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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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                                    FORM 10-K
                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
                        COMMISSION FILE NUMBER 000-29739

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                               REGISTER.COM, INC.
             (Exact name of registrant as specified in its charter)

        Delaware                                        11-3239091
(State of incorporation)                 (I.R.S. Employer identification number)

                          575 Eighth Avenue, 11th Floor
                            New York, New York 10018
                                 (212) 798-9100
                        (Address, including zip code, and
                    telephone number, including area code, of
                    registrant's principal executive offices)

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           Securities registered pursuant to Section 12(b) of the Act:
                                      None

           Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock $0.0001 par value

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      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
                                 |X| Yes |_| No

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|

      The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 1, 2002 was approximately $281,845,812 (based on the last
reported sale price on the NASDAQ National Market on that date). The number of
shares outstanding of the registrant's common stock as of March 1, 2002 was
39,364,969.

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                       DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Registrant's Proxy Statement for the 2002 Annual Meeting
of Stockholders, which is to be filed subsequent to the date hereof, are
incorporated by reference into Part III.

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                               REGISTER.COM, INC.
                          2001 FORM 10-K ANNUAL REPORT
                                TABLE OF CONTENTS

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PART I.........................................................................1

         Item 1.  Business.....................................................1

         Item 2.  Properties..................................................39

         Item 3.  Legal Proceedings...........................................39

         Item 4.  Submission of Matters to a Vote of Security Holders.........39

PART II.......................................................................40

         Item 5.  Market for Registrant's Common Equity and Related
                    Stockholder Matters.......................................40

         Item 6.  Selected Financial Data.....................................41

         Item 7.  Management's Discussion and Analysis of Financial
                    Condition and Results of Operations.......................42

         Item 7A. Quantitative and Qualitative Disclosures About Market
                    Risk.....................................................56

         Item 8.  Financial Statements and Supplementary Data.................58

         Item 9.  Changes in and Disagreements With Accountants on
                     Accounting and Financial Disclosure......................87

PART III......................................................................87

         Item 10.  Directors and Executive Officers of the Registrant.........87

         Item 11.  Executive Compensation.....................................87

         Item 12.  Security Ownership of Certain Beneficial Owners and
                      Management..............................................87

         Item 13.  Certain Relationships and Related Transactions.............87

PART IV.......................................................................87

         Item 14.  Exhibits, Financial Statement Schedules, and Reports
                      on Form 8-K.............................................87

<PAGE>

      This report contains forward-looking statements relating to future events
and our future performance within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, including, without limitation, statements regarding our
expectations, assumptions, estimates, projections, beliefs, intentions or future
strategies about our business and our industry that are signified by the words
"expects", "anticipates", "intends", "believes" or similar language. Actual
results could differ materially from those anticipated in such forward-looking
statements. All forward-looking statements included in this document are based
on information available to us on the date hereof. It is routine for our
internal projections and expectations to change as the year or each quarter in
the year progress, and therefore it should be clearly understood that the
internal projections and beliefs upon which we base our expectations may change
prior to the end of each quarter or the year. Although these expectations may
change, we may not inform you if they do. Our company policy is generally to
provide our expectations only once per quarter, and not to update that
information until the next quarter. We caution that our business and financial
performance are subject to substantial risks and uncertainties. In evaluating
our business, Investors and prospective investors should carefully consider the
information set forth below under the caption "Risk Factors" in addition to the
other information set forth herein and elsewhere in our other public filings
with the Securities and Exchange Commission.

                                     PART I

Item 1. Business.

Overview

      We are a provider of global domain name registration and Internet services
for businesses and consumers that wish to have a unique address and branded
identity on the Internet. Domain names serve as part of the infrastructure for
Internet communications, including websites, email, audio, video and telephony.

      We began processing registrations in the generic top level domains (gTLD)
..com, .net and .org in June 1999 and, as such, were the first registrar
accredited by the Internet Corporation for Assigned Names and Numbers (ICANN) to
compete in the domain name registration market after ICANN introduced
competition in the industry. We had approximately 3.3 million domain name
registrations under management as of December 31, 2001. Currently, we register,
renew and transfer domain names across the .com, .net and .org gTLDs, in new
gTLDs such as .biz, .info and .name and in over 250 country code top level
domains (ccTLDs), such as .co.uk and .org.uk for the United Kingdom, .de for
Germany and .jp for Japan.

      We believe that we offer a quick and user-friendly registration process as
well as responsive and reliable customer support. We also offer a suite of
value-added products and services targeted to assist our customers in developing
and maintaining their online identities, including:


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           Products and Services                     Products and Services
              Provided by Us                              Resold By Us

o     website-creation tools under      o     email
      the names FirstStepSite(R)and
      WebSiteNow!(TM)

o     intellectual property and         o     search engine submission
      brand protection services               services
      related to domain names

o     domain name re-sale services,     o     digital certificates
      such as auctions, appraisals
      and escrow services, offered
      through our subsidiary
      Afternic.com

      Domain name registration activity is driven by the use of the Internet by
businesses and consumers for electronic commerce and communication, the
promotion, marketing and protection of brand and identity across the world and
other online activities. Our mission is to become the preferred partner for
customers who seek to create, enhance and manage their Internet presence.

      Our retail customers are typically small to medium-size businesses as well
as small office/home office and individuals. Generally, these customers purchase
domain name registration services directly from our website at www.register.com.
Our Corporate Services division provides domain name registration and related
products and services to large and sophisticated enterprises with specialized
registration needs including global registration and management services, brand
and trademark protection and enhanced security.

      In order to extend our distribution we maintain a Global Partner Network
of Internet Service Providers (ISPs), web-hosting companies, telecom carriers,
web portals and other e-businesses. Using our flexible software solutions, these
companies resell our domain name registration services and related products and
services to their customers.

      Recently we launched Registry Advantage(TM), a domain registry solution,
to enable registries of all sizes to take advantage of our systems on an
outsourced basis.

      Through our RegistryPro subsidiary, we are establishing a registry for the
new gTLD .pro, which will be dedicated to certified professionals such as
lawyers, doctors and accountants. RegistryPro is still finalizing contract
negotiations with ICANN on which its launch is dependent. We also have a small
equity stake in Afilias, the consortium of 18 registrars, which manages the
registry for the new gTLD .info which went live in October 2001.

      We are the successor by merger to Forman Interactive Corp. Forman
Interactive commenced operations in 1994 as a developer of electronic commerce
software, and began offering web-hosting and related products and services in
1997. In February 1998, we began to distribute domain names for free and, to a
lesser extent, on a commission basis when we


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distributed domain names for international registrars and registries. In April
1999, we commenced offering registration services for ccTLDs. On June 23, 1999,
Forman Interactive merged with and into Register.com, Inc. and we began
operating as a paid registrar in the .com, .net and .org domains. In June 2000,
we acquired Inabox, Inc. and we used Inabox's software to develop our
FirstStepSite(R), WebsiteNOW!(TM) products and My.register.com, one of the
reseller solutions offered to our Global Partner Network. In September 2000, we
acquired Afternic.com, Inc., a leading secondary market exchange for domain
names.

Recent Event - Acquisition of Virtual Internet plc

      On February 1, 2002, through one of our newly established subsidiaries,
Register.com (U.K.) Limited, we announced a recommended cash offer for all
outstanding shares of Virtual Internet plc. The offer valued Virtual Internet at
approximately (pound)11.99 million (approximately $16.9 million). Our offer was
declared unconditional on February 22, 2002 and we have purchased all shares
tendered prior to that date. Together with shares we had acquired in the market
directly, we currently own approximately 97% of Virtual Internet's shares. Our
offer for the remaining shares will close on March 27, 2002. To the extent any
shares are not tendered by March 27, 2002, we expect to acquire such shares
through the compulsory acquisition procedure pursuant to the U.K. Companies Act.

