EXHIBIT 99.1


                          Index to Financial Statements



Sitematic Corporation Financial Statements:

     Report of KPMG LLP, Independent Auditors.................................51

     Balance Sheet at September 30, 1999......................................52

     Statement of Operations for the year ended
         September 30, 1999 ..................................................53

     Statement of Cash Flows for the year ended
         September 30, 1999 ..................................................54

     Statements of Stockholders' Deficit for the year
         ended September 30, 1999 ............................................55

     Notes to Financial Statements............................................56

NetObjects, Inc. Pro Forma Condensed Combined Financial Statements:

     Pro Forma Condensed Combined Balance Sheet at
         September 30, 1999 (unaudited).......................................64

     Pro Forma Condensed Combined Statement of Operations
         for the year ended September 30, 1999 (unaudited)....................65

     Notes to the Unaudited Pro Forma Condensed Combined
          Financial Statements................................................66




                                       50

<PAGE>

                          Independent Auditors' Report



The Board of Directors
Sitematic Corporation

         We have audited the accompanying balance sheet of Sitematic Corporation
as  of  September  30,  1999,   and  the  related   statements  of   operations,
stockholders'  deficit,  and cash flows for the year then ended. These financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

         We conducted our audit in accordance with generally  accepted  auditing
standards.  Those standards 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.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

         In our opinion,  the  financial  statements  referred to above  present
fairly,  in  all  material   respects,   the  financial  position  of  Sitematic
Corporation  as of September 30, 1999, and the results of its operations and its
cash  flows for the year then  ended,  in  conformity  with  generally  accepted
accounting principles.



                                             KPMG LLP



San Diego, California
October 22, 1999


                                       51
<PAGE>

                              SITEMATIC CORPORATION

                                  Balance Sheet
                               September 30, 1999
                 (in thousands, except share and per share data)

                                Assets

Current assets:
     Cash and cash equivalents                                          $   257
     Trade receivables, net of allowance for
          doubtful accounts of $8                                            61
     Deposits                                                                 4
                                                                        -------
         Total current assets                                               322
                                                                        -------
Property and equipment, net                                                 236
Other assets                                                                 26
                                                                        -------
       Total assets                                                         584
                                                                        =======

Liabilities and Stockholders' Deficit
Current liabilities:

     Accounts payable                                                       218
     Accrued expenses                                                       124
     Accrued payroll                                                         80
     Accrued commissions                                                     89
     Notes payable                                                          500
     Current portion of obligations under capital leases (Note 4)            79
     Deferred revenue                                                        53
                                                                        -------
        Total current liabilities                                         1,143
Obligations under capital leases                                            150
                                                                        -------
        Total liabilities                                                 1,293
                                                                        -------
Redeemable Preferred stock, no par value:
Series A convertible preferred stock:

     Authorized shares - 8,200,000
     Issued and outstanding shares - 8,200,000
       liquidation preference of $2,216,900 plus
       $0.02 per share dividend preference                                2 067
                                                                        -------

Stockholders' deficit:
   Common stock, no par value:

     Authorized shares - 19,100,000

     Issued and outstanding shares - 7,645,990                               89
   Additional paid-in capital                                                58
   Unearned compensation                                                    (57)
   Accumulated deficit                                                   (2,866)
                                                                        -------
         Total stockholders' deficit                                     (2,776)
                                                                        -------

         Commitments

         Total liabilities and stockholders' deficit                    $   584
                                                                        =======

    The accompanying notes are an integral part of these financial statements

                                       52


<PAGE>

                              SITEMATIC CORPORATION
                             Statement of Operations
                          Year ended September 30, 1999
                 (in thousands, except share and per share data)

Service revenues                                                    $       203
Cost of sales                                                                29
                                                                    -----------
        Gross profit                                                        174
                                                                    -----------
Operating expenses:
     Sales and marketing                                                  1,270
     Research and development                                               647
     General and administrative                                             924
                                                                    -----------
        Total operating expenses                                          2,841
                                                                    -----------
        Loss from operations                                             (2,667)

Interest income                                                              43
Interest expense                                                            (10)
                                                                    -----------
        Loss before income taxes                                         (2,634)
                                                                    -----------

Income tax expense                                                            1
                                                                    -----------

        Net loss                                                    $    (2,635)
                                                                    ===========
Basic and diluted net loss per share                                $     (0.35)
                                                                    ===========
Weighted average common shares outstanding                            7,592,150
                                                                    ===========

   The accompanying notes are an integral part of these financial statements.


