<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, 1999
[ ]   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)

                           217 Pine Street, Suite 800
                               Seattle, WA 98101
                    (Address of principal executive offices)

                                 (206) 464-1008
                          (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  [  ]

Securities registered under Section 12(b) of the Exchange Act:  None
Securities registered under Section 12(g) of the Exchange Act:  Common Stock,
$.01 par value

         APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
                        DURING THE PRECEDING FIVE YEARS:
Not applicable

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:  As of May 3, 1999, 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 30, 1999
<TABLE>
<CAPTION>
 
 
Index                                                                                      Page Number
<S>           <C>                                                                          <C>
          
PART I        FINANCIAL INFORMATION
          
Item 1.       Consolidated Balance Sheets at March 31, 1999 and March 31, 1998                   4
          
              Consolidated Statements of Operations for the three month periods ended
              March 31, 1999 and March 31, 1998                                                  5
          
              Consolidated Statements of Cash Flows for the three month periods ended
              March 31, 1999 and March 31, 1998                                                  6
          
              Notes to Unaudited Consolidated Financial Statements                               7
          
Item 2.       Management's Discussion and Analysis of Financial Condition and
              Results of Operation                                                               8
 
PART II       OTHER INFORMATION
 
Item 1.       Legal Proceedings                                                                 13
              
Item 2.       Changes in Securities                                                             13
              
Item 3.       Defaults Upon Senior Securities                                                   13
              
Item 4.       Submission of Matters to a Vote of Security Holders                               14
              
Item 5.       Other Information                                                                 14
              
Item 6.       Exhibits and Reports on Form 8-K                                                  14
              
SIGNATURE                                                                                       15
              
EXHIBIT INDEX                                                                                   14
</TABLE>

                                       2
<PAGE>
 
PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets at March 31, 1999 and March 31, 1998

Consolidated Statements of Operations for the three month periods ended March
31, 1999 and March 31, 1998

Consolidated Statements of Cash Flows for the three month periods ended March
31, 1999 and March 31, 1998

Notes to Unaudited Consolidated Financial Statements

                                       3
<PAGE>
 
                           INTERACTIVE OBJECTS, INC.
                          CONSOLIDATED BALANCE SHEETS
                            March 31, 1999 and 1998
<TABLE>
<CAPTION>
 
                                                 March 31, 1999   March 31, 1998
                                                   (Unaudited)      (Unaudited)
<S>                                              <C>              <C>
ASSETS                                  
                                        
Current Assets                          
  Cash                                             $ 2,268,107      $   109,044
  Certificate of Deposit                               106,835          101,309
  Accounts Receivable                                   62,887               --
  Prepaid Expenses                                     123,281           36,155
                                                   -----------      -----------
      TOTAL CURRENT ASSETS                           2,561,110          246,508
                                                 
Furniture and Equipment, at cost,                
  less accumulated depreciation of               
  $120,031 and $31,111                                 381,104          239,570
                                                   
Other Assets                                       
  Capitalized software costs                                --          165,000
  Deposits                                               8,180           11,429
                                                   -----------      -----------
                                                         8,180          176,429
                                                   
                                                   $ 2,950,394      $   662,507
                                                   ===========      ===========
LIABILITIES AND STOCKHOLDERS' EQUITY               
                                                   
Current Liabilities                                
  Accounts Payable                                 $   300,067      $   310,971
  Accrued Expenses                                     264,915           51,850
  Current Portion Long-term Debt                       194,316          538,500
                                                   -----------      -----------
                                                   
      TOTAL CURRENT LIABILITIES                        759,298          901,321
                                                   
Long-term debt, less current portion                    61,608               --
                                            
Stockholders' Equity                        
  Preferred stock, $.01 par value;          
    2,000,000 authorized, no shares issued  
    and outstanding                                         --               --
  Common stock, $.01 par value; 50,000,000
    Authorized, 14,616,952 shares issued and
    outstanding at March 31, 1999 and
    12,944,917 shares issued and outstanding
    at March 31, 1998                                  146,169           19,417
  Additional paid-in-capital                         8,537,409        1,353,965
  Retained deficit                                  (6,554,090)      (1,612,196)
                                                   -----------      -----------
                                                     2,129,488         (238,814)
 
                                                   $ 2,950,394      $   662,507
                                                   ===========      ===========
</TABLE>


                See Notes to Consolidated Financial Statements.