      Virtual Internet's principal activities are online intellectual property
protection and web-hosting services. Its Net Searchers division, similar to our
Corporate Services division, is a provider of domain name registration and
intellectual property monitoring services to corporations and intellectual
property professionals. The Virtual Internet web-hosting business services
customers throughout Europe from a centralized multilingual operations center in
London. In addition to these activities, Virtual Internet founded RegistryPro
with us.

Domain Name Registration System

      The Internet domain name registration system consists of two principal
functions: registry and registrar. A registry maintains a master database of
domain names, and their corresponding Internet Protocol (IP) addresses,
registered in a particular top level domain. Some registries outsource the
technical function associated with this task. A registrar acts as an
intermediary between the registry and the businesses and consumers, referred to
as registrants, seeking to register domain names. Registrars typically handle
billing, customer services and the technical management of a domain name
registration.

      The domain name system is organized according to industry custom by
levels, so that, for example, in the domain name mybrand.com, .com is the top
level domain and mybrand is the second level domain. Top level domains are
classified as either gTLDs or ccTLDs. Although the most common gTLDs continue to
be .com, .net and .org, in November 2000, ICANN approved bids for seven new gTLD
registries: .biz, .info, .pro, .name, .museum, .coop and .aero. The .biz, .info
and .name registries are operational.

      Also in November 2000, the .com, .net and .org registry launched a testbed
through which it began to accept multilingual domain name registrations (domain
names using non-Roman character sets). While the testbed accepts registrations
in 39 character sets for over 350


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languages, including languages such as Chinese, Japanese and Russian, these
multilingual domain names do not have the same level of functionality as Roman
character set ones.

      There are currently over 325 different ccTLDs available for commercial
use, such as .co.uk and .org.uk for the United Kingdom, .de for Germany and .jp
for Japan representing over 240 countries. Each registry for ccTLDs is
responsible for maintaining and operating its own database of registered domain
names. Some ccTLDs are unrestricted and allow anyone, from anywhere, to register
their domain names on a first-come, first-served basis. Others require that
prospective registrants have a local presence in the country. While there have
been movements directed at creating uniform domain name registration rules and
registrar administration guidelines, to date there has been no international
consensus.

      From January 1993 until April 1999, Network Solutions, Inc., now a part of
VeriSign, Inc., was the sole entity authorized by the U.S. government to act as
registrar and registry for domain names in the .com, .net and .org top level
domains. In November 1998, ICANN was selected by the U.S. Department of Commerce
to oversee the management of the .com, .net and .org domains. In April 1999, as
a preliminary step to introducing competition into the domain name registration
system for .com, .net and .org domains, ICANN selected us as one of five
competitive registrars to participate in a testbed to evaluate whether the
Shared Registration System could accommodate multiple registrars. Registrars
other than the VeriSign registrar are known in the industry as "competitive
registrars." On June 2, 1999, we were the first of these five competitive
registrars to launch our registration services. On November 30, 1999, the
testbed was completed, and all registrars meeting ICANN's standards for
accreditation were permitted to register domain names in the .com, .net and .org
domains. As of February 25, 2002, there were 149 registrars accredited by ICANN
to accept registration in one or more of the gTLDs, however not all of these
accredited registrars are operational.

      For a more detailed discussion of the regulatory background of the domain
name registration system, see "Administration of the Internet; Government
Regulation and Legal Uncertainties." For risks associated with the domain name
system generally and new gTLDs and multilingual domain names specifically, see
"Risk Factors."

The Register.com Strategy

      Our objective is to develop a long-term relationship with our customers by
helping them utilize the Internet to communicate and conduct commerce simply and
effectively. Domain names serve as the cornerstone for establishing an online
presence and we believe customers will increasingly use additional products and
services related to their domain names in order to achieve their online goals.
We recognize that our customers have diverse needs relating to the registration,
management and use of their domain names. Therefore we have implemented a
customer segmented approach to our business. Through this approach, we target
different segments of domain name users through the distribution channels most
appropriate for them, we strive to achieve a better understanding of each
segment's online needs and we tailor the products and services we offer to meet
these particular needs.

      We focus our marketing efforts on attracting and retaining customers who
use their domain names and are more likely to renew them and to take advantage
of our additional


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products and services. By focusing on the quality of our customer base, as
opposed to the volume of domain name registrations, we believe we will succeed
in increasing our revenue per customer and improve our profitability.

      We believe that through enhancements to our current product and service
offerings, we can strengthen customer loyalty, increase the lifetime value of
our customers and position Register.com as a preferred registrar for partners
whose products and services may appeal to our target customers. We try to
anticipate and meet our customers' needs by entering into new business
alliances, developing new applications and website features and improving our
technologies. We intend also to continue to selectively pursue acquisitions of,
and investments in, companies, including other domain name registrars and
developers of web-based applications and services that can expand our business
into the products and services that will fill our customers' needs.

Distribution Channels

      We believe that our multiple distribution channels enable us to reach a
broad range of potential customers with products and services targeted to their
needs and to increase our exposure across the market. We believe that we provide
our customers with quick, easy-to-use, value-added and flexible solutions across
all of our distribution channels.

      Retail. Through our www.register.com website, our customers can quickly
and easily register a domain name and access the value-added products and
services we offer to establish, maintain and enhance their Internet presence.
Our retail marketing efforts focus on maximizing our return on investment by
improving customer retention and lowering acquisition costs. We have used a
combination of direct response and targeted mass vehicles, including email,
direct mail, online and direct response television and radio tactics to reach
our target customers efficiently. We also maintain an affiliate program through
which we pay a commission for customer referrals that result in domain name
registrations to encourage others to provide links to our register.com website.

      Corporate Services. Our Corporate Services division is dedicated to
meeting the needs of larger, global and brand-intensive companies. Many
companies currently rely on internal personnel to register and manage domain
names related to their trademarks and brand names and to manage, secure and
protect these marks and brands online. We believe that we can provide these
services more efficiently through our dedicated team of account executives and
managers. We reach these customers principally through our direct sales force
supported by our marketing efforts.

      Global Partner Network. We offer our products and services indirectly
through our Global Partner Network (GPN) of companies, which include ISPs,
web-hosting companies, telecom carriers, web portals and other e-businesses
whose customers may be interested in our service offerings. In addition to
providing our global partners with flexible software solutions to enable them to
resell our domain name registration and related products and services, we
provide them with real-time domain management tools that allow these companies
to control aspects of domain name registrations for their customers directly and
to monitor their customers' domain name registration activity.


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      We offer potential GPN partners a choice between flexible software
solutions that are distinguishable primarily based upon the ease of
implementation and the degree of integration they provide. The alternatives we
offer include:

            o     My.register.com(TM). This turn-key, web-based application is
                  easy to install and can be quickly customized to match the
                  design of a partner's website.

            o     TPP. For more technically sophisticated partners, TPP, our
                  application protocol interface (API), provides a high level of
                  control over integration of our registration services into the
                  partner's service offerings and databases.

      Using My.register.com(TM), or our legacy co-brand program, partners
outsource to us the domain name support services (notification, billing,
customer service and collections); using TPP, partners manage the domain name
support services themselves.

      Secondary Market. Through our subsidiary Afternic.com, we offer a
comprehensive suite of products and services for the secondary market for domain
name registrations including auctions, appraisals and escrow services. We see
demand for these secondary market services among our retail and corporate
customers as well as our global partners. Afternic also manages our
NameBargain.com website through which we offer registrations at a substantial
discount to our standard registration fees, targeted to bulk customers. Domain
names registered through this service come with limited services and customer
support.

      Registry Advantage(TM). In August 2001, we introduced Registry
Advantage(TM), an outsourced domain name registry service that can support large
scale Domain Name Server (DNS) and registration operations. A ccTLD, for
example, would outsource the technological aspect of its registration system,
relying on the infrastructure of Registry Advantage(TM) to support its
registration services, while still maintaining its local policies. This
offering, though new and therefore not a revenue contributor in 2001, has signed
6 registries as customers and 11 registrar distribution partners to date.