                                       53


<PAGE>


                              SITEMATIC CORPORATION
                             Statement of Cash Flows
                          Year ended September 30, 1999
                                 (in thousands)

Cash flows used in operating activities
Net loss                                                                $(2,635)
Adjustments to reconcile net loss to net cash used in
 operating activities:
   Depreciation and amortization                                             56
   Stock compensation for services                                           45
   Compensatory charge for issuance of stock options                          2
Changes in operating assets and liabilities:
         Trade receivables, net                                             (61)
         Current deposits                                                    (4)
         Other assets                                                       (26)
         Accounts payable and accrued liabilities                           428
         Deferred revenue                                                    53
                                                                        -------
             Net cash used in operating activities                       (2,142)
                                                                        -------

Cash flows used in investing activities
     Purchases of property and equipment                                    (21)
                                                                        -------
             Net cash used in investing activities                          (21)
                                                                        -------

Cash flows used in financing activities
     Net proceeds from issuance of preferred stock                        1,921
     Repayment of capital leases                                            (22)
     Proceeds from borrowing                                                500
     Proceeds from exercise of stock options                                  1
                                                                        -------
             Net cash provided by financing activities                    2,400
                                                                        -------

             Net decrease in cash and cash equivalents                      237
                                                                        -------

  Cash  and  cash  equivalents  at  beginning  of  year                      20
                                                                        -------
  Cash  and  cash equivalents at end of year                            $   257
                                                                        =======
  Supplemental  disclosures  of  cash  flow information:
     Interest paid                                                      $    10
                                                                        =======
     Income taxes                                                       $     2
                                                                        =======

Noncash investing and financing activities:
   In 1999, the Company entered into capital leases
     for property and equipment
     in the amount of $250,667

   Conversion of promissory notes outstanding at
      September 30, 1998 to Series

   A preferred stock in fiscal 1999                                     $    80
                                                                        =======
Issuance of common stock as a ment for services
  rendered by third-parties                                             $    45
                                                                        =======

   The accompanying notes are an integral part of these financial statements.

                                       54


<PAGE>

<TABLE>

                                                        SITEMATIC CORPORATION
                                                 Statement of Stockholders' Deficit
                                                    Year ended September 30, 1999
                                                           (in thousands)
<CAPTION>
                                             Common stock                                                                 Total
                                           -----------------        Additional          Unearned      Accumulated     stockholders'
                                           Shares     Amount     paid-in capital     compensation       deficit          deficit
                                           ------     ------     ---------------     ------------       -------          -------

<S>                                         <C>        <C>                    <C>              <C>       <C>              <C>
Balance at September 30, 1998               6,452      $  43                  --               --          (231)            (188)

Conversion of Series A
     preferred stock into
     common stock                           1,018         --                  --               --            --               --

Issuance of common stock
     for services rendered                    168         45                  --               --            --               45

Issuance of stock options                      --         --                  58              (58)           --               --

Amortization of unearned
     compensation                              --         --                  --                2            --                2

Exercise of stock options                       8          1                  --               --            --                1

Net loss                                       --         --                  --               --        (2,635)          (2,635)
                                           ------     ------     ---------------     ------------       -------          -------

Balance at September 30, 1999               7,646      $  89                  58              (57)       (2,866)          (2,776)
                                           ======     ======     ===============     ============       =======          =======
<FN>

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


                                                                 55

<PAGE>

                              SITEMATIC CORPORATION
                               September 30, 1999

                          Notes to Financial Statements

1.     Organization and Significant Accounting Policies

       (a)    Organization

              Sitematic   Corporation   (the  Company),   based  in  San  Diego,
              California, offers a web-based service that enables small business
              users to build simple  e-commerce-enabled  websites. The Company's
              products   compete  in  the  market   for   Internet   application
              development tools.

       (b)    Cash and Cash Equivalents

              The Company considers all investments with an original maturity of
              less  than  three  months  to be cash  and cash  equivalents.  The
              Company evaluates the financial  strength of institutions at which
              significant  investments  are made and believes the related credit
              risk is limited to an acceptable level.

       (c)    Concentration of Credit Risk

              Credit  is  extended  based  on  an  evaluation  of  a  customer's
              financial condition and collateral  generally is not required.  To
              date,  credit  losses have been  minimal and such losses have been
              within management's expectations.

              For the year ended  September  30,  1999,  sales to two  customers
              accounted   for  22%  and  20%  of  total   revenue.   Outstanding
              receivables from these customers accounted for 50% and 8% of trade
              accounts receivable at September 30, 1999.

