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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549
 
                               ----------------
 
                                   FORM 10-K
 
(Mark One)
 
[X]  Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 for the fiscal year ended December 31, 1998
 
                                      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 No. 000-23151
 
                               ----------------
 
                               USWEB CORPORATION
            (Exact name of Registrant as specified in its charter)
 
<TABLE>
 <S>                              <C>
            Delaware                                87-0551650
 (state or other jurisdiction of                  (IRS employer
 incorporation or organization)               identification number)
</TABLE>
 
                        2880 Lakeside Drive, Suite 300
                         Santa Clara, California 95054
                   (address of principal executive offices)
 
                                (408) 987-3200
             (registrant's telephone number, including area code)
 
                               ----------------
 
 
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
 
<TABLE>
<CAPTION>
     Title of each class         Name of each exchange on which registered
     -------------------         -----------------------------------------
<S>                            <C>
Common Stock, $.001 par value                      Nasdaq
</TABLE>
 
  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.  [X] Yes  [_] 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 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.  [X]
 
  As of March 23, 1999, there were approximately 74,410,000 shares outstanding
of the registrant's Common Stock, par value $.001, which is the only class of
common or voting stock of the registrant. As of that date, the aggregate
market value of the shares of Common Stock held by nonaffiliates of the
registrant (based on the closing price for the Common Stock on NASDAQ on March
23, 1999) was approximately $2,485,000,000. For purposes of this disclosure,
shares of Common Stock held by each officer and director of the Registrant and
by each person who owns 5% or more of the outstanding voting stock have been
excluded in that such persons may be deemed to be affiliates.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
  The information called for by Part III is incorporated by reference to the
definitive Proxy Statement for the 1999 Annual Meeting of Stockholders of the
Company which will be filed with the Securities and Exchange Commission no
later than 120 days after December 31, 1998 (the "1999 Annual Meeting Proxy
Statement").
 
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<PAGE>
 
                               USWEB CORPORATION
 
                           ANNUAL REPORT ON FORM 10-K
 
                               TABLE OF CONTENTS
 
                          YEAR ENDED DECEMBER 31, 1998
 
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                                                                            Page
                                                                            No.
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 <C>      <S>                                                               <C>
                                     PART I
 
 Item 1.  Business.......................................................     1
 Item 2.  Properties.....................................................    13
 Item 3.  Legal Proceedings..............................................    13
                                    PART II
 
 Item 5.  Market for Registrant's Common Equity and Related Stockholder
           Matters.......................................................    15
 Item 6.  Selected Consolidated Financial Data...........................    17
 Item 7.  Management's Discussion and Analysis of Financial Condition and
           Results of Operations.........................................    19
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.....    38
 Item 8.  Consolidated Financial Statements and Supplementary Data.......    39
                                    PART III
 
 Item 10. Directors and Executive Officers of the Registrant.............    63
 Item 11. Executive Compensation.........................................    63
 Item 12. Security Ownership of Certain Beneficial Owners and Management.    63
 Item 13. Certain Relationships and Related Transactions.................    63
 
                                    PART IV
 
 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-
           K.............................................................    64
</TABLE>
<PAGE>
 
  This report contains certain forward-looking statements that involve risks
and uncertainties, including statements regarding the Company's strategy,
financial performance, and revenue sources. The Company's actual results could
differ materially from the results anticipated in these forward-looking
statements as a result of certain factors set forth under "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Risk
Factors" and elsewhere in this report.
 
                                    PART I
 
ITEM 1. BUSINESS
 
Overview
 
  USWeb Corporation, which is also known as and referred to as "USWeb/CKS," is
a professional services firm with expertise in business strategy, marketing
communications, and Internet technology solutions. Our clients are typically
medium-sized and large companies. We have consulting offices throughout the
United States and in several countries outside the United States. We provide a
comprehensive range of Intranet, Extranet and Web site solutions and services,
as well as marketing communications programs that use advanced technology and
new media.
 
  By combining our expertise with industry-specific knowledge, we provide an
integrated service offering to help clients build their business in innovative
ways. Our services are focused on helping clients to:
 
  . Differentiate their products and services.
 
  . Improve business efficiency.
 
  . Enhance customer relationships.
 
  . Leverage human capital.
 
  Our Internet professional services include strategy consulting; analysis and
design; technology development; implementation and integration; audience
development and maintenance. Our marketing communications services include
strategic corporate and product positioning, corporate identity and product
branding, new media, collateral systems, environmental design, packaging,
advertising, media placement, direct marketing, and consumer and trade
promotions.
 
Industry Background
 
  Intranets, Extranets and Web sites (collectively, "Internet solutions")
provide companies with a new set of tools for improving basic business
processes such as communications, data transmission, marketing, transaction
processing and customer service. An Intranet enables a company's employees to
receive corporate information and training efficiently, communicate through e-
mail, use the internal network's business applications, and access proprietary
information and legacy databases. An Extranet can extend part or all of the
functionality of a secure Intranet to selected business partners outside of
the company, such as customers, suppliers or distributors. On the consumer
side, Web sites support the full cycle of customer interaction with a brand.
Web sites can present advertising and marketing materials in new and
compelling fashions, display products and services in electronic catalogs,
offer products and services for sale online, process transactions and fulfill
orders, provide customers with rapid and accurate responses to their
questions, and gather customer feedback efficiently.
 
  Businesses are rapidly adopting Internet solutions. Companies implementing
Internet solutions often must rely on fundamentally new business approaches
because these solutions utilize new technologies and allow companies to
implement a broad scope of business process improvements. Businesses seeking
to realize the benefits provided by Internet solutions face a formidable
series of challenges presented by the need to
 
                                       1
<PAGE>
 
link business strategy with new and rapidly changing technologies and
continuously updated content. Before creating an Intranet, Extranet or Web
site, a company must first conduct a thorough needs assessment to review its
strategic business requirements and compare them to the capabilities of its
existing processes and systems. Next, the company must design the solution and
develop an implementation plan. The implementation, establishment and
maintenance of the solution will require significant technical expertise in a
number of areas, such as electronic commerce systems, security and privacy
technologies, application and database programming, mainframe and legacy
integration technologies and advanced user interface and multimedia
production.
 
  Similarly, recent trends are changing the marketing communications
requirements of businesses throughout the world. Businesses must be able to
develop and execute marketing strategies rapidly, because shortening product
life cycles reduce lead times for marketing campaigns. New media, including
Internet-related services as well as CDROMs and interactive kiosks, have
emerged as an integral component of marketing and communications strategy.
These new media and the increasing complexity of sophisticated digital
delivery, storage and multimedia enhancement tools and technologies enable
companies to improve the effectiveness of communications, but pose additional
challenges to businesses striving to link business strategy with rapidly
changing technologies.
 
  To perform the multitude of Internet professional services and integrated
marketing communications functions in-house, a company would have to make
substantial commitments of time, money and technical personnel to keep current
with rapidly evolving technologies, content presentation techniques and
competitors' offerings. Professionals with the requisite strategic, technical
and creative skills are often in short supply and many organizations are
reluctant to expand their internal information systems or marketing
departments for particular engagements at a time when they are attempting to
minimize fixed costs to increase returns on investment. At the same time,
external economic factors encourage organizations to focus on their core
competencies and limit workforces in the information technology management and
marketing areas. Accordingly, many businesses have chosen to outsource a
significant portion of the design, development and maintenance of their
Intranets, Extranets and Web sites and the development and implementation of
their marketing strategies to independent professionals. These independent
professionals can leverage accumulated strategic, technical and creative
talent and track developments in a field characterized by extremely short
technology, process and content lifecycles.
 
  Companies seeking to establish Internet solutions may turn to their
traditional marketing or technology service providers for assistance. However,
most of these providers have neither a proven track record of successful
Internet solution deployment nor the full portfolio of strategy, technology,
marketing and creative skills required to serve client needs effectively. A
number of small Internet professional services firms have emerged to address
the significant and rapidly growing market for Internet solutions. However,
the small size and capital constraints of most of these firms restrict their
ability to supply clients with the necessary depth and integration of
strategic, technical and creative skills. Furthermore, many of these providers
tend to develop expertise in a limited number of vertical markets because of
the need to leverage the information and experiences gained from the
relatively small number of Internet solution engagements they have completed.
 
  We believe that the rapidly increasing demand for Internet solutions and
integrated marketing communications services, combined with the inability of
most current providers to supply the full range and integration of strategic,
technical and creative skills required by clients, has created a significant
market opportunity for a scaled Internet professional services and integrated
marketing communications services firm. In the currently fragmented and
rapidly changing environment, an organization that could deliver the creative
strengths of advertising and marketing firms, the strategic skills and
technical capabilities of information technology consulting service providers,
and the national reputation, economies of scale, multiple points of presence
and information sharing capabilities of a large organization could capitalize
on this opportunity to help companies build their businesses in innovative
ways.
 
                                       2
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The USWeb/CKS Solution
 
  Our mission is to provide clients with the vision, expertise and resources
required to help build their businesses using Internet solutions and
integrated marketing communications. To capitalize on the opportunity
presented by the rapid growth in demand for such services, we have built and
are continuing to expand a professional services firm with offices across the
United States and important markets worldwide. We are an integrated
international firm, with local offices that can develop close client
relationships and gain an in-depth understanding of client needs. Each office
benefits from the resources of our overall organization. For example,
individual offices may draw as needed upon the assistance of one or more
additional offices with specialized creative or technical expertise. Each
office also draws upon a centralized index of best demonstrated practice
methodologies, a technology library of proprietary reusable software and
content objects, a central project registry, and executive briefing programs
for client decision makers.
 
  We believe that our operational model enables us to scale rapidly by
leveraging our central resources as our operations expand. First, we believe
that our aggregation and deployment of the accumulated experience and
expertise of our network of offices provides clients with enhanced business
solutions. Second, our ability to leverage central technology and operational
resources enables us to scale efficiently, through the growth of existing
consulting offices and the acquisition of new offices, which also provides
significant numbers of additional skilled personnel. Finally, our brand
development campaign, which reinforces the message that USWeb/CKS is a secure,
reliable, high-quality choice for the provision of marketing communications
and Internet professional services, increases our ability to access and
influence key client decision makers.
 
Strategy
 
  Our objective is to become and remain the leading global Internet
professional services and integrated marketing communications firm. Our
strategy to achieve this objective includes the following elements:
 
  Use Integration of Services as a Tool for Building Relationships. Our client
relationships have typically begun with a single assignment that might
encompass corporate identity or packaging, an electronic commerce system, or a
World Wide Web site. Such single project relationships have allowed clients to
try our services with minimal long-term risk. In many instances, we have been
successful in expanding relationships beyond the single-project assignment to
include additional projects in other disciplines. We intend to aggressively
promote the benefits of our integrated services offering and leverage our
integrated approach as a tool for building and enhancing client relationships.
 
  Strengthen Position as a Leading Internet Professional Services Firm. We are
continuing to strengthen our position as a leading Internet professional
services firm in order to provide clients with superior Internet solutions. We
intend to continue investing significantly in identifying, reviewing and
integrating the latest Internet technologies and accumulating and deploying
the best demonstrated practices for developing and implementing Internet
solutions. Our investment in tools and technologies has been an important
factor in recruiting and retaining talented employees who are attracted to our
technology-driven culture. We are continuing to develop a library of partially
pre-built Internet solutions that combine our methodologies, services and
reusable software and content objects with third-party software. Our
consulting offices intend to continue leveraging our nationwide presence,
operational scale and professional marketing tools, which provide each
consulting office with resources and credibility to convince client decision
makers that we can provide successful Internet solutions to meet the most
demanding business needs. We also intend to remain focused on delivering the
Internet solution best suited to a client's needs.
 
  Continue to Expand Geographic Presence. We are continuing to expand our
geographic presence through acquisitions and internal growth. Acquisition
efforts are focused on strategic and international opportunities. We believe
that in the fragmented market for providing Internet solutions, rapidly
building a critical mass of strategic, technical and creative talent through
both internal growth and acquisitions will provide us with a substantial
competitive advantage. As of December 31, 1998, USWeb/CKS had offices in
 
                                       3
<PAGE>
 
major markets across the United States, as well as in Austria, Canada, France,
Germany, Switzerland, and the United Kingdom.
 
  Foster Creative Excellence. We strive to provide creative solutions in all
areas of marketing communications to meet or exceed the highest standards of
service within each individual discipline. We have received numerous honors
and awards, including Addy Awards, Margaret Larsen Awards for Design, Murphy
Awards, and Telly Awards, as well as a One Show Interactive Award and a
Communication Arts Design Annual Award. In order to maintain high levels of
creativity and quality, we place great importance on recruiting and retaining
talented employees.
 
  Develop Additional Strategic Relationships. We intend to continue developing
strategic relationships because they enable us to enter new markets, gain
early access to leading-edge technology, cooperatively market products and
services with leading technology vendors, cross-sell additional services and
gain enhanced access to vendor training and support. We have developed a
number of strategic relationships with leading Internet hardware, software and
content companies, including Intel, Microsoft, Hewlett-Packard, Pandesic LLC
(the Internet company from Intel and SAP), Sun Microsystems and Reuters.
Collectively these relationships provide for co-marketing programs, joint
research and development on leading implementations of Internet solutions,
technical education, client feedback channels and hardware and software
distribution rights. We also maintain relationships with a number of venture
capital firms for early access to leading-edge solutions.
 
  Leverage Operational Economies of Scale. We provide certain operational and
administrative services centrally, allowing the field offices to benefit from
the economies of scale created by a large operation while enabling our
consulting offices to focus on their core competency of providing superior
client services. These centrally provided services include business
development programs, operations management guides, client support assistance,
carrier-grade site hosting, human resources programs, financial reporting and
forecasting, performance appraisals and standardized methodologies.
 
  Increase Outsourcing Service Offerings. We intend to expand the range of our
service offerings related to managing our clients' information technology
operations. We believe that growing adoption of the Internet and its related
technologies, often by companies whose core expertise does not include
information technology, and growing complexity of electronic infrastructures,
will result in an increase in the outsourcing of such services. Through our
"E-Services" division, we intend to offer comprehensive outsourced management
of Internet-based, entry- and enterprise-level applications on a subscription
basis. These services are intended to give corporate business professionals
and resource-constrained IT organizations cost-effective, accelerated access
to the latest technologies to enhance existing business systems while enabling
them to focus on core competencies. We are leveraging our relationships with
leading technology companies to offer our clients a variety of Internet
application modules, which we will customize to the needs of each client. We
further intend to maintain a data center where the client systems can be
operated with high reliability and efficiency.
 
  Capitalize on Market Opportunities in New Media. We strive to maintain our
leadership position in the development and application of new media marketing
communication services and products. We believe that the proliferation of the
Internet and other new media will continue to provide us with substantial
opportunities. These new media services and products enable companies to
better focus their marketing messages and may ultimately facilitate one-on-one
marketing to specific individuals. Towards this end, we seek to provide
clients with integrated new media design and development services as well as
support in implementing and maintaining key content delivery technologies.
 
Services
 
  We offer a comprehensive range of services to deliver marketing
communications and Internet solutions designed to help clients build their
businesses innovative ways. In each consulting engagement, the client can
 
                                       4
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contract for the specific services it requires, depending on the nature of the
engagement and the capabilities of the client's organization. We bill a
majority of our engagements on a time and materials basis, although we also
deliver solutions on a fixed-price basis and seek to increase the percentage
of engagements provided on such a basis.
 
  Internet Solution Development and Deployment. Our Internet solution
development and deployment methodology consists of six phases:
 
  . Strategy Consulting. We work closely with the client to conduct a
    thorough study of its strategic market position, business requirements
    and existing systems and capabilities to determine the ways in which
    Internet solutions can most improve the client's business processes. We
    then deliver our recommendations, which define the strategic basis for a
    specific Internet solution that takes into account the client's budget,
    timeline and available resources.
 
  . Analysis and Design. Once the strategic groundwork has been established,
    we translate the client's strategic requirements into a system or process
    design architecture, a blueprint that defines the roles the system will
    perform to meet those requirements. By choosing us, our clients receive
    vendor-neutral solutions prepared by Internet-focused consultants. We
    research, test and evaluate virtually all major Internet technologies and
    tools to design system and process architectures that successfully meet
    client needs. Our objective is to design, build and deploy a solution
    that is logically planned, scales well over time, is sufficiently secure,
    and is easy to use, administer and manage.
 
  . Technology Development. In the development phase, we build a testable
    version of the client's solution based on the blueprint produced in the
    analysis and design phase. We design, code, integrate and test all
    necessary programs and components using a broad range of expertise,
    including object-based and relational database systems; electronic
    commerce systems; custom ActiveX, Java and C++ programming and host
    integration; implementation of third-party applications and security
    technologies; and integration of hardware, software and Internet access
    products. Our experienced and professional graphic designers also work to
    create a compelling user interface for the solution to enable it to
    attract and hold the attention of the client's target audience while
    conforming to the client's brand image and marketing campaigns. In
    performing these functions, our professionals benefit from access to an
    extensive library of reusable software and content objects.
 
  . Implementation and Integration. In the implementation phase, we test the
    solution created in the development phase and ready it to be deployed
    into a full production system. We deliver the system to the client,
    install it, convert and initialize all necessary data, perform acceptance
    testing and put the system into operation. We also integrate Intranet
    solutions with back-office legacy systems to ensure that each client's
    critical applications are secure and seamless. We maintain third-party
    vendor relationships that offer our clients secure, state-of-the-art,
    high-availability Intranet, Extranet and Web site hosting and integrated
    services for relational databases, workgroup collaboration, streaming
    audio and video, management and monitoring, e-mail and secure electronic
    commerce.
 
  . E-Services. To address the Application Service Provider (ASP) market, we
    have established an "E-Services" division, which intends to offer
    outsourced application solutions designed to maximize a company's return
    on IT investments. We are assembling a portfolio of offerings in four
    categories: e-commerce, communications and knowledge management, customer
    relationship management, and back office functions. We intend to combine
    best-of-breed packaged applications with customized application
    development to help IT organizations implement strategic Internet-based
    business solutions quickly and cost-effectively.
 
  . Audience Development. We can work with the client to develop a strategy
    for achieving its online marketing objectives by increasing Web site
    traffic, strengthening brand awareness and generating sales leads. We
    provide online media planning and purchasing services and advice
    regarding online public relations. We have also developed a proprietary
    audience creation methodology designed to
 
                                       5
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   optimize a Web site's search engine presence, increase site access through
   hyperlink recruitment and disseminate the client's key messages to
   Internet newsgroups, mailing lists and forums.
 
  . Maintenance. We can provide the client with ongoing support services for
    its Internet solutions, from content maintenance to site administration,
    for as long as the client wishes. Our technical staff can also assist
    clients on a case-by-case basis to resolve technical problems, provide
    assistance with the hosting environment, and deliver support for Internet
    solution software.
 
  Marketing Communication Services. Depending on the scope of the assignment,
our marketing communications services range from execution of a discrete
marketing project, such as designing product packaging, to taking
responsibility for the overall marketing message through multiple methods. Our
marketing communications services, which can be executed around the
development of both on-line and off-line programs, include the following:
 
  . Strategic Corporate and Product Positioning, Corporate Identity, and
    Product Branding. We work with the client to analyze the client's
    products or services and the market for those services, and to develop a
    unique selling proposition for either a company or product that
    differentiates it from the competition. We also work to develop a
    creative look and feel that establishes the appropriate corporate or
    brand personality.
 
  . Internet Design and New Media. We develop media and technology solutions
    to help clients deliver a consistent and effective marketing message
    through digital channels, including the World Wide Web, the Internet,
    proprietary online services, CD-ROMs, and interactive kiosks.
 
  . Advertising and Media Placement. We design cross-media advertising,
    including broadcast and/or print advertising, to generate awareness of a
    company, product, or service over an extended period of time. We provide
    strategic planning, negotiation and purchase of both traditional and new
    media.
 
  . Collateral Systems; Packaging. We develop and implement the design and
    content of collateral literature systems. We also provide creative
    design, development, and production of individual retail packages or
    integrated retail packaging systems.
 
  . Environmental Design. We provide creative design, development and
    management of virtual and physical images as well as information and
    entertainment environments, including the development of public
    exhibition spaces and retail store formats.
 
  . Promotions. We develop marketing programs, including marketing
    communications campaigns and merchandising materials, which are designed
    to generate demand among a specific target audience, to increase sales
    among consumers, or to provide information and incentives to specific
    industry trade groups in a limited time frame.
 
Consulting Office Development
 
  We have established and are continuing to expand our broad geographic
presence, with consulting offices across the United States and in certain
other countries. We promote internal growth through rigorous management of
business fundamentals. We are also continuing to pursue a selective
acquisition program, focused on strategic and international opportunities.
 
  For acquisitions, we have frequently used a standardized transaction
structure that includes a purchase price adjustment feature to provide target
company management with an incentive to improve and expand their
organizations. We also generally grant stock options to all employees of a
target company who continue their employment with USWeb/CKS to provide them
with an incentive to contribute to the success of our overall organization. We
have retained a team of professionals dedicated to identifying potential
acquisition candidates and implementing our acquisition methodology. This team
identifies those Internet professional services firms that meet our
acquisition criteria, engages in a series of meetings and due diligence
activities with each candidate to explore whether the candidate meets our
criteria for growth potential and operating
 
                                       6
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strategy, and completes the acquisition of a significant percentage of those
candidates. We stress to each desired candidate the advantages of merging with
us, including the depth and breadth of services required by many potential
clients; the client recognition and acceptance of the USWeb/CKS brands;
additional funding required to pursue large and profitable long-term client
opportunities; and strategic partnerships with leading hardware, software and
content vendors. Following the closing of each acquisition, we strive to
rapidly integrate the new subsidiary into our operations by deploying a
conversion team to integrate financial, marketing and operating procedures,
providing access to USWeb/CKS Central, our secure Intranet, and delivering a
thorough orientation to all employees.
 
  We regularly evaluate potential acquisition candidates, are currently
holding preliminary discussions with a number of such candidates and from time
to time are in active negotiations with a number of other candidates. If,
after due diligence review and negotiation, such companies can be acquired on
a basis considered fair to us and our stockholders, we may proceed with such
acquisitions. We expect most of our future acquisitions to include the
issuance of additional shares of our Common Stock.
 
