercise
 Price      Outstanding       Life (Years)         Outstanding          Price
--------    -----------       ------------         -----------         ------------
<S>            <C>                  <C>                  <C>             <C>
 $0.10           5,834               6.5                  -               $ 0.10
 $0.25         196,739               8.2                2,930             $ 0.25
 $0.44          38,350               9.8                  -               $ 0.44
 $1.50-$1.56    38,233           8.4-9.7               16,229             $ 1.50-$ 1.56
 $2.25-$2.38     3,950           9.2-9.5                  -               $ 2.25-$ 2.38
 $3.94-$4.00    38,927           8.7-9.4                2,458             $ 3.94-$ 4.00
 $6.25-$7.50    81,797           8.7-9.0                4,552             $ 6.25-$ 7.50
 $11.00-$15.00  73,150           9.0-9.2               21,939             $11.00-$15.00
              --------                                 ------
               476,980                                 48,108
              ========                                 ======
</TABLE>

                                       50
<PAGE>

Restricted Share Grant Program

            In October 2000, the board of directors of the Company approved a
Restricted Share Grant Program ("RSGP"). Under the terms of this program, all
employees holding vested and unvested options had the right to exchange their
options for shares of the Company's common stock on a predetermined exchange
ratio. The total number of shares issued was 886,000. Shares issued in
exchange for vested options were fully vested at the date of grant. Shares
issued in exchange for unvested shares are restricted and will vest in equal
installments every three months over a 15-month period from date of grant. An
option holder had to be employed by the Company on the date of grant, which
was December 5, 2000, to be eligible to participate in the program. In
connection with this program, there was no additional compensation charge or
change to the amortization charge.

Fair value disclosures

            The fair value of each option grant has been estimated on the date
of grant using the minimum value method with the following assumptions:

<TABLE>
<CAPTION>
                                                                      Years Ended December 31,
                                                           ---------------------------------------------
                                                             2000              1999             1998
                                                             ----              ----             ----
<S>                                                        <C>              <C>              <C>
Weighted average fair values                                $  4.09          $  7.06          $2.06
Assumptions:
         Risk-free interest rates                         4.99-6.71%       4.30-5.99%        4.30-5.59%
         Expected lives                                    4 years          4 years           4 years
         Dividend yield                                          --               --             --
         Volatility                                             129%              --             --
</TABLE>

            Had compensation cost for the Company's stock option plan been
determined based on the fair market values of these stock options at the
grant dates consistent with the provisions of SFAS No. 123, the Company's net
loss would have changed to the pro forma amounts as follows (in thousands
except per share data):

<TABLE>
<CAPTION>
                                                                      Years Ended December 31,
                                                           ---------------------------------------------
                                                             2000              1999             1998
                                                             ----              ----             ----
<S>                                                        <C>              <C>              <C>
Net loss attributable to common stockholders               $(57,784)        $  (36,490)      $   (4,832)
Net loss attributable to common stockholders--pro forma    $(58,772)        $  (36,826)      $   (4,837)
Basic and diluted net loss per common share                $  (3.65)        $   (23.85)      $    (3.49)
Basic and diluted net loss per common share--pro forma     $  (3.71)        $   (24.07)      $    (3.50)
</TABLE>

            The effects of applying SFAS No. 123 in this pro forma disclosure
may not be indicative of future amounts. Additional awards in future years are
anticipated.


                                       51

<PAGE>

Unearned stock-based compensation

            In connection with certain employee and non-employee stock option
grants during 1998 and 1999, the Company recorded unearned stock-based
compensation totaling $13,835,000, which is being amortized over the vesting
periods of the related options, generally four years using the method set out
in FASB Interpretation No. 28 ("FIN 28"). Under the FIN 28 method, each
vested tranche of options is accounted for as a separate option grant awarded
for past services. Accordingly, the compensation expense is recognized over
the period during which the services have been provided. This method results
in higher compensation expense in the earlier vesting periods of the related
options. Stock based compensation charges associated with employees who
terminate their employment with the Company and have unvested options are
reversed. Amortization of this stock-based compensation recognized during the
years ended December 31, 1998, 1999 and 2000 totaled approximately $326,000,
$5 million and $5 million, respectively, and is classified as a separate
component of operating expenses in our consolidated statements of operations.

Note 9 - Warrants

            In June 1997, the Company issued warrants to purchase 10,000
shares of common stock at $1.00 per share to members of the Board of
Directors. In June 1997, the Company also issued warrants to purchase 95,600
shares of Series A Convertible Preferred Stock to non-employees and warrants
to purchase 800 shares of Series A Convertible Preferred Stock to a member of
the Board of Directors at $1.00 per share in connection with the Series A
financing.