                                       4
<PAGE>
 
                           INTERACTIVE OBJECTS, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
              Three Months Ended March 31, 1999 and March 31, 1998
<TABLE>
<CAPTION>
 
                                              March 31, 1999   March 31, 1998
                                                (Unaudited)      (Unaudited)
<S>                                           <C>              <C>
Revenues
 Service Revenue                                $   582,830      $   476,302
                                             
Expenses                                     
 Labor and Benefits                                 885,228          685,223
 Selling, general and administrative                494,169          410,009
                                                -----------      -----------
                                                  1,379,397        1,095,232
                                             
  Loss from Operations                             (796,567)        (618,930)
                                             
Interest Expense                                         --           (3,414)
Interest Income                                      27,017               --
                                                -----------      -----------
  Net Loss                                      $  (769,550)     $  (622,344)
                                             
                                             
Retained deficit, beginning of period           $(5,784,540)     $(  989,852)
                                                -----------      -----------
Retained deficit, end of period                  (6,554,090)      (1,612,196)
                                                ===========      ===========
                                             
Basic earnings (loss) per share of           
 common stock                                         $(.05)           $(.05)
                                                ===========      ===========
Weighted average common and common           
 Equivalent shares outstanding                   15,419,174       12,944,917
                                                ===========      ===========
</TABLE>

                See Notes to Consolidated Financial Statements.

                                       5
<PAGE>
 
                           INTERACTIVE OBJECTS, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
              Three Months Ended March 31, 1999 and March 31, 1998
                                        
<TABLE>
<CAPTION>

                                              March 31, 1999     March 31, 1998 
                                               (Unaudited)         (Unaudited)
<S>                                            <C>                 <C>
 
Cash Flows From Operating Activities
  Net Loss                                     $  (769,550)        $(622,344)
 
  Adjustment to reconcile net loss
    to net cash used in
    operating activities
 
  Depreciation                                      97,453            12,692
                                                                        
  Changes in Operating Assets                                           
    and Liabilities                                                     
    Accounts receivable                            (48,887)           10,698  
    Prepaid expenses                                31,027              (147) 
    Accounts payable                               195,233           125,033  
    Accrued expenses                              (109,695)          (11,044) 
    Other                                           (1,936)               --  
                                               -----------         ---------  
                                                                              
  Cash Flows from Operating Activities            (606,355)         (485,112) 
                                                                              
                                                                              
Cash Flows From Investing Activities                                          
  Purchase of equipment                           (138,223)          (61,811) 
  Capitalized software costs                            --           (35,000) 
                                               -----------         ---------  
                                                                              
  Cash Flow from Investing Activities             (138,223)          (96,811) 
                                                                              
                                                                              
Cash Flows From Financing Activities                                          
  Redemption of stock                             (475,000)               --  
  Proceeds on notes payable                        155,750           476,000  
  Payments on notes payable                        (14,600)               --  
                                               -----------         ---------  
                                                                              
  Cash Flows from Financing Activities            (333,850)          476,000  
                                               -----------         ---------  
                                                                              
  Net decrease in cash                          (1,078,428)         (105,923) 
                                                                              
Cash, beginning of period                        3,346,535           214,967  
                                               -----------         ---------  
                                                                              
Cash, end of period                            $ 2,268,107         $ 109,044  
                                               ===========         =========   
</TABLE>


                See Notes to Consolidated Financial Statements.

                                       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").  Effective March 31, 1999,
Interactive Objects acquired all of the equity interests of Avatar in exchange
for 858,025 shares of Interactive Objects common stock.  These consolidated
financial statements have been prepared under the pooling of interests method of
accounting and reflect the combined financial position and operating results of
Interactive Objects and Avatar as of and for the three month period ended March
31, 1999.  Avatar began operations April 1, 1998, so the balance sheet as of
March 31, 1998, and the statement of operations for the three month period ended
March 31, 1998 do not include Avatar's financial activities.  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

In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS 128") which
is effective for interim and annual financial statements for periods ending
after December 15, 1997.  Under FAS 128, basic and diluted earnings per share
are to be presented.  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.  Stock purchase warrants outstanding have
not been reflected as exercised for the purposes of computing diluted earnings
or loss per share since the exercise of such warrants, would be antidilutive.
Accordingly, basic and diluted earnings or loss per share are the same.  The
weighted average number of shares was 15,419,174 and 12,944,917 for the three
month periods ended March 31, 1999 and 1998.  For the purpose of calculating
consolidated loss per share, it is assumed that the 858,025 shares issued to
acquire Avatar were issued on January 1, 1999, the earliest date the results of
operations, and cash flows of Avatar are included in the  consolidated financial
statements.

                                       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

               THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE
                       THREE MONTHS ENDED MARCH 31, 1998
                                        
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

  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 ("APEC"), Neoteric Media entered into a
business combination with APEC. In the Neoteric Acquisition, the shareholders of
Neoteric Media exchanged their stock for a majority of the then-outstanding
common stock of APEC and Neoteric Media became a wholly-owned subsidiary of APEC
(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 entity.   The Company's audited financial statements
include, since August 1997, the results of APEC operations, which were
insignificant.