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  As of December 31, 1998, USWeb/CKS had acquired the following companies:
 
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                                                                  Month of
Name                                Office Locations          Consolidation (1)
----                       ---------------------------------  -----------------
<S>                        <C>                                <C>
Schell/Mullaney (2)....... New York, NY                            Aug-96
Donovan & Green (2)....... New York, NY                            Jan-97
McKinney & Silver (2)..... Raleigh, NC                             Jan-97
Xcom Corporation.......... San Francisco, CA and San Diego,
                           CA                                      Mar-97
CKS Group Holding
 (Deutschland) (2)........ Munich and Hamburg, Germany             Mar-97
Gormley & Partners (2).... Greenwich, CN                           Mar-97
Cosmix Corporation........ Seattle, WA                             Apr-97
Fetch Interactive, Inc.... Milwaukee, WI                           Apr-97
NewLink Corporation....... Los Angeles, CA                         Apr-97
NetWORKERS Corporation.... Santa Clara, CA                         May-97
InterNetOffice, LLC....... Atlanta, GA and Austin, TX              May-97
Infopreneurs Inc.......... Washington, D.C.                        Jun-97
Netphaz Corporation....... Phoenix, AZ                             Jun-97
SiteSpecific (2).......... New York, NY                            Jun-97
Electronic Images, Inc.... Pittsburgh, PA                          Jul-97
Multimedia Marketing &
 Design Inc............... Chicago, IL                             Jul-97
DreamMedia, Inc. (3)...... Hollywood, CA                           Aug-97
KandH, Inc. (3)........... Hollywood, CA                           Aug-97
Internet Cybernautics,
 Inc...................... Sausalito, CA                           Sep-97
Synergetix Systems
 Integration, Inc......... Long Island, NY                         Sep-97
Online Marketing Company.. Detroit, MI                             Sep-97
Zendatta, Inc............. San Mateo, CA                           Sep-97
USWeb--Apex, Inc.......... Houston, TX                             Nov-97
W3-design................. Culver City, CA                         Nov-97
Reach Networks, Inc....... New York, NY                            Nov-97
InnoMate Online Marketing
 GmbH..................... Dusseldorf, Germany                     Feb-98
Utopia, Inc............... Boston, MA                              Mar-98
Inter.logic.studios,
 inc.(4).................. Atlanta, GA                             Mar-98
Quest Interactive Media,
 Inc (4).................. Memphis, TN                             Mar-98
Ensemble Corporation...... Dallas, TX                              Mar-98
Ikonic Interactive, Inc... San Francisco, CA and New York,
                           NY                                      Mar-98
Xplora Limited............ Windsor, United Kingdom                 Apr-98
Kallista, Inc............. Chicago, IL                             May-98
Nutley Systems, Inc.
 (nSET)................... Seattle, WA                             May-98
Advanced Video
 Communications (AVC)..... Boston, MA                              May-98
USWeb San Jose............ San Jose, CA                            May-98
Gray Peak Technologies,
 Inc...................... New York, NY                            Jun-98
                           Boston, MA
                           Reston, VA
                           Iselin, NJ
                           Wanchoi, Hong Kong
Tucker Network
 Technologies............. So. Norwalk, CT                         Jul-98
Metrix Communications,
 Inc...................... St. Paul, MN and Irvine, CA             Aug-98
Sysicom................... Paris, France                           Dec-98
CKS Group, Inc............ Cupertino, CA                           Dec-98
</TABLE>
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(1) We consolidate the target entity's financial statements as of the date we
    establish effective control of the target entity, which date generally
    precedes the legal completion of the merger.
(2) Acquired by CKS Group prior to our acquisition of CKS Group in December
    1998.
(3) DreamMedia, Inc. and KandH, Inc. combined their operations into a single
    wholly owned subsidiary of USWeb upon the consummation of the
    acquisitions. W3-design has also combined its operations with these
    entities.
(4) Inter.logic.studios, inc. and Quest Interactive Media, Inc. combined their
    operations into a single wholly owned subsidiary of USWeb upon the
    consummation of the acquisitions.
 
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  We believe that there are numerous potential acquisition candidates that
satisfy our acquisition criteria. We are currently discussing, on a non-
binding basis, the acquisitions of several companies. To penetrate foreign
markets, we may use joint ventures as well as acquisitions, to capitalize on a
foreign partner's local knowledge and reputation as well as the USWeb/CKS
brands and central technical, marketing and administrative resources. Our
acquisition strategy involves a number of risks and uncertainties, and we
cannot be sure that we will be able to identify suitable acquisition
candidates, acquire such companies on acceptable terms or integrate their
operations successfully with ours. As we issue stock to complete future
acquisitions, our existing stockholders experience ownership dilution. In
addition, to the extent we choose to pay cash consideration for such
acquisitions, we may be required to obtain additional financing. We cannot be
sure that such financing will be available on favorable terms, if at all.
 
  In addition to our company-owned offices, as of December 31, 1998, we had
four franchisees ("Affiliates") that collectively managed an aggregate of
seven consulting offices. Each Affiliate agreement typically grants a
nonexclusive right to the Affiliate to maintain an office and advertise in a
designated metropolitan area or territory. The Affiliate agreements, which
have terms ranging from five to ten years, also include a nonexclusive license
to use our intellectual property and proprietary information, including the
USWeb/CKS brands and our Internet solution development methodology. In
exchange for these rights, most Affiliates paid us an initial fee and all
Affiliates make monthly royalty payments to us. Monthly royalties are equal to
the greater of (i) a minimum monthly payment or (ii) the aggregate of a five
percent royalty and a two percent marketing promotion payment, each based on
the Affiliate's adjusted gross revenues. For the year ended December 31, 1998,
fees from Affiliates represented less than 1% of our total revenues.
 
  Revenues recognized by Affiliates are subject to royalty payments to us.
Such royalty payments are included in "Other revenue" in our consolidated
results of operations. Revenues and related expenses recognized by the
company-owned offices are consolidated and included in "Service revenue" and
appropriate expense categories in our consolidated results of operations.
 
Clients
 
  We market our services primarily to medium-sized and large companies, which
we define as those with over 500 employees or $50 million in annual revenues.
Such companies have several desirable characteristics as potential clients: a
need for Internet solutions ranging from basic Web sites to complex and highly
functional Intranets, substantial budgets devoted to information technology
expenditures, and a relatively high willingness to adopt Internet-based
strategies and solutions. We tailor our professional services to meet the
specific needs of these clients. No individual customer accounted for more
than 10% of our total revenues for the year ended December 31, 1998.
 
  For Internet solutions, clients typically begin by establishing a basic Web
site and then implement increasingly powerful business solutions, which can
include business-critical, fully integrated Intranets or Extranets costing
several million dollars. Our strategy is to provide clients with services at
all stages of their adoption of Internet solutions. We target clients whose
Internet technology and marketing communications consulting needs will result
in projects which will generate $250,000 to $5,000,000 in revenues.
 
Knowledge Management
 
  In order to provide clients with more effective services and solutions, we
aggregate and redeploy the best methodologies, technologies and creative work
delivered by our consulting offices. We believe that our knowledge management
system provides our consulting offices with a competitive advantage by giving
them efficient, real-time access to these assets, allowing them to leverage
the capabilities of our entire operation in their efforts on behalf of each
client. This centrally managed resource is made available to the consulting
offices through USWeb/CKS Central, our secure Intranet.
 
                                       9
<PAGE>
 
  Within USWeb/CKS Central, we have constructed a project registry database in
which each client engagement is summarized and registered, enabling each
consulting office to rapidly find which offices have performed certain types
of work. This project registry is used to facilitate the real-time
distribution of engagement activity to those consulting offices best equipped
to serve the client.
 
  We have also established an executive briefing program that enables our
consulting offices to provide their key clients with executive seminars,
solution demonstrations and discussions with our senior executives. These
sessions provide key client decision makers with first-hand experience on the
ways Internet solutions can significantly improve business processes.
 
  In each area where methodologies, technologies and content are aggregated,
we have implemented policies to ensure that confidential or proprietary client
information and assets are accessible only by properly authorized personnel
and not disclosed to unauthorized parties.
 
Marketing
 
  Our marketing efforts are dedicated to demonstrating the benefits of
Internet solutions, and the proven effectiveness of our organization in
providing such solutions, to key decision makers in client organizations. We
believe that a strong USWeb/CKS brand provides our consulting offices with a
competitive advantage over those Internet professional services firms whose
brands may not be as well known or may not convey the same focused message of
competence, security and results. Our marketing programs are also highly
scalable because most advertising campaigns and marketing tools are developed
by our corporate marketing group and can be delivered to all of the consulting
offices without requiring significant additional expenses.
 
  Our marketing program includes the following initiatives:
 
  Enhance USWeb/CKS Brands. The continued strengthening of the USWeb/CKS
brands is crucial to the achievement of our objective of becoming the most
recognized provider of Internet professional services to medium-sized and
large business clients. Our brand development programs are designed to
reinforce the message that we are a national company with a local presence
that can provide a complete range of services to build and deploy business
solutions and that we have a proven track record of doing so. We are
continuing to build and differentiate our brands through the use of publicity
campaigns that include Internet, print and radio advertising; national
seminars and executive briefings; Internet broadcasts; extensive marketing
tools and educational "white papers"; and co-marketing programs with strategic
partners.
 
  Generate Client Leads. Our marketing campaigns are intended to generate
client leads for our consulting offices in several ways. In addition, we have
established a national account program to help manage the accounts of clients
with multiple locations and direct service fulfillment to the consulting
office best situated by geography and specialty to meet the client's needs.
 
  Develop Marketing and Sales Tools for Consulting Offices. We have developed
a toolkit of marketing and sales materials to be used by consulting offices in
their business generation efforts. These materials include brochures, reprints
of articles, fact sheets, white papers, summary "success stories," PR
handbooks, business development guides and client presentation templates and
technologies. These materials are designed to increase the effectiveness of
the sales and marketing efforts of our consulting offices by providing them
with centralized expert advice and consistent, professional marketing tools.
 
Strategic Relationships
 
  We have entered into, and intend to continue entering into, strategic
relationships with a limited number of leading Internet hardware, software and
content companies. We believe that these relationships, which typically are
non-exclusive, enable us to deliver clients more effective solutions with
greater efficiency because the strategic relationships provide us with the
opportunity to gain early access to leading-edge technology,
 
                                      10
<PAGE>
 
cooperatively market products and services with leading technology vendors,
cross-sell additional services and gain enhanced access to vendor training and
support. We also believe that these relationships are important because they
leverage the strong brand and technology positions of these market leaders.
 
  We have strategic relationships with Intel, Microsoft, Hewlett-Packard,
Pandesic, Sun Microsystems and Reuters. Our contractual agreements with these
parties do not cover the entire scope of the strategic relationship and are
typically terminable at will by either party. In the event that any strategic
relationship is discontinued, either in connection with termination of an
agreement or otherwise, our business, results of operations and financial
condition may be materially adversely affected.
 
  In early 1998, we assisted in the formation of HyCurve, Inc., formerly USWeb
Learning, Inc., a separate company with the mission to become the leading
provider of education and certification services relating to Internet
technologies to address the shortage of technology professionals. HyCurve,
Inc. licensed the USWeb brands from us and we contributed certain training
materials. In April 1998, we made a minority equity investment in HyCurve,
Inc. and added management experience through board representation.
 
Operations
 
  Our organization includes offices throughout the United States and in
several countries outside the United States. Each consulting office is
responsible for providing professional services to its clients, either alone
or in conjunction with one or more other offices. Client sales, engagement
pricing, and staffing decisions for each office are generally made by the
managers of the office, although our executive officers take an active role in
directing the activities of all consulting offices.
 
  Our headquarters, in the San Francisco Bay Area, provides consulting offices
with operational support in financial management and reporting, human
resources, office administration, and management performance improvement
tools. Our headquarters manages our marketing campaigns, the strategic
relationships with partner companies, and the acquisition program. Finally,
our headquarters maintains USWeb/CKS Central, our Intranet and the company's
primary channel for enterprise-wide interaction and communication. We
developed and maintain USWeb/CKS Central in-house. USWeb/CKS Central provides
consulting offices with rapid, secure and efficient online access to each
other and to all of our centrally managed resources, such as the project
registry, sales and marketing tools, vendor information and operational
assistance. We believe that USWeb/CKS Central is both scalable and critical to
our strategy of strengthening our position as a leading Internet professional
services firm because USWeb/CKS Central is the primary mechanism by which we
are able to aggregate and redeploy the best strategic, technical and creative
work developed by the consulting offices.
 
Competition
 
  The market for Internet professional services is relatively new, intensely
competitive, rapidly evolving and subject to rapid technological change. We
expect competition to persist, intensify and increase in the future. Our
competitors can be divided into several groups: computer hardware and service
vendors such as IBM, Compaq and Hewlett-Packard; advertising and media
agencies such as Foote, Cone & Belding and Ogilvy & Mather; Internet
integrators and Web presence providers such as iXL, Organic Online, Modem
Media, Poppe Tyson and Proxicom; large information technology consulting
service providers such as Andersen Consulting, Cambridge Technology Partners
and EDS; telecommunications companies such as AT&T and MCI; Internet and
online service providers such as America Online, ICG Netcom and UUNet; and
software vendors such as Lotus, Microsoft, Novell and Oracle. Although only a
few of these competitors have to date offered a full range of Internet
professional services, several have announced their intention to offer
comprehensive Internet technology solutions.
 
  In the market for integrated marketing communications, our competitors
include national and regional advertising agencies as well as specialized and
integrated marketing communication firms. With respect to new
 
                                      11
<PAGE>
 
media, many national advertising agencies have internally developed or
acquired new media capabilities. In addition, there are a growing number of
new competitors that either provide integrated or specialized services (e.g.,
corporate identity and packaging, advertising services or World Wide Web site
design) or are technologically proficient, especially in the new media arena.
 
  We believe that the principal competitive factors in our market are
strategic expertise, technical knowledge and creative skills, brand
recognition, reliability of the delivered solution, client service and price.
Most of our current and potential competitors have longer operating histories,
larger installed client bases, longer relationships with clients and
significantly greater financial, technical, marketing and public relations
resources than we have and could decide at any time to increase their resource
commitments to our market. In addition, the market for Internet solutions is
relatively new and subject to continuing definition, and, as a result, the
core business of certain of our competitors may better position them to
compete in this market as it matures. Competition of the type described above
could materially adversely affect our business, results of operations and
financial condition.
 
  There are relatively low barriers to entry into our business. For example,
we have no significant proprietary technology that would preclude or inhibit
competitors from entering the Internet professional services or integrated
marketing communications services market. We expect to face additional
competition from new entrants into the market in the future. Existing or
future competitors could develop or offer services that provide significant
performance, price, creative or other advantages over those offered by us.
Moreover, in pursuing acquisition opportunities we may compete with other
companies with similar growth strategies, certain of which competitors may be
larger and have greater financial and other resources than we have.
Competition for these acquisition targets likely could also result in
increased prices of acquisition targets and a diminished pool of companies
available for acquisition.
 
Employees
 
  As of December 31, 1998 we had 1,960 employees, of which 140 were located in
our corporate facilities in Cupertino, San Francisco, and Santa Clara,
California, and 1,820 were located in consulting offices. The combined
headquarters employees included 26 in sales and marketing and 104 in finance
and administration. None of our employees is represented by a labor union. We
have experienced no work stoppages and believe our relationship with our
employees is good. Competition for qualified personnel in the industry in
which we compete is intense. We believe that our future success will depend in
part on our continued ability to attract, hire or acquire and retain qualified
employees.
 
Executive Officers of the Company
 
  The executive officers of the Company, and their ages as of December 31,
1998, are as follows.
 
<TABLE>
<CAPTION>
             Name              Age                     Position
             ----              ---                     --------
<S>                            <C> <C>
Mark Kvamme...................  38 Chairman of the Board
Robert Shaw...................  50 Chief Executive Officer
Tobin Corey...................  38 President
Carolyn Aver..................  39 Executive Vice President, Chief Financial
                                   Officer, Secretary
Sheldon Laube.................  48 Executive Vice President and Chief Technology
                                   Officer
</TABLE>
 
  Mr. Mark Kvamme became Chairman of the Board and a director of USWeb/CKS
upon consummation of the USWeb-CKS merger in December 1998. In 1989, Mr.
Kvamme became a Partner in CKS Group and from 1991 until December 1998 served
as the Chairman of its Board of Directors and Chief Executive Officer. Prior
to joining CKS Group, Mr. Kvamme held management and marketing positions at
Wyse Technology, a
 
                                      12
<PAGE>
 
terminal and personal computer manufacturer, International Solutions, Inc., a
computer products distributor, and Apple Computer, a personal computer
manufacturer.
 
  Mr. Robert W. Shaw joined USWeb in November 1998 as Chief Executive Officer
and a director. Prior to joining USWeb, Mr. Shaw served as Executive Vice
President of Worldwide Consulting Services and Vertical Markets of Oracle
Corporation since February 1997, and Senior Vice President of Worldwide
Applications and Services of Oracle Corporation from August 1995 to January
1997. From June 1992 to July 1995, Mr. Shaw served as Senior Vice President of
Global Services of Oracle Corporation. Prior to joining Oracle Corporation,
Mr. Shaw served as a Vice President of the West Coast Information Systems
group of Booz-Allen & Hamilton from June 1989 to June 1992.
 
  Mr. Tobin Corey co-founded the Company in December 1995 and has served as
its President since June 1996 and as a Director since April 1998. Prior to
June 1996, Mr. Corey served as its Executive Vice President, Marketing. From
1994 to December 1995, Mr. Corey served as Vice President of Marketing for the
NetWare Products Division of Novell. From 1991 through 1994, Mr. Corey served
as Director of Marketing for the Desktop Division of Novell.
 
  Ms. Carolyn Aver joined the Company in May 1998 as the Company's Executive
Vice President, Chief Financial Officer and Secretary. From May 1997 to May
1998, Ms. Aver was Vice President and Chief Financial Officer of BackWeb
Technologies, an Internet technology company. Prior to joining BackWeb
Technologies, Ms. Aver served as Vice President and Chief Financial Officer of
ParcPlace-Digitalk from March 1993 to May 1997. Ms. Aver was also employed by
AutoDesk, Inc. from October 1984 to March 1993 where she served in various
capacities including Controller, Chief Financial Officer and Vice President,
Finance.
 
  Mr. Sheldon Laube co-founded the Company and has served as its Executive
Vice President and Chief Technology Officer since January 1996. From July 1995
through January 1996, Mr. Laube served as Chief Technology Officer for Novell.
Prior to joining Novell, Mr. Laube was employed by Price Waterhouse LLP as a
partner and served as Director of Information and Technology from 1986 to May
1995.
 
ITEM 2. PROPERTIES
 
  Our principal headquarters facility occupies approximately 27,100 square
feet under lease in Santa Clara, California. We have recently entered into a
lease for a 75,000 square foot building in San Francisco, a portion of which
we intend to use for our core executive staff beginning in mid-1999. All
company-owned offices also lease their facilities. We believe our facilities
currently under lease, together with space available for lease, are adequate
to meet our current needs. No facilities have been identified for acquisition
in connection with potential acquisition candidates, and we do not anticipate
acquiring property or buildings in the foreseeable future.
 
ITEM 3. LEGAL PROCEEDINGS
 
  On November 5, 1998, a putative class action lawsuit captioned Wilson v. CKS
Group, Inc., et al., was filed in the United States District Court for the
Northern District of California against CKS Group and three of its former
officers and directors. The complaint alleges that during the period March 20,
1997 to November 7, 1997 (the "Class Period"), the defendants violated the
Securities Exchange Act and the SEC rules and regulations thereunder by
issuing false and misleading statements about CKS Group's operations, revenues
and earnings which allegedly inflated CKS Group's reported revenues, earnings
and stock price. The complaint further alleges that those who purchased CKS
Group's stock did so at artificially inflated prices. The plaintiff seeks to
recover damages in an unspecified amount (together with interest and
attorneys' fees) on behalf of all purchasers of CKS Group Common Stock during
the Class Period. Discovery in the case has not yet begun. USWeb/CKS believes
that this lawsuit is without merit and intends to defend this action
vigorously. We do not believe that the outcome of the stockholder class action
described above is likely to be material to us.
 
                                      13
<PAGE>
 
  On September 15, 1998, U S WEST filed a complaint against USWeb/CKS and one
of its licensees in the United States District Court for the District of
Nebraska, alleging claims under federal and state law for trademark
infringement, trademark dilution, and unfair competition (the "Nebraska
Action"). U S West filed an Amended Complaint on October 5, 1998. U S West
seeks to enjoin all use by the Company of "USWeb." On March 4, 1999, the
Company filed a motion to dismiss U S West's Amended Complaint. On March 3,
1999, the Company filed a complaint against U S West in the United States
District Court for the Northern District of California, seeking a declaration
that the Company's use of "USWeb" does not infringe upon, dilute, or otherwise
violate any valid rights of U S West (the "California Action"). Discovery has
not yet begun in the Nebraska Action or the California Action. USWeb/CKS
believes that the Nebraska Action is without merit and intends to defend this
action vigorously.
 
  As is typical for companies in our business and of our size, we are from
time to time the subject of lawsuits. In addition to the lawsuits described
above, a number of legal proceedings are presently pending. Certain of such
proceedings may be covered under insurance policies or indemnification
agreements. Based upon information presently available, we believe that the
final outcome of pending proceedings should not materially harm our business,
financial condition or results of operations. However, due to the inherent
uncertainties of litigation, there is a risk that the outcome of pending or
any future litigation could materially harm our business, financial condition
or results of operations.
 
                                      14
<PAGE>
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
  USWeb/CKS Common Stock, $0.001 par value, has been traded on the Nasdaq
National Market System under the symbol USWB since December 5, 1997. Prior to
that, there was no public market for our Common Stock. The table below shows
high and low per share closing prices for USWeb/CKS Common Stock for the
period from December 5, 1997 through December 31, 1998. Price data reflect
actual transactions, but do not reflect mark-ups, mark-downs or commissions.
 
<TABLE>
<CAPTION>
     Fiscal Year Ended December 31, 1998                          High    Low
     -----------------------------------                         ------ --------
     <S>                                                         <C>    <C>
     Fourth Quarter............................................. $27.75 $ 7.875
     Third Quarter.............................................. $29.25 $ 8.4375
     Second Quarter............................................. $36.75 $17.1875
     First Quarter.............................................. $23.00 $10.125
 
<CAPTION>
     Fiscal Year Ended December 31, 1997
     -----------------------------------
     <S>                                                         <C>    <C>
     Fourth Quarter (from December 5, 1997)..................... $13.13 $ 8.50
</TABLE>
 
  The trading price of our Common Stock has been and in the future could be
subject to wide fluctuations in response to quarterly variations in operating
results, announcements of new services or business acquisitions by USWeb/CKS
or its competitors, the gain or loss of client accounts, changes in estimates
of revenues or earnings by securities analysts, changes in the mix of revenues
derived by USWeb/CKS from new projects as compared to other projects and other
events or factors. In addition, the stock market has from time to time
experienced extreme price and volume fluctuations that have particularly
affected the market price of many technology-oriented companies and that often
have been unrelated or disproportionate to the operating performance of these
companies. These broad market fluctuations could lower the market price of
USWeb/CKS Common Stock. The trading prices of many high technology and
Internet-related companies' stocks, including our Common Stock, are at or near
their historical highs and reflect price/earning ratios substantially above
historical norms. The trading price of USWeb/CKS Common Stock could fall
significantly below its current level.
 
  As of March 23, 1999, we had approximately 890 stockholders of record.
 
  We currently intend to retain future earnings, if any, to fund the
development and growth our business and therefore do not anticipate paying
cash dividends within the foreseeable future. Any future payment of dividends
will be determined by our Board of Directors and will depend on the our
financial condition, results of operations and other factors deemed relevant
by the Board of Directors.
 
  During 1998, we issued the following unregistered securities:
 
  1. On January 22, 1998, we issued 42,237 shares of Common Stock in a private
placement to Advanced Video Communications, Inc. in connection with a
strategic relationship. This issuance was made in reliance on Section 4(2) of
the Securities Act.
 
  2. On February 27, 1998, we issued an aggregate of 151,310 shares of its
Common Stock in a private placement to four shareholders of InnoMate Online
Marketing GmbH and a related company in connection with the acquisition of
both companies. This issuance was made in reliance on Regulation S promulgated
under the Securities Act.
 
  3. On March 12, 1998, we issued an aggregate of 196,605 shares of Common
Stock in a private placement to 27 investors in connection with the
acquisition of Xcom Corporation. This issuance was made in reliance on Section
4(2) of the Securities Act.
 
                                      15
<PAGE>
 
  4. On April 28, 1998, we issued warrants for an aggregate of 246,302 shares
of Common Stock in a private placement to 50 investors in connection with the
acquisition of Ikonic Interactive, Inc. This issuance was made in reliance on
Section 4(2) of the Securities Act.
 
