<PAGE>

                    U.S. Securities and Exchange Commission
                            Washington, D.C. 20549

                                  FORM 10-QSB
(Mark One)
[X]  Quarterly report pursuant section 13 or 15(d) of the Securities Exchange
     Act of 1934 for the quarterly period ended March 31, 2000.
[ ]  Transition report pursuant section 13 or 15(d) of the Securities Exchange
     Act of 1934 for the transition period from ____________ to ________________

                           INTERACTIVE OBJECTS, INC.
       (Exact name of small business issuer as specified in its charter)

                       Commission file number:  0-25373

            WASHINGTON                                   87-0434226
  (State or other jurisdiction               (IRS Employer Identification No.)
of incorporation or organization)

                        12600 SE 38th Street, Suite 150
                              Bellevue, WA  98006
                   (Address of principal executive offices)

                                (425) 653-5505
                          (Issuer's telephone number)
                              ___________________

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


         APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
                       DURING THE PRECEDING FIVE YEARS:

Not applicable

                     APPLICABLE ONLY TO CORPORATE ISSUERS:

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:  As of March 31, 2000, the Registrant
had 14,616,952 shares of Common Stock outstanding.


TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (check one): Yes [ ]  No [X]
<PAGE>

                           INTERACTIVE OBJECTS, INC.
                                  FORM 10-QSB
                     FOR THE QUARTER ENDED MARCH 31, 2000

<TABLE>
<CAPTION>

Index                                                                      Page Number
<S>       <C>                                                                  <C>

PART I    FINANCIAL INFORMATION

Item 1.   Consolidated Balance Sheets at March 31, 2000 and December 31, 1999   4

          Consolidated Statements of Operations for the three months
          ended March 31, 2000 and 1999                                         5

          Consolidated Statements of Cash Flows for the three months ended
          March 31, 2000 and 1999                                               6

          Notes to Unaudited Consolidated Financial Statements                  7

Item 2.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations                                                 8

PART II  OTHER INFORMATION

Item 1.   Legal Proceedings                                                    12

Item 2.   Changes in Securities                                                12

Item 3.   Defaults Upon Senior Securities                                      12

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

Item 5.   Other Information                                                    12

Item 6.   Exhibits and Reports on Form 8-K                                     12

SIGNATURE                                                                      13
</TABLE>

                                       2
<PAGE>

PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets at March 31, 2000 and December 31, 1999

Consolidated Statements of Operations for the Three Months Ended March 31, 2000
and 1999

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2000
and 1999

Notes to Unaudited Consolidated Financial Statements

                                       3
<PAGE>

                           INTERACTIVE OBJECTS, INC.
                          CONSOLIDATED BALANCE SHEETS
                      March 31, 2000 and December 31, 1999

<TABLE>
<CAPTION>
                                            March 31,         December 31,
                                              2000                1999
                                           (Unaudited)         (Audited)
                                           ----------          ---------
                     ASSETS
<S>                                        <C>              <C>
Current Assets
  Cash                                  $   1,522,765        $   1,922,392
  Certificate of deposit                      111,962              110,743
  Accounts receivable                          81,160              174,935
  Prepaid expenses                             43,845               67,994
                                         ------------         ------------
          Total current assets              1,759,732            2,276,064

Furniture and Equipment, at cost,
 less accumulated depreciation of
 $231,502 and $202,344                        364,718              371,042

Other Assets
 Deposits                                      17,161               17,161
                                          -----------         ------------
                                        $   2,141,611        $   2,664,267
                                          ===========         ============

         LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
  Accounts payable                      $     260,886        $     330,873
  Accrued expenses                             88,952              148,134
  Unearned revenue                             75,000               59,113
  Notes payable                                40,000               61,000
                                          -----------         ------------
       Total current liabilities              464,838              599,120


Stockholders' Equity
  Preferred stock, $.01 par
    value; 2,000,000
    authorized, no shares
    issued and outstanding
  Common stock, $.01 par
    value;50,000,000 shares
    authorized, 14,616,952
    shares issued and
    outstanding at March 31, 2000,
    and December 31, 1999                     146,169              146,169
  Additional paid-in capital                8,126,950            8,126,950
  Retained deficit                         (6,596,346)          (6,207,972)
                                          -----------         ------------
                                            1,676,773            2,065,147

                                        $   2,141,611        $   2,664,267
                                          ===========         ============
</TABLE>

                                       4
<PAGE>

                           INTERACTIVE OBJECTS, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
              For the Three Months Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>


                                       March 31, 2000       March 31, 1999
                                         (Unaudited)          (Unaudited)
                                       --------------       --------------
<S>                                    <C>                 <C>
Revenues
  Service and sales                     $     298,119        $     582,830
                                        -------------        -------------
Expenses
  Labor and benefits                          461,618              885,228
  Selling, general and
    administrative                            244,271              494,169
                                          -----------         ------------
                                              705,889            1,379,397