       (d)    Long-Lived Assets

              Long-lived  assets  and  certain   identifiable   intangibles  are
              reviewed   for   impairment   whenever   events  or   changes   in
              circumstances  indicate  that the carrying  amount of an asset may
              not be recoverable.  Recoverability  of assets to be held and used
              is measured by a comparison of the carrying  amount of an asset to
              future net cash flows (undiscounted and without interest) expected
              to be generated by the asset.  If such assets are considered to be
              impaired,  the  impairment  to be  recognized  is  measured by the
              amount by which the carrying amount of the assets exceeds the fair
              value of the assets.  Assets to be disposed of are reported at the
              lower of the carrying amount or fair value less costs to sell.

       (e)    Property and Equipment

              Property and  equipment  are  recorded at cost net of  accumulated
              depreciation.  Depreciation is calculated using the  straight-line
              method over the  estimated  useful  lives of the assets  which are
              generally three years.  Amortization of assets under capital lease
              is recorded using the straight-line method based on the shorter of
              the lease term or the estimated useful lives of the assets.

       (f)    Revenue Recognition

              Revenue is derived from providing  server-based web publishing and
              e-commerce  tools  and  services  and the  web  hosting  of  those
              services and is accounted for under the provisions of Statement of
              Position (SOP) 97-2,  Software Revenue  Recognition.  Revenue from
              software  services  sold to end users is deferred  and  recognized
              ratably  over  the  life of the  service  contract.  Revenue  from
              partners for website  preparation  is recognized  upon delivery of
              the completed website.

       (g)    Research and Development Expenses

              Expenditures  for research and  development  costs are expensed in
the year incurred.

                                       56
<PAGE>



       (h)    Fair Value of Financial Instruments

              SFAS  No.  107,   Disclosures   About  Fair  Value  of   Financial
              Instruments,  requires  that fair values be disclosed  for most of
              the Company's financial instruments.  The carrying amounts of cash
              and cash equivalents, trade receivables, accounts payable, accrued
              expenses,  accrued payroll,  accrued commissions and notes payable
              approximate  fair  value  because of the short  maturity  of these
              instruments.

       (i)    Stock-Based Compensation

              The Company applies the intrinsic value-based method of accounting
              prescribed  by Accounting  Principles  Board (APB) Opinion No. 25,
              Accounting   for  Stock   Issued   to   Employees,   and   related
              interpretations,  in accounting  for its fixed plan stock options.
              As such,  compensation  expense  would  be  recorded  for  options
              granted  to  employees  on the date of grant  only if the  current
              market price of the underlying  stock exceeded the exercise price.
              SFAS No. 123,  Accounting for  Stock-Based  Compensation,  permits
              entities to recognize as expense over the vesting  period the fair
              value  of  all   stock-based   awards   on  the  date  of   grant.
              Alternatively,  SFAS No. 123 also  allows  entities to continue to
              apply the  provisions  of APB Opinion No. 25 and provide pro forma
              net  income  and pro  forma  earnings  per share  disclosures  for
              employee  stock option  grants made in 1996 and future years as if
              the  fair-value-based  method  defined  in SFAS  No.  123 had been
              applied.  The  Company  has  elected  to  continue  to  apply  the
              provisions  of APB  Opinion  No.  25 and  provide  the  pro  forma
              disclosure provisions of SFAS No. 123.

       (j)    Income Taxes

              Income  taxes are  accounted  for  under  the asset and  liability
              method. Deferred tax assets and liabilities are recognized for the
              future tax  consequences  attributable to differences  between the
              financial  statement  carrying  amounts  of  existing  assets  and
              liabilities and their  respective tax bases and operating loss and
              tax credit carryforwards.  Deferred tax assets and liabilities are
              measured  using  enacted  tax rates  expected  to apply to taxable
              income  in the  years in which  those  temporary  differences  are
              expected to be  recovered  or settled.  The effect on deferred tax
              assets and  liabilities  of a change in tax rates is recognized in
              income in the period that includes the enactment date.

       (k)    Earnings per Share

              The  Company  computes  basic and  diluted  earnings  per share in
              accordance with SFAS No. 128, Earnings per Share (EPS).  Basic EPS
              excludes  the  dilutive  effects of  options,  warrants  and other
              convertible   securities.   Diluted  EPS  reflects  the  potential
              dilution of  securities  that could  share in the  earnings of the
              Company. For the year ended September 30, 1999, options,  warrants
              and convertible  preferred stock  representing  10,630,857  shares
              were excluded from the  computation  of diluted net loss per share
              as their effect was antidilutive.