  5. On May 21, 1998, we issued warrants to purchase 1,600,000 and 500,000
shares of Common Stock at an exercise price of $22.50 and $25.43 per share,
respectively, to NBC Multimedia, Inc. Warrants to purchase 1,050,000 shares
are exercisable at any time prior to their expiration on November 21, 1999. If
the agreement is cancelled by NBC Multimedia, Inc. before May 2002, USWeb/CKS
can cancel the warrants to purchase the remaining 1,050,000 shares or, if the
warrants have been previously exercised, can repurchase them. Issuance of
warrants to purchase Common Stock was made in reliance on Section 4(2) of the
Securities Act.
 
  6. On December 23, 1998, we issued an aggregate of 151,717 shares of Common
Stock in a private placement to 2 investors in connection with the acquisition
of Synergetix Systems Integration, Inc. This issuance was made in reliance on
Section 4(2) of the Securities Act.
 
  7. During 1998, an aggregate of 374,406 shares were issued to approximately
185 investors for purchase price increases for previously completed
acquisitions in which the Company issued restricted securities.
 
 
                                      16
<PAGE>
 
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
 
  The selected consolidated financial data set forth below should be read in
conjunction with the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements, notes thereto and other financial information included elsewhere
herein. See Note 2 of Notes to Consolidated Financial Statements.
 
<TABLE>
<CAPTION>
                                           Year Ended December 31,
                                  --------------------------------------------
                                   1994    1995    1996      1997      1998
                                  ------- ------- -------  --------  ---------
                                   (In thousands, except per share amounts)
<S>                               <C>     <C>     <C>      <C>       <C>
Consolidated Statement of
 Operations Data:
Revenues........................  $28,992 $43,656 $66,389  $114,302  $ 228,600
                                  ------- ------- -------  --------  ---------
Cost of revenues:
  Services......................   18,440  28,842  41,323    74,695    146,251
  Provision for loss on
   contract.....................      --      --      --        --       9,994
  Stock compensation (1)........      --      --      --      2,420     13,037
                                  ------- ------- -------  --------  ---------
    Total cost of revenues......   18,440  28,842  41,323    77,115    169,282
                                  ------- ------- -------  --------  ---------
Gross profit....................   10,552  14,814  25,066    37,187     59,318
                                  ------- ------- -------  --------  ---------
Operating expenses:
  Marketing, sales and support..      608     932  14,963    23,374     27,761
  General and administrative....    4,957   7,304  12,633    27,739     44,694
  Acquired in-process technology
   (1)..........................      --      --      --      9,472     25,508
  Stock compensation (1)........      --      --      --      6,698     31,760
  Amortization of intangible
   assets (1)...................      --      --       74    12,963     74,538
  Merger and integration costs
   (2)..........................      --      --      --        --      28,822
  Impairment of goodwill........      --      --      --        --      11,079
                                  ------- ------- -------  --------  ---------
Total operating expenses........    5,565   8,236  27,670    80,246    244,162
                                  ------- ------- -------  --------  ---------
Income (loss) from operations...    4,987   6,578  (2,604)  (43,059)  (184,844)
Interest income, net............      121     296   2,271     1,706      4,302
Impairment of investee carried
 at cost........................      --      --      --     (4,000)       --
                                  ------- ------- -------  --------  ---------
Income (loss) before income
 taxes..........................    5,108   6,874    (333)  (45,353)  (180,542)
Provision for income taxes......      192   1,065   3,026     5,317      7,739
                                  ------- ------- -------  --------  ---------
Net income (loss)...............  $ 4,916 $ 5,809 $(3,359) $(50,670) $(188,281)
                                  ======= ======= =======  ========  =========
Net income (loss) per share (3):
  Basic.........................  $  0.69 $  0.42 $ (0.15) $  (1.73) $   (3.07)
                                  ======= ======= =======  ========  =========
  Diluted.......................  $  0.51 $  0.34 $ (0.15) $  (1.73) $   (3.07)
                                  ======= ======= =======  ========  =========
Weighted average shares
 outstanding (3)
  Basic.........................    7,112  13,764  21,803    29,262     61,329
                                  ======= ======= =======  ========  =========
  Diluted.......................    9,639  16,898  21,803    29,262     61,329
                                  ======= ======= =======  ========  =========
</TABLE>
 
                                      17
<PAGE>
 
<TABLE>
<CAPTION>
                                                      December 31,
                                         --------------------------------------
                                          1994   1995   1996    1997     1998
                                         ------ ------ ------- ------- --------
                                                     (In thousands)
<S>                                      <C>    <C>    <C>     <C>     <C>
Consolidated Balance Sheet Data:
Cash equivalents and short-term
 investments............................ $4,314 $4,817 $60,565 $86,397 $101,186
Total assets............................  3,056  3,626 103,023 225,711  403,174
Working capital......................... 20,596 23,659  50,919  89,680   98,882
Debt and lease obligations, long-term
 portion................................    446    496   1,161   1,111    1,377
Mandatorily Redeemable Convertible
 Preferred Stock........................    --     --   16,200     --       --
Stockholders' equity....................  5,244  6,350  48,437 161,331  299,872
</TABLE>
---------------------
(1) Non-cash acquisition-related charges incurred as a result of the Company's
    acquisition program. See "Management's Discussion and Analysis of
    Financial Condition and Results of Operations" and Notes 1, 2 and 9 of
    Notes to Consolidated Financial Statements.
(2) Merger and integration charges include direct transaction costs, primarily
    for financial advisory and professional fees, and other costs associated
    with combining operations of USWeb Corporation and CKS Group.
(3) See Note 1 of Notes to Consolidated Financial Statements for a description
    of per share computation and weighted average shares outstanding
    computation.
 
                                      18
<PAGE>
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS
 
  The following discussion and analysis of the financial condition and results
of operations of USWeb Corporation (which is also known as and referred to as
"USWeb/CKS") should be read in conjunction with the Company's consolidated
financial statements (including notes) that appear later in this document.
 
  The following discussion contains forward-looking statements about matters
that involve risks and uncertainties, such as statements of the Company's
plans, objectives, expectations and intentions, as well as financial trends.
The discussion also includes cautionary statements about these matters. You
should read the cautionary statements made below as being applicable to all
related forward-looking statements wherever they appear in this document.
USWeb/CKS' actual results could differ materially from those discussed below.
Factors that could cause or contribute to such differences include those
discussed in "Risk Factors," as well as those discussed elsewhere herein.
 
Overview
 
  USWeb/CKS is a leading Internet professional services firm that provides
Intranet, Extranet and Web site solutions, advertising and branding services,
and related services to businesses. USWeb/CKS has built a network of
consulting offices and what we believe to be one of the most recognized brands
for Internet professional services. USWeb/CKS offers a comprehensive range of
services to deliver Internet solutions designed to improve clients' business
processes. We provide Internet professional services including strategy
consulting, analysis and design, technology development, systems
implementation and integration, audience development and maintenance. We also
provide consulting services in the areas of strategic corporate and product
positioning, corporate identity and product branding, new media, environmental
design, packaging, collateral systems, advertising, direct marketing, consumer
and trade promotions and media placement services.
 
  On December 17, 1998, USWeb Corporation completed its merger with CKS Group,
Inc. ("CKS Group") in a transaction accounted for as a pooling of interests.
Accordingly, our historical financial statements have been presented to
combine the historical consolidated financial statements of USWeb Corporation
and CKS Group for all periods presented. Under terms of the merger agreement,
each outstanding share of CKS Group common stock was exchanged for 1.5 shares
of USWeb Corporation common stock.
 
  USWeb Corporation was incorporated in December 1995. From the date of its
incorporation to March 31, 1997, our operating activities related primarily to
recruiting personnel, raising capital, and conducting business as a franchisor
of Internet professional services firms. Each such firm that entered into a
franchise agreement with us was designated an "Affiliate." In March 1997, we
entered into its last Affiliate agreement and do not expect to enter into any
additional Affiliate agreements. In the first quarter of 1997, we initiated
the second phase of its corporate development strategy and began to acquire
Internet professional services firms, starting with some of the Affiliates. To
date, USWeb/CKS has derived its revenues from a combination of service
revenues generated by its USWeb/CKS-owned offices and fees paid by its
Affiliates. Revenues from USWeb/CKS-owned offices represented approximately
99% of total USWeb/CKS revenues for the years ended December 31, 1996, 1997
and 1998.
 
  CKS Group was founded in 1987 as Cleary Communications and initially
concentrated on the development and implementation of marketing plans and
programs. Over the last several years, CKS Group developed its vision as an
integrated marketing communications company utilizing both traditional
marketing disciplines, such as product branding and advertising, as well as
advanced technology solutions and new media including Internet development,
Intranet development, database architecture and enterprise systems
integration.
 
                                      19
<PAGE>
 
  Prior to the combination with USWeb Corporation, CKS Group's fiscal year
ended on November 30. In recording the business combination, and to conform
the companies' fiscal year ends, CKS Group's financial statements as of and
for the years ended November 30, 1996 and 1997 have been combined with USWeb
Corporation's consolidated financial statements as of and for the years ended
December 31, 1996 and 1997. For the year ended December 31, 1998, CKS Group's
consolidated financial statements for the nine-months ended August 31, 1998,
and for the three-months ended December 31, 1998, have been combined with
USWeb Corporation's consolidated financial statements for the year ended
December 31, 1998. Accordingly, CKS Group's results of operations for the
month of September 1998 have been excluded from the results of operations of
the combined company. CKS Group's net loss of $1.5 million for the month of
September 1998 has been recorded in stockholder's equity.
 
Acquisitions
 
  In 1996, we began to acquire selected Internet, marketing communications and
related technology services firms. We transitioned from a franchise-based
business model to one based on USWeb/CKS-owned operations to provide greater
economies of scale, enable the consulting offices to focus on providing
professional services and facilitate their growth by furnishing needed working
capital.
 
  USWeb/CKS typically determines the purchase price of each acquisition
candidate based on strategic fit, geographic coverage, historical revenues,
profitability, financial condition and contract backlog, and our qualitative
evaluation of the candidate's management team, operational scalability and
customer base. USWeb/CKS typically acquires suitable candidates through
mergers in exchange for shares of our Common Stock, cash, or a combination of
both. Generally, with respect to past domestic acquisitions, at least fifty
percent of the shares to be issued are deposited into a one-year escrow (or
otherwise deferred) and the remaining shares are delivered to the acquired
company's shareholders. The acquired company is valued again, typically at
each of six and twelve months after acquisition, and additional shares are
issued to the acquired company or escrowed shares are returned to USWeb/CKS
depending on whether the valuation has increased or decreased. After all such
purchase price adjustments have been made, all shares remaining in escrow are
issued to the acquired company's shareholders. USWeb/CKS expects to continue
using this valuation and payment methodology for most of its future
acquisitions; however, in certain situations USWeb may use other methodologies
as appropriate. We may increasingly use cash to pay for acquisitions and, in
particular, intends to increase its use of cash in international acquisitions.
 
  Of the 41 acquisitions completed by USWeb and CKS Group to date, 38 have
been accounted for as purchase business combinations and three, including the
acquisition of CKS Group, have been accounted for as poolings of interests.
For each purchase business combination to date a portion of the purchase price
is allocated to the tangible and identifiable intangible assets acquired and
liabilities assumed based on their respective fair values on the acquisition
date. Identifiable intangible assets include:
 
  . amounts allocated to in-process technology and immediately charged to
    operations,
  . amounts allocated to completed technology and amortized on a straight-
    line basis over the estimated useful life of the technology generally
    from six months to one year,
  . amounts allocated to workforce in place and amortized on a straight-line
    basis over the estimated period of benefit, which ranges from twelve to
    forty-two months, and
  . amounts allocated to goodwill and amortized on a straight-line basis over
    twelve months to twenty years.
 
  The results of operations of an acquired entity are consolidated with those
of USWeb/CKS as of the date USWeb/CKS acquires effective control of the
entity, which may occur prior to the formal legal closing of the transaction
and the physical exchange of acquisition consideration.
 
                                      20
<PAGE>
 
  To determine the amounts to be allocated to acquired in-process technology
we used two distinct approaches. For all acquisitions except Gray Peak
Technologies, Inc. ("Gray Peak"), we performed an internal detailed valuation.
For the acquisition of Gray Peak, which was individually significant at the
time it was acquired, we engaged a valuation consultant to perform an
independent valuation of the Gray Peak purchase price including an allocation
of such purchase price to assets acquired and liabilities assumed.
 
  For each acquisition, excluding Gray Peak, we performed a detailed inventory
of existing in-process technology. Such technology consisted primarily of
software objects, which, if successfully developed, could be reused by
USWeb/CKS in various future client engagements. These software objects were
under development as part of client engagements or as independent research
conducted by the acquired companies. We also reviewed the financial forecasts
of the acquired businesses. The future cash flows of the acquired companies
were then allocated between existing software technology, in-process software
technology and as yet undeveloped technology. The value attributed to existing
software and in-process software technology was determined by discounting
future cash flows attributed to such software technology on a tax adjusted
basis using a 25% discount rate. Given the rapidly changing technology and
resulting limited utility of such software, it was estimated that existing
software technology had an estimated life ranging from six months to one year.
Additionally, due to rapidly changing technologies and processes within the
Internet market place, many items under development may be rendered obsolete
prior to completion. Therefore, cash flows beyond a period of 18 months were
attributed entirely to as yet undeveloped software technology and were
excluded from the valuation of existing and in-process software technology.
Remaining costs to complete in-process technology included further coding,
development and testing. The amount of funding necessary to complete the in-
process technology varies by acquisition. In the aggregate, as of the date of
the individual acquisition, we estimated such amount to range between $5
million to $7 million. Should USWeb/CKS fail to complete such in-process
technology, we may not be able to recover costs invested in development of
such technology or realize any anticipated future net cash flows.
 
Due to the relative size of the Gray Peak acquisition at the time we acquired
it, as well as the different nature of the Gray Peak business compared to our
other acquisitions, we engaged the services of an independent consultant to
assist in the valuation of the purchase price, including options assumed, and
allocation of such purchase price to assets acquired, including intangible
assets. As part of their analysis of the intangible assets acquired, the
consultant reviewed the various research and development projects under
development on the acquisition date. Such in-process development included Gray
Peak's development of a network operating center and voice over Internet
protocol telephony technologies. The total value of the acquisition purchase
price of Gray Peak allocated to in-process technology was $11.1 million or
approximately 12% of the total purchase price of Gray Peak. As this technology
had not reached the stage of technological feasibility and had no alternative
future use, such amount was recognized as an operating expense at acquisition.
 
  As of the date of the Gray Peak acquisition, we estimated that $675,000 of
additional expenditures were necessary to complete the in-process technology
related to the network operating center. Subsequent to the acquisition, of
Gray Peak USWeb/CKS has continued to invest in development of the network
operating center and has only recently begun to generate revenues related to
the providing of network operating center services. However, to date, such
revenue has been limited and has not generated positive cash flows. We expect
that we will need to invest additional funds in further development of the
network operating center technology through the end of 1999.
 
  Internet protocol telephony represents a new technology that allows voice
transmission over Internet lines and connections allowing for long distance
telephone communications at prices much lower than existing long distance
telephone rates. As of the date of the Gray Peak acquisition, we estimated
that $1.1 million of additional expenditures were necessary to complete the
Internet protocol telephony in-process technology. The estimated costs to
complete the technologies consisted entirely of unique software and process
development and excluded any hardware costs. After the aquisition of Gray
Peak, USWeb/CKS has continued to invest in development of the Internet
protocol telephony technology, which has not yet begun to generate
 
                                      21
<PAGE>
 
revenues. We expect that we will need to invest additional funds in further
development of the Internet protocol telephony technology between the current
date and the end of 1999. Should the technology fail to achieve feasibility,
we may not recover the costs invested in development of the Internet protocol
telephony technology and may not realize anticipated future net cash flows.
 
  Generally, the employees of acquired companies who become employees of
USWeb/CKS are granted options to purchase shares of USWeb/CKS' Common Stock,
which typically become exercisable over a 36-month period. These options have
an exercise price per share equal to at least the fair market value of
USWeb/CKS Common Stock on the date of grant. Additional options generally are
granted at the revaluation dates if the target company's formula-based
valuation increases. In most cases, each optionee is also given the right to
receive a stock bonus at the time an option is granted. The stock bonus vests
at the same rate as the corresponding option and is equal in value to the
aggregate exercise price of this option. The stock bonus is payable at the
earlier of three years from the date of grant or, to the extent vested, upon
termination of employment. The stock bonus amount is amortized ratably over a
36-month period and recorded as compensation expense. This charge is
identified as "Stock Compensation" and allocated to either cost of revenues or
operating expenses depending on whether the optionee is acting in a service
delivery or administrative capacity.
 
  During the year ended December 31, 1998, options for our Common Stock were
exchanged for outstanding vested options for the acquired entity's Common
Stock only with respect to the acquisitions of Gray Peak, Ikonic Interactive,
Inc. ("Ikonic"), and CKS Group, Inc. In the acquisitions of Gray Peak and
Ikonic, which were accounted for as purchase business combinations, the value
of such options was determined using the Black-Scholes option-pricing model
and included in the determination of purchase price. For transactions in which
option vesting was accelerated as a result of the merger transaction, the
vested options were required to be exercised prior to acquisition and the
resultant target company shares exchanged for our Common Stock. Options
granted to new employees with exercise prices equal to the fair value of the
Company's Common Stock on the date of grant in exchange for future services
are accounted for in accordance with Accounting Principles Board Opinion No.
25, with no compensation expense recognized in our consolidated financial
statements. Options granted to consultants with non-variable terms are valued
on the date of grant using the Black-Scholes option pricing model. The
resulting compensation cost is allocated to cost of revenues or operating
expenses depending on whether the optionee is acting in a services delivery or
administrative capacity.
 
  To capitalize on the growth opportunities for a newly acquired consulting
office, USWeb/CKS generally hires a number of additional Internet
professionals during the three-month period following the office's integration
into the USWeb/CKS network. The capacity utilization rates of these new
employees are initially not as high as those of seasoned employees because of
the time spent on training and professional development. Consequently,
USWeb/CKS expects that the cost of service revenues as a percentage of service
revenues of an integrated office will generally increase during the first
three months following such integration. We believe that this investment in
training and professional development will contribute to its ability to meet
its growth targets.
 
  The successful implementation of USWeb/CKS' acquisition strategy depends on
its ability to identify suitable acquisition candidates, acquire such
companies on acceptable terms and integrate their operations successfully with
those of the Company. USWeb/CKS may not be able to do so. Moreover, in
pursuing acquisitions USWeb/CKS may compete with companies with similar
acquisition strategies, certain of which competitors may be larger and have
greater financial and other resources than USWeb/CKS. Competition for these
acquisition targets could also result in increased prices for acquisition
targets and a diminished pool of companies available for acquisition.
Acquisitions also involve a number of other risks, including adverse effects
on USWeb/CKS' reported operating results from increases in goodwill
amortization, acquired in-process technology, stock compensation expense and
increased compensation expenses resulting from newly hired employees, the
diversion of management attention, risks associated with the subsequent
integration of
 
                                      22
<PAGE>
 
acquired businesses, potential disputes with the sellers of one or more
acquired entities and the failure to retain key acquired personnel. Client
satisfaction or performance problems with an acquired firm could also have a
material adverse impact on the reputation of USWeb/CKS as a whole, and any
acquired subsidiary could significantly under-perform relative to USWeb/CKS'
expectations. For all of these reasons, USWeb/CKS' pursuit of an overall
acquisition strategy or any individual completed, pending or future
acquisition could harm USWeb/CKS' business, results of operations and
financial condition. To the extent USWeb chooses to use cash consideration in
the future to pay for all or part of any acquisitions, USWeb may be required
to obtain additional financing. Such financing may be unavailable on favorable
terms, if at all.
 
Strategic Alliance
 
  In May 1998, USWeb Corporation entered into a strategic alliance with NBC
Multimedia, Inc. ("NBC") to expand production capabilities for NBC's
interactive properties and services. As part of the strategic alliance, we
were awarded a multi-year contract where revenues earned under the contract
are expected to approximate $11.0 million. In connection with the strategic
alliance, we issued warrants to NBC allowing them to purchase 1,600,000 and
500,000 shares of our Common Stock at $22.50 and $25.43 per share,
respectively. Warrants to purchase 1,050,000 shares are exercisable at any
time prior to their expiration in November 1999 (the "Fixed Warrants"). If the
agreement is cancelled by NBC Multimedia, Inc. before May 2002, USWeb/CKS can
cancel the warrants to purchase the remaining 1,050,000 shares or, if the
warrants have been previously exercised, can repurchases them (the "Variable
Warrants"). The warrants were initially valued at $12.6 million. Of the total
value ascribed to the NBC warrants, $6.3 million was attributable to the Fixed
Warrants and recorded as part of stock compensation in operating expenses.
Because the inclusion of the value of the Variable Warrants as a sales
discount over the life of the NBC contract will result in an overall loss on
the contract, an accrual of $10.0 million was provided in the year ended
December 31, 1998 to recognize this loss. The Variable Warrants are subject to
future revaluation at each balance sheet date through the date the related
cancellation or repurchase rights lapse.
 
  As a result of the purchase accounting adjustments, the stock compensation
charges and the charges associated with the NBC warrants described above,
USWeb/CKS has incurred significant non-cash expenses. For example, for the
year ended December 31, 1998, stock compensation expense included in cost of
revenues totaled $13.0 million, stock compensation expense included in
operating expenses totaled $31.8 million (including the $6.3 million
associated with warrants issued to NBC) and amortization of intangible assets
totaled $74.5 million, all of which were related to the acquisition of
USWeb/CKS-owned offices. In addition, USWeb/CKS has recognized an aggregate
cost of $25.5 million for acquired in-process technology related to the
acquisitions it completed during the year ended December 31, 1998. USWeb/CKS
expects these acquisition-related non-cash expenses to continue on a basis
corresponding with operation of the acquisition program.
 
Sources of Revenues and Revenue Recognition
 
  USWeb/CKS consolidates the financial statements of acquired entities
beginning on the date USWeb/CKS assumes effective control of those entities.
Revenues primarily consist of fees from consulting services engagements
(including both time-and-materials and fixed-price engagements). We provide
Internet professional services including strategy consulting, analysis and
design, technology development, systems implementation and integration,
audience development and maintenance. We also provide strategic corporate and
product positioning, corporate identity and product branding, new media,
environmental design, packaging, collateral systems, advertising, direct
marketing, consumer and trade promotions and media placement services.
Revenues from time-and-materials engagements are recognized as incurred and
revenues from fixed-price engagements are recognized using the percentage-of-
completion method. Billable rates vary by the service provided and
geographical region. Although a majority of engagements are currently
performed on a time-and-materials basis, USWeb/CKS intends to increase the
percentage of its engagements that are
 
                                      23
<PAGE>
 
based on a fixed price. The pricing, management and execution of individual
engagements are the responsibility of the consulting office that performs or
coordinates the services.
 
Classification of Costs
 
  Cost of revenues include direct costs, such as personnel salaries and
benefits and the cost of any third-party hardware or software included in an
Internet solution, and related overhead expenses, such as depreciation and
occupancy charges, associated with the generation of the revenues. The
technology, sales, marketing and administrative costs of each USWeb/CKS-owned
office are classified as operating expenses. Corporate expenses are primarily
classified as operating expenses. Marketing and sales expenses include product
and service research, advertising, brand name promotions and lead-generation
activities, as well as the salary and benefits costs of the personnel in these
functions. General and administrative expenses include administration,
accounting, legal and human resources costs.
 