          Loss from operations               (407,770)            (796,567)

  Interest Income                              19,396               27,017
                                          -----------         ------------
          Net loss                           (388,374)            (769,550)

Retained deficit,
  beginning of period                      (6,207,972)          (5,784,540)
                                          -----------         ------------

Retained deficit, end of period         $  (6,596,346)       $  (6,554,090)
                                          ===========         ============

Basic loss per share of
  common stock                          $       (0.03)       $       (0.05)
                                          ===========         ============

Weighted average common
  and common equivalent shares
  outstanding                              14,616,952           15,419,174
                                          ===========         ============
</TABLE>

                                       5
<PAGE>

                           INTERACTIVE OBJECTS, INC.
                     CONSOLIDATED STATEMENT OF CASH FLOWS
              For the Three Months Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>


                                        March 31, 2000      March 31, 1999
                                          (Unaudited)         (Unaudited)
                                        --------------      --------------
<S>                                     <C>                 <C>
Cash Flows From Operating Activities
     Net loss                           $    (388,374)       $    (769,550)
     Adjustments to reconcile net
       loss to net cash used in
       operating activities
     Depreciation                              29,158               97,453
     Changes in operating assets
       and liabilities
          Accounts receivable                  93,775              (48,887)
          Prepaid expenses                     24,149               31,027
          Accounts payable                    (69,987)             195,233
          Accrued expenses                    (59,182)            (109,695)
          Unearned revenue                     15,887
          Other                                (1,219)              (1,936)
                                          -----------         ------------
          Cash Flows from
            Operating Activities             (355,793)            (606,355)

Cash Flows From Investing Activities
     Purchase of equipment                    (22,834)            (138,223)
                                          -----------         ------------

Cash Flows From Financing Activities
     Redemption of common stock                                   (475,000)
     Proceeds of notes payable                                     155,750
     Payments on notes payable                (21,000)             (14,600)
                                          -----------         ------------

          Cash Flows from
            Financing Activities              (21,000)            (333,850)
                                          -----------         ------------
          Net decrease in cash               (399,627)          (1,078,428)

Cash, beginning of period                   1,922,392            3,346,535
                                          -----------         ------------

Cash, end of period                     $   1,522,765        $   2,268,107
                                          ===========         ============
</TABLE>

                                       6
<PAGE>

                           INTERACTIVE OBJECTS, INC.
             Notes to Unaudited Consolidated Financial Statements


Note 1.  Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-QSB and therefore do not include
all disclosures necessary for a fair presentation of financial position, results
of operations, and cash flows in conformity with generally accepted accounting
principles. The unaudited consolidated financial statements include the accounts
of Interactive Objects, Inc. ("Interactive Objects") and its wholly owned
subsidiary Avatar Interactive, Inc. ("Avatar"). Significant intercompany
transactions have been eliminated in the accompanying unaudited consolidated
financial statements. The operating results for interim periods are unaudited
and are not necessarily an indication of the results to be expected for the full
fiscal year. In the opinion of management, the results of operations as reported
for the interim period reflect all adjustments which are necessary for a fair
presentation of operating results.


Note 2. Per Share Information

Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding in the
period. Diluted earnings per share takes into consideration common shares
outstanding (computed under basic earnings per share) and potentially dilutive
common shares. Employee stock options outstanding (at March 31, 2000 or 1999),
have not been reflected as exercised for the purposes of computing diluted
earnings or loss per share since the exercise of such options would be
antidilutive. Also, stock purchase warrants outstanding (at March 31, 2000 or
1999) have not been reflected as exercised since the exercise of such warrants
would be antidilutive.

                                       7
<PAGE>

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

                           INTERACTIVE OBJECTS, INC.
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATION


Statement of Forward-Looking Information

     Statements contained herein that are not based on historical fact,
including without limitation statements containing the words "believes," "may,"
"will," "estimate," "continue," "anticipates," "intends," "expects" and words of
similar import, constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, events or developments to be materially different
from any future results, events or developments expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
general economic and business conditions, both nationally and in the regions in
which the Company operates; technology changes; competition; changes in business
strategy or development plans; the ability to attract and retain qualified
personnel; liability and other claims asserted against the Company; and other
factors referenced in the Company's filings with the Securities and Exchange
Commission. Given these uncertainties, readers are cautioned not to place undue
reliance on such forward-looking statements. The Company disclaims any
obligation to update any such factors or to publicly announce the result of any
revisions to any of the forward-looking statements contained herein to reflect
future results, events or developments.