            In March 1998, the Company issued warrants to purchase 47,009
shares of Series B Convertible Preferred Stock to holders of Series B
Convertible Preferred Stock in connection with the Series B financing.

            In connection with the Series C Convertible Preferred Stock
financing in March 1999, the Company issued a warrant to purchase 47,167
shares of Series C Convertible Preferred Stock as consideration for stock
issuance costs. In September 1999, the Company granted a customer and its
affiliate warrants to purchase 209,000 and 117,000 shares of Series D
Convertible Preferred Stock, respectively, as consideration for sales and
marketing expense.

            In connection with the Series E Convertible Preferred Stock
financing and the marketing purchase agreements in November and December
1999, the Company issued warrants to the investors to purchase 420,000 shares
of common stock at $0.01 per share and 842,596 shares of common stock at
$13.50 per share.

            Upon the IPO, the warrants to puchase convertible preferred stock
automatically were converted to warrants to purchase common stock of the
Company under the same terms.

            During fiscal 2000 warrants to purchase 6,000 and 47,000 shares
of Series A and C Convertible Preferred Stock were exercised for cash
proceeds of $315,000. An additional 115,000 warrants to purchase Series A and
B Convertible Preferred Stock were issued upon IPO. Warrants to purchase
209,000 shares of Series D Convertible Preferred Stock were issued in
December 2000.

            The following summarizes the common stock warrants outstanding at
December 31, 2000:

<TABLE>
<CAPTION>
                  Number     Exercise      Term
                  of Shares  Price         (years)    Expiration Date
                  ---------  -----         -------    ---------------
<S>                <C>        <C>             <C>     <C>
                     8,400     $1.00          4       June 30, 2001
                   117,000     $0.01          3       September 9, 2002
                     5,000     $1.00          10      June 16, 2007
                   245,000     $0.01          5       November 23, 2004
                   100,000     $0.01          5       December 6, 2004
                   583,333    $13.50          5       December 6, 2004
                    75,000     $0.01          5       December 12, 2004
                   259,263    $13.50          5       December 12, 2004
</TABLE>


                                       52
<PAGE>


            The Company has determined the estimated fair market value of the
warrants issued in the years ended December 31, 2000 and 1999 to be nil and
$13,806,000, respectively. The Company believes that the fair value of the
warrants issued is a more reliable measure than the services received because
it has recent issuances of its preferred stock to third party investors to
indicate fair value. The fair value of the warrants was estimated using the
Black-Scholes model and was charged to operating expenses and stock issuance
costs in 1997 and 1998. The fair value of the warrants for Series C
convertible preferred stock issued in 1999 was simultaneously recorded in
additional paid-in capital and also charged to stock issue costs. The fair
value of warrants for Series D convertible preferred stock and for common
stock issued in 1999 was approximately $2.5 million and approximately $11.3
million, respectively.

            The amortization of warrant stock-based compensation was $4
million, $517,000, and nil for the years ended December 31, 2000, 1999 and
1998, respectively. The remaining unearned stock-based compensation from
preferred and common warrants granted is being charged over the periods of
the related co-marketing agreements, which expire between 2001 and 2011 as
follows (in thousands):

Year Ending December 31,

2001                                                                      $3,990
2002                                                                       3,717
2003                                                                         334
2004                                                                         223
2005                                                                         152
Thereafter                                                                   871
                                                                         -------
                                                                          $9,299
                                                                         -------

            The fair value of each warrant has been estimated on the date of
issuance using the term of the warrant and the following assumptions:

<TABLE>
<CAPTION>
                                                            Years Ended
                                                            December 31,
                                                            ------------
                                                  2000         1999         1998
                                                  ----         ----         ----
<S>                                              <C>          <C>          <C>
Risk-free interest rate                             --         5.87%        5.36%
Expected dividends                                  --           --           --
</TABLE>

<TABLE>
<CAPTION>
                                                            Years Ended
                                                            December 31,
                                                            ------------
                                                  2000         1999         1998
                                                  ----         ----         ----
<S>                                              <C>          <C>          <C>
Volatility                                          --          70%          70%
</TABLE>


                                       53
<PAGE>


Note 10 - Related Party Transactions

Notes Receivable from Officer

            In May 1999, the Company entered into an employment related
promissory note agreement with its Chairman and Chief Executive Officer,
Ronald B. Cooper, whereby the Company agreed to loan the officer up to
$500,000. The full amount was loaned in August 1999. The note accrues
interest at 5.25% per annum and was due and payable on the earlier of the
first day of the month following the one-year anniversary of the closing of a
firm commitment underwritten public offering of the Company's common stock or
within 90 days after the voluntary termination of the officer's employment or
the termination of the officer's employment for cause. The note is
collateralized by the officer's shares of stock and options to purchase
shares of stock. In April 2000, the Company loaned its Chairman and Chief
Executive Officer $1.0 million accruing interest at a rate of 6.46% per annum
and repayable on the earlier of April 30, 2001 or when the borrower is able
to collateralize or borrow on margin using his Company stock. Both loans are
collateralized by the stock owned by the borrower. In accordance with FAS 114
"Accounting by Creditors for Impairment of a Loan" in the fourth quarter of
2000, the Company determined that there was an other than temporary decline
in the value of the collateral and that the loans were impaired. Accordingly
the Company made an allowance of approximately $1.3 million for the
impairment.