Results of Operations
 
  Years Ended December 31, 1996, 1997 and 1998
 
<TABLE>
<CAPTION>
                                                              Percent of
                                                               Revenue
                                                            ------------------
                                                            1996   1997   1998
                                                            ----   ----   ----
   <S>                                                      <C>    <C>    <C>
   Revenues................................................ 100%   100%   100%
                                                            ---    ---    ---
   Cost of revenues:
     Services..............................................  62     65     64
     Provision for loss on contract........................  --     --      4
     Stock compensation....................................  --      2      6
                                                            ---    ---    ---
       Total cost of revenues..............................  62     67     74
                                                            ---    ---    ---
   Gross profit............................................  38     33     26
                                                            ---    ---    ---
   Operating expenses:
     Marketing, sales and support..........................  23     20     12
     General and administrative............................  19     24     20
     Acquired in-process technology........................  --      8     11
     Stock compensation....................................  --      6     14
     Amortization of intangible assets.....................  --     11     33
     Merger and integration costs..........................  --     --     13
     Impairment of goodwill................................  --     --      5
                                                            ---    ---    ---
       Total operating expenses............................  42     70    107
                                                            ---    ---    ---
   Loss from operations....................................  (4)   (38)   (81)
   Interest income, net....................................   3      1      2
   Impairment of investee carried at cost..................  --     (3)    --
                                                            ---    ---    ---
   Loss before income taxes................................  (1)   (40)   (79)
   Provision for income taxes..............................   5      5      3
                                                            ---    ---    ---
   Net loss................................................  (5)%  (45)%  (82)%
                                                            ===    ===    ===
</TABLE>
 
  Revenues. Total revenues increased $47.9 million or 72% from 1996 to 1997
and increased $114.3 million or 100% from 1997 to 1998. These increases
resulted from an increase in the number and relative size of client
engagements we have undertaken as well as revenue recognized resulting from
acquisitions we have completed during the respective periods. Revenue
recognized related to acquisitions completed during the years ended December
31, 1997 and 1998 was $34.4 million and $46.8 million, respectively. USWeb/CKS
recognizes revenues related to fixed fee for service projects using the
percentage of completion method based
 
                                      24
<PAGE>
 
on the ratio of costs incurred to total estimated project costs. USWeb/CKS
updates its estimated costs on each project monthly. Fees and expenditures in
excess of billings represent the costs incurred and anticipated profits earned
on projects in progress in excess of amounts billed, and are recorded as an
asset. Billings in excess of fees and expenditures represent amounts billed in
excess of costs incurred and estimated profits earned, and is recorded as a
liability. To the extent costs incurred and anticipated costs to complete
projects in progress exceed anticipated billings, a loss is accrued for the
excess.
 
  We generally generate higher profit margins when a greater percentage of our
services are performed by full-time employees rather than independent
consultants. Accordingly, USWeb/CKS actively monitors and manages its level of
full-time and temporary employees as compared to independent consultants to
ensure that future projects are adequately staffed. In certain instances,
USWeb/CKS has made a strategic decision to incur the incremental costs of
independent consultants to staff growth in projects rather than increase the
number of full-time employees until such time as USWeb/CKS has determined that
the increased revenue levels are sustainable.
 
  We anticipate that revenues in future periods will vary depending on our
internal growth and management of growth, and as a result of any acquisitions
and the integration of acquired firms.
 
  Cost of Revenues. Cost of revenues increased $35.8 million or 87% from 1996
to 1997 and increased $92.2 million or 120% from 1997 to 1998. These increases
primarily result from increases in the number and relative size of client
engagements we have undertaken as well as cost of revenue resulting from
acquisitions we have completed during the respective periods. Cost of revenue
recognized related to acquisitions completed during the years ended December
31, 1997 and 1998 was $20.3 million and $31.8 million, respectively. Included
in cost of revenues for the year ended December 31, 1998, is a provision for
contract loss of $10.0 million related to the NBC warrants, discussed above.
We anticipate that cost of revenues will increase in absolute dollars as a
result of internal growth and as a result of any acquisitions we may complete.
 
  Marketing, Sales and Support Expenses. Sales and marketing expenses
increased $8.4 million or 56% from 1996 to 1997 and increased $4.4 million or
19% from 1997 to 1998. These increases resulted from the consolidation of
additional Internet consulting businesses acquired during the respective
periods and from increases in personnel to support the growth of our
operations, and were partially offset by decreases in marketing expenses
resulting from our transition away from an affiliate franchising program.
Sales and marketing expenses recognized related to acquisitions completed
during the years ended December 31, 1997 and 1998 were $5.3 million and $6.2
million, respectively. During the year ended December 31, 1997, we recognized
a charge in the amount of $1.3 million related to the discounted sale of
Common Stock to a strategic partner contemporaneously with our initial public
offering. We anticipate that sales and marketing expenses will increase in
future periods in absolute dollars as we continue to pursue an aggressive
brand building strategy and continue to acquire and consolidate the results of
additional Internet consulting firms.
 
  General and Administrative Expenses. General and administrative expenses
increased $15.1 million or 120% from 1996 to 1997 and increased $17.0 million
or 61% from 1997 to 1998. These increases were primarily attributable to
increases resulting from the consolidation of the results of operations of
acquired businesses as well as increases in personnel and overhead costs to
support the internal growth of our operations. General and administrative
expenses recognized related to acquisitions completed during the years ended
December 31, 1997 and 1998 were $7.0 million and $5.6 million, respectively.
Included in general and administrative expenses during the year ended December
31, 1997, is $1.1 million of severance-related costs associated with
USWeb/CKS' decision to discontinue its program for attracting new affiliates.
USWeb/CKS believes that the absolute dollar level of general and
administrative expenses will increase in future periods as a result of
increased staffing and as a result of the acquisition of additional Internet
professional services firms.
 
  Acquired In-Process Technology. Acquired in-process technology results from
our acquisition program. Acquired in-process technology expenses were $9.5
million in 1997 and increased $16.0 million or 169% to $25.5 million during
1998. The acquired in-process technology had not reached the stage of
technological
 
                                      25
<PAGE>
 
feasibility as of the date of acquisition and had no alternative future use.
Accordingly, such amounts were charged to operations in the period the
respective acquisitions were consummated. The amount of acquired in-process
technology, if any, will fluctuate in future periods based upon the nature and
timing of future acquisitions.
 
  Stock Compensation. Stock compensation expense results primarily from stock
bonuses awarded to employees of acquired companies, as well as from stock
options granted with exercise prices below the fair market value of our Common
Stock on the date of grant. Stock compensation expense is classified as cost
of revenue or operating expense depending upon the classification of the
respective employees. Such expenses are recognized ratably over the related
vesting period, which is generally three years. Stock compensation expense
totaled $9.1 million in 1997 and increased $35.7 million or 392% to $44.8
million during the year ended December 31, 1998. USWeb/CKS anticipates that
such amounts will increase in the near term as recent stock awards vest
contemporaneously, and will fluctuate in future periods based upon the nature
and timing of future acquisitions and related stock and option awards.
 
  Amortization of Intangible Assets. Amortization of intangible assets
consists primarily of amortization of purchased technology, workforce in place
and goodwill resulting from our various acquisitions. Amortization of
intangible assets totaled $13.0 million in 1997 and increased $61.6 million or
475% to $74.5 million during the year ended December 31, 1998. Amortization
periods range from six months to twenty years. Amortization of intangible
assets will fluctuate in future periods based upon the nature and timing of
future acquisitions.
 
  Merger and Integration Costs. We completed our merger with CKS Group on
December 17, 1998. Costs directly associated with the merger aggregating $28.8
million were charged to operations upon consummation of the merger. Such costs
included $19.6 million in consulting and investment banking fees, which
included the fair value of certain warrants granted to consultants; legal,
accounting, printing and other professional fees totaling $3.7 million; lease
termination and related costs aggregating $2.9 million; severance and
retention costs of $1.8 million, and other costs totaling $0.8 million.
USWeb/CKS anticipates that it will incur additional merger and integration
costs in the first quarter of 1999 related to costs that, under existing
accounting literature, could not be accrued as of December 31, 1998. Such
costs are expected to consist primarily of additional costs associated with
severance and retention of employees, branding and moving expenses.
 
  Impairment of Goodwill. In December 1998, in connection with the renewal of
an employment arrangement with a key employee of one of our subsidiaries, the
Company estimated that the future undiscounted net cash flows from this
subsidiary would be significantly less than in prior periods and less than the
carrying amount of the goodwill recorded in connection with this subsidiary's
acquisition. Accordingly, based upon the provisions of this employment
arrangement and the expected future net discounted cash flows, we recorded an
impairment charge totaling $11,079 in operating expenses in the quarter ended
December 31, 1998.
 
  Impairment of Investee. During June 1997, we recognized an impairment charge
totaling $4.0 million, representing the total amount of its cost basis
investment in an independent Internet consulting firm. In assessing the level
of impairment we considered the entity's current financial position, recent
operating results and the likelihood of recovery of some or all of its
investment in the event of liquidation, sale or merger.
 
  Interest income, net. Other income (expense) consists primarily of interest
earned on our holdings in cash, cash equivalents and short-term investments,
offset by interest expense incurred primarily on our capital lease facility.
The increase in other income in 1998 as compared to 1997 was primarily
attributable to an increase in interest income due to higher average cash,
cash equivalents and marketable securities balances. These higher balances
resulted from USWeb Corporation's initial public offering completed in
December of 1997 and its follow-on offering completed in April 1998.
 
  Provision for Income Taxes. Provision for income taxes represents the actual
provision for income taxes of CKS Group prior to the merger with USWeb
Corporation. No provision for federal and state income taxes
 
                                      26
<PAGE>
 
was recorded by USWeb Corporation for the years ended December 31, 1996, 1997
and 1998 because USWeb Corporation incurred net operating losses in each of
those periods.
 
  Net Loss. Net losses for the years ended December 31, 1996, 1997 and 1998
were $3.4 million, $50.7 million and $188.3 million, respectively. The
increase in the net loss was primarily attributable to increases in costs
directly associated with our acquisition program, including acquired in-
process technology, amortization of intangible assets, and stock compensation;
a goodwill impairment charge in 1998; and merger and integration costs related
to the merger with CKS Group in 1998.
 
Liquidity and Capital Resources
 
  At December 31, 1998, USWeb/CKS had approximately $101.2 million in cash,
cash equivalents and short-term investments compared to $86.4 million at
December 31, 1997. USWeb/CKS invests its cash predominantly in instruments
that are highly liquid, are investment grade, and generally have maturities of
less than one year, with the intent to make such funds readily available for
operating purposes.
 
  Cash used in operating activities was $11.8 million for the year ended
December 31, 1998, and was primarily due to the net loss of $188.3 million,
offset by non-cash charges of $182.9 million (which includes primarily a
provision for loss on contract, stock compensation, acquired in-process
technology, amortization of intangible assets, depreciation and amortization
of fixed assets and leasehold improvements and a goodwill impairment charge),
an increase in accounts receivable of $11.1 million resulting from an increase
in the number and size of client engagements being entered into and offset by
an increase in accrued expenses of $12.8 million. Cash used in operating
activities was $20.1 million for the year ended December 31, 1997 and was
primarily due to the net loss from operations of $50.7 million, offset by non-
cash charges of $42.9 million, including an impairment provision of $4.0
million, representing the cost basis in Utopia, Inc.
 
  Cash used in investing activities was $32.4 million for the year ended
December 31, 1998. Purchases (net of sales and maturities) of investments in
marketable securities during the period were $11.7 million and capital
expenditures totaled $9.7 million. Capital expenditures have generally
comprised purchases of computer hardware and software as well as leasehold
improvements related to leased facilities, and are expected to increase in
future periods. Cash used in investing activities was $5.1 million for the
year ended December 31, 1997, and was primarily due to capital expenditures.
 
  Cash provided by financing activities was $51.9 million for the year ended
December 31, 1998. In April 1998, USWeb Corporation completed a follow-on
public offering of its Common Stock, resulting in net proceeds to the Company
of $31.2 million. Additionally, various stock option, employee stock purchase
and Common Stock warrant holders exercised or purchased their stock options,
employee shares and Common Stock warrants, offset by Common Stock repurchases,
resulting in net proceeds of $11.0 million. Cash provided by financing
activities was $69.2 million for the year ended December 31, 1997, and was
primarily due to the issuance of Mandatorily Redeemable Preferred Stock (which
converted to shares of Common Stock upon the close of USWeb Corporation's
initial public offering in December 1997), resulting in net proceeds of $16.3
million.
 
  We currently have no material commitments other than those under operating
lease agreements and costs incurred in connection with the recently completed
merger with CKS Group, which including investment banking fees, professional
fees and severance and retention payments. We have experienced a substantial
increase in its capital expenditures and operating lease arrangements since
its inception, which is consistent with increased staffing, and anticipates
that this will continue in the future. Additionally, USWeb/CKS will continue
to evaluate possible acquisitions of or investments in businesses, products,
and technologies that are complementary to those of USWeb/CKS, which may
require the use of cash. USWeb/CKS believes that existing cash, investments,
and borrowings available under its credit facilities will be sufficient to
fund its requirements for working capital and capital expenditures for at
least the next 12 months. However, USWeb/CKS may sell additional equity or
debt securities or seek additional credit
 
                                      27
<PAGE>
 
facilities if it believes such actions would be a better way to fund
acquisition-related or other costs. Sales of additional equity or convertible
debt securities would result in additional dilution to our stockholders. We
may need to raise additional funds sooner in order to support more rapid
expansion, develop new or enhanced services and products, respond to
competitive pressures, acquire complementary businesses or technologies or
take advantage of unanticipated opportunities. USWeb/CKS' future liquidity and
capital requirements will depend upon numerous factors, including the success
of our existing and new service offerings and competing technological and
market developments.
 
Factors Affecting Operating Results
 
  Our operating results may fluctuate significantly in the future as a result
of a variety of factors, many of which are outside our control. These factors
include:
 
  . the level of demand for Intranet, Extranet and Web site development;
 
  . the productivity of our consulting offices;
 
  . our success in finding and acquiring suitable acquisition candidates;
 
  . our ability to attract and retain personnel with the necessary strategic,
    technical and creative skills required to service clients effectively;
 
  . the cost of advertising and related media;
 
  . the amount and timing of expenditures by our clients for Internet
    professional services;
 
  . client budgetary cycles;
 
  . the amount and timing of capital expenditures and other costs relating to
    the expansion of the our operations;
 
  . the introduction of new products or services by us or our competitors;
 
  . pricing changes in the industry;
 
  . technical difficulties with respect to the use of the Internet;
 
  . economic conditions specific to Internet technology usage; and
 
  . general economic conditions.
 
As a strategic response to changes in the competitive environment, we may from
time to time make certain pricing, service, technology or marketing decisions
or business or technology acquisitions that could have a material adverse
effect on our business, results of operations and financial condition.
USWeb/CKS may also experience seasonality in its business in the future,
resulting in diminished revenues to the Company as a consequence of decreased
demand for Internet professional services during summer and year-end vacation
and holiday periods. Due to all of these reasons, in future periods our
operating results may fall below the expectations of securities analysts and
investors. Our stock price would then be likely to decline significantly and
rapidly.
 
Recent Accounting Pronouncements
 
  In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes a new model for
accounting for derivatives and hedging activities and supersedes and amends a
number of existing accounting standards. SFAS 133 requires that all
derivatives be recognized in the balance sheet at their fair market value and
the corresponding derivative gains or losses be either reported in the
statement of operations or as a deferred item depending on the type of hedge
relationship that exists with respect to such derivatives. We have not yet
determined the effect, if any, of adopting SFAS 133, which will be effective
for our fiscal year 2000.
 
                                      28
<PAGE>
 
  During 1998 the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". SOP 98-1 provides
guidance for determining whether computer software is internal-use software
and on accounting for the proceeds of computer software originally developed
or obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer
software developed or obtained for internal use. USWeb/CKS has not yet
determined the impact, if any, of adopting SOP 98-1, which will be effective
for USWeb's year ending December 31, 1999.
 
  In April, 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-
Up Activities." SOP 98-5, which is effective for fiscal years beginning after
December 15, 1998, provides guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. As we have expensed these costs
historically, the adoption of this standard is not expected to have a
significant impact on our results of operations, financial position or cash
flows.
 
Year 2000
 
  Many computer systems and software and electronic products are coded to
accept only two-digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. In addition, certain systems and products do not correctly
process "leap year" dates. As a result, in the next 14 months, computer
systems and software ("IT Systems") and other property and equipment not
directly associated with information systems ("Non-IT Systems"), such as
elevators, phones, other office equipment used by many companies, including
USWeb/CKS, may need to be upgraded, repaired or replaced to comply with such
"Year 2000" requirements and "leap year" requirements.
 
  USWeb/CKS has conducted an internal review of most of its internal corporate
headquarters IT Systems, including finance, human resources, Intranet
applications and payroll systems. We have contacted most of the vendors of the
IT Systems in our internal corporate headquarters to determine potential
exposure to Year 2000 issues and have obtained certificates from such vendors
assuring Year 2000 compliance. Although most of our principal internal
corporate headquarters IT Systems are Year 2000 compliant, some of our
internal systems, including our Windows NT operating system and internal
networking systems are not Year 2000 compliant or have not been evaluated.
USWeb/CKS has not yet made an assessment of the status of the IT Systems at
our subsidiaries or the Non-IT Systems for the corporate headquarters and our
subsidiaries.
 
  USWeb/CKS has appointed a task force (the "Task Force") to oversee Year 2000
and leap year issues. The task force is expected to review all IT Systems and
Non-IT Systems that have not been determined to be Year 2000 and leap year
compliant and will attempt to identify and implement solutions to ensure such
compliance. USWeb/CKS expects to evaluate its systems for Year 2000 and leap
year compliance in accordance with the DISC PD2000-1 Year 2000 compliance
standards established by the British Standards Institute. To date, USWeb/CKS
has spent an immaterial amount to remediate its Year 2000 issues. USWeb/CKS
presently estimates that the total cost of addressing its Year 2000 and leap
year issues will be immaterial. These estimates were derived utilizing
numerous assumptions, including the assumption that we have already identified
our most significant Year 2000 and leap year issues and that the plans of our
third-party suppliers will be fulfilled in a timely manner without cost to us.
However, these assumptions may not be accurate, and actual results could
differ materially from those anticipated.
 
  USWeb/CKS has been informed by most of its suppliers that they will be Year
2000 compliant by the Year 2000. Any failure of these third parties systems to
timely achieve Year 2000 compliance could significantly harm our business,
financial condition, results of operations and prospects.
 
  USWeb/CKS has not determined the state of compliance of certain third-party
suppliers of services such as phone companies, long distance carriers,
financial institutions and electric companies. The failure of any one of these
services could severely disrupt our ability to carry on its business as well
as disrupt the business of our customers.
 
                                      29
<PAGE>
 
  Failure to provide Year 2000 and leap year compliant business solutions to
their customers or to receive such business solutions from their suppliers
could result in liability to the Company or otherwise significantly harm our
business, results of operations, financial condition and prospects.
Furthermore, USWeb/CKS believes that the purchasing patterns of customers and
potential customers may be affected by Year 2000 issues as companies expend
significant resources to correct or patch their current software systems for
Year 2000 compliance. These expenditures may result in reduced funds available
to purchase products and services such as those offered by USWeb/CKS, which
could significantly harm our business, results of operations and financial
condition. USWeb/CKS could be affected through disruptions in the operation of
the enterprises with which USWeb/CKS interacts or from general widespread
problems or an economic crisis resulting from noncompliant Year 2000 systems.
Despite our efforts to address the Year 2000 effect on its internal systems
and business operations, such effect could result in a severe disruption of
its business or could significantly harm our business, financial condition or
results of operations. USWeb/CKS has not developed a complete contingency plan
to respond to any of the foregoing consequences of internal and external
failures to be Year 2000 and leap year compliant, but expects the Task Force
to develop such a plan.
 
                          FORWARD-LOOKING STATEMENTS
 
  This document contains "forward-looking statements" as defined under
securities laws. These forward-looking statements can be identified by the use
of terminology such as "believes," "expects," "anticipates," "plans," "may,"
"will," "projects," "continues," "estimates," "potential," "opportunity" and
so on. These forward-looking statements may be found in the sections entitled
"Business," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and other sections of this document. Such forward-
looking statements are subject to risks and uncertainties. Our actual results
or experience could differ significantly from the forward-looking statements.
Factors that could cause or contribute to such differences include those
discussed in "--Risk Factors," below, as well as those discussed elsewhere in
this document. Also, we can make no express or implied representation or
warranty as to the attainability of the projected or estimated financial
information referenced or set forth in this document, or as to the accuracy or
completeness of the assumptions from which such projected or estimated
information is derived. Projections or estimations of USWeb/CKS's future
performance are necessarily highly uncertain. You should not expect that
actual results will be the same as projected results. They could be
significantly worse.
 
                                      30
<PAGE>
 
                                 RISK FACTORS
 
  This section identifies risks that USWeb/CKS faces. If we are unable to
prevent these and other events that have a negative effect from occurring,
then USWeb/CKS will suffer. Negative events are likely to decrease our
revenues, increase our costs, make our financial results poorer and decrease
our financial strength. Negative events are also likely to cause our stock
price to decline.
 
  We Have Only A Limited Operating History And Are In An Early Stage Of
Development. USWeb Corporation was founded in December 1995 and is still
evolving rapidly. Because we were founded only recently, USWeb/CKS has only a
limited operating history on which to base an evaluation of our business and
prospects. Companies in an early stage of development frequently encounter
extra risks, expenses and difficulties as they grow and evolve. These risks,
expenses and difficulties apply particularly to USWeb/CKS because its markets,
Internet professional services and integrated marketing communications
services, are new and rapidly evolving. Two particular challenges USWeb/CKS
faces in its early stage of development are, one, an evolving business model
and, two, the management of both internal and acquisition-based growth. To
address these risks, USWeb/CKS must continue to develop the strength and
quality of its operations, expand its network of consulting offices, enhance
its brands, respond to competitive developments and continue to attract,
retain and motivate qualified employees. If USWeb/CKS fails to do any of these
things well, the company may perform poorly and our stock price could decline
significantly and rapidly.
 
  We Have An Accumulated Deficit Of Over $247 Million. USWeb Corporation has
operated with a net loss since it was formed and its expenses have always
exceeded its revenues. As of December 31, 1998 it had an accumulated deficit
of $247.2 million. Although USWeb/CKS has experienced revenue growth in recent
months, we may not be able to sustain that growth or those levels of revenue.
You should not expect that operating results in the future will be the same as
in the past. They could be significantly worse. In addition, we intend to
continue to invest heavily in acquisitions, infrastructure development and
marketing. As a result, USWeb/CKS expects to continue to incur substantial
operating losses through at least 1999.
 