Overview

     Former Microsoft employees founded Interactive Objects in 1995 to develop
object software for commercial Internet and intranet applications. Today, the
Company continues to evolve and expand its offerings by leveraging revenue
generating intellectual property and technical talent. Through its consulting
subsidiary, Avatar Interactive, the Company offers a full range of development
services including custom software solutions, Internet development, software
training, and testing. The Company's Information Appliances division continues
to develop and mature its research and development efforts for embedded systems.

     The Company was incorporated in the State of Washington in October 1995 and
operated under the name Neoteric Media, Inc., d/b/a Interactive Objects, until
August 1997. In August 1997, pursuant to the terms of an acquisition agreement
with Asia Pacific Chemical Engineering Corp., a publicly-held Utah corporation
with nominal assets and liabilities ("APCE"), Neoteric Media entered into a
business combination with APCE. In the Neoteric Acquisition, the shareholders of
Neoteric Media exchanged their stock for a majority of the then-outstanding
common stock of APCE and Neoteric Media became a wholly-owned subsidiary of APCE
(which changed its name to Interactive Objects). For accounting purposes, the
Neoteric Acquisition was accounted for as a reverse purchase, with Interactive
Objects as the continuing

                                       8
<PAGE>

entity. The Company's audited financial statements include, since August 1997,
the results of APCE operations, which were insignificant.

     In the first quarter of 1998, the Company released two software component
products and acquired a Novell-based software component product. Subsequent to
such acquisition, the Company decided to focus exclusively on Microsoft-based
software component products. The Company also released a suite of seven
components in October 1998.

     Effective October 1998, the Company announced a corporate restructuring
plan. As part of this plan, the Company reduced its employee base from 23 to 13
employees, most of whom were first-level supervisors and administrative staff.
In addition, the Company promoted Steve Wollach, the Company's Chief Financial
Officer and Director, to serve as the Company's President, replacing Matthew
Schiltz. Also in connection with the restructuring plan, the Company repriced
all outstanding stock options held by current Company employees and directors to
$1.406 per share, the closing trading price of the Common Stock on the OTC
Bulletin Board on November 4, 1998.

     Effective March 31, 1999, the Company acquired Avatar Interactive, Inc., a
Washington corporation ("Avatar"). The acquisition of Avatar was effected by
means of a forward merger of a newly formed Washington corporation and wholly-
owned subsidiary of the Company with and into Avatar. Avatar became a wholly-
owned subsidiary of the Company. The merger was accounted for as a pooling-of-
interests.

     For the quarter ended March 31, 2000, the Company's revenues were derived
from its Information Appliance division and its software consulting group. To
date, the Company has provided consulting services to predominately Fortune 1000
companies, including SAFECO, Microsoft, Airborne Express, Paccar, Pinnacle,
CourtLink, Eddie Bauer and Port Townsend Paper. The Company's Information
Appliances division focuses on emerging technology and strategic partnering with
hardware, software and platform providers to deliver to consumers the tools they
want to work, play, and function more efficiently. The development of the
Microsoft Mobile Audio Player, the first digital audio player software for the
Microsoft Windows CE operating system, is a direct product of this division's
talent and focus. In addition, the Company completed an ongoing contract with
Microsoft for the continuing development of streaming technology for the Windows
CE operating system. With support for Windows Media Technologies, the Windows
Media Audio (WMA) codec, as well as MP3, the Information Appliances division is
positioned on the cutting edge of digital audio software technology. The Company
anticipates that it will invest additional resources to product development for
the Information Appliances division in the remainder of fiscal 2000. All costs
incurred in the research and development of products and enhancements to
existing products have been expensed as incurred.

                                       9
<PAGE>

Results of Operation - Three Months Ended March 31, 2000 compared to Three
Months Ended March 31, 1999

     Revenues.  Revenues for the three-month periods ended March 31, 1999 and
2000 decreased by 48.8% from $582,830 to $298,119, respectively. During the
three-month period ended March 31, 2000, the Company's revenue was generated by
its Information Appliances division and its consulting service group. The
decrease in gross revenue is attributable primarily to a decrease in consulting
services.

     Labor and Benefits Expenses.  Labor and benefits includes all internal
labor costs including salaries, taxes and benefits and other direct costs
related to project performance, such as project specific independent contractor
fees, labor costs, supplies and specific project related expenditures. The
Company's labor and benefits expenses for the three-month periods ended March
31, 1999 and 2000 decreased by 47.8% from $885,228 to $461,618, respectively.
The decrease in labor and benefits expenses from the first quarter of 1999
compared to the same period in 2000 was directly attributable to the decrease in
consulting services and contract labor for those services.

     At March 31, 2000, the Company had 11 employees in software consulting
services and product development, 1 employee in sales and marketing, and 3
employees in general and administrative. In addition, the Company hires
independent contractors to service project demand for the Company's consulting
services on a project by project basis, and expects to continue to staff
projects with both Company employees and independent contractors. The Company
expects that it will hire additional staff if and as needed to meet demand from
current clients and prospective clients whose projects are anticipated to
commence within ninety days after hiring.