  From January 1, 1999 to March 31, 1999, substantially all of the Company's
revenues were derived from software consulting services. 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.  During this 

                                       8
<PAGE>
 
period, the Company created a new Information Appliances division which 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 has signed 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 "MSAudio" 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 begin to devote further resources to
product development in fiscal 1999. All costs incurred in the research and
development of software products and enhancements to existing products have been
expensed as incurred and the cost of acquired software products have been
capitalized. The Company's capitalized software is amortized as required by GAAP
principles beginning in the first quarter of 1998 when the product was released
for sale to the public.

  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. Until recently, the Company has marketed its
products solely through the Internet. As a result of low product sales, the
Company is focusing more attention in 1999 on development and licensing of its
intellectual property, building strategic partnerships, and enhancing its
software consulting group.

  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.  Mr. Schlitz was a consultant hired by the Company in October 1998 to
serve as the interim Chief Executive Officer in connection with the resignation
of Ryan Smith, the former Chief Executive Officer of the Company. Mr. Schiltz
will continue to serve as an advisor to the Company and its Board of Directors
through June, 1999.  In connection with the restructuring plan, the Company
included a provision for up to $310,000 for severance and settlement payments in
connection with the resignations of Ryan Smith and John Guarino from their
positions as officers and directors of the Company.  In the first quarter of
1999, the Company settled all disputes with Messrs. Smith and Guarino. 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.

                                       9
<PAGE>
 
Results of Operation  Three Months Ended March 31, 1999

  Revenues. Revenues for the three-month periods ended March 31, 1998 and 1999
increased by 22.4% from $476,302 to $582,830, respectively. During the three-
month period ended March 31, 1999, substantially all of the Company's revenue
was generated by its software consulting services. The increase in gross revenue
is attributable primarily to consulting services and the Avatar Merger. During
the first quarter of 1999, the Company had insignificant revenue from product
sales. In prior periods, the Company had no revenues from product sales.

  Labor and Benefits Expenses.   Labor and benefits includes all internal labor
costs 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, 1998 and 1999 increased by 29.2% from $685,223 to
$885,228, respectively.  The increase in labor and benefits expenses from the
first quarter of 1999 to the same period in 1998 was directly attributable to
the increase in consulting services and contract labor for those services and
the Company's establishment of its Information Appliances division.

  At March 31, 1999, the Company had ten employees in software consulting
services and product development, four employees in sales and marketing and nine
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, 1998 and
1999 increased by 20.5% from $410,009 to $494,169, 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 84.8% for the
three-month period ended March 31, 1999 as compared to 86.1% for the same period
in 1998. Selling, general and administrative expenses have increased due to
increased staffing, investment in infrastructure and associated expenses
necessary to manage and support the Company's growing operations. The Company
believes that its selling, general and administrative expenses will increase in
dollar amount for fiscal 1999 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 a Exchange Act
reporting company.

  Interest Income/Expense.   Interest expense represents interest expense on
Company debt. Interest income for the three-month period ended March 31, 1999
was $27,017 compared with interest expense for the three-month period ended
March 31, 1998 of $(3,414).  This change was 

                                       10
<PAGE>
 
primarily due to earnings from interest bearing savings accounts attributable to
the proceeds from the Company's 1998 private placement of Common Stock.

  Net Loss.   The Company recognized a net loss for the three-month periods
ended March 31, 1998 and 1999 of $622,344 and $769,550, respectively.  The net
loss as a percentage of gross revenue were 132.0% for the three month period
ended March 31, 1999 as compared to 130.7% for the same period in 1998.  The
increase in net loss on an absolute basis is due primarily to increased general
and administrative costs and investment into the Information Appliances
division.

Liquidity and Capital Resources

  As a result of hiring additional employees, increasing marketing and
increasing its product development efforts in anticipation of product releases
in 1999, the Company's capital requirements have been and will continue to be
significant and its cash requirements have been and will continue to exceed cash
flows from operations. As a result, the Company has been substantially dependent
on sales of its equity securities, cash flow from operations, and borrowings
from affiliates. At March 31, 1999, the Company had cash in the aggregate amount
of approximately $2,268,107, primarily attributable to the private placement
financing from May 1998. The Company's working capital increased by $2,456,625
from $(654,813) to $1,801,812 at March 31, 1998 and 1999, respectively.  This
increase was primarily due to the receipt of cash proceeds from the May 1998
private placement.

  Net cash used in operating activities was $606,355 for the three months ended
March 31, 1999 as compared to $485,112 for the three months ended March 31,
1998.  The increase in net cash used in operating activities was primarily
attributable to the Company's operating loss of $769,550 and an increase in
accrued expenses from $11,044 to $109,695 for the three months ended March 31,
1998 and 1999, respectively.