  Our Quarterly Results May Fluctuate. USWeb/CKS is likely to experience
significant fluctuations in our quarterly operating results. Some important
factors affecting operating results are:
 
  . the productivity of our consulting offices
 
  . our success in finding and acquiring suitable acquisition candidates
 
  . our ability to attract and retain personnel with the strategic, technical
    and creative skills required to service clients effectively
 
  . the relative mix of lower cost full-time employees versus higher cost
    independent contractors
 
  . the amount and timing of expenditures by our clients for Internet
    professional services and integrated marketing communications
 
  . the amount and timing of capital expenditures and other costs relating to
    the expansion of our operations
 
  . the introduction of new products or services by USWeb/CKS or its
    competitors
 
  . technical difficulties with respect to the use of the Internet or in
    responding to customer's requests
 
Many of the factors affecting USWeb/CKS's operating results are outside of
USWeb/CKS's control. Some of these factors are:
 
  . the level of demand for intranet, extranet and Web site development
 
  . the cost of advertising and related media
 
  . client budgetary cycles
 
  . pricing changes in the industry
 
                                      31
<PAGE>
 
  . economic conditions specific to Internet technology usage
 
  . government regulation and legal developments regarding the use of the
    Internet
 
  . general economic conditions
 
  Also, we often must commit to expenses in advance of knowing what revenues
for a particular period will be. As a result, fluctuations in revenues can
cause amplified fluctuations in other financial measures, such as profit or
loss. We attempt to set expense levels on the basis of anticipated revenues,
but such financial planning is difficult for a number of reasons. One
important reason is that, because of USWeb/CKS's limited operating history and
the rapid growth and emerging nature of USWeb/CKS's markets, our historical
financial data is of limited value in planning future operating expenses.
Another reason is that our revenues are derived primarily from consulting fees
for Internet solution engagements, which are difficult to forecast accurately.
Because expenses are relatively fixed, any shortfall in revenues will hurt
USWeb/CKS's business, results of operations and financial condition and may
cause our stock price to decline significantly and rapidly.
 
  We intend to increase expenses significantly to expand operations and
enhance USWeb/CKS's brand names. We also plan to increase other operating
expenses as required to support the operations of our consulting offices. If
USWeb/CKS experiences a shortfall in customer demand, or if our expenses
precede or are not rapidly followed by increased revenues, USWeb/CKS's
business, results of operations and financial condition, as well as our stock
price, may suffer significantly and rapidly.
 
  USWeb merged with CKS Group in December 1998. CKS Group's business has
historically grown at a lower rate than USWeb's and, although USWeb has
experienced recent growth in revenue in absolute terms, USWeb's growth rate
has slowed in recent periods. USWeb/CKS is expected to have an overall lower
growth rate in the future than we have historically both because of CKS
Group's historically lower growth rate and the decrease in growth rate
associated with the increased size of the company.
 
  In addition, in order to compete effectively in its market, USWeb/CKS may
need to take actions that will change its business in significant ways. For
example, we may change pricing or service offerings, make key decisions about
technology directions or marketing strategies, or acquire additional
businesses or technologies. USWeb/CKS may also experience seasonality in
demand for its services. Any of these actions or effects could hurt
USWeb/CKS's business, results of operations and financial condition. Operating
results may fall below the expectations of securities analysts and investors.
In such event, the trading price of our Common Stock would likely fall and
investors might sue the company, causing increased litigation expenses and,
possibly, the payment of large damages or settlement fees.
 
  Our Success Depends On Our Ability To Manage Our Growth.  USWeb/CKS's rapid
growth has placed a significant strain on our managerial, operational,
financial and other resources. This strain is likely to continue. As of
December 31, 1998, USWeb/CKS had over 1,960 employees. We believe that we will
need to hire additional personnel to support our business. Our future success
will depend, in part, upon our ability to manage our growth effectively.
Managing growth will require that we continue to implement and improve our
operational, administrative and financial and accounting systems and controls
and to expand, train and manage our employee base.
 
  We Face Risks Associated With Integrating Our Acquisitions. A key component
of our growth strategy is the acquisition of Internet professional service
firms, particularly in locations outside the United States. We also intend to
pursue strategic acquisitions in the U.S. The successful implementation of
this strategy depends on our ability to identify suitable acquisition
candidates, acquire those companies on acceptable terms and integrate their
operations successfully with those of USWeb/CKS. Acquisitions involve a number
of risks, including:
 
  . adverse effects on operating results from increases in goodwill
    amortization, acquired in-process technology, stock compensation expense
    and increased compensation expense resulting from newly hired employees
 
                                      32
<PAGE>
 
  . the diversion of management attention from other aspects of the business
 
  . disputes with the sellers of one or more acquired entities
 
  . failure to retain key acquired personnel
 
  . client satisfaction or performance problems with an acquired entity
 
  . diminishing the value of the USWeb/CKS brands or reputation if an
    acquired company turns out to be a poor performer
 
  . the assumption of most or all of the liabilities of the acquired
    companies, some of which may be hidden, significant, or not reflected in
    the final acquisition price.
 
  Because we have completed over 40 acquisitions, we are currently facing all
of these challenges. And since we are a relatively new company, our ability to
meet these challenges has not been proven.
 
  If we choose to use cash for acquisitions in the future, it may need to
obtain additional financing, and such financing may not be available on
favorable terms, or at all. If, as planned, USWeb/CKS issues stock to complete
future acquisitions, existing stockholders will experience further ownership
dilution.
 
  We Face Risks Associated With The USWeb-CKS Group Merger. USWeb Corporation
merged with CKS Group in December 1998. The combined company will need to
integrate:
 
  . management, technical, creative and other personnel
 
  . technical and creative service offerings
 
  . sales and marketing efforts
 
  . financial, accounting and other operational controls, procedures,
    information systems and policies
 
  The integration process will be further complicated by the need to integrate
widely dispersed operations and distinct corporate cultures. Because this is
the largest merger of which USWeb and CKS Group have been a part and we have
no experience with a merger of this magnitude, stockholders should expect some
difficulties. The integration process will require the dedication of
management and other personnel and will distract their attention from the
conduct of day-to-day business activities. In addition, the integration
process will require the development of new service offerings and the pursuit
of other business acquisition opportunities. These factors, in turn, could
interrupt or cause a loss of momentum in the pre-merger activities of either
or both companies or lead customers to defer, reduce or cancel purchase
decisions or to select other vendors. Our business may also be disrupted by
employee departures or reductions in employee productivity due to uncertainty
during the integration process. The integration of USWeb and CKS Group will be
made more difficult by the large number of other relatively small businesses
recently acquired by the two companies, many of which the companies are still
in the process of integrating.
 
  USWeb Corporation and CKS Group merged expecting to gain beneficial
operating synergies. This expectation is based on a number of assumptions,
including that customers want Internet professional services and marketing
communications from a single vendor, that the two companies will be able to
sell their services to one another's customers, that the combined business
will be a more desirable partner for Fortune 500 accounts and that there will
be cost saving opportunities. The merged company's success will also depend on
the ability of its executive officers and senior management to operate
effectively, both independently and as a group. Some members of management,
including Robert Shaw as Chief Executive Officer, have recently joined or will
have new roles in the merged company, which will add to the challenges of
integration. If USWeb Corporation is unable to integrate with CKS Group or
previously acquired companies well, we will be less successful and our stock
price could decline. We may compete with other companies with similar growth
strategies, and some of these competitors may be larger and have greater
financial and other resources than USWeb/CKS. Competition for acquisition
targets could result in increased prices for acquisition targets and a
diminished pool of companies available for acquisition.
 
                                      33
<PAGE>
 
  The Market In Which We Operate Is Highly Competitive And Has Relatively Low
Barriers To Entry. The market for Internet professional services and
integrated marketing communications is relatively new, intensely competitive,
rapidly evolving and subject to rapid technological change. USWeb/CKS's
competitors include:
 
  . large computer hardware, software and service vendors, such as IBM
 
  . established advertising and media agencies, such as Ogilvy & Mather
 
  . large information technology consulting service providers, such as
    Cambridge Technology Partners
 
  . telecommunications companies, such as AT&T
 
  . major Internet and online service providers, such as America Online
 
  . other Internet integrators and Web presence providers, such as UUNet
 
  Some of these competitors offer a full range of Internet professional
services and integrated marketing communications and several others have
announced their intention to do so. In addition, there are relatively low
barriers to entry into USWeb/CKS's business (for example, no patent
protection). We expect to face additional competition from new entrants into
the market. Furthermore, many of our current and potential competitors have
longer operating histories, longer relationships with clients and
significantly greater financial, technical, marketing and public relations
resources than we do.
 
  We Need To Recruit And Retain Skilled Professionals, Who Are In Short
Supply. USWeb/CKS's business of delivering professional services is labor
intensive. Accordingly, USWeb/CKS's success depends in part on its ability to
identify, hire, train and retain highly skilled consulting professionals.
There is a shortage of these skilled people, which is likely to continue for
some time, and competition to hire them is intense. USWeb/CKS's performance is
also particularly dependent on the continued services and performance of its
executive officers and other key employees. The loss of the services of any of
its executive officers or other key employees could hurt USWeb/CKS.
 
  As We Issue Additional Stock, All Other Stockholdings Will Be
Diluted. USWeb/CKS has a large number of stock options and warrants
outstanding to purchase USWeb/CKS's Common Stock. Many of these options and
warrants were issued at a time when the stock price was lower than it is now
and therefore have exercise prices significantly below the current market
price. When and if these options and warrants are exercised, there will be
further dilution to stockholders. We expect to continue our acquisition
program during the coming year and to issue additional stock, options and
warrants in the future to pay for other acquisitions. USWeb/CKS may also be
required to issue additional shares, stock options and stock bonuses to the
shareholders and employees of acquired companies at each of six and twelve
months after acquisition. For these reasons, our acquisition program will
result in further substantial ownership dilution to investors. This dilution
is in addition to dilution that occurs from employee stock option and purchase
programs and financing activities.
 
  We Need To Maintain And Strengthen The USWeb/CKS Brands. USWeb/CKS believes
that maintaining and strengthening our brands are important aspects of its
efforts to attract clients and that the importance of brand recognition will
increase due to the increasing number of companies entering the market for
Internet professional services and integrated marketing communications. If we
fail to promote and maintain its brands, or incurs excessive expenses in an
attempt to promote and maintain its brands, our business, results of
operations and financial condition will suffer and our stock price could
decline.
 
  We Rely Upon Key Strategic Relationships. USWeb/CKS has established a number
of strategic relationships with leading hardware and software companies, some
of which can be terminated on short notice by the parties. Maintenance of
these strategic relationships is based primarily on an ongoing mutual business
opportunity and a good overall working relationship rather than legal
contracts. The loss of any one of these strategic relationships could deprive
USWeb/CKS of the opportunity to gain early access to leading-edge technology,
market products cooperatively with the vendor, cross-sell additional services
and gain enhanced access to vendor training and support.
 
                                      34
<PAGE>
 
  Potential Clients May Not Widely Adopt Internet Solutions, And, If They Do,
May Not Outsource Such Projects. The market for USWeb/CKS's services will
depend upon the adoption of intranet, extranet, Web site and Internet
solutions by customers. Some critical unresolved issues concerning the use of
Internet solutions are security, reliability, cost, ease of deployment and
administration and bandwidth of the Internet itself. These issues may affect
the use of such technologies to solve business problems. Some entities would
have to make significant changes in the way they do business to adapt to the
Internet. Even if these issues are resolved, businesses might not elect to
outsource the design, development and maintenance of their intranets,
extranets and Web sites to Internet professional services firms such as
USWeb/CKS.
 
  The Market In Which We Compete Is Subject To Rapid Technological
Change. Technology in the Internet industry changes very rapidly, and
USWeb/CKS's products and services, as well as the skills of our employees,
could become obsolete quickly. Our success will depend, in part, on our
ability to improve our existing services, develop new services and solutions
that address the increasingly sophisticated and varied needs of our current
and prospective clients, and respond to technological advances, emerging
industry standards and practices, and competitive service offerings.
 
  We Face Risks Associated With Our International Operations. We have recently
begun expanding operations into international markets. However, we have only
limited experience in acquiring and managing international consulting offices
and in marketing services to international clients. We expect to incur
significant costs to do both. There are risks inherent in doing business on an
international level that could hurt our business, such as:
 
  . unexpected changes in regulatory requirements which could raise the cost
    of doing business, or even prevent doing business, or restrict
    USWeb/CKS's ability to remove funds or its investments from a country
 
  . economic downturns more sudden and dramatic than those generally
    occurring in the U.S.
 
  . changes in currency exchange rates, which could dramatically increase the
    price of acquisitions where cash is used or significantly decrease the
    profitability of operations where payment is in local currency
 
  . difficulties in structuring acquisitions to make them similar to previous
    U.S. acquisitions
 
  . difficulties in staffing and managing foreign operations
 
  . difficulties in using equity incentives for employees, which USWeb/CKS
    relies on heavily but which are often less understood outside the U.S.
 
  . differences in business customs
 
  . longer payment cycles
 
  . problems in collecting accounts receivable
 
  . political instability and the risk of military conflict
 
  We Could Lose Money On Projects Where We Set A Fixed Price. We currently
bill for most of our projects on a "time and materials" basis. However, we
intend to increase the percentage of our work that is billed at a fixed price
and the percentage of revenues from these fixed-price engagements. If we fail
to estimate accurately the resources and time required for a project, to meet
client expectations about the services to be performed, or to complete
projects within budget, we would have cost overruns and, in some cases,
penalties, which could hurt our business.
 
  We Have Limited Control Over The Operations Of Our Franchisees. USWeb/CKS
has entered into franchise agreements with affiliates that manage a small
number of its consulting offices. The operational autonomy granted to each
affiliate through the franchise structure might inhibit our control over our
market presence and the USWeb/CKS brand or enable the affiliate to compete
with company-owned offices for client engagements. Further, despite
implementation of contractual safeguards and insurance against such a
possibility, a court may hold us responsible for some action or liability of
an affiliate. One claim was made
 
                                      35
<PAGE>
 
alleging, among other claims, breach of contract against a former affiliate,
although that claim has been settled.
 
  We Face Risks Associated With Our Intellectual Property. USWeb/CKS regards
its copyrights, trademarks, trade secrets (including our methodologies,
practices and tools), as important to our success. If others infringe or
misappropriate USWeb/CKS' copyrights, trademarks or similar proprietary
rights, our business could be hurt. In addition, although USWeb/CKS does not
believe that we are infringing the intellectual property rights of others,
other parties might assert infringement claims against USWeb/CKS. Such claims,
even if not true, could result in significant legal and other costs and be a
distraction to management. Protection of intellectual property in many foreign
countries is weaker and less reliable than in the United States, so if
USWeb/CKS' business expands into foreign countries, risks associated with
intellectual property will increase.
 
  We Depend On Key Accounts. CKS Group, a company that merged with USWeb
Corporation in December 1998, was dependent on its five largest clients for a
substantial portion of its revenues during its fiscal year ended November 30,
1997. If any of these major clients or any other client of USWeb/CKS that
provides a substantial portion of overall revenue does not remain a
significant customer, there could be an immediate adverse effect on the
company's business. For instance, one of CKS Group's major clients, Barnett
Bank, was acquired during the fourth quarter of 1997 and, as a result,
substantially reduced its level of spending with CKS Group. This reduction in
spending contributed to a significant decline in CKS Group's earnings during
that quarter.
 
  We Face Risks Associated With Year 2000 Compliance. Many currently installed
computer systems and software products are coded to accept only two-digit
entries in the date code field. These date code fields will need to accept
four digit entries to distinguish 21st century dates from 20th century dates.
As a result, throughout 1999, computer systems and software used by many
companies, including customers and potential customers of USWeb/CKS, may need
to be upgraded to comply with such "Year 2000" requirements. Although
USWeb/CKS believes that our principal internal systems are Year 2000
compliant, some systems are not yet certified, and failure to provide Year
2000 compliant business solutions to USWeb/CKS's customers could materially
harm our business. Furthermore, we believe that the purchasing patterns of
customers and potential customers may be affected by Year 2000 issues as
companies expend significant resources to correct or patch their current
software systems for Year 2000 compliance. These expenditures may reduce funds
available to purchase USWeb/CKS products and services.
 
  We Might Need Significant Additional Capital And Might Not Be Able To Obtain
It. USWeb/CKS's future liquidity and capital requirements will depend upon
numerous factors. Some of these factors are:
 
  . the timing and amount of funds required for or generated by operations,
 
  . the success and duration of USWeb/CKS's acquisition program, and
 
  . unanticipated opportunities.
 
 
  USWeb/CKS may seek to raise additional funds through public or private
financing, strategic relationships or other arrangements. Such additional
funding may not be available on terms acceptable to USWeb/CKS, or at all.
Furthermore, we may have to sell stock at prices lower than those paid by
existing stockholders, which would result in dilution, or we may have to sell
stock or bonds with rights superior to rights of holders of common stock. Any
debt financing might involve restrictive covenants that would limit our
operating flexibility. Strategic arrangements may require us to relinquish our
rights to certain of our intellectual property. If adequate funds are not
available on acceptable terms, USWeb/CKS may be unable to develop or enhance
our services and products, take advantage of future opportunities, or respond
to competitive pressures.
 
  Changes In The Law Or In Government Regulation Could Hurt Our Business. Due
to the increasing use of the Internet, a number of laws and regulations
concerning the Internet will probably be adopted or changed at the local,
state, national or international levels. Such laws are likely to cover issues
such as user privacy, freedom of expression, pricing of products and services,
taxation, advertising, intellectual property
 
                                      36
<PAGE>
 
rights, information security or the convergence of traditional communications
services with Internet communications. The adoption or change of any such laws
or regulations may decrease use of the Internet, which could in turn decrease
the demand for USWeb/CKS's services or increase the cost of doing business or
in some other manner harm USWeb/CKS's business.
 
  Our Stock Price Is Volatile. The market price of USWeb/CKS' Common Stock has
been and is likely to continue to be volatile and could be subject to wide
fluctuations in response to quarterly variations in operating results,
announcements of technological innovations or new products by USWeb/CKS or our
competitors, changes in financial estimates by securities analysts, overall
equity market conditions or other events or factors. Because our stock is more
volatile than the market as a whole, our stock is likely to be
disproportionately harmed by factors that significantly harm the market, such
as economic turmoil and military or political conflict, even if those factors
do not relate to our business. In the past, following periods of volatility in
the market price of a company's securities, securities class action litigation
has often been brought against that company. Such litigation could result in
substantial costs and a diversion of management's attention and resources,
which would hurt USWeb/CKS' business.
 
  If We Do Not Perform To Our Clients' Expectations, We Face Potential
Liability. Many of our consulting engagements involve projects that are
critical to the operations of our clients' businesses. Any failure or
inability to meet a client's expectations in the performance of our services
could injure USWeb/CKS's business reputation or result in a claim for
substantial damages. Many of our projects involve use of material that is
confidential or proprietary client information. The successful assertion of
one or more large claims against USWeb/CKS for failing to protect such
confidential information or failing to complete a project properly and on time
could adversely affect USWeb/CKS, even if the insurance we have were to reduce
the immediate effect of the problem.
 
  We Are Involved In Litigation. A lawsuit has been filed against CKS Group, a
company that recently merged with USWeb, and certain of its officers and
directors on behalf of stockholders of CKS Group. The lawsuit alleges
violations of the Securities Exchange Act. USWeb/CKS, as successor to the
liabilities of CKS Group, will be at risk financially in this lawsuit.
USWeb/CKS believes that this lawsuit is without merit and intends to defend
this action vigorously. However, if the lawsuit is successful and insurance
either does not cover the claim or is insufficient in amount to cover amounts
paid in connection with the claim, it could hurt the financial position of
USWeb/CKS. USWeb/CKS is also likely from time to time to be the subject of
lawsuits typically filed against companies of its size and in its industry.
 
  Conflicts Of Interest Between Potential Clients May Reduce Our Business
Opportunities. Conflicts of interest are inherent in certain segments of the
marketing communications industry, particularly in advertising. CKS Group, a
company that recently merged with USWeb Corporation in December 1998, has in
the past, and USWeb/CKS likely will in the future, be unable to pursue
potential advertising and other opportunities because it would mean offering
similar services to direct competitors. In addition, USWeb/CKS risks
alienating existing clients if it agrees to provide services to even indirect
competitors of existing clients. Because such conflicts may jeopardize
revenues generated from existing clients and preclude access to business
prospects, such conflicts could cause the company's operating results to
suffer.
 
  Our Charter Documents Make It Difficult For Another Company To Acquire
USWeb/CKS. Our board of directors has the authority to issue up to 1,000,000
shares of Preferred Stock and to determine the various terms and rights of
those shares without any further action by the stockholders. The rights of
holders of our Common Stock are subject to the rights of the holders of any
such Preferred Stock that may be issued. The issuance of Preferred Stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock of USWeb/CKS. We have no present plans to issue shares of Preferred
Stock. Some provisions of USWeb/CKS's Amended and Restated Certificate of
Incorporation and Bylaws and of Delaware law could delay or make difficult a
merger, tender offer or proxy contest involving USWeb/CKS.
 
                                      37
<PAGE>
 
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
 
  USWeb/CKS is exposed to a variety of risks, including changes in interest
rates affecting the return on its investments and, to a lesser extent, foreign
currency fluctuations. In the normal course of business USWeb/CKS establishes
policies and procedures to manage its exposure to fluctuations in interest
rates and foreign currency values.
 
  Interest Rate Risks. USWeb/CKS' exposure to interest rate risks results
primarily from our short-term investments. To minimize exposure to interest
rate risks, we invest predominately in instruments that are highly liquid, are
of investment grade and generally have maturities of less than one year. We
intend to make such funds readily available for operating purposes. At
December 31, 1998, we had investments with maturities and weighted average
interest rates as follows:
 
<TABLE>
<CAPTION>
                                                                    Maturities
                                                                  --------------
                                                                   1999    2000
                                                                  ------- ------
   <S>                                                            <C>     <C>
   Balance....................................................... $34,182 $2,048
   Interest Rate................................................. 5.6%    5.1%
</TABLE>
 
  Foreign Currency Risks. As of December 31, 1998, USWeb/CKS had operating
subsidiaries located in several countries including the United Kingdom,
Germany and France. After December 31, 1998, USWeb/CKS acquired subsidiaries
in Canada and Switzerland. These subsidiaries operate primarily in the
functional currency of their individual countries. As a result, we do not have
exposure to significant foreign currency risk related to the ongoing
operations of these subsidiaries.
 
  We have a foreign currency risk related to one of our acquisitions. Our
acquisitions are typically completed using our Common Stock as consideration
for the acquisitions. Generally, at least fifty percent of the shares to be
issued are deposited into a one-year escrow, and the remaining shares are
delivered to the acquired company's shareholders. The acquired company is
valued again, typically at each of six and twelve months after the
acquisition, and additional shares are issued to the acquired company's
shareholders or escrowed shares are returned to USWeb/CKS, depending on
whether the valuation has increased or decreased. Some acquisitions have been
completed using a cash component, typically denominated in United States
dollars. After December 31, 1998, we completed one acquisition under the
methodology described above, and the acquired company will be valued again in
February 2000. The value of the number of shares of Common Stock that are
potentially issuable in this transaction will be denominated in Swiss Francs.
The value of these shares of Common Stock, assuming financial performance
targets are met, is approximately nine million Swiss Francs.
 
                                      38
<PAGE>
 
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Board of Directors and
Stockholders of USWeb Corporation
 
  In our opinion, the accompanying consolidated balance sheet, and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
USWeb Corporation and its subsidiaries at December 31, 1997 and 1998, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles. 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 audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards 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 the opinion expressed above.
 
