<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 June 30, 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  [_]  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 August 5, 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 JUNE 30, 1999

<TABLE>
<CAPTION>
Index                                                                              Page Number
<S>                                                                                <C>
PART I    FINANCIAL INFORMATION

Item 1.   Consolidated Balance Sheets at June 30, 1999 and December 31, 1998                 4

          Consolidated Statements of Operations for the three months and six months
          ended June 30, 1999 and 1998                                                       5

          Consolidated Statements of Cash Flows for the six months ended
          June 30, 1999 and 1998                                                             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                                                                 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                               13

Item 5.   Other Information                                                                 13

Item 6.   Exhibits and Reports on Form 8-K                                                  13

SIGNATURE                                                                                   14
</TABLE>

                                       2
<PAGE>

PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets at June 30, 1999 and December 31, 1998

Consolidated Statements of Operations for the three months and six months ended
June 30, 1999 and 1998

Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and
1998

Notes to Unaudited Consolidated Financial Statements

                                       3
<PAGE>

                           INTERACTIVE OBJECTS, INC.
                          CONSOLIDATED BALANCE SHEETS
                      June 30, 1999 and December 31, 1998

<TABLE>
<CAPTION>
                                                                      June 30, 1999(1)         December 31, 1998(2)
<S>                                                                   <C>                      <C>
       ASSETS

Current Assets
  Cash                                                                  $    2,192,446              $    3,346,535
  Certificate of deposit                                                       108,360                     106,145
  Accounts receivable                                                          208,390                      14,000
  Prepaid expenses                                                              99,132                     154,308
                                                                        --------------              --------------

       Total current assets                                                  2,608,328                   3,620,988

Furniture and Equipment, at cost less accumulated
  depreciation of $144,633 and $56,495                                         407,564                     340,334

Other Assets
  Deposits                                                                       6,935                       6,934
                                                                        --------------              --------------

                                                                        $    3,022,827              $    3,968,256
                                                                        ==============              ==============

       LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
  Accounts payable                                                      $      194,942              $      104,834
  Accrued expenses                                                             166,376                     374,610
  Unearned revenue                                                             250,000
  Current portion long-term debt                                                41,500                      97,017
                                                                        --------------              --------------

       Total current liabilities                                               652,818                     576,461

                                                                                61,608                      17,757

Long-term debt, less current portion
  Common stock                                                                 146,169                     155,669
  Additional paid-in capital                                                 8,537,409                   9,002,909
  Retained deficit                                                          (6,375,177)                 (5,784,540)
                                                                        --------------              --------------

                                                                             2,308,401                   3,374,038
                                                                        --------------              --------------

                                                                        $    3,022,827              $    3,968,256
                                                                        ==============              ==============
</TABLE>

(1)  Unaudited
(2)  Audited



<PAGE>

                           INTERACTIVE OBJECTS, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
       For the Three Months and Six Months Ended June 30, 1999 and 1998

<TABLE>
<CAPTION>
                                                                   Three Months Ended                   Six Months Ended

                                                      June 30, 1999 (1)  June 30, 1998 (1)    June 30, 1999 (1) June 30, 1998 (1)
<S>                                                 <C>                 <C>                 <C>                 <C>
Revenues
    Service revenue                                 $     1,203,096     $    1,340,291      $     1,785,926     $   1,816,593


Expenses
    Labor and benefits                                      799,513          1,292,744            1,684,741         1,954,070
    Selling, general and administrative                     243,558            788,648              737,728         1,210,163
                                                    ---------------     --------------      ---------------     -------------

                                                          1,043,071          2,081,392            2,422,469         3,164,233
                                                    ---------------     --------------      ---------------     -------------
           Income (loss) from operations                    160,025           (741,101)            (636,543)       (1,347,640)

    Interest income                                          18,888             25,481               45,906             9,675
                                                    ---------------     --------------      ---------------     -------------

           Net income (loss)                        $       178,913     $     (715,620)     $      (590,637)    $  (1,337,965)
                                                    ===============     ==============      ===============     =============

Basic earnings (loss) per share of common stock     $          0.01     $        (0.05)     $         (0.04)    $       (0.10)
                                                    ===============     ==============      ===============     =============

Diluted earnings (loss) per share of common stock   $          0.01     $        (0.05)     $         (0.04)    $       (0.10)
                                                    ===============     ==============      ===============     =============