  Net cash used in investing activities was $138,223 for the three months ended
March 31, 1999 as compared to $96,881 for the three months ended March 31,
1998. The increase in net cash used in investing activities was primarily
attributable to a higher level of equipment purchases in the first quarter of
1999 compared to the first quarter of 1998.

  Net cash provided by (used in) financing activities was $(333,850) for the
three months ended March 31, 1999 as compared to $476,000 for the three months
ended March 31, 1998. The increase in net cash used in financing activities was
primarily attributable to the Company's redemption of Common Stock from two
shareholders and a decline in the amount of proceeds from notes payable.

  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 third quarter of 1999.  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 

                                       11
<PAGE>
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.
SFAS133 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.

Year 2000 Compliance

  Many companies are currently expending significant resources in order to
address the "Year 2000" issue.  Expenditures to address the Year 2000 issue
often involve the modification of legacy and other existing software systems
rather than the development of new systems.  Because of the size of such
expenditures, companies may defer or cancel other new software development
projects for which such companies might otherwise have purchased products from
the Company or engaged the Company for consulting. Any reductions in revenues to
the Company resulting from other companies' focus on the Year 2000 issue could
have a material adverse effect on the Company's business, results of operations
and financial condition.

  The Company has commenced a review of its internal information technology
("IT") and non-IT systems.  The objective of the review is to address necessary
code changes, testing and implementation with the objective of taking corrective
action based on the results of such review. The Company could be materially and
adversely affected by costs or complications relating to code changes, testing
and implementation for its own systems or similar issues faced by its
distributors, suppliers, customers, vendors and the financial service
organizations with which the Company interacts.  At this time, the Company does
not expect the costs related to achieving Year 2000 compliance will be material.

  The Year 2000 issue could affect the products that the Company sells.  The
Company has reviewed its current products and believes that its products are
Year 2000 compliant and that the Year 2000 issue will not materially impact the
Company.  However, to the extent that the Company's products prove to be non-
compliant or in the event of any dispute with any customer regarding whether the
Company's products are compliant, the Company's business, results of operations
and financial condition could be materially and adversely affected.

  The forward looking statements referenced above are subject to a number of
risks and uncertainties, including the abilities of customers, vendors and other
third parties to solve timely 

                                       12
<PAGE>
 
their Year 2000 issues, the accuracy of Year 2000 testing methods and that
remediation of Year 2000 issues will be correctly implemented. The Company does
not have a contingency plan to address unexpected Year 2000 issues.

PART II--OTHER INFORMATION

Item 1. Legal Proceedings

  The Company has been served with a complaint filed by Jay Paulson in King
County Superior Court in the State of Washington on November 18, 1998 (case no.
98-2-27751-1SEA) for declaratory and injunctive relief and unspecified damages
in connection with a requested transfer of restricted securities held by Mr.
Paulson. The Company believes it has taken appropriate action and is vigorously
defending this lawsuit.

Item 2. Changes in Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

                                       13
<PAGE>
 
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
-----------   ------------------------------------------------------------------

10.9          Mutual Release and Settlement Agreement dated March 4, 1999 by and
              among Interactive Objects, Inc., Ryan Smith and the other
              signatories thereto, incorporated herein by reference to the
              exhibit filed in the Company's Form 8-K filed March 24, 1999.

10.10         Mutual Release and Settlement Agreement dated March 4, 1999 by and
              among Interactive Objects, Inc., John Guarino and the other
              signatories thereto, incorporated herein by reference to the
              exhibit filed in the Company's Form 8-K filed March 24, 1999.

10.11         Agreement and Plan of Merger (exclusive of schedules and exhibits)
              dated as of March 31, 1999 by and between Interactive Objects,
              Inc., IO Acquisition Corp., Avatar Interactive, Inc. and Kayleen
              Arafiles, incorporated herein by reference to the exhibit filed in
              the Company's Form 8-K filed April 15, 1999.

27.1          Financial Data Schedule.

(b)  Reports on Form 8-K.

  On March 24, 1999, the Company filed a Form 8-K Current Report regarding
Mutual Release and Settlement Agreements entered into between the Company and
each of Ryan Smith, one of the Company's founders and a former director and
Chief Executive Officer and John Guarino, a founder and former director and
officer of the Company.

  On April 15, 1999, the Company filed a Form 8-K Current Report announcing the
acquisition of Avatar Interactive, Inc. pursuant to the terms of an Agreement
and Plan of Merger dated March 31, 1999.

                                       14
<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 14, 1999                    By:  /s/ Steven G. Wollach          
                                          -------------------------------------
                                            Steven G. Wollach                   
                                            President, Chief Executive Officer, 
                                            Chief Financial Officer and         
                                            Treasurer                           
                                            (Principal Executive, Financial     
                                            and Accounting Officer)          

                                       15