Products and Services

      We are committed to introducing new "best of breed" products and services
in order to empower our customers to manage and enhance their online presence.
We offer the following key products and services:

      Registration Services. Our core expertise is providing domain name
registration and management services. We register, renew and transfer domain
names in the .com, .net and .org gTLDs, register domain names in the .biz, .info
and .name new gTLDs and are able to register domain names in over 250 ccTLDs, of
which 33 may currently be registered through our www.register.com website. We
offer .com, .net and .org multilingual registrations in different character sets
including Chinese, Japanese and Russian. We offer one-, two-, five- and ten-year
registration periods for the initial domain name registration and one to nine
year terms for renewals. We provide the following basic products and services,
for no additional fee, together with our registration services:


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      o     FirstStepSite(R). We provide our retail customers who have
            registered domain names through us the ability to create a
            three-page website and post it on the Internet. Customers can select
            from a multitude of layouts, themes and colors and also upload
            images to customize their FirstStepSites.

      o     Domain Name Forwarding. We allow customers to forward any domain
            name to any website page they choose. Our basic service adds a small
            navigation bar with advertising in a frame at the bottom of the
            website's screen.

      o     Domain Manager(TM). This easy-to-use service enables our customers
            to view and modify important account information online, on a
            real-time basis, including their email address, the location of the
            server that hosts their website and all billing information, as well
            as enable customers to renew their registrations.

      o     DNS Services. We are one of the largest authoritative Domain Name
            Server (DNS) providers in the world. DNS provides the Internet and
            Internet users with authoritative routing information for domain
            names.

      Renewal Services. Encouraging our customers to renew their domain name
registrations with us is of great importance, as their renewals will allow us to
increase profitability by lowering overall marketing costs. We are committed to
making our renewal services more efficient and easier to use. In addition, to
strengthen our renewal efforts, and to help our customers protect their domain
name registrations from inadvertent lapse and deletion, we are developing
retention-based programs and have launched services such as QuickRenew(TM), a
one-step renewal process, SafeRenew(TM), our automatic renewal service, and
Renewal Manager(TM), an easy way to renew multiple domain name registrations at
one time. Over time, we believe that our customer segmented approach and our
focus on customer service will have a positive impact on renewals, particularly
if we succeed in our efforts to increase the adoption by our customers of our
additional products and services.

      Domain Name Registrant and Registrar Transfers. We facilitate the
processing of domain name transfers between registrants. Also, if we were not
the original registrar for a customer's domain names, we facilitate our
designation as the new registrar for those domain names through an automated
process.

      Online Products and Services. Promoting usage of domain names is important
to improving our renewal stream and increasing our customers' lifetime value. To
achieve this, we offer value-added products and services, some of which we
provide directly and some of which are provided by third parties contracted by
us, including advertisers. These paid products and services include:

            o     Branded Email. We resell comprehensive email services to our
                  customers. These email services enable our customers to use
                  their unique domain names to create branded email addresses,
                  such as myname@mybrand.com.

            o     WebSiteNow!(TM). We offer our customers the ability to create,
                  host and track traffic on easy to build, template driven,
                  professional-looking websites.


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            o     Web hosting. We offer complete web hosting services to our
                  customers primarily by referring them to the offerings of our
                  advertisers.

            o     Digital Certificates. We offer digital certificates to our
                  customers under the name CommerceLock(TM) to provide the
                  security connection necessary to conduct e-commerce with
                  confidence.

            o     Platinum FirstStepPortal(TM). Our premium domain name
                  forwarding service allows customers to point their domain
                  names to existing sites on the Internet with no navigation bar
                  or advertising appearing on the screen.

            o     Search Engine Submission. Our SiteSubmit(TM) service
                  facilitates the submission of domain names to up to 400 search
                  engines so that our customers' domains will be recognized by
                  these search engines upon a user's relevant search.

      In addition, we pursue advertisers for our websites to offer additional
products and services that are complementary to our own offerings and appeal to
our customers. These include:

            o     trademark protection services;

            o     incorporation services;

            o     online marketing;

            o     site monitoring statistics; and

            o     virtual intranet applications for the small office and home
                  office market.

      Corporate Services. Through our Corporate Services division, we offer an
array of products and services to assist our global and brand-intensive
customers with high volume domain name registration and management and online
brand protection needs including:

            o     Multiple Domain Registrations and Transfers. We make it easy
                  for customers to register and transfer large numbers of domain
                  names. For those customers who consolidate their domain names
                  under our management, we can administer the renewal process
                  with greater ease.

            o     Corporate Registration Portal(TM). We provide a web-based
                  application which allows corporate clients to provide their
                  employees with managed registration capability, including bulk
                  registration gTLDs and ccTLDs online responding capabilities
                  and user permission levels through a customized password
                  protected interface.

            o     International Brand Protection. We are able to register domain
                  names in over 250 ccTLDs in 240 countries, thereby assisting
                  customers in protecting and marketing their brands worldwide.


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<PAGE>

            o     New gTLD Intellectual Property Protection Services. In
                  connection with the launch of the various new gTLDs, we offer
                  different services designed to help companies protect their
                  intellectual property and brands from infringement in the new
                  gTLD.

            o     Billing Consolidation. We provide customers a single
                  consolidated billing statement for all of their domain name
                  services.

            o     Domain Round-Up(TM). We assist customers in searching for the
                  domain names affiliated with their company and brands. Once
                  they maintain a single portfolio of domain names with us as
                  the registrar, we can assist customers in managing these names
                  more efficiently.

            o     Account Masking. We enable corporate customers to register
                  domain names with anonymity so that they can confidentially
                  secure a name for a product, service or idea before it comes
                  to market.

            o     Trademark Guardian(TM). We provide brand-holders with monthly
                  alerts of potentially conflicting trademark and domain name
                  activity from relevant online sources.

            o     Domain Lock Down(TM). We offer domain name security services
                  that "lock" names at the registry level, which significantly
                  reduces the risk of unauthorized alterations to key registrar
                  information.

            o     DNS Outsourcing. We offer our corporate customers use of
                  premium Domain Name Servers (DNS) to help them improve the
                  speed of resolution of their names across the Internet.

      Secondary Market Services. Through our subsidiary Afternic.com we offer a
comprehensive suite of products and services for the secondary market for domain
name registrations including auctions, appraisals, and escrow services. We have
integrated Afternic.com services with our registration services so that our
retail customers searching for domain names can seamlessly get access to the
names available for auction on the Afternic.com website. In addition, our
Afternic Virtual Broker(TM) automated service, which is made available through
our different distribution channels, makes it possible to bid on any domain name
already registered while searching for a name through the standard register.com
process.

      Registry Advantage(TM). We offer an outsourced domain name registry
service that can support large scale DNS and registration operations. Registry
Advantage(TM) enables registry operators to offer their clients near real-time
domain name resolutions, advanced Whois capabilities, responsive customer
support and online client management applications by outsourcing the
technological aspect of their registration systems. We receive a fee for every
domain name registered through the Registry Advantage(TM) system, regardless of
the registrar.


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<PAGE>

Customer Service

      We believe that our ability to establish and maintain long-term
relationships with our customers and differentiate ourselves from the
competition depends significantly on the strength of our customer support
operations and staff. Furthermore, we value frequent communication with and
feedback from our customers in order to continually improve the quality of care
provided by our customer service representatives. Our customer support group
seeks to provide dependable and timely resolution of customer inquiries, 24
hours per day, seven days per week. Our customer service representatives handle
general inquiries, investigate the status of orders and payments and answer
technical questions about the Internet and domain name management.