       (l)    Use of Estimates

              Management  of the  Company  has made a number  of  estimates  and
              assumptions  relating  to the  reporting  of assets,  liabilities,
              revenues and expenses and the disclosure of contingent  assets and
              liabilities  to prepare these  financial  statements in conformity
              with  generally  accepted  accounting  principles.  Actual results
              could differ from those estimates.

2.     Property and Equipment

       Property and  equipment  consists of the  following  as of September  30,
1999:

       Computer equipment                                         $   18,148
       Software                                                        6,500
       Assets under capital lease                                    289,603
                                                                 -----------
                                                                     314,251
           Less accumulated depreciation and amortization            (78,062)
                                                                 -----------
                                                                  $  236,189
                                                                 ===========

       Accumulated depreciation and amortization includes $53,295 of accumulated
       amortization related to assets under capital lease.

                                       57

<PAGE>

3.     Notes Payable

       On August 19, 1999,  the Company  entered into a Bridge Loan Agreement in
       the form of an unsecured  promissory  note, (the Note),  with NetObjects,
       Inc.  (NetObjects).  Under the terms of the Note,  the  Company  received
       $250,000 in August and an additional $250,000 in September.  Principal is
       to be repaid upon demand of NetObjects Inc. (plus  applicable  interest).
       Interest  accrues at the annual rate of 9%. As of September  30, 1999, no
       payments  had  been  made  by the  Company.  As  discussed  in  Note  11,
       NetObjects purchase the Company in October 1999.

                                       58

<PAGE>


4.     Lease Commitments

       The Company leases its administrative offices and certain equipment under
       noncancelable  lease  agreements.  Future  minimum lease  payments  under
       noncancelable  operating leases (with initial or remaining lease terms in
       excess of one year) and  future  minimum  capital  lease  payments  as of
       September 30, 1999 are:

                                               Operating           Capital
  Year ending September 30,                      leases             leases
                                           ----------------      -------------
      2000                                 $        126,699             94,815
      2001                                           22,907             94,815
      2002                                              460             67,759
                                           ----------------      -------------
      Total minimum lease payments         $        150,066            257,389
                                           ================
  Less estimated executory costs                                            --
                                                                 -------------
      Net minimum lease payments                                       257,389

  Less amount representing interest (at
      rates ranging from 3.0% to 8.5%)                                 (28,466)
                                                                 -------------
        Present value of net minimum
          capital lease payments                                       228,923

  Less current portion                                                 (79,272)
                                                                 -------------

        Long-term obligations under capital leases               $     149,651
                                                                 =============

  Total rent expense was $85,677 for the year ended September 30, 1999.

                                       59

<PAGE>


5.     Stock Option Plan

       In August 1998, the Company  adopted the 1998 Equity  Incentive Plan (the
       Plan). The maximum number of shares of common stock which may be optioned
       and sold under the Plan to officers,  employees,  directors,  and certain
       other individuals providing services to the Company is 2,668,726. Options
       granted under the Plan generally vest over four years and are exercisable
       for a period of up to ten years  from the date of  grant.  The  following
       table summarizes stock option activity:

                                                             Weighted- average
                                              Shares           exercise price
                                           ------------      -------------------
       Balance at September 30, 1998                 -       $          -
           Granted                           2,988,000               0.03
           Exercised                            (8,125)              0.03
           Canceled                         (1,011,375)              0.03
                                           ------------      -------------------

       Balance at September 30, 1999         1,968,500       $       0.03
                                           ============      ===================

       Balance exercisable at
           September 30, 1999                  215,250       $       0.03
                                           ============      ===================

       The  weighted-average  remaining  contractual  life  of  the  outstanding
       options at September  30, 1999 was 9.4 years.  The exercise  price of the
       options  outstanding  at September 30, 1999 was $0.03,  except for 35,500
       shares that had an exercise price of $0.25 per share.

       For the year ended September 30, 1999,  compensation expense was recorded
       in the amount of $1,568 for options  granted to  employees  for which the
       current  market  price  of the  underlying  stock  on the  date of  grant
       exceeded the exercise price.

       In applying  SFAS No. 123, pro forma  information  regarding net loss has
       been  determined as if the Company has  accounted for its employee  stock
       options under the fair value method of that statement.  The fair value of
       the options was estimated at the date of grant,  using the  Black-Scholes
       option  pricing  model with the following  weighted-average  assumptions:
       risk-free interest rates between 4.57% and 5.86%; dividend yield of zero;
       expected  volatility of zero;  and expected life of options of 5.0 years.
       The estimated  fair value of the options is amortized to expense over the
       options' vesting period. The  weighted-average  fair value of the options
       granted in fiscal 1999 was $0.05.