PricewaterhouseCoopers LLP
 
San Jose, California
January 25, 1999
 
                                      39
<PAGE>
 
                               USWEB CORPORATION
 
                           CONSOLIDATED BALANCE SHEET
               (In thousands, except share and per share amounts)
 
<TABLE>
<CAPTION>
                                                              December 31,
                                                            ------------------
                                                              1997      1998
                                                            --------  --------
<S>                                                         <C>       <C>
                          ASSETS
Current assets:
  Cash and cash equivalents................................ $ 62,368  $ 64,956
  Short-term investments...................................   24,029    36,230
  Accounts receivable, net.................................   62,546    89,038
  Other current assets.....................................    2,606     9,946
  Deferred income taxes....................................    1,400       637
                                                            --------  --------
    Total current assets...................................  152,949   200,807
Property and equipment, net................................   12,051    18,880
Intangible assets, net.....................................   49,247   168,335
Deferred income taxes and other assets.....................   11,464    15,152
                                                            --------  --------
                                                            $225,711  $403,174
                                                            ========  ========
           LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable......................................... $ 41,084  $ 38,251
  Accrued expenses.........................................   17,734    52,908
  Deferred revenue.........................................    2,887     4,210
  Income taxes payable.....................................      --      3,111
  Lease obligations, current...............................    1,564     3,445
                                                            --------  --------
    Total current liabilities..............................   63,269   101,925
Lease obligations, non-current.............................    1,111     1,377
                                                            --------  --------
                                                              64,380   103,302
                                                            --------  --------
Commitments and contingencies (Note 8)
Stockholders' equity:
  Preferred Stock: $0.001 par value; 1,000,000 shares
   authorized; no shares issued and outstanding............      --        --
  Common Stock: $0.001 par value; 200,000,000 shares
   authorized; 56,108,585 and 70,070,678 shares issued and
   outstanding at December 31, 1997 and 1998, respectively.       51        66
  Additional paid-in capital...............................  218,702   546,976
  Accumulated deficit......................................  (57,422) (247,170)
                                                            --------  --------
    Total stockholders' equity.............................  161,331   299,872
                                                            --------  --------
                                                            $225,711  $403,174
                                                            ========  ========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       40
<PAGE>
 
                               USWEB CORPORATION
 
                      CONSOLIDATED STATEMENT OF OPERATIONS
                    (In thousands, except per share amounts)
 
<TABLE>
<CAPTION>
                                                   Year Ended December 31,
                                                  ----------------------------
                                                   1996      1997      1998
                                                  -------  --------  ---------
<S>                                               <C>      <C>       <C>
Revenues......................................... $66,389  $114,302  $ 228,600
                                                  -------  --------  ---------
 
Cost of revenues:
  Services.......................................  41,323    74,695    146,251
  Provision for loss on contract.................     --        --       9,994
  Stock compensation.............................     --      2,420     13,037
                                                  -------  --------  ---------
    Total cost of revenues.......................  41,323    77,115    169,282
                                                  -------  --------  ---------
Gross profit.....................................  25,066    37,187     59,318
                                                  -------  --------  ---------
Operating expenses:
  Marketing, sales and support...................  14,963    23,374     27,761
  General and administrative.....................  12,633    27,739     44,694
  Acquired in-process technology.................     --      9,472     25,508
  Stock compensation.............................     --      6,698     31,760
  Amortization of intangible assets..............      74    12,963     74,538
  Merger and integration costs...................     --        --      28,822
  Impairment of goodwill.........................     --        --      11,079
                                                  -------  --------  ---------
    Total operating expenses.....................  27,670    80,246    244,162
                                                  -------  --------  ---------
Loss from operations.............................  (2,604)  (43,059)  (184,844)
Interest income, net.............................   2,271     1,706      4,302
Impairment of investee carried at cost...........     --     (4,000)       --
                                                  -------  --------  ---------
Loss before income taxes.........................    (333)  (45,353)  (180,542)
Provision for income taxes.......................   3,026     5,317      7,739
                                                  -------  --------  ---------
Net loss......................................... $(3,359) $(50,670) $(188,281)
                                                  =======  ========  =========
Net loss per share:
  Basic.......................................... $ (0.15) $  (1.73) $   (3.07)
                                                  =======  ========  =========
  Diluted........................................ $ (0.15) $  (1.73) $   (3.07)
                                                  =======  ========  =========
Weighted average shares
  Basic..........................................  21,803    29,262     61,329
                                                  =======  ========  =========
  Diluted........................................  21,803    29,262     61,329
                                                  =======  ========  =========
 
</TABLE>
 
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       41
<PAGE>
 
                               USWEB CORPORATION
 
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                      (In thousands, except share amounts)
 
<TABLE>
<CAPTION>
                            Common Stock
                          ------------------
                                                         Retained
                                             Additional  Earnings/      Total
                                              Paid-In   Accumulated Stockholders'
                            Shares    Amount  Capital     Deficit      Equity
                          ----------  ------ ---------- ----------- -------------
<S>                       <C>         <C>    <C>        <C>         <C>
Balance at December 31,
 1995...................  16,981,500   $17    $  2,809   $   3,524    $  6,350
 
Issuance of Common Stock
 warrants...............         --    --          269         --          269
Tax benefit from
 disqualifying
 dispositions...........         --    --          926         --          926
Distributions to
 stockholders...........         --    --         (499)     (4,481)     (4,980)
Issuance of Common
 Stock, net.............  10,462,000     6      48,449         --       48,455
Collection of note
 receivable.............         --    --          600         --          600
Exercise of stock
 options................     281,000   --           30         --           30
Stock compensation
 expense................         --    --          146         --          146
Net loss................         --    --          --       (3,359)     (3,359)
                          ----------   ---    --------   ---------    --------
Balance at December 31,
 1996...................  27,724,500    23      52,730      (4,316)     48,437
 
Tax benefit from
 disqualifying
 dispositions...........         --    --        3,343         --        3,343
Distributions to
 stockholders...........         --    --          --       (2,172)     (2,172)
Deferred issuance of
 common stock related to
 business acquisitions..         --    --        5,582         --        5,582
Deferred tax asset
 recorded in connection
 with taxable pooling of
 interests..............         --    --        9,346         --        9,346
Repurchase of Common
 Stock and cancellation
 of note receivable from
 stockholder............      (9,000)  --          --          --          --
Change in subsidiaries'
 fiscal year-ends.......         --    --          --         (264)       (264)
Exercise of stock
 options................     103,079   --          500         --          500
Common Stock issued for
 acquired businesses....   8,201,683     8      46,122         --       46,130
Issuance of Common
 Stock, net.............   7,993,964     8      56,410         --       56,418
Conversion of
 Mandatorily Redeemable
 Preferred Stock........  12,094,359    12      32,478         --       32,490
Issuance of Affiliate
 warrants...............         --    --          150         --          150
Collection of note
 receivable.............         --    --        1,400         --        1,400
Stock compensation
 expense................         --    --       10,641         --       10,641
Net loss................         --    --          --      (50,670)    (50,670)
                          ----------   ---    --------   ---------    --------
Balance at December 31,
 1997...................  56,108,585    51     218,702     (57,422)    161,331
Tax benefit from
 disqualifying
 dispositions...........         --    --          815         --          815
Common Stock issued for
 acquired businesses....   8,431,898     8     208,872         --      208,880
Issuance of Common
 Stock, net.............   2,302,604     3      35,881         --       35,884
Change in subsidiary's
 fiscal year-end........         --    --          --       (1,467)     (1,467)
Exercise of stock
 options and warrants...   3,227,591     4      16,920         --       16,924
Issuance of warrants....         --    --       27,112         --       27,112
Stock compensation
 expense................         --    --       38,674         --       38,674
Net loss................         --    --          --     (188,281)   (188,281)
                          ----------   ---    --------   ---------    --------
Balance at December 31,
 1998...................  70,070,678   $66    $546,976   $(247,170)   $299,872
                          ==========   ===    ========   =========    ========
</TABLE>
 
 
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       42
<PAGE>
 
                               USWEB CORPORATION
 
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (In thousands)
 
<TABLE>
<CAPTION>
                                                   Year Ended December 31,
                                                  ----------------------------
                                                   1996      1997      1998
                                                  -------  --------  ---------
<S>                                               <C>      <C>       <C>
Cash flows from operating activities:
 Net loss........................................ $(3,359) $(50,670) $(188,281)
 Adjustments to reconcile net loss to net cash
  used in operating activities:
   Depreciation and amortization.................   1,444    14,271     81,487
   Provision for doubtful accounts...............     --        819      1,280
   Provision for loss on contract................     --        --       9,994
   Stock option and warrant costs and expenses...     315    11,891     52,252
   Acquired in-process technology................     --      9,472     25,508
   Impairment of goodwill........................     --        --      11,079
   Impairment of investee carried at cost........     --      4,000        --
   Deferred income taxes.........................  (1,097)     (856)       470
   Tax benefit from disqualifying dispositions...     926     3,343        815
   Changes in assets and liabilities:
    Accounts receivable..........................  (9,932)  (23,506)   (11,140)
    Other assets.................................    (739)   (1,254)    (7,152)
    Accounts payable.............................  13,101    13,010     (5,498)
    Accrued expenses.............................   6,249      (335)    12,794
    Deferred revenue.............................     246       517        574
    Income taxes payable.........................  (1,253)     (847)     3,980
                                                  -------  --------  ---------
     Net cash provided by (used in) operating
      activities.................................   5,901   (20,145)   (11,838)
                                                  -------  --------  ---------
Cash flows from investing activities:
 Acquisition of property and equipment...........  (3,070)   (5,103)    (9,661)
 Cash received (used in) acquisitions............      55   (12,611)   (11,074)
 Purchase of investment in affiliate.............  (2,850)   (1,150)       --
 Purchase of short-term investments.............. (39,710)  (21,175)   (95,714)
 Proceeds from sales and maturities of short-term
  investments....................................   1,750    34,934     84,026
                                                  -------  --------  ---------
     Net cash used in investing activities....... (43,825)   (5,105)   (32,423)
                                                  -------  --------  ---------
Cash flows from financing activities:
 Proceeds from issuance of Common and Preferred
  Stock, net.....................................  59,276    71,957     52,670
 Distributions to stockholders...................  (4,635)   (2,398)       --
 Proceeds from bank borrowings and notes payable.     500     2,000        --
 Repayment of bank borrowings....................    (382)   (3,414)    (1,349)
 Proceeds from collection of notes receivable....     563     1,400        --
 Proceeds from capital lease financing...........     599       431      2,570
 Principal payments on capital lease.............    (209)     (704)    (2,002)
                                                  -------  --------  ---------
     Net cash provided by financing activities...  55,712    69,272     51,889
                                                  -------  --------  ---------
Increase in cash and cash equivalents............  17,788    44,022      7,628
Change in subsidiares' fiscal year-ends..........     --     (4,259)    (5,040)
Cash and cash equivalents, beginning of year.....   4,817    22,605     62,368
                                                  -------  --------  ---------
Cash and cash equivalents, end of year........... $22,605  $ 62,368  $  64,956
                                                  =======  ========  =========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                       43
<PAGE>
 
                               USWEB CORPORATION
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
              (In thousands, except share and per share amounts)
 
Note 1--Nature of Business and Summary of Significant Accounting Policies:
 
Nature of Business
 
  USWeb Corporation (doing business as USWeb/CKS) and its subsidiaries
("USWeb/CKS" or the "Company") is a leading Internet professional services
firm that provides Internet, intranet, extranet and Web site solutions,
advertising and branding services, and related services to businesses.
USWeb/CKS has built a network of consulting offices and what it believes to be
one of the most recognized brands for Internet professional services.
USWeb/CKS offers a comprehensive range of services to deliver Internet
solutions designed to improve clients' business processes. The Company
provides Internet professional services including strategy consulting,
analysis and design, technology development, systems implementation and
integration, audience development and maintenance. The Company also provides
consulting services in the areas of strategic corporate and product
positioning, corporate identity and product branding, new media, environmental
design, packaging, collateral systems, advertising, direct marketing, consumer
and trade promotions and media placement services.
 
  On December 17, 1998, USWeb Corporation ("USWeb") issued 23,428,341 shares
of its common stock for all of the outstanding common stock of CKS Group, Inc.
("CKS Group") based on a conversion ratio of 1.5 shares of the Company's
Common Stock for each share of CKS Group's common stock. The transaction has
been accounted for as a pooling of interests and, accordingly, the Company's
consolidated financial statements have been restated for all periods prior to
the merger to include the results of operations, financial position and cash
flows of both USWeb and CKS Group.
 
 Basis of Presentation
 
  The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions
and balances have been eliminated in consolidation. The accompanying
consolidated financial statements have been presented to reflect the
acquisitions accounted for as poolings of interests for all periods presented.
See Note 2.
 
  Investments in business entities in which the Company has an equity interest
of less than 20% and does not have the ability to exercise significant
influence are accounted for using the cost method. At each balance sheet date,
the Company assesses the fair market value of its cost-based investments and
recognizes any identified impairment.
 
 Use of Estimates
 
  The preparation of financial statements in accordance 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 these estimates.
 
 Cash Equivalents and Short-Term Investments
 
  The Company invests its excess cash in debt instruments of the U.S.
Government, its agencies, and in high-quality corporate and municipality
issues. The Company considers all highly liquid investments with a remaining
contractual maturity, at the date of their acquisition, of three months or
less to be cash equivalents. All short-term investments are classified as
available-for-sale and are carried at fair value. Any unrealized gains or
losses are reported as a separate component of stockholders' equity when
significant.
 
                                      44
<PAGE>
 
                               USWEB CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
 
              (In thousands, except share and per share amounts)
 
 
 Property and Equipment
 
  Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the related
assets, generally two to seven years. Equipment under capital leases and
leasehold improvements are amortized on a straight-line basis over the shorter
of the estimated useful lives of the related assets or the remaining lease
terms.
 
 Intangible Assets
 
  Goodwill resulting from the Company's acquisitions of Internet professional
services firms is estimated by management to be primarily associated with the
workforce acquired and technological know how. Accordingly, a significant
portion of the purchase price of each acquisition is considered to relate to
workforce in place. As a result of the rapid technological changes occurring
in the Internet industry and the intense competition for qualified Internet
professionals, goodwill recorded in connection with the Company's acquisitions
of Internet professional services firms is amortized on a straight-line basis
over the estimated periods of benefit, which range from twelve to forty-two
months. Goodwill recorded in connection with the Company's acquisitions of
advertising firms is amortized on a straight-line basis over twenty years. For
certain acquisitions where the Company expects to issue additional shares at
the end of the twelve-month purchase price adjustment periods, amortization
rates have been increased to reflect amortization of the total expected
consideration based upon the estimated fair value of the incremental shares at
the end of the purchase price adjustment periods.
 
  At each balance sheet date, the Company assesses the value of recorded
goodwill for possible impairment based upon a number of factors, including
turnover of the acquired workforce and the undiscounted value of expected
future operating cash flows in relation to its net investment in each
subsidiary. In December 1998, the Company determined that an impairment
provision totaling $11,079 was necessary in connection with its acquisition of
an advertising firm and recognized this amount as a charge to operating
expenses in the year ended December 31, 1998. See Note 2.
 
  Completed technologies obtained through acquisition or merger are
capitalized and amortized on a straight-line basis over an estimated benefit
period of six to twelve months.
 
  Costs of in-process technology acquired prior to the achievement of
technological feasibility determined using the working model approach, and any
costs associated with internally developed proprietary technologies prior to
the achievement of technological feasibility, determined using the working
model approach, are expensed in the period incurred.
 
 Revenue Recognition
 
  The Company derives its revenues primarily from consulting service
agreements (including retainer fees, fixed-price and time-and-materials
agreements) and advertising commissions.
 
  Revenues are recognized over the period of each engagement using primarily
the percentage-of-completion method using labor hours incurred as the measure
of progress towards completion. Provisions for contract adjustments and losses
are recorded in the period such items are identified. Deferred revenue
represents amounts billed in advance of services being performed.
 
  Commissions earned from advertising placed with media are generally recorded
as revenue at the time the advertising appears or is broadcast. Commissions
earned for production expenditures and fees derived from other services are
recognized as revenue upon performance of the service.
 
                                      45
<PAGE>
 
                               USWEB CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
 
              (In thousands, except share and per share amounts)
 
 
 Advertising Costs
 
  Advertising costs are expensed as incurred in accordance with Statement of
Position ("SOP") 93-7, "Reporting on Advertising Costs." Advertising costs for
the years ended December 31, 1996, 1997 and 1998 totaled $3,223, $4,060 and
$1,562 respectively.
 
 Stock-Based Compensation
 
  The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation." Under APB No. 25,
compensation cost is recognized based on the difference, if any, on the date
of grant between the fair value of the Company's stock and the amount an
employee must pay to acquire the stock.
 
  The Company also complies with the provisions of Emerging Issues Task Force
Issue No. 96-18 ("EITF 96-18") with respect to stock options granted to non-
employees who are consultants to the Company. EITF 96-18 requires variable
plan accounting with respect to such non-employee stock options, whereby
compensation associated with such options is measured on the date such options
vest, and incorporates the current air market value of the Company's Common
Stock into the option valuation model.
 
 Income Taxes
 
  Income taxes are accounted for using an asset and liability approach which
requires the recognition of taxes payable or refundable for the current year
and deferred tax liabilities and assets for the future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. The measurement of current and deferred tax liabilities and assets
are based on provisions of the enacted tax law; the effects of future changes
in tax laws or rates are not anticipated. The measurement of deferred tax
assets is reduced, if necessary, by the amount of any tax benefits that, based
on available evidence, are not expected to be realized.
 
 Net Loss Per Share
 
  The Company computes net loss per share in accordance with the provisions of
SFAS No. 128, "Earnings Per Share" and SEC Staff Accounting Bulletin No. 98
("SAB 98"). Under SFAS No. 128 and SAB No. 98, basic net loss per share is
computed by dividing the net loss for the period by the weighted average
number of common shares outstanding during the period. The weighted average
shares used to compute basic net loss per share include outstanding shares of
Common Stock from the date of issuance and shares vested under stock bonus
arrangements computed for each period by dividing cumulative amortization of
deferred compensation expense by the weighted average price of the Company's
Common Stock during the period. The computation excludes (i) for the year
ended December 31, 1997 and 1998, 2,051,000 and 3,682,000 respectively,
equivalent acquisition-related shares held in escrow ("Acquisition Shares"),
(ii) for the years ended December 31, 1996, 1997 and 1998, 4,286,000,
2,830,000 and 1,518,000, respectively, of equivalent shares of Common Stock
subject to repurchase rights ("Restricted Shares") and (iii) for the years
ended December 31, 1996 and 1997, 5,375,000 and 10,278,000, respectively, of
equivalent shares of Mandatorily Redeemable Convertible Preferred Stock
("Preferred Stock") prior to their conversion into Common Stock on December 5,
1997. In addition, the calculation of diluted net loss per share excludes
Common Stock issuable upon exercise of employee stock options and upon
exercise of outstanding warrants, as their effect in all periods presented is
antidilutive.
 
                                      46
<PAGE>
 
                               USWEB CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
 
              (In thousands, except share and per share amounts)
 
 
 Financial Instruments and Concentration of Credit Risk
 
  The Company's financial instruments consist of cash and cash equivalents,
short-term investments, accounts receivable, accounts payable and accrued
expenses. At December 31, 1997 and 1998 the fair value of these instruments
approximated their carrying values.
 
  The Company's customer base is geographically dispersed and highly
diversified. The Company performs ongoing credit evaluations of its customers'
financial condition and generally requires no collateral to secure accounts
receivable. Although an allowance for doubtful accounts is maintained, the
Company has not experienced any significant credit losses to date.
 
  The Company is subject to concentrations of credit risk and interest rate
risk related to its short-term investments. The Company's credit risk is
managed by limiting the amount of investments placed with any one issuer,
investing primarily in debt instruments of the US Government and its agencies,
municipal bonds and high quality corporate issues generally with maturities of
one year or less.
 
 Comprehensive Loss
 
  Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." The Company has no material components of other
comprehensive income (loss) and, accordingly, the Company's comprehensive loss
is the same as its net loss for all periods presented.
 
 Segment Information
 
  Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS 131 supersedes
SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise." SFAS
131 established standards for the way public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. SFAS 131 also establishes standards for
related disclosures about products and services, geographic areas, and major
customers.
 
  The Company has organized its business in a single operating segment,
providing professional services that help its clients define strategies and
ways to build their businesses by combining the expertise of strategy,
Internet technology and marketing communications. Further, the Company derives
the vast majority of its revenue from its operations in the United States.
 
 Recent Accounting Pronouncements
 
  In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities," which will be
effective for the Company's fiscal year 2000. This statement establishes
accounting and reporting standards requiring that every derivative instrument,
including certain derivative instruments imbedded in other contracts, be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The statement also requires that changes in the derivative's fair
value be recognized in earnings unless specific hedge accounting criteria are
met. The Company believes the adoption of SFAS 133 will not have a material
effect on the financial statements.
 
  In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued SOP 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 requires that entities
capitalize certain costs related to internal-use software once certain
criteria have been
 
                                      47
<PAGE>
 
                               USWEB CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
 
              (In thousands, except share and per share amounts)
 
met. The Company is required to implement SOP 98-1 for the year ending
December 31, 1999. Adoption of SOP-98-1 is expected to have no material impact
on the Company's financial condition or results of operations.
 
  In April, 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-
Up Activities." SOP 98-5, which is effective for fiscal years beginning after
December 15, 1998, provides guidance on the financial reporting of start-up
costs and organization costs. SOP 98-5 requires costs of start-up activities
and organization costs to be expensed as incurred. As USWeb/CKS has expensed
these costs historically, the adoption of this standard is not expected to
have a significant impact on the Company's results of operations, financial
position or cash flows.
 
Note 2--Acquisitions
 
  During the period from August 1, 1996, to December 31, 1998, the Company
completed the acquisitions of thirty-eight Internet professional services
firms and advertising firms in various transactions accounted for as purchase
business combinations. Collectively, the companies acquired through December
31, 1998 accounted for as purchase business combinations are referred to
herein as the "Acquired Entities." The aggregate purchase price of the
Acquired Entities was approximately $310,100.
 
  The acquisition prices of the Acquired Entities were allocated, on an
entity-by-entity basis, to the assets acquired, including tangible and
intangible assets and liabilities assumed based upon the fair values of such
assets and liabilities on the dates of the acquisitions. Approximately $10,300
of the aggregate purchase price was allocated to identified net tangible
assets consisting primarily of cash, accounts receivable, property and
equipment, and accounts payable. The historical carrying amounts of such
assets approximated their fair values on the dates of acquisition.
Approximately $35,000 of the aggregate purchase price was allocated to in-
process technology. Because such in-process technology had not reached the
stage of technological feasibility at the acquisition dates and had no
alternative future use, these amounts were immediately charged to operations.
Approximately $13,100 of the aggregate purchase price was allocated to
existing technology and is being amortized over its estimated useful life of
six months to one year. Approximately $251,700 of the aggregate purchase price
was allocated to goodwill, primarily workforce in place, and is being
amortized over its estimated useful life of twelve to forty-two months with
respect to the Internet professional services firms, and twenty years with
respect to the advertising firms.
 
  Prior to the combination of USWeb and CKS Group, CKS Group's fiscal year
ended on November 30. In recording the business combination, CKS Group's
consolidated financial statements as of and for each of the two years in the
period ended November 30, 1997 have been combined with USWeb's consolidated
financial statements as of and for each of the two years in the period ended
December 31, 1997.
 
  In 1998, CKS Group changed its fiscal year-end to December 31 to conform to
USWeb's year-end. As a result, an adjustment has been made to stockholders'
equity as of December 31, 1998, to eliminate the effect of including CKS
Group's unaudited results of operations for the month ended September 30, 1998
in the year ended December 31, 1998. CKS Group's unaudited results of
operations for the month ended September 30, 1998, included revenues of $7,893
and a net loss of $1,467.
 