Weighted average number of common
    shares outstanding - basic                           14,616,952         13,802,942           15,015,847        13,298,035
                                                    ===============     ==============      ===============     =============

Weighted average number of common
    shares outstanding - diluted                         15,210,102         13,802,942           15,015,847        13,298,035
                                                    ===============     ==============      ===============     =============
</TABLE>

(1) Unaudited

<PAGE>
                           INTERACTIVE OBJECTS, INC.
                     CONSOLIDATED STATEMENT OF CASH FLOWS
                For the Six Months Ended June 30, 1999 and 1998

<TABLE>
<CAPTION>
                                                                            June 30, 1999 (1)       June 30, 1998 (1)
<S>                                                                     <C>                        <C>
Cash Flows From Operating Activities
         Net (loss)                                                     $             (590,637)    $         (1,337,965)
         Adjustment to reconcile net (loss) to net cash
           flows from operating activities
         Depreciation                                                                   47,179                   29,665
         Changes in Operating Assets and Liabilities
           Accounts receivable                                                        (194,390)                   9,698
           Prepaid expenses and other                                                   52,961                   (3,345)
           Accounts payable                                                             90,107                  358,728
           Accrued expenses                                                           (208,234)                  90,780
           Unearned revenue                                                            250,000
                                                                        ----------------------     --------------------

           Cash Flows from Operating Activities                                       (553,014)                (852,439)

Cash Flows From Investing Activities
         Purchase of equipment                                                        (114,409)                (138,384)
         Capitalized software costs                                                                             (35,000)
                                                                        ----------------------     --------------------

           Cash Flow from Investing Activities                                        (114,409)                (173,384)

Cash Flows From Financing Activities
         Issuance of stock                                                                                    6,119,239
         Redemption of stock                                                          (475,000)
         Distributions                                                                                           (5,000)
         Payments on notes payable                                                     (11,666)                 (10,387)
                                                                        ----------------------     --------------------

           Cash Flows from Financing Activities                                       (486,666)               6,103,852
                                                                        ----------------------     --------------------

           Net increase (decrease) in cash                                          (1,154,089)               5,078,029

Cash, beginning of period                                                            3,346,535                  214,967
                                                                        ----------------------     --------------------

Cash, end of period                                                     $            2,192,446     $          5,292,996
                                                                        ======================     ====================
</TABLE>

(1) Unaudited

<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 periods ended June
30, 1999 and 1998.  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.  Employee stock options outstanding have
been reflected as exercised for the purposes of computing diluted earnings per
share at June 30, 1999, and this computation resulted in 593,150 additional
shares of common stock outstanding.  These additional shares resulted in diluted
earnings per share of $.01 at June 30, 1999.  Employee stock options outstanding
at June 30, 1998, have not been reflected as exercised since the exercise of
such options would be antidilutive.  Also, stock purchase warrants outstanding
(at June 30, 1999 or 1998) 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.

                                       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 ("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

                                       8
<PAGE>

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

     From March 31, 1999 to June 30, 1999, the Company's revenues were derived
from its Information Appliance division and its software consulting division,
Avatar Interactive. 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 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 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 devote further
resources to product development for the Information Appliances division in the
remainder of fiscal 1999. All costs incurred in the research and development of
products and enhancements to existing products have been expensed as incurred.

     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 the expansion of its Information
Appliances division's development and licensing of its intellectual property,
building strategic relationships, and enhancing its software consulting group,
Avatar Interactive.

     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
served 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.

                                       9
<PAGE>

     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.

Results of Operation - Three Month and Six Month Periods Ended June 30, 1999

     Revenues. Revenues for the three-month periods ended June 30, 1998 and 1999
decreased by 10.2% from $1,340,291 to $1,203,096, respectively. Revenues for the
six-month periods ended June 30, 1998 and 1999 decreased by 1.7% from $1,816,593
to $1,785,926, respectively. During the three-month and six-month periods ended
June 30, 1999, the Company's revenue was generated by its Information Appliances
division and its consulting service group, Avatar Interactive. The decrease in
gross revenue during the three-month and six-month periods 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 June 30, 1998 and 1999
decreased by 38.2% from $1,292,744 to $799,513, respectively. During the six-
month periods ended June 30, 1998 and 1999, the labor and benefits expenses
decreased by 13.8% from $1,954,070 to $1,684,741, respectively. The decrease in
labor and benefits expenses from the second quarter and first six months of 1999
compared to the same periods in 1998 was directly attributable to the decrease
in consulting services and contract labor for those services.