      In September 2001, we opened a new customer care center in a
state-of-the-art facility located in Nova Scotia, Canada. Our customer care
center provides enhanced customer service and technical support, including a
complementary online and telephone ticketing system, a toll-free call-in number,
and a large staff, to provide faster and more specialized attention to customer
inquiries. As a result of our ongoing training, we have teams of customer
service representatives who specialize in key aspects of our business, and who
are skilled in assisting our customers with our products, services and
technology.

Advertising Sales

      We believe that our user base provides advertisers and merchants with an
attractive platform from which to reach their respective target audiences,
particularly for advertisers who are interested in reaching potential customers
at the time they are establishing a web presence. During the year ended December
31, 2001, our advertising revenues decreased by 22.5% over the year ended
December 31, 2000, reflecting a more challenging advertising market. In addition
to our Register.com, Afternic.com and NameBargain.com websites, we sell
advertising space on FirstStepSite(R) pages and on web pages to which we point
our customers' domain names following their registration until they launch their
own website or otherwise change their DNS.

Technology

      Our technology infrastructure for the provision of our products and
services is built and maintained for reliability, scalability, flexibility and
security and is administered by our skilled technical staff. Our selection by
ICANN as a testbed registrar and the selection of our RegistryPro joint venture
to administer the .pro new gTLD registry, were, we believe, based in significant
part on our technological plans.

      Facilities. Our principal online systems are located at hosting facilities
in New York and New Jersey. We are continually building out our systems located
at these facilities to increase redundancy and capacity. We believe each
facility has ample power redundancy, fire suppression, peering to other ISPs,
bandwidth and backbone redundancy to support the current and anticipated growth
of our business. We have additional systems at co-located hosting facilities for
our Registry Advantage(TM) service in California and London.


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      Reliability. Our technology platform is designed for reliability. Hardware
components are redundant to provide high availability. We provide software and
data reliability through a variety of processes and quality-assurance
procedures. Our standard procedures include daily database backups, offsite
storage of critical information and incremental backups of ongoing database
modifications.

      Scalability and Flexibility. We designed our systems to handle a large
volume of domain name registrations, general website traffic and domain name
server queries in an efficient, scalable and fault-tolerant manner. Our
application servers are clustered and use a shared file system which allows us
to add additional capacity. Our system is designed to scale easily and to
support rapid growth without the need to redesign the network.

      Security. Our technology incorporates a variety of security techniques to
protect domain name registration data, including limiting access to users
through a strict rule base implemented on the network's router and encrypting
user passwords at the time of account creation. We have initiated processes to
maintain internal server passwords and to ensure limited accessibility to
critical components on the network.

      Ongoing Improvements. We are in the process of adding new equipment to one
of our hosting facilities to help protect our network and further improve
scalability and reliability. Over time, we expect to add network operation
centers in other locations, which will help add redundancy and intelligent load
balancing to our systems. We believe that introducing geographic redundancy will
enable us to maintain systems that are less susceptible to regional Internet
outages.

      Technology Staff. Our technology team is skilled in developing scalable,
reliable and critical applications and solutions. Many of our technologies,
including our web-based customer care tracking system, were developed in-house.
Our team of engineers monitors our systems 24 hours per day, seven days per
week.

      In 1999, 2000 and 2001 we spent $1.8 million, $5.6 million and $7.7
million, respectively, on our research and development activities.

Administration of the Internet; Government Regulation and Legal Uncertainties

      Under a 1993 cooperative agreement with the U.S. Department of Commerce,
Network Solutions (now a VeriSign company) was authorized to act as the sole
registry and sole registrar for domain names in the .com, .net and .org top
level domains. On July 1, 1997, President Clinton approved and released a report
entitled A Framework for Global Electronic Commerce, in which he authorized the
creation of an inter-agency working group under the leadership of the Department
of Commerce to study domain name system registration and administration issues,
specifically the issue of privatizing the management of the domain name system.
In October 1998, per this report, the Department of Commerce amended the Network
Solutions cooperative agreement to call for the formation of a not-for-profit
corporation to oversee the management of, and create policies regarding, domain
names in the .com, .net and .org top level domains. The Department of Commerce
also proposed that additional registrars be authorized to register domain names
in these domains based upon the idea that competitive registrars would benefit


                                       11
<PAGE>

consumers and businesses. ICANN was recognized as this not-for-profit
corporation by the Department of Commerce in November 1998.

      ICANN's authority is based upon contracts with member entities such as
registrars and registries and compliance with its consensus policies. While
these policies do not constitute law in the United States or elsewhere, they
have a significant influence on the operation and future of the domain name
registration system.

      In April 1999, ICANN selected five testbed companies, including us, to act
as registrars to register domain names in the .com, .net and .org domains and
compete with Network Solutions. On June 2, 1999, we became the first of the
testbed companies to begin directly registering domain names. The testbed period
ended on November 30, 1999. As of February 25, 2002, 149 companies were
accredited by ICANN to act as registrars in one or more gTLD. Not all of these
accredited registrars are operational.

      In November 2000, ICANN approved bids for the following seven new gTLDs
operated by new registries: .biz, .info, .name and .pro, which are referred to
as unsponsored new gTLDs, and .museum, .coop and .aero, which are referred to as
sponsored new gTLDs. The .biz, .info and .name registries are operational.

      On May 25, 2001, ICANN finalized agreements with VeriSign that supercede
the original agreements between the parties and enable VeriSign to continue to
operate the .com registry until at least 2007 and the .net registry until at
least June 30, 2005, even as it retained ownership and control over its
registrar business. The agreements also provide that under certain conditions,
VeriSign may continue to operate both registries beyond these dates. VeriSign
would be permitted to continue to operate its domain name registrar business for
..com, .net and .org domains subject to the existing structural separation
between VeriSign's registry and registrar business. VeriSign would also continue
to operate the .org registry through December 2002 at which point that registry
would return to its status for use by non-profit organizations around the world.
ICANN intends to request proposals for a new operator of the .org registry
before expiration of that agreement.

      On December 1, 1999, ICANN's first consensus policy, the Uniform Dispute
Resolution Policy (UDRP), became effective. This dispute resolution mechanism
was created to address the problem of cybersquatting, or registering the
trademark of another as a domain name with the intent to wrongfully profit from
the goodwill in that name created by the trademark holder. ICANN may create
additional policies governing the domain name registration system if they pass
through a consensus of the Domain Name Supporting Organization, and its
constituencies, and the other Supporting Organizations, and adopted by the ICANN
Board. We would be affected by such policies, but none have been adopted since
the UDRP. We played a leading role in the drafting and implementation of the
UDRP, and we intend to continue to play an active role in the development of
future ICANN policies.

      There have been ongoing legislative developments and judicial decisions
with respect to trademark infringement claims, unfair competition claims, and
dispute resolution policies relating to the registration of domain names. To
help protect ourselves from liability in the face of these ongoing legal
developments, we have taken the following precautions:


                                       12
<PAGE>

      o     in our standard registration agreement, we require that each
            registrant indemnify, defend and hold us harmless for any dispute
            arising from the registration or use of a domain name registered in
            that person's name; and

      o     on December 1, 1999, we implemented the Uniform Domain Name Dispute
            Resolution Policy as approved by ICANN.

      Despite these precautions, we cannot assure you that our indemnity and
dispute resolution policies will be sufficient to protect us against claims
asserted by various third parties, including claims of trademark infringement
and unfair competition in our capacity as registrar.

      New laws or regulations regarding domain names and domain name registrars
may be adopted at any time. Our responses to uncertainty in the industry or new
regulations could increase our costs or prevent us from delivering our services
over the Internet, which could delay growth in demand for our services and limit
the growth of our revenues. New and existing laws may cover issues such as:

      o     pricing controls at the registry level;

      o     the creation of additional gTLDs and ccTLDs;

      o     consumer protection;

      o     cross-border domain name registration;

      o     trademark, copyright and patent infringement;

      o     domain name dispute resolution; and

      o     other claims based on the nature of content of domain names and
            domain name registration.