     Selling, General and Administrative Expenses.  Selling, general and
administrative expenses for the three-month periods ended March 31, 1999 and
2000 decreased by 50.6% from $494,169 to $244,271, respectively. In each period,
these expenses consisted primarily of employee recruiting, travel, professional
fees, occupancy costs, telephone and related Internet connectivity fees,
computer network costs, office expenses and supplies, marketing, advertising and
new business development costs. Overall, selling, general and administrative
expenses as a percentage of gross revenue were 81.9% for the three-month period
ended March 31, 2000, as compared to 84.8% for the same period in 1999. Selling,
general and administrative expenses decreased due to decreased staffing,
investment in infrastructure and associated expenses. The Company believes that
its selling, general and administrative expenses will increase in dollar amount
for the remainder of fiscal 2000 as a result of an anticipated expansion of the
Company's administrative staff required to support its growing operations and as
a result of an increase in expenses associated with being an Exchange Act
reporting company.

     Interest Income.  Interest income for the three-month period ended March
31, 1999 and 2000 decreased by 28.2% from $27,017 to $19,396, respectively. This
decrease was primarily due to lower available cash balances due to the use of
funds for working capital purposes.

                                       10
<PAGE>

     Net Loss.  The Company recognized a net loss for the three-month period
ended March 31, 2000 of $388,374 compared to a net loss of $769,550 for the same
period in 1999. The net loss as a percentage of gross revenue was 130.3% for the
three-month period ended March 31, 2000, as compared to a net loss as a
percentage of revenue of 132.0% for the same period in 1999. The reduction in
net loss is due primarily to decreased labor and benefits costs and general and
administrative costs.

Liquidity and Capital Resources

     At March 31, 2000, the Company had working capital of $1,294,894 compared
with working capital of $1,676,944 at March 31, 1999. This decrease of $382,050
or 22.6% of working capital can be primarily attributed to the Company's loss
from operations. At March 31, 2000, the Company had cash and cash equivalents of
$1,522,765, as compared to $1,922,392 for the same period in 1999.

     In the first quarter of 2000, total cash used in operating activities was
$355,793, as compared to $606,355 for the three months ended March 31, 1999.
This decrease in cash used for operating activities was primarily due to an
increase in collections of accounts receivable and, to a lesser extent, a
decrease in operating costs. During the first three months of 2000, investing
activities used net cash of $22,834 for purchases of equipment. In the same
period last year, investing activities used net cash of $138,223 for purchases
of equipment. At March 31, 2000, total cash used in financing activities was
$21,000, compared with $333,850 in the first quarter of 1999. This decrease in
cash used in financing activities can be primarily attributed to the redemption
of $475,000 in common stock in the first quarter of 1999 that did not occur in
2000.

     Based on the Company's current proposed plans and assumptions relating to
product releases and sales, the Company anticipates that it will not require
additional capital financing through the fourth quarter of 2000. If the
Company's plans change or its assumptions prove to be inaccurate, the Company
may be required to seek additional equity and/or debt financing sooner than
currently anticipated. The Company has no current arrangements related to
additional financing. There can be no assurance that any additional financing
will be available to the Company when needed, on commercially reasonable terms,
or at all.

Certain Accounting Pronouncements

     Statement of Financial Standards No. 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities" established accounting and
reporting standards for derivative instruments and for hedging activities. SFAS
133 has no impact on the Company's financial statements because the Company does
not currently engage in any derivatives or hedging activities.

     Statement of Financial Standards No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise" does not apply to the Company.

                                       11
<PAGE>

Year 2000 Compliance

     To date our systems and software have not experienced any material
disruption due to the onset of the Year 2000. As discussed in prior filings, we
undertook certain planning and implementation efforts. However, we cannot assure
that we will not experience disruptions in the future as a consequence of the
Year 2000 bug. We cannot quantify the amount of our potential exposure, but do
not believe it to be material.


PART II--OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 2. Changes in Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

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

None.

Item 5. Other Information.

None.

Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits.

Exhibit No.                             Description
-----------  ------------------------------------------------------------------
27.1         Financial Data Schedule.

(b)  Reports on Form 8-K.

     None.

                                       12
<PAGE>

                                  SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                         INTERACTIVE OBJECTS, INC.


Dated:  May 12, 2000                     By:   /s/ Steven G. Wollach
                                               ----------------------------
                                         Steven G. Wollach
                                         President, Chief Executive Officer,
                                         Chief Financial Officer and
                                         Treasurer
                                         (Principal Executive, Financial
                                         and Accounting Officer)

                                       13