Strategic Investors Convertible Preferred Stock

            Certain strategic investors who participated in the Company's series
D and E convertible preferred stock offerings are also marketing customers of
the Company. In connection with purchase of the convertible preferred stock and
the consummation of the marketing package agreements, the Company issued
warrants to these customers to purchase 326,000 shares of convertible preferred
and 1,262,596 shares of common stock.

            The Company entered into multi-year commercial contracts with
certain strategic investors, which include cooperative marketing arrangements
under which the Company is obligated to fund co-branded advertisements on
television and in the print media, with or on behalf of the related commercial
party. In the commercial contracts to date, the Company has committed to spend
between 50% to 100% of the fees it expects to receive under these commercial
contracts with the related commercial party. These commitments are disclosed in
Note 5 to the Notes to the Consolidated Financial Statements.

            The accounts payable and accounts receivable balances due to and
from related parties reflects the marketing and co-marketing services provided
for and by related parties under the multi-year commercial contracts. These
balances are settled by the Company on a gross basis without set-off.


                                       54
<PAGE>

            The Company recognized the following amounts in marketing
revenues, sales and marketing expense, accounts receivable and accounts
payable under multi-year commercial contracts (in thousands):

<TABLE>
<CAPTION>
==============================================================================================
                                                    Year Ended
                                                 December 31, 2000
----------------------------------------------------------------------------------------------
                           Revenues    Sales and Marketing    Accounts    Accounts Payable and
                           --------          Expense         Receivable    Accrued Liabilities
                                             -------         ----------    -------------------
<S>                          <C>              <C>               <C>               <C>
General Electric and
affiliates                   $  0             $  0              $646              $438
Dow Chemical                 $151             $  0              $119              $ 71
Dupont                       $  0             $  0              $500              $250
Owens Corning                $661             $516              $623              $141
Armstrong                    $180             $  0              $  7              $ 94
Wickes                       $188             $  0              $  0              $  0
==============================================================================================
</TABLE>

Note 11 - 401(K) Plan

            The Company has adopted a 401(k) savings plan under which eligible
employees may contribute the lesser of 20% of their eligible compensation or the
annual limit of $10,500 in 2000. In addition, the Company may make discretionary
contributions to the plan, although none has been made in any of the periods
presented.

Note 12 - Income Taxes

            At December 31, 2000, the Company had net operating loss
carryforwards available to offset future regular and alternative minimum
taxable income of approximately $82,673,000 and $38,337,000 for federal and
state purposes, respectively. These carryforwards expire between 2005
and 2019, if not utilized before these dates. At December 31, 2000, the
Company had approximately $67,000 of federal and $52,000 of state research
and development credit carryforwards available to offset future taxable
income, which expire in varying amounts beginning in 2013 and indefinitely,
respectively. Under the Tax Reform Act of 1986, the amounts of and benefits
from net operating loss carryforwards may be impaired or limited in certain
circumstances. Events which cause limitations in the amounts of net operating
losses that the Company may utilize in any year include, but are not limited
to, a cumulative ownership change of more than 50% as defined, over a
three-year period.

            The Company's deferred tax assets and liabilities are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                              December 31,
                                                              ------------
                                                          2000            1999
                                                          ----            ----
<S>                                                    <C>             <C>
Deferred tax assets (current):
         Net operating losses                          $ 31,498        $ 11,387
         Accruals and reserves                            1,651           1,980
         Research credits                                   119             119
                                                       --------        --------
                                                         33,268          13,486
                                                       --------        --------
Deferred tax liabilities (non-current):
         Depreciation                                      (191)            (78)
                                                       --------        --------
         Deferred tax liabilities                          (191)            (78)
                                                       --------        --------

Net deferred tax assets                                  33,077          13,408
Valuation allowance                                     (33,077)        (13,408)
                                                       --------        --------
                                                       $     --        $     --
                                                       --------        --------
</TABLE>

            Due to uncertainty surrounding the realization of favorable tax
attributes in future tax returns, the Company has placed a valuation allowance
against all of its net deferred tax assets. At such time as it is determined
that it is more likely than not that the deferred tax assets are realizable, the
valuation allowance will be reduced.