      In November 1999, the Anticybersquatting Consumer Protection Act was
enacted by the United States government. This law seeks to curtail a practice
commonly known in the domain name registration industry as "cybersquatting." A
cybersquatter is generally defined in the Act as one who registers a domain name
that is identical or similar to another party's trademark, or the name of
another living person, in each case with the bad faith intent to profit from use
of the domain name. The law states that registrars may not be held liable for
registration or maintenance of a domain name for another person absent a showing
of the registrar's bad faith intent to profit from the use of the domain name.
Registrars may be held liable, however, if they do not comply promptly with
procedural provisions of the law. For example, if there is a litigation
involving a domain name, the registrar is required to deposit a certificate
representing the domain name registration with the court. To date, there is no
precedent to specify under what circumstances we may suffer liability as a
registrar under this law. If we are held liable under this law, any liability
could have a material adverse effect on our business, financial condition and
results of operations.


                                       13
<PAGE>

Competition

      We believe that our industry experience, product and service offerings,
customer service focus and broad and efficient distribution channels enable us
to compete favorably in providing domain name registration services and
ancillary products and services and in attracting advertisers. However, some of
our competitors have greater name recognition, particularly in international
markets, longer operational histories and greater financial, technical and
managerial resources. Others may undertake extensive marketing campaigns for
their brands and services, adopt aggressive pricing policies and/or make more
attractive offers to potential distribution partners, advertisers and customers.

      Competition in the Domain Name Registration Industry. Our principal
competitor in the market for domain name registration services is the VeriSign
registrar. The VeriSign registrar has significant competitive advantages over
all competitive registrars stemming from its legacy as the sole registrar for
domain names in the .com, .net and .org domains prior to June 1999 and from
VeriSign's continuing exclusive control over the .com, .net and .org registry.
The barriers for other competitors seeking to enter the market as domain name
registrars include developing the requisite technological infrastructure and
meeting ICANN's accreditation requirements. As of February 25, 2002, 149
companies were accredited by ICANN to act as registrars in one or more gTLD. Not
all of these accredited registrars are operational. Our competitors in the
domain name registration industry include companies with strong brand
recognition and Internet industry experience, such as major telecommunications
firms, cable companies, ISPs, web-hosting providers, Internet portals, systems
integrators, consulting firms and other registrars.

      The growth of the competitive registrars who have entered the industry and
the continued introduction of competitive registrars into the domain name
registration industry have made it difficult for us to maintain unit market
share and, together with a reduction in the growth rate for the overall market
for domain names, has contributed to a sequential quarterly decline in the
number of paid registrations, transfers and renewals we performed from the first
quarter of 2000 until the introduction of new gTLDs in the fourth quarter of
2001. Many entrants into the domain name registration industry since we began
operating as a paid registrar in June 1999 are offering domain name registration
at prices lower than our own with minimal or no value-added products and
services. These include competitors who offer domain name registration through
bulk registrations, such as BulkRegister.com, a subsidiary of Alabanza, Inc.,
and registrars, such as Tucows, Inc. and Melbourne IT, that compete principally
with our Global Partner Network by targeting indirect and wholesale distribution
partners. In addition to other registrars, we face competition from such
distribution partners who align themselves with accredited registrars to offer
domain name registration services, including, among others, ISPs, web-hosting
companies, telecommunications firms and Internet professional service firms.

      Competition with Respect to Our Online Products and Services. An important
component of our business strategy is to offer value-added products and services
that encourage customers to use our website for the development and maintenance
of their online presence. The markets for our products and services are highly
competitive. Other registrars have developed or entered into strategic
relationships to offer products and services similar to those that we now
provide, including our email, domain name forwarding, website hosting and domain
name auctioning features, or products and services that we anticipate offering
in the future. The


                                       14
<PAGE>

acquisition by VeriSign of Network Solutions in June of 2000 has strengthened
their competitive advantage by facilitating cross-marketing between the two
companies and enabling the merged entity to couple its registration services
with an expanded range of products and services that includes those offered by
VeriSign. In addition to competing with other registrars, we also compete with
many other providers of these products and services, including application
service providers, Internet professional services firms and domain name
resellers.

      Competition for Advertisers. We compete for Internet advertising and
sponsorship revenues with other domain name registrars, content-based websites,
ISPs, Internet content providers, large web-based publishers, Internet search
engines and portal companies and various other companies that facilitate
Internet advertising. We also compete with traditional offline media for a share
of advertisers' total advertising budgets.

Intellectual Property and Proprietary Rights

      We believe that we are well positioned in the market for domain name
registration and related products and services in part due to our highly
recognized brand, register.com. We regard our trademarks, copyrights, trade
secrets and other intellectual property as critical to our success. We rely on
trademark and copyright law, trade secret protection and confidentiality and/or
license agreements with our employees, customers, partners and others to protect
our intellectual property rights. Despite our precautions, third parties could
obtain and use our intellectual property without authorization. Furthermore, the
validity, enforceability and scope of protection of intellectual property in
Internet-related industries is uncertain and still evolving. The laws of some
foreign countries do not protect intellectual property to the same extent as do
the laws of the United States. We have several registered trademarks including
Afternic(R) and FirstStepSite(R), and many other trademark registration
applications pending, including for The First Step on the Web(TM) and
WebSiteNow!(TM). All other trademarks and service marks used in this annual
report are the property of their respective owners.

      We have received initial rejections from the U.S. Patent and Trademark
Office on our trademark applications for "register" and "register.com" based on
descriptiveness. We have responded to these initial rejections arguing that
these brands have become widely known through extensive use in commerce and are
valid trademarks. While we will be taking all reasonable measures to secure
trademark registrations for the "register" and "register.com" marks, we cannot
assure you that we will be able to obtain these registrations.

      Effective trademark, service mark, copyright and trade secret protection
may not be available in every country in which our services are or will be made
available. We also expect to license proprietary rights such as trademarks or
copyrighted material to strategic partners in the course of planned national and
international expansion. While we will attempt to ensure in our agreements that
licensees will maintain the quality of our service, we cannot assure you that
they will not take actions that might diminish the value of our proprietary
rights or reputation, which could thereby materially harm our business.


                                       15
<PAGE>

Employees

      As of December 31, 2001, we had approximately 360 full-time employees.
None of our employees are represented by a labor union or are subject to
collective-bargaining agreements. We believe that we maintain good relationships
with our employees.


                                       16
<PAGE>

                                  RISK FACTORS

      Any investment in our common stock involves a high degree of risk. You
should consider carefully the risks described below, together with the other
information contained in this report. If any of the following events actually
occurs, our business, financial condition and results of operations may suffer
materially. As a result, the market price of our common stock could decline, and
you could lose all or part of your investment in our common stock.

                 Risks Related to Our Industry and Our Business

We encounter difficulties faced by early-stage companies because we have a
limited operating history and the domain name industry is young and rapidly
evolving.

      The domain name registration industry is young and rapidly evolving. Our
role in this industry dates back only to February 1998, when we began providing
a consumer interface for registering domain names by forwarding the information
we gathered from the consumer to Network Solutions or the applicable country
code registries. In June 1999, we began to compete directly with Network
Solutions for registrations in the .com, .net and .org domains. More recently,
we have started registering domain names in other gTLDs. Accordingly, we have
only a limited operating history as a domain name registrar upon which our
current business and prospects can be evaluated, and our operating results,
since June 1999, are not comparable to our results for prior periods. In
addition, the newly competitive and rapidly evolving nature of the domain name
registration industry presents other risks and uncertainties that may affect our
ability to implement our business plan successfully. We cannot assure you that
we will adequately address these risks and uncertainties or that our business
plan will be successful.