     At June 30, 1999, the Company had fourteen employees in software consulting
services and product development, two employees in sales and marketing, and
seven 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 June 30, 1998 and 1999
decreased by 69.1% from $788,648 to $243,558, respectively. During the six-month
periods ended June 30, 1998 and 1999, the selling, general and administrative
expenses decreased by 39.0% from $1,210,163 to $737,728, 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 20.2% for the
three-month period ended June 30, 1999 as compared to 58.8% for the same period
in 1998. Selling, general and administrative expenses as a percentage of gross
revenue were 41.3% for the six-month period ended June 30, 1999 as

                                       10
<PAGE>

compared to 66.6% for the same period in 1998. 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 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 an Exchange Act
reporting company.

     Interest Income. Interest income for the three-month periods ended June 30,
1998 and 1999 decreased by 25.9% from $25,481 to $18,888, respectively. This
decrease was primarily due to lower available cash balances due to the use of
funds for working capital purposes. Interest income for the six-month periods
ended June 30, 1998 and 1999 increased by 374.5% from $9,675 to $45,906,
respectively. This increase was primarily due to the proceeds from a financing
in May 1998.

     Net Loss/Income.   The Company recognized net income for the three-month
period ended June 30, 1999 of $178,913 compared to a net loss of $715,620 for
the same period in 1998.  The Company recognized a net loss of $590,637 for the
six-month period ended June 30, 1999 compared to a net loss of $1,337,965 for
the same period in 1998.  Net income as a percentage of gross revenue was 14.9%
for the three-month period ended June 30, 1999 as compared to a net loss as a
percentage of revenue of 53.4% for the same period in 1998. Net loss as a
percentage of gross revenue was 33.1% for the six-month period ended June 30,
1999 as compared with a net loss as a percentage of gross revenue of 73.7% for
the same period in 1998.  The change for both comparable periods is due
primarily to decreased labor and benefits costs and general and administrative
costs.

Liquidity and Capital Resources

     At June 30, 1999, the Company had working capital of $1,955,510 compared
with working capital of $3,225,364 at December 31, 1998. At June 30, 1999, the
Company had cash and cash equivalents of $2,608,328.

     During the first six months of 1999, total cash used in operating
activities was $553,014, which was principally due to the Company's net loss for
the period partially offset by unearned revenue.  During the first six month of
1998, total cash used in operating activities was $852,439, which was primarily
due to the Company's net loss for the period.  During the first six months of
1999, investing activities used net cash of $114,409 for purchases of equipment.
During the first six months of 1998, investing activities used net cash of
$173,384 for purchases of equipment  and capitalization of software costs.
During the first six months of 1999, total cash used in financing activities was
$486,666 which represents redemption of stock and payments on notes payable.
During the first six months of 1998, financing activities provided cash of
$6,103,852 primarily from the issuance of common stock.

     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 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

                                       11
<PAGE>

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.

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 materially 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 their Year 2000 issues, the accuracy of Year 2000
testing methods, and that remediation of Year

                                       12
<PAGE>

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.

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
-----------    ----------------------------------------------------------------
10.1*          Mutual Release and Settlement Agreement dated March 4, 1999 by
               and among Interactive Objects, Inc., Ryan Smith and the other
               signatories thereto, as filed in the Company's Form 8-K filed
               March 24, 1999.

10.2*          Mutual Release and Settlement Agreement dated March 4, 1999 by
               and among Interactive Objects, Inc., John Guarino and the other
               signatories thereto, as 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, as filed in the Company's

                                       13
<PAGE>

               Form 8-K filed April 15, 1999.

27.1           Financial Data Schedule.

* Incorporated herein by reference.

(b)  Reports on Form 8-K.

     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.



                                  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:  August 11, 1999                 By:  /s/ Steven G. Wollach
                                           -------------------------------------
                                             Steven G. Wollach
                                             President, Chief Executive Officer,
                                             Chief Financial Officer and
                                             Treasurer
                                             (Principal Executive, Financial
                                             and Accounting Officer)

                                       14