  In December 1998, in connection with the renewal of an employment
arrangement with a key employee of one of the Company's Acquired Entities, the
Company estimated that the future undiscounted net cash flows from this
Acquired Entity would be significantly less than in prior periods. Based upon
the provisions of this employment arrangement and the expected net discounted
cash flows, an impairment charge totaling $11,079 was recorded in operating
expenses in the year ended December 31, 1998.
 
 
                                      48
<PAGE>
 
                               USWEB CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
 
              (In thousands, except share and per share amounts)
 
  Between January 31, 1997 and June 17, 1997, CKS Group acquired two entities
in the advertising industry under separate transactions that were accounted
for as poolings of interests (the "CKS Group Acquisitions"). The aggregate
consideration for these transactions was 1,623,599 shares of CKS Group Common
Stock.
 
  The following unaudited pro forma consolidated amounts give effect to the
acquisitions of the Acquired Entities as if they occurred on January 1, 1996
and on January 1, 1997 (or date of inception, if later).
 
<TABLE>
<CAPTION>
                                                         Year Ended December
                                                                 31,
                                                        ----------------------
                                                           1997        1998
                                                        ----------  ----------
   <S>                                                  <C>         <C>
   Revenues............................................ $  172,397  $  256,640
                                                        ==========  ==========
   Net loss............................................ $ (225,426) $ (177,869)
                                                        ==========  ==========
   Pro forma net loss per share:
     Basic and diluted................................. $    (5.21) $    (2.66)
                                                        ==========  ==========
   Weighted average shares:
     Basic and diluted................................. 43,241,000  66,959,000
                                                        ==========  ==========
</TABLE>
 
  The following table sets forth revenues and net income (loss) for acquired
entities that were accounted for as poolings of interests and previously
reported separately:
 
<TABLE>
<CAPTION>
                                                    Year Ended December 31,
                                                  -----------------------------
                                                    1996      1997      1998
                                                  --------  --------  ---------
   <S>                                            <C>       <C>       <C>
   Revenues:
     USWeb/CKS................................... $    --   $    --   $  72,648
     USWeb.......................................    1,820    19,278     73,086
     CKS.........................................   56,951    95,024     82,866
     CKS acquired entities.......................    7,618       --         --
                                                  --------  --------  ---------
                                                  $ 66,389  $114,302  $ 228,600
                                                  ========  ========  =========
   Net income (loss):
     USWeb/CKS................................... $    --   $    --   $ (84,149)
     USWeb.......................................  (13,808)  (58,336)  (111,532)
     CKS.........................................    5,679     7,666      7,400
     CKS acquired entities.......................    4,770       --         --
                                                  --------  --------  ---------
                                                  $ (3,359) $(50,670) $(188,281)
                                                  ========  ========  =========
</TABLE>
 
                                      49
<PAGE>
 
                               USWEB CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
 
               (In thousands, except share and per share amounts)
 
 
Note 3--Supplemental Cash Flow Information:
 
<TABLE>
<CAPTION>
                                                               Year Ended
                                                              December 31,
                                                         ----------------------
                                                          1996   1997    1998
                                                         ------ ------- -------
   <S>                                                   <C>    <C>     <C>
   Supplemental disclosures:
     Cash paid for interest............................. $  121 $   263 $   425
     Cash paid for income taxes.........................  4,488   1,386     979
   Non-cash financing and investing activities:
     Common Stock issued for note receivable............  2,000     --      --
     Notes payable converted into Common Stock..........    957     --      --
     Equipment acquired through capital lease...........    288     578     --
     Common Stock issued for acquisitions...............  4,997  46,293 208,872
     Assumptions of liabilities in acquisition..........    --    2,146   5,284
     Deferred tax asset recorded in connection with
      taxable pooling of interests transactions.........    --    9,346     --
</TABLE>
 
                                       50
<PAGE>
 
                               USWEB CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
 
               (In thousands, except share and per share amounts)
 
 
Note 4--Balance Sheet Components:
 
<TABLE>
<CAPTION>
                                                                December 31,
                                                              -----------------
                                                               1997      1998
                                                              -------  --------
   <S>                                                        <C>      <C>
   Accounts receivable, net:
     Accounts receivable....................................  $58,363  $ 78,746
     Unbilled revenues......................................    6,444    15,533
     Less: Allowance for doubtful accounts..................   (2,261)   (5,241)
                                                              -------  --------
                                                              $62,546  $ 89,038
                                                              =======  ========
 
   Property and equipment, net:
     Computer equipment.....................................  $13,072  $ 25,445
     Furniture and fixtures.................................    3,536     3,483
     Leasehold improvements.................................    2,991     3,491
                                                              -------  --------
                                                               19,599    32,419
     Less: Accumulated depreciation and amortization........   (7,548)  (13,539)
                                                              -------  --------
                                                              $12,051  $ 18,880
                                                              =======  ========
 
   Intangible assets, net:
     Goodwill, primarily workforce in place.................  $56,572  $239,768
     Purchased technology...................................    3,610    13,058
                                                              -------  --------
                                                               60,182   252,826
     Less: Accumulated amortization.........................  (10,935)  (84,491)
                                                              -------  --------
                                                              $49,247  $168,335
                                                              =======  ========
 
   Accrued expenses:
     Compensation and benefits..............................  $ 5,128  $ 14,331
     Accrued financing costs................................    1,450       --
     Marketing costs........................................    1,260     3,458
     Professional fees......................................    1,012     3,953
     Merger and related costs...............................      --     17,892
     Other..................................................    8,884    13,274
                                                              -------  --------
                                                              $17,734  $ 52,908
                                                              =======  ========
</TABLE>
 
Note 5--Short-Term Investments:
 
  At December 31, 1998, the fair value of the Company's short-term investments
approximated cost. Accordingly, the difference between the short-term
investment portfolio's fair value and its cost has not been presented as a
separate component of stockholders' equity. Information about short-term
investments is as follows:
 
<TABLE>
<CAPTION>
                                                                 December 31,
                                                                ---------------
                                                                 1997    1998
                                                                ------- -------
<S>                                                             <C>     <C>
Commercial paper and corporate bonds........................... $   --  $15,492
Obligations of the U.S. Government and its agencies............     --      893
Obligations of states and their political subdivisions.........  24,029  15,606
Other debt securities..........................................     --    4,239
                                                                ------- -------
                                                                $24,029 $36,230
                                                                ======= =======
</TABLE>
 
                                       51
<PAGE>
 
                               USWEB CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
 
               (In thousands, except share and per share amounts)
 
 
  The contractual maturities of the debt securities were as follows:
 
<TABLE>
<CAPTION>
                                                                 December 31,
                                                                ---------------
                                                                 1997    1998
                                                                ------- -------
   <S>                                                          <C>     <C>
   Due within one year......................................... $11,329 $34,182
   Due after one year through five years.......................     --    2,048
   Due after five years through ten years......................   1,900     --
   Due after ten years.........................................  10,800     --
                                                                ------- -------
                                                                $24,029 $36,230
                                                                ======= =======
</TABLE>
 
Note 6--Income Taxes:
 
  The provision for income taxes consisted of the following:
 
<TABLE>
<CAPTION>
                                                        Year Ended December
                                                                31,
                                                       -----------------------
                                                        1996     1997    1998
                                                       -------  ------  ------
   <S>                                                 <C>      <C>     <C>
   Current:
     Federal.......................................... $ 2,328  $1,562  $4,108
     State............................................     942     818   2,123
     Foreign..........................................     --      450    (385)
                                                       -------  ------  ------
       Total current..................................   3,270   2,830   5,846
                                                       -------  ------  ------
 
   Deferred:
     Federal..........................................    (937)   (771)  1,020
     State............................................    (233)    (85)   (659)
                                                       -------  ------  ------
       Total deferred.................................  (1,170)   (856)    361
                                                       -------  ------  ------
   Charge in lieu of taxes attributable to employee
    stock option plans................................     926   3,343   1,532
                                                       -------  ------  ------
                                                       $ 3,026  $5,317  $7,739
                                                       =======  ======  ======
</TABLE>
 
                                       52
<PAGE>
 
                               USWEB CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
 
              (In thousands, except share and per share amounts)
 
 
  The tax effects of the temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are presented below:
 
<TABLE>
<CAPTION>
                                                                December 31,
                                                              ------------------
                                                                1997      1998
                                                              --------  --------
   <S>                                                        <C>       <C>
   Deferred tax assets:
     Net operating losses.................................... $ 17,000  $ 19,192
     Accounts receivable allowances..........................      533     2,177
     Depreciation............................................      230        89
     Federal benefit of state taxes..........................      --        190
     Basis of assets for tax purposes in excess of book
      for taxable pooling transactions.......................   10,280    10,145
     Deferred compensation...................................      206    19,562
     Benefit and other accruals..............................      256     7,850
     Other...................................................      313       406
                                                              --------  --------
       Gross deferred tax assets.............................   28,818    59,611
     Deferred tax liabilities:...............................
       Effect of deferred state taxes........................      --     (1,211)
       Change from cash to accrual method of
        accounting for income taxes..........................     (278)     (156)
                                                              --------  --------
       Total deferred tax liabilities........................     (278)   (1,367)
                                                              --------  --------
     Net deferred tax assets.................................   28,540    58,244
     Valuation allowance.....................................  (17,000)  (47,139)
                                                              --------  --------
                                                              $ 11,540  $ 11,105
                                                              ========  ========
</TABLE>
 
  Deferred tax assets of approximately $47,139 at December 31, 1998 consists
of federal and state net operating loss carryforwards which are subject to
separate return limitations rules and other expenses not currently deductible
for tax purposes. Based on these limitations and a number of factors,
including the lack of a history of profits and the fact that the Company
competes in a developing market that is characterized by rapidly changing
technology, management believes that there is sufficient uncertainty regarding
the realization of $47,139 of deferred tax assets such that a valuation
allowance has been provided.
 
  The Company's effective tax rate differs from the statutory federal income
tax rate as shown in the following schedule:
 
<TABLE>
<CAPTION>
                             Year Ended December
                                     31,
                             -----------------------
                              1996     1997    1998
                             -------   -----   -----
   <S>                       <C>       <C>     <C>
   Federal statutory tax
    rate...................    (35.0)% (35.0)% (35.0)%
   Partnership benefit.....   (514.0)   (0.7)    --
   State income taxes, net
    of federal benefit.....    138.0     1.9     0.6
   Nondeductible intangible
    assets.................      --     23.0     1.4
   Change in valuation
    allowance..............  1,451.0    22.0     --
   Book loss with no
    current benefit........      --      --     37.0
   Other...................   (131.0)    0.5     0.3
                             -------   -----   -----
                               909.0%   11.7%    4.3%
                             =======   =====   =====
</TABLE>
 
                                      53
<PAGE>
 
                               USWEB CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
 
              (In thousands, except share and per share amounts)
 
 
  At December 31, 1998, the Company had federal and state net operating loss
carryforwards of approximately $47,618 and $34,099, respectively, available to
reduce future taxable income, which expire in varying amounts through 2013.
The Company's ability to utilize net operating loss carryforwards and tax
credits are subject to limitations as set forth in applicable federal and
state tax laws. As specified in the Internal Revenue Code, an ownership change
of more than 50% by a combination of the Company's significant stockholders
during any three-year period would result in certain limitations on the
Company's ability to utilize its net operating loss and credit carryforward.
Such a change occurred in December 1997 resulting in a $13,000 annual
limitation.
 
Note 7--Notes Payable:
 
  In July 1995, the Company entered into a credit agreement with a bank which
allowed for borrowings of up to $4,600, including a $3,000 line of credit, a
$1,000 equipment line of credit, and a $600 term loan to refinance existing
debt. The equipment line of credit and term loan expired during 1997.
Borrowings were secured by all assets of the Company. As of December 31, 1998,
the Company has no amounts outstanding under this line of credit.
 
  On October 6, 1997, the Company entered into a credit facility with a bank
that allows the Company to borrow up to maximum of $3,000 to finance various
equipment purchases. Advances accrue interest at the banks prime lending rate
plus 1% (10.0% at December 31, 1998) and are repayable over a thirty-six month
period. The credit facility is secured by the assets of the Company and
expires on September 29, 2001. In addition, the bank requires the Company to
comply with certain financial covenants relating to profitability and cash
flow ratios. The Company was in compliance with all covenants at December 31,
1998.
 
  In November 1997, the Company obtained a bridge loan facility from a bank.
Under the terms of the facility, the Company borrowed $2,000 (the maximum
amount available), which was secured by substantially all of the Company's
assets. The loan accrued interest at the banks prime rate plus 1%. On December
10, 1997, the Company repaid the outstanding amount.
 
Note 8--Commitments and Contingencies:
 
 Leases
 
  The Company leases certain office facilities under noncancelable operating
leases. The leases provide for escalating monthly payments that are charged to
operations ratably over the lease term. The leases also provide for the
Company to pay property taxes, insurance and certain other operating costs of
the leased property and generally contain renewal provisions.
 
                                      54
<PAGE>
 
                               USWEB CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
 
              (In thousands, except share and per share amounts)
 
 
  Future minimum lease payments under all noncancelable operating and capital
leases as of December 31, 1998 are as follows:
 
<TABLE>
<CAPTION>
                                                               Operating Capital
     Year Ending December 31,                                   Leases   Leases
     ------------------------                                  --------- -------
     <S>                                                       <C>       <C>
     1999.....................................................  $15,112  $3,547
     2000.....................................................   12,498   1,327
     2001.....................................................    9,948     285
     2002.....................................................    8,663     --
     Thereafter...............................................   12,370     --
                                                                -------  ------
     Total minimum payments...................................  $58,591   5,159
                                                                =======
     Less: Amount representing interest.......................            (337)
                                                                         ------
     Present value of capital lease obligations...............            4,822
     Less: Current portion....................................            3,445
                                                                         ------
     Lease obligations, long-term.............................           $1,377
                                                                         ======
</TABLE>
 
  Equipment recorded under capital leases is included in Property and
Equipment as follows:
 
<TABLE>
<CAPTION>
                                                                 December 31,
                                                                 --------------
                                                                  1997    1998
                                                                 ------  ------
     <S>                                                         <C>     <C>
     Computers and equipment.................................... $1,234  $3,285
     Furniture and fixtures.....................................    154     496
     Leasehold improvements.....................................    --      177
                                                                 ------  ------
                                                                  1,388   3,958
     Less: Accumulated depreciation.............................   (877) (1,537)
                                                                 ------  ------
                                                                 $  511  $2,421
                                                                 ======  ======
</TABLE>
 
  Rent expense for operating leases totaled $2,935, $7,872 and $13,275 for the
years ended December 31, 1996, 1997 and 1998, respectively.
 
 Litigation
 
  As is typical for companies in USWeb/CKS's business and of USWeb/CKS's size,
the Company is from time to time the subject of lawsuits. Management does not
believe that the outcome of any pending litigation is likely to be material to
USWeb/CKS. However due to the inherent uncertainties of litigation, there is a
risk that the outcome of pending or any future litigation could have a
material adverse effect on the Company's business, financial condition, cash
flows, or results of operations.
 
  On November 5, 1998, a putative class action lawsuit was filed in the United
States District Court for the Northern District of California against CKS
Group and three of its officers and directors. The complaint alleges that
during the period March 20, 1997 to November 7, 1997 (the "Class Period"), the
defendants violated the Securities Exchange Act and the SEC rules and
regulations thereunder by issuing false and misleading statements about CKS
Group's operations, revenues and earnings which allegedly inflated CKS Group's
reported revenues, earnings and stock price. The complaint further alleges
that those who purchased CKS Group's stock did so at artificially inflated
prices. The plaintiff seeks to recover damages in an unspecified amount
(together with interest and attorneys' fees) on behalf of all purchasers of
CKS Group Common Stock
 
                                      55
<PAGE>
 
                               USWEB CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
 
              (In thousands, except share and per share amounts)
 
during the Class Period. The Company believes that this lawsuit is without
merit and intends to defend this action vigorously. Certain of such legal
proceedings may be covered under insurance policies or indemnification
agreements. Based upon information presently available, the Company believes
that the final outcome of such proceedings will not have a material adverse
effect upon the Company's business, results of operations or financial
condition.
 
  On September 15, 1998, U S WEST filed a complaint against USWeb/CKS and one
of its licensees in the United States District Court for the District of
Nebraska, alleging claims under federal and state law for trademark
infringement, trademark dilution, and unfair competition (the "Nebraska
Action"). U S West filed an Amended Complaint on October 5, 1998. U S West
seeks to enjoin all use by the Company of "USWeb." On March 4, 1999, the
Company filed a motion to dismiss U S West's Amended Complaint. On March 3,
1999, the Company filed a complaint against U S West in the United States
District Court for the Northern District of California, seeking a declaration
that the Company's use of "USWeb" does not infringe upon, dilute, or otherwise
violate any valid rights of U S West (the "California Action"). Discovery has
not yet begun in the Nebraska Action or the California Action. USWeb/CKS
believes that the Nebraska Action is without merit and intends to defend this
action vigorously.
 
Note 9--Stockholders' Equity:
 
 Authorized Stock
 
  The Company is authorized to issue 200,000,000 shares of $0.001 par value
Common Stock and 1,000,000 shares of $0.001 par value Preferred Stock. The
Board of Directors has the authority to issue the undesignated Preferred Stock
in one or more series and to fix the rights, preferences, privileges and
restrictions thereof.
 
 Common Stock
 
  During 1996, 5,000,000 shares of Common Stock were purchased by USWeb's five
founders ("Founders Shares"). In the event that any one of the founders ceased
to be an employee of the Company, the Company had the right to repurchase
("the Repurchase Right"), at the original purchase price, a declining
percentage of the shares issued through December 31, 1999. During August 1997,
an USWeb founder terminated his employment. In connection with the
termination, the Company accelerated the vesting of 111,205 shares of Founders
Shares and accordingly recognized a charge in the amount of $1,080.
Additionally, 349,502 shares of unvested Founder's Stock were repurchased by
the Company at their original issuance price of $0.0003 per share. In the
event of a change in control of the Company, the Founders Shares shall become
immediately vested in full and the Repurchase Right shall lapse. At December
31, 1998, 1,059,000 Founders Shares were subject to repurchase rights.
 
  On September 30, 1997, the Company sold 222,222 shares of Common Stock in a
private transaction to an independent third party in exchange for a note
receivable in the amount of $2,000. On October 14, 1997, the note receivable
was collected in full.
 
  On December 5, 1997, USWeb completed its initial public offering of
5,750,000 shares of its Common Stock. Net proceeds to the Company were
approximately $38,309. In addition, the Company sold 1,666,666 shares of
Common Stock to Intel Corporation in a private placement that closed
contemporaneously with the offering. Net proceeds to the Company aggregated
approximately $9,650. In connection with the discounted sale of Common Stock
to Intel Corporation, the Company recognized a $1,250 non-cash charge that is
included in marketing, sales and support expense.
 
                                      56
<PAGE>
 
                               USWEB CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
 
              (In thousands, except share and per share amounts)
 
 
  On April 7, 1998, USWeb completed a follow-on offering whereby the Company
sold 1,581,216 shares of Common Stock. Net proceeds to the Company from the
follow-on offering aggregated approximately $31,151, after deducting
underwriter's discounts and expenses of the offering. In addition, various
option and warrant holders who participated as selling stockholders in the
offering exercised 387,118 stock options and warrants to purchase 56,547
shares of Common Stock. Net proceeds to the Company from the exercise of stock
options and warrants aggregated approximately $2,698.
 
  In September 1998, the Company adopted a stock repurchase program to buy
shares of its Common Stock in the open market. The Board of Directors
authorized the repurchase of up to the lesser of 1,000,000 shares or $15,000.
The stock repurchase program will expire in 1999. As of December 31, 1998, no
shares had been repurchased under this program.
 
 Warrants
 
  From January 1996 to December 31, 1996 the Company issued warrants to
purchase 104,721 shares of its Common Stock at exercise prices ranging from
$0.09 to $1.62 per share. The fair value of these warrants on their respective
grant dates was not material. The warrants are exercisable at any time, and
their expiration dates range from May 2001 through February 2006.
 
  In connection with a financing, the Company issued warrants to purchase a
total of 704,549 shares of stock at $7.50 per share. The warrants are
exercisable at any time prior to their expiration in May 2000.
 
  In May 1998, the Company entered into a strategic alliance with NBC
Multimedia, Inc. ("NBC") to expand production capabilities for NBC's
interactive properties and services. As part of the strategic alliance the
Company was awarded a multi-year contract where revenues earned under the
contract are expected to approximate $11,000. In connection with the strategic
alliance, the Company issued warrants to NBC allowing them to purchase
1,600,000 and 500,000 shares of the Company's Common Stock at $22.50 and
$25.43 per share, respectively. Warrants to purchase 1,050,000 shares are
exercisable at any time prior to their expiration in November 1999 (the "Fixed
Warrants"). Warrants to purchase the remaining 1,050,000 shares are subject to
cancellation or, if previously exercised, are subject to repurchase by the
Company at the original purchase price, in the event that the agreement is
cancelled by NBC prior to May 2002 (the "Variable Warrants"). The warrants
were initially valued at $12,568. Of the total value ascribed to the NBC
warrants, $6,286 was attributable to the Fixed Warrants and recorded as part
of stock compensation in operating expenses. The remaining $6,282 of the
initial value was attributed to the Variable Warrants, which are included as
part of the costs of the NBC contract. The Variable Warrants are subject to
revaluation at each balance sheet date through the date the related
cancelation or repurchase rights lapse. The Variable Warrants were revalued at
December 31, 1998, and the original charge was increased to $9,994 based on
current market data. Because the inclusion of the value of the Variable
Warrants as part of the NBC contract results in an overall loss on the
contract, this amount was recognized as a provision for loss on contract.
 
  In connection with the Company's consulting agreement related to certain
mergers and acquisitions, the Company issued warrants to purchase 1,050,583
shares of the Company's Common Stock at exercise prices ranging from $18.35 to
$21.99 per share. The warrants are exercisable at any time and expire in five
years from the date of grant. The fair value of warrants granted was measured
at the grant date using the Black-Scholes formula. At December 31, 1998 $7,455
related to acquisitions accounted for as poolings of interests, and was
included in the merger and related costs and $2,601 related to purchase
business Combinations was recognized as direct acquisition cost and included
in the purchase price of the acquired companies.
 
                                      57
<PAGE>
 
                               USWEB CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
 
              (In thousands, except share and per share amounts)
 
 
Note 10--Stock-Based Compensation:
 
  At December 31, 1998, the Company has various stock-based compensation
plans, which are described below. The Company applies APB No. 25 and related
interpretations and SFAS No. 123 with respect to grants to other than
employees in accounting for its plans. Had compensation cost for the Company's
various stock-based compensation plans been determined based on the minimum
and fair values at the grant dates for awards under those plans consistent
with the methods prescribed by SFAS No. 123, the Company's net loss and net
loss per share would have been increased to the pro forma amounts indicated
below:
 
<TABLE>
<CAPTION>
                                                   Year Ended December 31,
                                                  ----------------------------
                                                   1996      1997      1998
                                                  -------  --------  ---------
     <S>                                          <C>      <C>       <C>
     Net loss:
       As reported............................... $(3,359) $(50,670) $(188,281)
                                                  =======  ========  =========
       As adjusted............................... $(5,568) $(59,208) $(213,405)
                                                  =======  ========  =========
     Net loss per share:
       Basic and diluted, as reported............ $ (0.15) $  (1.73) $   (3.07)
                                                  =======  ========  =========
       Basic and diluted, as adjusted............ $ (0.25) $  (2.02) $   (3.48)
                                                  =======  ========  =========
</TABLE>
 
 Fair value estimates
 
  For purposes of complying with the disclosure provisions of SFAS No. 123,
prior to USWeb's initial public offering in December 1997, the fair value of
each option grant of USWeb was determined on the date of grant using the
minimum value method. Subsequent to the offering, the fair value was
determined using the Black-Scholes option pricing model. Except for the
volatility assumption, which was only used under the Black-Scholes model, the
following weighted-average assumptions were used for grants during the years
ended December 31, 1997 and 1998.
 