Note 13 - Segment Information

            The Company currently operates in a single business segment as
there is only one measurement of profitability for its operations. Through
December 31, 2000, foreign operations have not been significant in either
revenues or investments in long-lived assets.

            A summary of the Company's revenues by service offering is as
follows (in thousands):

<TABLE>
<CAPTION>
                               Year ended           Year ended             Year ended
                           December 31, 2000     December 31, 1999      December 31, 1998
                           -----------------     -----------------      -----------------
<S>                        <C>                   <C>                    <C>
Service revenues:
     Lead fees                   $1,221               $  365                 $  74
     Win fees                     2,812                  718                   155
     Other fees                     658                   56                     9
                                 ------               ------                 -----
Total service revenues            4,697                1,139                   238
Marketing revenues                2,757                  926                    20
                                 ------               ------                 -----
Total service and marketing
  revenues                       $7,454               $2,065                 $ 258
                                 ======               ======                 =====
</TABLE>

            For the years ended December 31, 2000, 1999 and 1998, no
customers represented over 10% of service or marketing revenues.

Note 14 - Subsequent Events (unaudited)

            Effective March 29, 2001, the Company announced a restructuring
plan to improve operating efficiencies and to support new revenue growth
initiatives. The restructuring plan includes a net workforce reduction of
approximately 25%, and plans to consolidate office space in Redwood City,
California. The Company estimates severance costs and other transition costs
to range between $1.5 and $2.0 million during 2001.

            The Company's Board of Directors also authorized a repurchase of
up to $2 million of the Company's common stock.

                                      55

<PAGE>

SIGNATURES

      Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed, April 2, 2001
on its behalf by the undersigned duly authorized.

                                        IMPROVENET, INC.
                                        (Registrant)


                                        By:/s/ Ronald Cooper
                                        ----------------------------------------
                                        Ronald Cooper
                                        Chairman, CEO & President

POWER OF ATTORNEY

      Know All Persons By These Presents, that each person whose signature
appears below constitutes and appoints Ronald Cooper and Michael Cribbin,
and each or any one of them, his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments to
this Annual Report on Form 10-K, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming our
signatures as they may be signed by ours said attorney-in-fact and any and all
amendments to this Annual Report on Form 10-K.

      Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report on Form 10-K has been signed by the following persons in
the capacities and on the dates indicated.


                                        By:/s/ Ronald Cooper
                                        ----------------------------------------
                                        Ronald Cooper
                                        Chairman, CEO & President



                                        By:/s/ Michael Cribbin
                                        ----------------------------------------
                                        Michael Cribbin
                                        VP of Finance (Principal accounting and
                                        financial officer)



                                        By:/s/ Andrew Anker
                                        ----------------------------------------
                                        Andrew Anker
                                        Director



                                        By:/s/ Rhonda Brooks
                                        ----------------------------------------
                                        Rhonda Brooks
                                        Director



                                        By:/s/ Charles Brown
                                        ----------------------------------------
                                        Charles Brown
                                        Director



                                        By:/s/ Garrett Gruener
                                        ----------------------------------------
                                        Garrett Gruener
                                        Director



                                        By:/s/ Alex Knight
                                        ----------------------------------------
                                        Alex Knight
                                        Director



                                        By:/s/ Bob Stevens
                                        ----------------------------------------
                                        Bob Stevens
                                        Director



Date: April 2, 2001


                                       56

<PAGE>

                                                                     Schedule II

              VALUATION AND QUALIFYING ACCOUNTS (In thousands)

<TABLE>
<CAPTION>
                                                                           Additions
                                                   Balance at   -------------------------------------                    Balance
                                                   beginning    Charged to costs     Charged to other                   at end of
Description                                        of period      and expenses          accounts          Deductions      period
-----------                                       ----------    ----------------     ----------------  ---------------- ---------
<S>                                                <C>          <C>                  <C>               <C>              <C>
Allowance for doubtful accounts:
    Year ended December 31, 1998...............     $     3         $     5               $    0              $0         $     8
    Year ended December 31, 1999...............     $     8         $   140               $    0              $0         $   148
    Year ended December 31, 2000...............     $   148         $ 1,372               $    0              $0         $ 1,520
Valuation allowance for deferred tax assets:
    Year ended December 31, 1998...............     $   598         $ 1,570               $    0              $0         $ 2,168
    Year ended December 31, 1999...............     $ 2,168         $11,240               $    0              $0         $13,408
    Year ended December 31, 2000...............     $13,408         $19,669               $    0              $0         $33,077
Allowance for notes receivable from related
  party:
    Year ended December 31, 1999...............     $     0         $     0               $  500              $0         $   500
    Year ended December 31, 2000...............     $   500         $(1,261)              $1,000              $0         $   239
</TABLE>


                                      S-1