We have a history of losses and although we were profitable for the year ended
December 31, 2000 and for the first half of 2001, we cannot assure you that we
will achieve profitability again or sustain or increase positive cash flow in
the future.

      Although we achieved profitability for the quarters ended December 31,
2000, March 31, 2001, June 30, 2001 and December 31, 2001, and for the year
ended December 31, 2000, we were not profitable for the quarter ended September
30, 2001 or the year ended December 31, 2001. In addition, our year 2000
profitability was due, in part, to a one-time gain of $4.6 million from the sale
of our investment in a private company and the recognition of interest income.
We incurred losses from operations of approximately $9.7 million for the year
ended December 31, 1999, $9.7 million for the year ended December 31, 2000 and
$19.9 million for the year ended December 31, 2001. As of December 31, 2001 our
accumulated deficit totaled $33.5 million. We anticipate that our operating
expenses will increase in the foreseeable future as we explore strategic
opportunities, develop new products and services, expand internationally,
increase our sales and marketing operations, develop new distribution channels
and strategic relationships, improve our operational and financial systems and
broaden our customer service capabilities. In addition, we anticipate that
losses at RegistryPro and Virtual Internet will reduce our profitability in
2002. Accordingly, we cannot assure you that we will be able to achieve
profitability again or sustain or increase our positive cash flow in the future.


                                       17
<PAGE>

We may not be able to maintain or improve our competitive position because of
strong competition from VeriSign, Inc.

Network Solutions' authorization by the U.S. government to act as the sole
domain name registrar prior to April 1999 in the .com, .net and .org domains
gives VeriSign a significant competitive advantage in the domain name
registration industry.

      Before the introduction of competition into the domain name registration
industry in 1999, Network Solutions was the sole entity authorized by the U.S.
government to serve as the registrar for domain names in the .com, .net and .org
domains. This position allowed Network Solutions to develop a substantial
customer base, which gives it advantages in securing customer renewals and in
developing and marketing ancillary products and services. On June 9, 2000,
Network Solutions was acquired by VeriSign, Inc., a provider of Internet trust
services. We face significant competition from VeriSign as we seek to increase
our revenue from domain name registration services, and we cannot assure you
that we will be able to maintain or improve our competitive position. The
acquisition of Network Solutions by VeriSign has not only facilitated
cross-marketing between the two companies, but it has also strengthened
VeriSign's competitive advantage by enabling it to bundle registration services
with an expanded range of products and services. As of December 31, 2001, the
VeriSign registrar managed approximately 13.6 million domain name registrations,
compared to approximately 3.3 million domain name registrations that we managed
as of December 31, 2001. This leadership position together with VeriSign's
broader array of products and service offerings and strong financial position,
enable it to compete more effectively than most registrars in the formation of
strategic partnerships, and the pursuit of acquisition targets. We cannot assure
you that we will be able to overcome VeriSign's advantages and may therefore
lose certain partnership and acquisition opportunities to VeriSign.

VeriSign's exclusive control over the registry for the .com, .net and .org
domains has given it an advantage over all competitive registrars.

      On May 25, 2001, ICANN finalized agreements with VeriSign that supercede
the original agreements between the parties and enable VeriSign to continue to
operate the .com registry until at least 2007 and the .net registry until at
least June 30, 2005 while retaining ownership and control over its registrar
business. The agreements also provide that, under certain conditions, VeriSign
may continue to operate both registries beyond these dates. VeriSign will also
continue to operate the .org registry through December 2002 at which point that
registry is intended to return to its status for use by non-profit organizations
around the world.

      As the exclusive registry for these domains, VeriSign receives from us,
and from every other competitive registrar, $6 per domain name per year. The
substantial net revenues from these registry fees, and the certainty of
receiving them, provide VeriSign significant advantages over any competitive
registrar. The most recent ICANN-VeriSign agreements strengthen VeriSign's
competitive advantage over us and other competitive registrars by securing
VeriSign's ability to act as a registrar while it is the sole registry for the
..com, .net and .org domains and earns revenues from the fees competitive
registrars pay. We cannot assure you that developments under these
ICANN-VeriSign agreements, or any future amendments to them will not materially
harm our business, financial condition and results of operation.


                                       18
<PAGE>

We also face competition from other competitive registrars and others in the
domain name registration industry and expect this competition to continue to
intensify.

Competition in the domain name registration services industry continues to
intensify among the market participants.

      When we began providing online domain name registrations in the .com, .net
and .org domains in June 1999, we were one of only five testbed competitive
registrars accredited by ICANN to interface directly with Network Solutions'
registry for .com, .net and .org domain names. Since the end of the testbed
period on November 30, 1999, ICANN has continued to accredit new registrars. As
of February 25, 2002, ICANN had accredited 149 competitive registrars, including
us, to register domain names in one or more of the gTLDs, though not all of
these accredited registrars are operational. We also face substantial
competition from many resellers that are not accredited registrars but offer
domain name registrations through a competing accredited registrar's system. The
continued introduction of competitive registrars and resellers into the domain
name registration industry and the rapid growth of some competitive registrars
and resellers who have already entered the industry have made it difficult for
us to maintain our unit market share during 2000 and 2001 and, together with a
decline in the growth rate of the domain name registration market, contributed
to a sequential quarterly decline in the number of paid domain name
registrations, transfers and renewals we performed from the first quarter of
2000 until the introduction of new gTLDs in the fourth quarter of 2001. If we
begin again to experience a decline in paid domain name registrations, transfers
and renewals our business, financial condition and results of operations could
be materially adversely affected.

We face competition from competitive registrars and others in the domain name
registration industry that may have longer operating histories, greater name
recognition, particularly in international markets or greater resources.

      Our competitors in the domain name registration industry include companies
with strong brand recognition and Internet industry experience, such as major
telecommunications firms, cable companies, ISPs, web-hosting providers, Internet
portals, systems integrators, consulting firms and other registrars. Many of
these companies also possess core capabilities to deliver ancillary services,
such as customer service, billing services and network management and have a
broad array of value-added products and services which they can bundle with
domain name registrations. Our market position could be harmed by any of these
existing or future competitors, some of which may have longer operating
histories, greater name recognition, particularly in international markets, and
greater financial, technical, marketing, distribution and other resources than
we do.

Increasing competition in the domain name registration industry could force us
to reduce our prices for our core products and services, which would negatively
impact our results of operations.

      In response to increasing competition in the domain name registration
industry, we may be required, by market factors or otherwise, to reduce, perhaps
significantly, the prices we charge for our core domain name registration and
related products and services. Some of our competitors offer domain name
registration services at a wholesale price level minimally above


                                       19
<PAGE>

the $6 registry fee for .com, .net and .org domains. During the year 2001, other
competitors, including VeriSign, have reduced and may continue to reduce their
pricing for domain name registrations both for short-term promotions and on a
permanent basis. Further, some of our competitors have offered domain name
registrations for free, deriving their revenues from other sources. Reducing the
prices we charge for domain name registration services through our core
register.com branded offerings in order to remain competitive could materially
adversely affect our results of operations.

If the growth rate of the market for domain names continues to fall, our net
revenues from domain name registrations may fall below anticipated levels.

      The domain name market is still in its early stages of development and we
do not expect that it will experience the same high level of growth it has
experienced in the past. As the market began to absorb the slow down in the
growth and expansion of the Internet and Internet-related business and the
decrease of speculative domain names discussed in the following risk factor,
based on VeriSign press releases, the total number of .com, .net and .org
domains in the registry increased only slightly from 28.2 million as of December
31, 2000 to 28.8 million as of December 31, 2001. The number of new .com, .net
and .org domain names registered declined from 3.1 million in the first quarter
of 2001 to 2.8 million in the second quarter of 2001 to 2.6 million in the third
quarter of 2001 to 2.3 million in the fourth quarter of 2001. In addition, we
expect the overall number of registrations in each new gTLD, such as .biz and
..info, will be significantly lower than that for .com registrations. The slow
down in the overall market growth, together with increased competition,
contributed to a sequential quarterly decline in the number of our paid domain
name registrations, transfers and renewals from the first quarter of 2000 until
the introduction of new gTLDs in the fourth quarter of 2001. A resumption of
this decline could materially adversely affect our business, results of
operations and financial condition.