<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                                                   -----------------------------
                                                     1996      1997      1998
                                                   --------- --------- ---------
     <S>                                           <C>       <C>       <C>
     Dividend yield...............................      0.0%      0.0%      0.0%
     Volatility...................................      0.0%     64.0%     70.0%
     Risk-free interest rate......................      6.1%     6.04%     5.27%
     Expected life................................ 4.0 years 3.9 years 3.5 years
</TABLE>
 
Stock Option Plans
 
 1996 Stock Option Plan
 
  The Company has reserved an aggregate of 600,000 shares of Common Stock for
issuance under its 1996 Stock Option Plan (the "1996 Plan"). The 1996 Plan
provides for grants of options to employees and consultants (including
officers and directors) of the Company and its subsidiaries.
 
  The exercise price of options granted under the 1996 Plan is determined by
the 1996 Plan Administrator, as defined. With respect to incentive stock
options granted under the 1996 Plan, the exercise price must be at least equal
to the fair market value per share of the Common Stock on the date of grant,
and the exercise price of any incentive stock option granted to a participant
who owns more than 10% of the voting power of all classes of the Company's
outstanding Common Stock must be equal to a least 110% of fair market value of
the Common Stock on the date of grant.
 
                                      58
<PAGE>
 
                               USWEB CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
 
              (In thousands, except share and per share amounts)
 
 
  Each option outstanding under the 1996 Plan may be exercised in whole or in
part at any time. Exercised but unvested shares are subject to repurchase by
the Company. Options generally vest, assuming continued service by the
optionee as an employee or consultant, at the rate of 25% of the shares
subject to the option on the first anniversary of the commencement of vesting
date and 1/48th of the shares each month thereafter, such that all shares
under the option vest in full four years from the date of commencement of
vesting., Options outstanding under the 1996 Plan generally have a term of ten
years.
 
 1996 Equity Compensation Plan
 
  The Company's 1996 Equity Compensation Plan (the "1996 Equity Plan")
provides for the granting to employees of incentive stock options, and for the
grant to employees and consultants of nonstatutory stock options and stock
purchase rights ("SPRs"). At December 31, 1998, a total of 7,000,000 shares of
Common Stock are reserved for issuance pursuant to the 1996 Equity Plan.
 
  The 1996 Equity Plan Administrator, as defined, has the power to determine
the terms of the options of SPRs granted, including the exercise price, the
number of shares subject to each option or SPR, the exercisability thereof,
and the form of consideration payable upon such exercise.
 
  Each option outstanding under the 1996 Equity Plan may be exercised in whole
or in part at any time. Exercised but unvested shares are subject to
repurchase by the Company. Options generally vest, assuming continued service
by the optionee as an employee or consultant, at the rate of 25% of the shares
subject to the option on the first anniversary of the commencement of vesting
date and 1/48th of the shares each month thereafter, such that all shares
under the option vest in full four years from the date of commencement of
vesting. Options outstanding under the 1996 Equity Plan generally have a term
of ten years.
 
  The restricted stock purchase agreement pursuant to which the SPR is
exercised shall grant the Company a repurchase option exercisable upon the
voluntary or involuntary termination of the purchasers' employment with the
Company for any reason (including death or disability). The repurchase option
shall lapse at a rate determined by the 1996 Equity Plan Administrator.
 
  The exercise price of all incentive stock options granted under the 1996
Equity Plan must be at least equal to the fair market value of the Common
Stock on the date of grant. The exercise price of nonstatutory stock options
and SPRs granted under the 1996 Equity Plan is determined by the 1996 Equity
Plan Administrator, but with respect to nonstatutory stock options intended to
qualify as "performance-based compensation", the exercise price must at least
be equal to the fair market value of the Common Stock on the date of grant.
With respect to any participant who owns stock possessing more than 10% of the
voting power of all classes of the Company's outstanding capital stock, the
exercise price of any incentive stock option granted must equal at least 110%
of the fair market value on the grant date and the term of such incentive
stock option must not exceed five years. The term of all other options granted
under the 1996 Equity Plan may not exceed ten years. As of December 31, 1998,
no SPRs had been granted.
 
 1997 Acquisition Stock Option Plan
 
  The Company's 1997 Acquisition Stock Option Plan (the "1997 Plan") provides
for the grant of incentive stock options to employees (including officers and
employee directors) and for the grant of nonstatutory stock options and SPRs
to employees, directors and consultants. A total of 20,000,000 shares of
Common Stock, plus annual increases equal to the lesser of (i) 400,000 shares,
(ii) 5% of the outstanding shares, or (iii) a lesser amount determined by the
Board of Directors, are currently reserved for issuance pursuant to the 1997
Plan.
 
                                      59
<PAGE>
 
                               USWEB CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
 
              (In thousands, except share and per share amounts)
 
 
  The 1997 Plan Administrator, as defined, has the power to determine the
terms of the options or SPRs granted, including the exercise price of the
option or SPR, the number of shares subject to each option or SPR, the
exercisability thereof, and the form of consideration payable upon such
exercise.
 
  The restricted stock purchase agreement pursuant to which the SPR is
exercised shall grant the Company a repurchase option exercisable upon the
voluntary or involuntary termination of the purchasers' employment with the
Company for any reason (including death or disability). The repurchase option
shall lapse at a rate determined by the Administrator.
 
  The exercise price of all incentive stock options granted under the 1997
Plan must be at least equal to the fair market value of the Common Stock on
the date of grant. The exercise price of nonstatutory stock options and SPRs
granted under the 1997 Plan is determined by the 1997 Plan Administrator, but
with respect to nonstatutory stock options intended to qualify as
"performance-based compensation", the exercise price must at least be equal to
the fair market value of the Common Stock on the date of grant. With respect
to any participant who owns stock possessing more than 10% of the voting power
of all classes of the outstanding capital stock of the Company, its parent and
its subsidiaries, the exercise price of any incentive stock option granted
must equal at least 110% of the fair market value on the grant date and the
term of such incentive stock option must not exceed five years. The term of
all other options granted under the 1997 Plan may not exceed ten years. As of
December 31, 1998, no SPRs had been granted.
 
 CKS Group Stock Option Plans
 
  In connection with the merger with CKS Group, which was consummated on
December 17, 1998 (See Note 1), the Company assumed all of the outstanding
stock options under CKS Group's 1995 Series B Common Stock Plan, 1995 Stock
Plan, 1995 Director Option Plan, 1996 Supplemental Stock Plan, and Site
Specific Option Plan (collectively the "CKS Group Stock Option Plans").
Outstanding options assumed from CKS Group Stock Option Plans generally vest
25% after one year from the date of grant, and then ratably over 36 months
thereafter, and are exercisable for a period of 10 years. No further grants
will be made under the CKS Group Stock Option Plans.
 
  A summary of the status of the Company's various fixed stock option plans as
of December 31, 1997 and 1998, and changes during the years then ended is
presented below:
 
<TABLE>
<CAPTION>
                                    1997                       1998
                          -------------------------- --------------------------
                                         Weighted                   Weighted
                                         Average                    Average
   Fixed Stock Options      Shares    Exercise Price   Shares    Exercise Price
   -------------------    ----------  -------------- ----------  --------------
<S>                       <C>         <C>            <C>         <C>
Outstanding at beginning
 of year.................  2,529,617      $11.13     12,887,185      $ 9.72
Granted.................. 11,866,080       25.21     16,792,961       14.34
Exercised................   (103,079)      10.51     (3,227,591)       6.70
Canceled................. (1,405,433)      19.18     (4,837,815)      13.36
                          ----------                 ----------
Outstanding at end of
 year.................... 12,887,185      $22.42     21,614,740      $12.93
                          ----------                 ----------
Options exercisable at
 end of year.............  3,097,052      $ 8.14      4,625,307      $10.19
Weighted-average minimum
 and fair values of
 options granted during
 the year................      $1.47                      $8.78
</TABLE>
 
                                      60
<PAGE>
 
                               USWEB CORPORATION
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
 
              (In thousands, except share and per share amounts)
 
 
  The following table summarizes information about stock options outstanding
at December 31, 1998:
 
<TABLE>
<CAPTION>
                                     Options Outstanding                Options Exercisable
                         ------------------------------------------- --------------------------
                                     Weighted Average    Weighted                   Weighted
        Range of           Number       Remaining        Average       Number       Average
     Exercise Price      Outstanding Contractual Life Exercise Price Outstanding Exercise Price
     --------------      ----------- ---------------- -------------- ----------- --------------
<S>                      <C>         <C>              <C>            <C>         <C>
$0.50--$6.00............    699,320       6.723            2.112        348,739       1.674
$6.07--$11.99........... 12,709,622       8.787            8.857      3.456,388       8.545
$12.25--$18.25..........  1,724,290       9.504           14.438        202,637      16.368
$18.37--$25.84..........  6,185,673       9.477           20.994        568,492      20.914
$26.50--$36.75..........    295,835       9.348           35.608         49,051      36.750
</TABLE>
 
 Acquisition Stock Bonus Plan
 
  During the years ended December 31, 1997 and 1998, the Company agreed to
issue bonuses contingent on future employment that are payable in shares of
Common Stock to employees previously employed by Acquired Entities (each a
"New Employee").
 
  Under the agreements, the stock bonuses vest over a thirty-six month period
from the date of first employment by the Company and will be paid at the
conclusion of the vesting period. However, to the extent that a New Employee's
status as an employee is terminated, the New Employee will be entitled only to
the vested portion of the stock bonus and such bonus shall become due and
payable upon such New Employee's termination. The aggregate stock bonus for
awards through December 31, 1998 totaled $139,004 and will be paid in shares
of Common Stock at the fair market value of the Common Stock at the date of
issuance. Stock bonus awards are recognized as compensation expense over the
thirty-six month vesting periods and comprise stock compensation expense in
the accompanying consolidated financial statements. Stock compensation
recorded related to vested stock bonuses aggregated $9,118 and $33,411 for the
years ended December 31, 1997 and 1998, respectively. Of these amounts, $2,420
and $11,694, respectively, have been recorded in cost of revenues, with the
remainder recorded in stock compensation.
 
Employee Stock Purchase Plan
 
  In September 1997, the Board of Directors approved the 1997 Employee Stock
Purchase Plan (the "Purchase Plan"). A total of 3,000,000 shares of Common
Stock have been reserved for issuance under this plan. Terms of the plan
permit eligible employees to purchase Common Stock through payroll deductions
of up to 15% of each employees' compensation. Amounts deducted and accumulated
by the participant are used to purchase shares of the Company's Common Stock
at 85% of the lower of the fair value of the Common Stock at the beginning or
the end of the offering period, as defined. During 1998, 445,268 shares were
issued pursuant to the Purchase Plan at a weighted average price of $7.31 per
share.
 
  During the years ended December 31, 1997 and 1998, shares totaling 192,824
and 255,764, respectively, were issued under CKS Group's Employee Stock
Purchase Plan at average prices of $9.81 and $10.16 per share, respectively.
 
Note 11--Subsequent Events--Unaudited:
 
 Acquisitions
 
  During the period from January 1, 1999 through February 28, 1999 the Company
recognized the acquisitions of all the outstanding stock of three entities in
separate transactions in exchange for a total of
 
                                      61
<PAGE>
 
959,212 shares of the Company's Common Stock and $5,500 in cash for an
aggregate purchase price of $21,300, excluding acquisition expenses. The
acquisitions will be accounted for using the purchase method of accounting
and, accordingly, the purchase price of each acquisition will be allocated to
net tangible assets and identifiable intangible assets acquired and
liabilities assumed on the basis of their fair values.
 
Note 12--Summary of Quarterly Results of Operations--Unaudited:
 
<TABLE>
<CAPTION>
                         Mar. 31,  Jun. 30,  Sep. 30,  Dec. 31,  Mar. 31,  Jun. 30,  Sep. 30,  Dec. 31,
                           1997      1997      1997      1997      1998      1998      1998      1998
                         --------  --------  --------  --------  --------  --------  --------  --------
<S>                      <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Revenues................ $19,000   $ 27,741  $ 32,678  $ 34,883  $ 39,325  $ 54,041  $ 62,586  $72,648
 
Cost of revenues:
 Services...............  12,686     17,226    20,819    23,964    26,750    33,862    39,741   45,898
 Provision for loss on
  contract .............     --         --        --        --        --      9,430    (7,336)   7,900
 Stock compensation.....     --         347       619     1,454     1,681     3,576     4,158    3,622
                         -------   --------  --------  --------  --------  --------  --------  -------
  Total cost of
   revenues.............  12,686     17,573    21,437    25,418    28,431    46,868    36,563   57,420
                         -------   --------  --------  --------  --------  --------  --------  -------
Gross profit............   6,314     10,168    11,240     9,465    10,894     7,173    26,023   15,228
                         -------   --------  --------  --------  --------  --------  --------  -------
Operating expenses:
 Marketing, sales and
  support...............   4,205      5,367     6,467     7,335     5,261     7,071     7,268    8,161
 General and
  administrative........   4,547      6,748     8,028     8,416     9,358    10,897    10,968   13,471
 Acquired in-process
  technology............     711      2,137     3,878     2,746     4,323    18,289     2,896      --
 Stock compensation.....      36        912     2,552     3,198     2,568    13,534     7,860    7,798
 Amortization of
  intangible assets.....   1,825      1,773     3,905     5,460     4,860    17,364    23,552   28,762
 Merger and integration
  costs.................     --         --        --        --        --        --        --    28,822
 Impairment of goodwill.     --         --        --        --        --        --        --    11,079
                         -------   --------  --------  --------  --------  --------  --------  -------
  Total operating
   expenses.............  11,324     16,937    24,830    27,155    26,370    67,155    52,544   98,093
                         -------   --------  --------  --------  --------  --------  --------  -------
Loss from operations....  (5,010)    (6,769)  (13,590)  (17,690)  (15,476)  (59,982)  (26,521) (82,865)
Interest income, net....     530        277       270       629       925     1,051     1,081    1,245
Impairment of investee
 carried at cost........     --      (4,000)      --        --        --        --        --       --
                         -------   --------  --------  --------  --------  --------  --------  -------
Loss before income
 taxes..................  (4,480)   (10,492)  (13,320)  (17,061)  (14,551)  (58,931)  (25,440) (81,620)
Provision for income
 taxes..................     174      2,026     2,327       790       704     2,181     2,325    2,529
                         -------   --------  --------  --------  --------  --------  --------  -------
Net loss................ $(4,654)  $(12,518) $(15,647) $(17,851) $(15,255) $(61,112) $(27,765) (84,149)
                         =======   ========  ========  ========  ========  ========  ========  =======
Net loss per share:
 Basic and diluted...... $ (0.19)  $  (0.48) $  (0.54) $  (0.48) $  (0.29) $  (1.08) $  (0.44)   (1.26)
                         =======   ========  ========  ========  ========  ========  ========  =======
 Weighted average shares
  outstanding, basic and
  diluted...............  24,083     26,255    29,232    37,514    52,408    56,648    63,451   66,792
                         =======   ========  ========  ========  ========  ========  ========  =======
</TABLE>
 
 
                                      62
<PAGE>
 
                                   PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
  Information with respect to persons who are executive officers of USWeb/CKS
is set forth under the caption "Executive Officers" in Part I of this report.
Information with respect to the directors of USWeb/CKS is incorporated by
reference from the portion of the 1999 Annual Meeting Proxy Statement entitled
"Election of Directors."
 
ITEM 11. EXECUTIVE COMPENSATION
 
  Information with respect to the compensation of management of USWeb/CKS is
incorporated by reference from the portion of the 1999 Annual Meeting Proxy
Statement entitled "Executive Compensation."
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
  Information with respect to ownership of our Common Stock is incorporated by
reference from the portion of the 1999 Annual Meeting Proxy Statement entitled
"Security Ownership."
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
  Information with respect to certain business relationships and transactions
between USWeb/CKS, its five percent stockholders and their respective
affiliates, and its directors and officers is incorporated by reference from
the portion of the 1999 Annual Meeting Proxy Statement entitled "Certain
Relationships And Related Transactions."
 
                                      63
<PAGE>
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
  (a) Documents filed as part of this report:
 
    1. Financial Statements
 
<TABLE>
      <S>                                                                <C>
      Report of Independent Accountants.
      Consolidated Balance Sheet at December 31, 1997 and 1998.
      Consolidated Statement of Operations for the years ended December
       31, 1996, 1997 and 1998.
      Consolidated Statement of Stockholders' Equity (Deficit) for the
       years ended December 31, 1996, 1997 and 1998.
      Consolidated Statement of Cash Flows for the years ended December
       31, 1996, 1997 and 1998.
      Notes to Consolidated Financial Statements.
</TABLE>
 
    2. Financial Statement Schedules
 
     None listed, because the information required to be set forth therein
     is included in the Consolidated Financial Statements or Notes to
     Consolidated Financial Statements.
 
    3. Exhibits
 
<TABLE>
 <C>      <S>
  3.1(B)  Amended and Restated Certificate of Incorporation of the Registrant.
 
  3.2(A)  Bylaws of the Registrant.
 
  4.1(A)  Form of Registrant's Common Stock Certificate.
 
  4.2(A)  Amended and Restated Investors' Rights Agreement dated May 2, 1997
          among the Registrant and the other parties named therein.
 
  4.3(A)  Form of Registrant's Series A Preferred Stock Purchase Warrant.
 
  4.4(A)  Form of Registrant's Series C Preferred Stock Purchase Warrant.
 
  4.5(A)  Form of Registrant's Common Stock Purchase Warrant.
 
  4.6(A)  Form of Registrant's Signing Warrant.
 
  4.7(A)  Form of Registrant's AGR Warrant.
 
  4.8(A)  Form of Amended and Restated Investor Rights Agreement dated November
          7, 1997 among the Registrant and the other parties named therein.
 
  4.9(B)  Form of Agreement and Plan of Reorganization dated May 13, 1998 among
          the Registrant, USWeb Acquisition Corporation 121, Gray Peak
          Technologies, Inc. and other individuals and entities named therein.
 
  4.10(D) Agreement and Plan of Reorganization dated September 1, 1998 among
          the Registrant, USWeb Acquisition Corporation No. 134 and CKS Group,
          Inc.
 
  4.11(D) Form of USWeb Corporation Holder Agreement among Registrant, CKS
          Group, Inc. and certain stockholders of Registrant dated September 1,
          1998 (included in Exhibit 10.19).
 
 10.1(A)  Form of Indemnification Agreement entered into by the Registrant with
          each of its directors and executive officers.
 
 10.2(A)  1996 Stock Option Plan and related agreements.
 
</TABLE>
 
 
                                      64
<PAGE>
 
<TABLE>
 <C>      <S>
 10.3(C)  1996 Equity Compensation Plan and related agreements.
 
 10.4(C)  1997 Acquisition Stock Option Plan and related agreements.
 
 10.5(C)  1997 Employee Stock Purchase Plan.
 
 10.6(C)  Form of Restricted Stock Purchase Agreement between the Registrant
          and certain executive officers.
 
 10.8(A)  Management Continuity Agreement between the Registrant and Tobin
          Corey.
 
 10.9(A)  Management Continuity Agreement between the Registrant and Sheldon
          Laube.
 
 10.12(A) Loan and Security Agreement dated September 29, 1997 between the
          Registrant and Silicon Valley Bank.
 
 10.13(A) Amendment, dated November 5, 1997 to Loan and Security Agreement
          dated September 29, 1997 between the Registrant and Silicon Valley
          Bank.
 
 10.14(A) Intel-USWeb Relationship Agreement dated as of November 7, 1997
          between the Registrant and Microsoft Corporation.
 
 10.15(B) Lease Agreement dated December 16, 1996 by and between the Company
          and LAKESIDE DRIVE, INC. for 2880 Lakeside Drive, Santa Clara, CA
          95054.
 
 10.16(B) First Amendment to Lease Agreement dated July 23, 1997 by and between
          the Company and LAKESIDE DRIVE, INC. for 2880 Lakeside Drive, Santa
          Clara, CA 95054.
 
 10.17(D) Form of CKS Voting Agreement between Registrant and certain
          stockholders of CKS Group, Inc. dated September 1, 1998.
 
 10.18(D) Form of CKS Group, Inc. Holder Agreement among Registrant, CKS Group,
          Inc. and certain stockholders of CKS Group, Inc. dated September 1,
          1998.
 
 10.19(D) Form of USWeb Corporation Holder Agreement among Registrant, CKS
          Group, Inc. and certain stockholders of Registrant dated September 1,
          1998.
 
 10.20    Lease Agreement dated March 5, 1999 between the Company and Rosenberg
          SOMA Investments II, LLC for 410 Townsend Street, San Francisco, CA.
 
 11.1     Statement of computation of net loss per share.
 
 21.1     Subsidiaries of the Registrant.
 
 23.1     Consent of Independent Accountants.
 24.1     Power of Attorney (see page 66).
 
 27.1     Financial Data Schedule.
</TABLE>
---------------------
(A) Incorporated by reference from the Company's Registration Statement on
    Form S-1 (No. 333-36827).
(B) Incorporated by reference from the Company's Registration Statement on
    Form S-4 (No. 333-38351).
(C) Incorporated by reference from the Company's Registration Statement on
    Form S-8 filed on June 3, 1998 (No. 333-55893).
(D) Incorporated by reference from Company's Registration Statement on Form S-
    4 (No. 333-63323).
 
  (b) Reports on Form 8-K:
 
    None.
 
                                      65
<PAGE>
 
                                  SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Santa Clara, State of California, on this 26th day of March, 1999.
 
                                          USWEB CORPORATION
 
                                                  /s/ Carolyn V. Aver
                                          By: _________________________________
                                                     Carolyn V. Aver,
                                            Executive Vice President and Chief
                                                     Financial Officer
 
                               POWER OF ATTORNEY
 
  KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Robert W. Shaw and Carolyn V. Aver, and each of
them individually, his attorney-in-fact, for him, in any and all capacities,
to sign any and all amendments to this Report on Form 10-K, and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all
that said attorney-in-fact, or his substitute, may do or cause to be done by
virtue hereof.
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, this Report has been signed by the following persons in
the capacities indicated on this 26th day of March, 1999.
 
<TABLE>
<CAPTION>
                   Signatures                                     Title
                   ----------                                     -----
 
 <S>                                             <C>
   /s/ Mark D. Kvamme                            Chairman of the Board and Director
 ______________________________________________
    Mark D. Kvamme
 
   /s/ Robert W. Shaw                            Chief Executive Officer (Principal
 ______________________________________________  Exec. Officer) and Director
    Robert W. Shaw
 
   /s/ Carolyn V. Aver                           Executive Vice President, Chief
 ______________________________________________  Financial Officer and Secretary
    Carolyn V. Aver                              (Principal Financial Officer)
 
   /s/ Tobin Corey                               President, Chief Operating Officer and
 ______________________________________________  Director
    Tobin Corey
   /s/ Robert Hoff                               Director
 ______________________________________________
    Robert Hoff
 
   /s/ Joseph Marengi                            Director
 ______________________________________________
    Joseph Marengi
 
                                                 Director
 ______________________________________________
    Gary Rieschel
 
   /s/ Klaus Schwab                              Director
 ______________________________________________
    Klaus Schwab
</TABLE>
 
                                      66