       Had the Company  determined  compensation cost based on the fair value at
       the grant date for its stock  options  under SFAS No. 123, the  Company's
       net loss for the year ended  September 30, 1999 would have been increased
       to the pro forma amounts indicated below:

           Net loss                       As reported       $(2,634,871)
                                            Pro forma        (2,637,031)

           Net loss per share             As reported             (0.35)
                                            Pro forma             (0.35)


6.     Redeemable Convertible Preferred Stock

       In  August  1998,  the  Company  issued  1,263,170  shares  of  Series  A
       convertible  preferred  stock and  1,736,830  shares of common  stock for
       aggregate net proceeds of $75,000 to a single stockholder.  In connection
       with the  issuance  of the  Series A  convertible  preferred  stock,  the
       Company amended its Articles of Incorporation to effect a 500-for-1 split
       of the common  stock,  to create a new class of preferred  stock,  and to
       increase the  authorized  shares of common stock and  preferred  stock to
       15,000,000 and 5,000,000, respectively.

       In October  and  December  1998 and March  1999,  the  Company  issued an
       aggregate of 7,954,705 shares of Series A convertible  preferred stock at
       $0.2703536  per share for cash and  conversion of promissory  notes.  Net
       proceeds of $2.0  million  were  received  from the  issuance of Series A
       convertible  preferred stock. In connection with the issuance of Series A
       convertible   preferred  stock,  the  Company  amended  its  Articles  of
       Incorporation  to  increase  the  authorized  shares of common  stock and
       preferred stock to 19,100,000

                                       60


<PAGE>


       and 8,200,000,  respectively.  In addition,  1,017,875 shares of Series A
       convertible  preferred stock previously issued to a shareholder in August
       1998 were converted to common stock.

       The holders of the Series A convertible  preferred stock were entitled to
       receive  dividends at the rate of $0.02 per share,  per annum.  Preferred
       stock  dividends  were payable if and when dividends were declared by the
       Board of  Directors.  The  right to such  dividends  was not  cumulative.
       Series A convertible  preferred  stock was  redeemable at the option of a
       majority of the holders of Series A, at any time after October 1, 2003 in
       six  equal  semi-annual   installments.   See  Note  11(unaudited),   for
       information  concerning  the  proceeds  from the sale of the company that
       were paid to the Series A convertible preferred stockholders.

 7.    Stockholders' Deficit

       Certain shares of common stock are restricted and subject to a repurchase
       by the Company in the event the shareholder  leaves the employment of the
       Company.  As of September 30, 1999,  999,995  shares of common stock were
       subject to repurchase under this restricted stock agreement.

       (a)    Warrants

              In fiscal 1999,  in  connection  with the issuance of the Series A
              convertible  preferred stock,  warrants to purchase 369,885 shares
              of the Company's common stock at $0.2703536 per share were issued.
              These  warrants are  exercisable  upon  issuance and expire at the
              earlier of an initial  public  offering or on October 4, 2003. The
              fair value of the warrants was zero.

              In connection with certain  equipment leasing  agreements  entered
              into during  1999,  a warrant for 92,472  shares of the  Company's
              common  stock was  issued.  This  warrant  entitles  the holder to
              purchase 92,472 shares of the Company's common stock at $0.2703536
              per share. The warrant is exercisable at the earlier of nine years
              from the date of grant or four  years from the  effective  date of
              the  Company's  initial  public  offering.  The fair  value of the
              warrant  of $185 was  estimated  using  the  Black-Scholes  option
              pricing model with the  following  weighted  average  assumptions:
              risk-free interest rate of 4.70%; dividend yield of zero; expected
              volatility of zero; and expected life of 9.0 years.

                                       61


<PAGE>



       (b)    Shares Reserved for Future Issuance

              Shares of common stock were reserved for issuance at September 30,
1999 as follows:

             Conversion of Preferred stock                           $ 8,200,000
             Exercise of Options                                       2,660,601
             Exercise of Warrants                                        462,357
             Convertible note                                            720,000
                                                                     -----------

                                                                     $12,042,958
                                                                     ===========


8.     Related Party Transactions

       The outstanding balance on a promissory note issued to a related party in
       1998 was converted into 259,909 shares of Series A preferred stock during
       1999.

9.     Income Taxes

       Significant  components  of  the  Company's  deferred  tax  assets  as of
       September 30, 1999 are shown below:

Deferred tax assets:
    Net operating loss and credit carryforwards                     $ 1,156,011
    Accrued vacation                                                     15,086
    Other - net                                                          39,936
                                                                    -----------

              Total deferred tax assets                               1,211,033

Valuation allowance for deferred tax assets                          (1,211,033)
                                                                    -----------

              Net deferred tax assets                               $      --
                                                                    ===========

       The Company has recorded a 100% valuation  allowance against the deferred
       tax assets as management has  determined  that it is not more likely than
       not that these assets will be realized.