If our customers do not renew their domain name registrations or if they
transfer their registrations to our competitors, and we fail to replace their
business or develop alternative sources of revenue, our business, financial
condition and results of operations would be materially adversely affected.

      The growth of our business depends in great part on our customers' renewal
of their domain name registrations through us. Our first expirations for .com,
..net and .org domain names occurred in January 2001. As such, we have only
limited experience to date with registration renewals. Our renewal rate for paid
registrations for the year ended December 31, 2001 was less than 50%. We believe
that our renewal rates have been depressed by the high number of speculative
registrations that occurred during the initial growth stage of the domain name
registration industry in 1999 and 2000. During the third and fourth quarters of
2000 we offered one-year registrations at no charge or at significant discounts
to our standard registration fees. We have experienced and anticipate very low
renewal rates for these registrations and our total domain name registrations
under management declined from approximately 3.8 million as of September 30,
2001 to approximately 3.3 million as of December 31, 2001. We cannot predict the
volume of registration renewals we should expect or assure you that those
customers who will renew their registrations will do so through us. If we are
unable to increase our overall renewal rate or number of new registrations, the
combination of our customers deciding not to renew their registrations through
us and the increase we have experienced in the transfers of


                                       20
<PAGE>

registrations to other registrars will continue to have the cumulative effect of
decreasing the number of domain name registrations under our management. This
could cause our revenues from domain name registrations to decrease and could
materially adversely affect our business, financial condition and results of
operations.

If the introduction of new generic top level domains experience additional
delays or if our customers turn to other registrars for their registration needs
for new gTLDs, our business, financial condition and results of operations could
be materially adversely affected.

      Intervening factors, including longer than expected contract negotiations,
changes to terms of the registry's product offering and litigation, resulted in
delays in the launches for the new gTLDs. The .biz, .info and .name registries
have launched their registration services, however, the .pro registry is still
finalizing its agreement with ICANN, prior to which it is not authorized to
begin processing registrations. We cannot assure you that the .pro gTLD or any
additional names will be finally approved and introduced in our expected time
frame, or at all. Furthermore, we expect the overall number of registrations in
each new gTLDs will be significantly lower than that for .com registrations and
we cannot assure you that we will successfully market our capabilities with
respect to new gTLDs or that customers will rely on us to provide registration
services within these domains. Our business, financial condition and results of
operations could be materially adversely affected if the new gTLDs are not
successful, additional new top level domains are not introduced in a timely
manner, or if substantial numbers of our customers turn to other registrars for
their new gTLD registration needs.

The introduction of new generic top level domains may cause significant
fluctuations in our results of operations, thereby making our future operating
performance difficult to predict.

      We anticipate that with the introduction of each new gTLD, our number of
new registrations will initially increase and then level off, which will have a
corresponding affect on our net revenues and our cost of revenues. As a result,
our operating results may fluctuate significantly in the future. If our expenses
associated with their launch exceed the revenues we recognize from these
opportunities, or if we have a shortfall in revenues in relation to our
expenses, our business, financial condition and results of operations could be
materially adversely affected.

We cannot assure you that the RegistryPro and Afilias ventures will be
successful. In addition, we may incur additional capital expenditures to
establish and develop their products and services. Such expenditures would
reduce the financial resources we could use for our primary business.

      In November 2000, Afilias, LLC, a consortium of 18 ICANN-accredited
registrars including us, was selected to operate a registry for the .info gTLD
and RegistryPro, initially a joint venture between Virtual Internet plc and us,
was selected to operate a registry for the .pro gTLD which will be exclusively
for accredited professionals. In February 2002, we announced a recommended cash
offer for all outstanding shares of Virtual Internet and we have since acquired
approximately 97% of Virtual Internet's shares. While Afilias launched real time
..info registrations in October 2001, RegistryPro is still finalizing its
contract with ICANN. In their early stages, these ventures will likely require
additional infusions of capital as they establish


                                       21
<PAGE>

themselves as registries of new top level domains. As they require further
funding it may be difficult to obtain financing from outside sources, and we may
have to invest our own capital to build systems to support each of Afilias and
RegistryPro and to market their services. A lack of adequate funding could
impact the registries' ability to launch their services or to promote the new
top level domains in the marketplace once launched. We cannot accurately predict
whether there will be a demand for the domain names for which these ventures
would serve as the registry, when or the extent to which we will be able to
generate revenues from Afilias and RegistryPro, or if either of these ventures
will be profitable. If there is no demand, or demand is lower than anticipated,
for these new gTLDs, or if the returns on our capital expenditures are lower
than expected or take longer to materialize, our primary business, financial
condition and results of operation could be materially adversely affected.

We cannot predict with any certainty the effect that new governmental and
regulatory policies, or industry reactions to those policies, will have on our
business.

      Before April 1999, Network Solutions managed the domain name registration
system for the .com, .net and .org domains pursuant to a cooperative agreement
with the U.S. government. In November 1998, the Department of Commerce
recognized ICANN, to oversee key aspects of the Internet domain name
registration system. Since that time and particularly because the domain name
industry is in its early stages of development, ICANN has been subject to strict
scrutiny by the public and the government. As such, we continue to face the
risks that:

      o     the U.S. government may, for any reason, reassess its decision to
            introduce competition into, or ICANN's role in overseeing, the
            domain name registration market;

      o     the Internet community or the Department of Commerce or U.S.
            Congress may become dissatisfied with ICANN and refuse to recognize
            its authority or support its policies, which could create
            instability in the domain name registration system;

      o     ICANN may attempt to impose additional fees on registrars if it
            fails to obtain funding sufficient to run its operations;

      o     accreditation criteria could change in ways that are disadvantageous
            to us; and

      o     we may not be selected as a registrar for additional top-level
            domains (particularly sponsored new gTLDs) as they become approved.

Our business will be materially harmed if in the future the administration and
operation of the Internet no longer relies upon the existing domain name system.

      The domain name registration industry continues to develop and adapt to
changing technology. This development may include changes in the administration
or operation of the Internet, including the creation and institution of
alternate systems for directing Internet traffic without the use of the existing
domain name system. Some of our competitors have begun registering domain names
with extensions that rely on such alternate systems. These competitors are not
subject to ICANN accreditation requirements and restrictions. Other competitors
have introduced naming systems which use keywords rather than traditional domain
names. The


                                       22
<PAGE>

widespread acceptance of any alternative systems could eliminate the need to
register a domain name to establish an online presence and could materially
adversely affect our business, financial condition and results of operations.

Our revenues from advertising may continue to be adversely affected by perceived
weakness of Internet advertising and the continued weakness in the Internet
advertising market.

      Our revenues from advertising depend on the use of the Internet as an
advertising and marketing medium. The Internet advertising market is relatively
new and rapidly evolving, and it cannot yet be compared with traditional
advertising media to gauge its effectiveness. As a result, demand for and market
acceptance of Internet advertising are uncertain. If advertisers perceive the
Internet to be a limited or ineffective advertising medium or perceive our
websites to be less effective or less desirable than other Internet advertising
vehicles, advertisers may be reluctant to advertise on our websites. Many of our
current and potential customers have little experience with Internet advertising
and have allocated only a limited portion of their advertising and marketing
budgets to Internet activities. The adoption of Internet advertising,
particularly by entities that have historically relied upon traditional methods
of advertising and marketing, requires the acceptance of a new way of
advertising and marketing. These customers may find Internet advertising to be
less effective for meeting their business needs than traditional methods of
advertising and marketing.