       As  of  September  30,  1999,   the  Company  had  net   operating   loss
       carryforwards   for  federal  and  California   income  tax  purposes  of
       approximately $2,698,600 and $2,698,600, respectively. The California tax
       loss  carryforwards  will  begin  expiring  in  2006,  unless  previously
       utilized.

       As a result of the "change in ownership" provisions of the Tax Reform Act
       of  1986,   utilization   of  the  Company's   tax  net  operating   loss
       carryforwards is subject to an annual limitation in future periods.  As a
       result of the annual  limitation,  a portion of these  carryforwards  may
       expire before  ultimately  becoming  available to reduce  future  taxable
       income.

10.    Employee Benefit Plan

       The  Company's  401(k)  plan  is for the  benefit  of  substantially  all
       employees. Contributions to the plan by the Company are at the discretion
       of the  Board  of  Directors  and  are  subject  to  certain  limitations
       described in the plan. There were no contributions made by the Company to
       the plan during the year ended September 30, 1999.

                                       62


<PAGE>


11.    Subsequent Events (Unaudited)

       NetObjects purchased the Company in October 1999. Subsequent to September
       30, 1999,  but  immediately  prior to the  acquisition  of the Company by
       NetObjects, all outstanding principal and accrued interest under the Note
       was converted into 566,152 shares of the Company's common stock. Upon the
       acquisition of the Company by NetObjects, these shares were canceled.

       On October 4, 1999, the Company was merged into SDI Acquisition  Corp., a
       wholly owned  subsidiary of NetObjects,  in a  stock-for-stock  plus cash
       transaction.  A total of  approximately  2,005,000 shares of unregistered
       NetObjects   common  stock  plus   $1,554,088  in  cash  were  issued  in
       consideration  for all of the  outstanding  shares of the  Company.  Each
       Sitematic  preferred share was converted into $0.189523 cash and 0.112482
       share of  NetObjects  common  stock for a total of 922,352  shares.  Each
       Sitematic  common share was converted  into 0.135870  share of NetObjects
       common stock for a total of 1,038,863 shares. The remaining consideration
       of 43,785  shares of  NetObjects  common stock was received by the former
       holders of Sitematic warrants who converted their warrants into shares of
       Sitematic  common  stock just prior to the  merger  under a net  issuance
       conversion option.  Shares issued in conjunction with the acquisition are
       to be registered  by  NetObjects  no later than May 12, 2000.  All of the
       outstanding  stock  options in the Company  were  converted  into similar
       options  in  NetObjects  common  stock at a ratio of  0.135870  shares of
       NetObjects  for each share of the  Company.  An  additional  500,000  new
       options in  NetObjects  were  issued to  employees  of the  Company.  The
       Company  incurred legal costs of  approximately  $100,000 with respect to
       the  acquisition,  all of  which  were  paid  for by  NetObjects.  Shares
       approximating 10% of the total  consideration  paid were placed in escrow
       for a period of one year  against  undisclosed  claims  and  breaches  of
       representations and warranties.

                                       63
<PAGE>



<TABLE>
                                                          NETOBJECTS, INC.
                                                          AND SUBSIDIARIES
                                                (A Majority Owned Subsidiary of IBM)

                                             Pro Forma Condensed Combined Balance Sheet
                                                           (In thousands)
                                                         September 30, 1999
                                                             (Unaudited)
<CAPTION>
                                                                                                       Pro Forma        Pro Forma
                                                                       NetObjects     Sitematic       Adjustments       Combined
                                                                       ---------      ---------      ---------         ---------
                           Assets
<S>                                                                    <C>            <C>            <C>               <C>
Current assets:
   Cash and cash equivalents                                           $  23,623      $     257      $  (1,554)(a)     $  22,326
   Short-term investments                                                  9,331           --             --               9,331
   Accounts receivable                                                     6,065             61           --               6,126
   Prepaid expenses and other current assets                               1,486              4          (500)               990
                                                                       ---------      ---------      ---------         ---------
     Total current assets                                                 40,505            322         (2,054)           38,773
Property and equipment, net                                                2,204            236           --               2,440
Other assets                                                                --               26           --                  26
Goodwill and other intangible assets                                        --             --           14,121(f)         14,121
                                                                       ---------      ---------      ---------         ---------
      Total assets                                                     $  42,709      $     584      $  12,067         $  55,360
                                                                       =========      =========      =========         =========

Liabilities and Stockholders' Equity
Current liabilities:
   Accounts payable                                                        2,489            218           --               2,707
   Notes payable                                                            --              500           (500)(a)          --
   Accrued compensation                                                    1,068           --             --               1,068
   Other accrued liabilities                                               1,657            293           --               1,950
   Deferred revenue                                                          988             53           --               1,041
   Current portion of capital lease obligations                              281             79           --                 360
                                                                       ---------      ---------      ---------         ---------
      Total current liabilities                                            6,483          1,143           (500)            7,126
                                                                       ---------      ---------      ---------         ---------

Capital lease obligations, less current pertion                               54            150           --                 204
                                                                       ---------      ---------      ---------         ---------

Convertible preferred stock                                                 --            2,067         (2,067)(C)             0

Total stockholders' equity (deficit)                                      36,172         (2,776)       (14,634)           48,030
                                                                       ---------      ---------      ---------         ---------
      Total liabilities and stockholders' equity                       $  42,709      $     584      $  12,067         $  55,360
                                                                       =========      =========      =========         =========

<FN>
                             The accompanying notes are an integral part of these financial statements.

</FN>
</TABLE>
                                                                 64



<PAGE>


<TABLE>
                                                          NETOBJECTS, INC.
                                                          AND SUBSIDIARIES
                                                (A Majority Owned Subsidiary of IBM)

                                        Pro Forma Condensed Combined Statement of Operations
                                                (In thousands, except per share data)
                                                    Year ended September 30, 1999
                                                             (Unaudited)

<CAPTION>
                                                                                                     Pro Forma         Pro Forma
                                                               NetObjects         Sitematic          Adjustments          Combined
                                                              ------------       ------------       ------------       ------------
<S>                                                           <C>                <C>                <C>                <C>
Revenues:
    Software license fees                                     $     13,566               --                 --               13,566
    Service revenues                                                 2,178                203               --                2,381
    Software license fees from IBM                                   3,689               --                 --                3,689
    Service revenues from IBM                                        2,782               --                 --                2,986
                                                              ------------       ------------       ------------       ------------
      Total revenues                                                22,215                203               --               22,418
                                                              ------------       ------------       ------------       ------------

Cost of revenues:
    Software license fees                                            1,817               --                 --                1,817
    Service revenues                                                 2,113               --                 --                2,113
    Service revenues from IBM                                        2,295                 29               --                2,324
                                                              ------------       ------------       ------------       ------------
      Total cost of revenues                                         6,225                 29               --                6,254
                                                              ------------       ------------       ------------       ------------

Gross profit                                                        15,990                174               --               16,164
                                                              ------------       ------------       ------------       ------------

Operating expenses:
    Sales and marketing                                             18,800              1,270               --               20,070
    Research and development                                         9,358                647               --               10,005
    General and administrative                                       4,314                924              7,845 (e)         13,083
    Stock-based compensation                                           559               --                 --                  559
                                                              ------------       ------------       ------------       ------------
      Total operating expenses                                      33,031              2,841              7,845             43,718
                                                              ------------       ------------       ------------       ------------
Operating income (loss)                                            (17,041)            (2,667)            (7,845)           (27,553)
Interest income (expense)                                             (715)                33                (62)              (744)
Accretion of discount on debt to IBM                                (1,653)              --                                  (1,653)
Interest on beneficial conversion feature of
convertible debt to IBM                                             (7,457)              --                                  (7,457)
                                                              ------------       ------------       ------------       ------------
     Income (loss) before income taxes                             (26,866)            (2,634)            (7,907)           (37,407)
                                                              ------------       ------------       ------------       ------------
Income taxes                                                            44                  1                 --                 45
                                                              ------------       ------------       ------------       ------------
     Net income (loss)                                             (26,910)            (2,635)            (3,705)           (37,452)

Translation adjustment                                                 (30)              --                   --

  Comprehensive income (loss)                                 $    (26,940)      $     (2,635)      $     (3,705)      $    (37,482)
                                                              ============       ============       ============       ============
Basic and diluted net income (loss)
    per share                                                 $       2.40                                             $      (2.84)
                                                              ============                                             ============


Shares used to calculate basic and diluted net
income (loss) pershare                                          11,215,118                             2,005,000 (b)     13,220,118
                                                              ============                           ===========        ============
<FN>

                             The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
                                                                 65

<PAGE>

                                NETOBJECTS, INC.
                                AND SUBSIDIARIES
                      (A Majority Owned Subsidiary of IBM)


Notes to the unaudited pro forma condensed combined financial statements

         On October 4, 1999,  NetObjects,  Inc.  acquired all of the outstanding
capital stock of Sitematic, Corporation. The total value of the capital invested
in Sitematic was approximately  $15,390,000,  which includes common stock valued
at  approximately  $12,657,000  and  $1,554,000  in  cash  and  assumed  debt of
approximately $229,000.

         At the close of the  transaction,  7,968,260 shares of Sitematic common
and 8,200,000  shares of Sitematic  preferred  were  converted to  approximately
2,005,000 shares of NetObjects  common stock. In addition to conversion of their
preferred shares to NetObjects common, Sitematic preferred shareholders received
about $0.19 for each share of preferred,  representing  total  consideration  of
$1,554,088.  All issued and  outstanding  Sitematic  options  were  converted to
options  to  purchase  269,000  shares  of  NetObjects  common  stock.  Further,
continuing  employees  of  Sitematic  will be offered  options to purchase up to
500,000 shares of NetObjects common stock from the 1997 Stock Option Plan.

         The unaudited pro forma condensed  combined  financial  statements give
effect to the acquisition using the purchase method of accounting,  where by the
total cost of the acquisition will be allocated to the tangible and identifiable
intangible  assets acquired and liabilities  assumed based upon their respective
fair values.  The unaudited pro forma condensed  combined  financial  statements
have been  prepared  on the basis of  assumptions  set  forth  below,  including
assumptions  related to the  allocation of the total purchase cost to the assets
and liabilities of Sitematic based upon preliminary estimates of fair value. The
actual allocation may differ from these assumptions.

Pro forma adjustments and assumptions:

     (1)  The unaudited pro forma condensed combined statement of operations for
          the year ended  September 30, 1999 gives effect to the  acquisition of
          Sitematic  Corporation  as if it had occurred on October 1, 1999.  The
          unaudited pro forma condensed  combined  balance sheet as of September
          30,  1999  gives  effect to the  acquisition  of  Sitematic  as if the
          acquisition  had  occurred  on  that  date.  The  condensed   combined
          financial statements should be read in conjunction with the historical
          consolidated  financial  statements  of  NetObjects,   and  Sitematic,
          included herein.  These  statements are not necessarily  indicative of
          what the actual operating  results would have been had the acquisition
          occurred on the date  indicated  and do not purport to indicate future
          results of  operations.  In  addition,  they do not  reflect  any cost
          savings or other synergies resulting from the acquisition.

          The  Company   acquired   100%  of  the  capital  stock  of  Sitematic
          Corporation  for  consideration   valued  at  $15,390,000,   including
          acquisition   costs.   Intangible   assets  will  be  amortized  on  a
          straight-line  basis over a period of five years.  The following table
          represents  allocation of the purchase price based upon the fair value
          of  Sitematic's  assets and  liabilities as of the  acquisition  date,
          October 4, 1999.


Assets acquired:
     Cash                                              257
     Trade receivables, net                             61
     Deposits                                            4
     Property and equipment                            236
     Other assets                                       26
                                                   -------
                                                       584
                                                   -------

     Intangible assets
       Developed product technology                    490
       Assembled workforce                             340
       Non-compete agreements                          740
                                                   -------
                                                     1,570
                                                   -------

     Liabilities assumed                              (793)
                                                   -------

      Net assets acquired                            1,361

Purchase price                                      15,482

Goodwill                                            14,121

     (2)  Pro Forma adjustments

     (a)  Cash paid for  Sitematic.  Reflects  cash paid for  Sitematic of $1.55
          million and notes payable of $0.50 million to NetObjects.

     (b)  The pro forma basic and diluted  net loss per share is  calculated  by
          assuming that the 2,005,000  shares of NetObjects  common stock issued
          in the acquisition were outstanding for the entire year.

     (c) Reflects the elimination of Sitematic's convertible preferred stock and
         stockholders' equity and the issuance of 2,005,000 shares of NetObjects
         common stock.



                                       66

<PAGE>

(d)      Reflects  2,005,000  shares of  NetObjects  common stock issued for the
         acquisition of Sitematic.

(e)      Elimination  of Sitematic  note payable to  NetObjects in the amount of
         $500,000.

(f)      Reflects the  reduction of interest  income on cash paid as part of the
         total consideration.

(g)      Reflects one years amortization  expense of unidentified and identified
         intangible  assets  ($13.6  million  and  $2.0  million,  respectively)
         amortized on a straight line basis over the  estimated  useful lives of
         the assets (five and two years, respectively).

(h)      Reflects recording of goodwill and other identifiable intangible assets
         net of one years amortization.






                                       67