      We compete with websites and traditional advertising media for a share of
advertisers' total advertising budgets. In recent quarters, the overall market
for Internet advertising has been characterized by continuing and significant
reduction in demand, a reduction or cancellation of advertising contracts, a
significant increase in uncorrectable receivables from advertisers, and a
significant reduction of Internet advertising budgets, especially by
Internet-related companies. In addition, an increasing number of
Internet-related companies have experienced deteriorating financial results and
liquidity positions, and/or ceased operations or filed for bankruptcy
protection, or may be expected to do so.

      For the year ended 2001, our advertising revenues were down 22.5% compared
to the year ended December 31, 2000, and constituted 8.2% of our net revenues.
The price we are able to charge for advertisements has been negatively impacted
by the overall Internet advertising market, which negatively impacts our
business. Given the current market conditions, our customers that are
Internet-related companies may be anticipating or experiencing difficulty
raising capital and therefore may elect to scale back the resources they devote
to advertising. The softness in the market for Internet advertising coupled with
the actual or perceived ineffectiveness of Internet advertising in general could
materially adversely affect our business, financial condition and results of
operations.


                                       23
<PAGE>

If our customers do not find our expanded product and service offerings
appealing, or if we fail to establish ourselves as a reliable source for these
products and services, we may remain dependent on domain name registrations as a
primary source of revenue and our net revenues may fall below anticipated
levels.

      Part of our long-term strategy includes diversifying our revenue base by
offering value-added products and services related to domain name usage. We
expect to incur significant costs in acquiring, developing and marketing these
new products and services. We cannot assure you that we will be able to develop
new products and services outside of our primary business and, if we are able to
develop such products and services, that we will succeed in attaining the
market's confidence in us as a reliable provider of these products and services.
Our primary business, domain name registration services, generated 87% of our
net revenues during the quarter ended December 31, 2001. If we fail to offer
products and services that meet our customers' needs, or we do not provide
products and services which are competitive with those offered in the
marketplace, or our customers elect not to purchase our products and services,
our anticipated net revenues may fall below expectations, we may not generate
sufficient revenue to offset these related costs and we will remain dependent on
domain name registrations as our primary source of revenue. In addition, as we
offer new products and services, we will need to increase the size and expand
the training of our customer service staff to ensure that they can adequately
respond to customer inquiries. If we fail to provide our customer service staff
with training and staffing sufficient to support our new products and services,
we may lose customers who feel that their inquiries have not been adequately
addressed. Our inability to successfully diversify our revenue base from domain
name registrations could, together with a decline in that market, materially
adversely affect our business, financial condition and results of operations.

Our acquisition strategy, and our recent acquisition of Virtual Internet plc,
subjects us to significant risks, any of which could harm our business.

      Acquisitions, including our recent acquisition of Virtual Internet plc,
involve a number of risks and present financial, managerial and operational
challenges, including:

      o     diversion of management attention from running our existing
            business;

      o     increased expenses, including legal, administrative and compensation
            expenses resulting from newly hired employees;

      o     increased costs to integrate the technology, personnel, customer
            base and business practices of the acquired company with our own;

      o     adverse effects on our reported operating results due to possible
            write-down of goodwill associated with acquisitions; and

      o     potential disputes with the sellers of acquired businesses,
            technologies, services or products.

      We acquired Virtual Internet in March 2002 and are just commencing the
integration process. We may not be successful in integrating the business,
technology, operations and personnel of Virtual Internet or any other acquired
company. Moreover, performance problems


                                       24
<PAGE>

with an acquired business, technology, service or product could also have a
material adverse impact on our reputation as a whole. In addition, any acquired
business, technology, service or product could significantly under-perform
relative to our expectations, and we may not achieve the benefits we expect from
our acquisitions.

      Our recent acquisition of Virtual Internet presents a number of
challenges, including:

      o     We may not be able to increase revenues and/or cut expenses
            sufficiently to turn Virtual Internet profitable.

      o     We face increased managerial and operational challenges due to the
            European location of Virtual Internet's operations.

      o     Virtual Internet's web hosting business is not core to our
            operations, we have very limited experience with the web hosting
            industry and we may not achieve our objectives with respect to this
            business.

      For all these reasons, our pursuit of an overall acquisition and
investment strategy or any individual acquisition or investment, including our
recent acquisition of Virtual Internet, could have a material adverse effect on
our business, financial condition and results of operations.

We recently expanded our business internationally. This expansion could expose
us to business risks that could limit the effectiveness of our growth strategy
and cause our results of operation to suffer.

      We recently expanded our business into international markets, through our
acquisition of Virtual Internet which is based in the United Kingdom and has
offices in France and Italy. Prior to this acquisition, our customer service
operation in Nova Scotia was our only experience with operations outside of New
York or the United States. Introducing and marketing our products and services
internationally, developing direct and indirect international sales and support
channels and managing Virtual Internet's foreign personnel and operations will
require significant management attention and financial resources. There are a
number of risks associated with conducting our business internationally that
could negatively impact our results of operation, including:

      o     management and integration problems resulting from cultural
            differences;

      o     political and economic instability in some international markets;

      o     competition with foreign companies;

      o     legal uncertainty regarding liability and compliance with foreign
            laws;

      o     currency fluctuations and exchange rates;

      o     potentially adverse taxes;


                                       25
<PAGE>

      o     difficulties in protecting intellectual property rights in
            international jurisdictions; and

      o     the level of adoption of the Internet in international markets.

      We may not succeed in our efforts to expand into international markets and
if we do, we cannot assure you that one or more of the factors described above
will not have a material adverse effect on our future international operations,
if any, and consequently, on our business, financial condition and results of
operation.

If we are unable to make suitable acquisitions and investments, our long-term
growth strategy could be impeded.

      Our long-term growth strategy includes identifying and acquiring or
investing in suitable candidates on acceptable terms. In particular, we intend
over time to acquire or make investments in providers of product offerings that
complement our business and other companies in the domain name registration
industry. In pursuing acquisition and investment opportunities, we may be in
competition with other companies having similar growth and investment
strategies. Competition for these acquisitions or investment targets could also
result in increased acquisition or investment prices and a diminished pool of
businesses, technologies, services or products available for acquisition or
investment. Our long-term growth strategy could be impeded if we fail to
identify and acquire or invest in promising candidates on terms acceptable to
us.

Rapid growth in our business could strain our managerial, operational,
financial, accounting and information systems, customer service staff and office
resources.

      Our expanded operations have placed a significant strain on our resources.
In order to maintain our growth strategy, we have had to and will continue to
expand all aspects of our business, including our computer systems,
telecommunications systems and related infrastructure, customer service
capabilities and sales and marketing efforts. The demands on our network
infrastructure, technical staff and technical resources have grown rapidly with
our expanding customer base, our expansion of operations to Canada, our
acquisitions and the increasing complexity of our product and service offerings.
We cannot assure you that our infrastructure, technical staff and technical
resources will adequately accommodate these changes. Additionally, and as a
result of this growth, we need to improve our financial and managerial controls,
billing systems, reporting systems and procedures, and we need to, and will
continue to, expand, train and manage our workforce. If we fail to manage our
growth effectively, our business, financial condition and results of operation
could be materially adversely affected.

If we are unable to attract and retain highly qualified management and technical
personnel, our business may be harmed.

      Our success depends in large part on the contributions of our senior
management team and technology personnel and in particular Richard D. Forman,
our President and Chief Executive Officer. We compete with other technology and
Internet companies in hiring and retaining qualified personnel. As a result, we
may be unable to retain our employees or attract, integrate, train and retain
other highly qualified employees in the future. Over the past years, we


                                       26
<PAGE>

experienced high turnover among our employees and have added a significant
number of new members to our management team. These individuals have not worked
with one another before and may not be able to develop an effective working
relationship. Moreover, our new managers are still learning about our company
and our industry while working to expand our business into new areas. If our
management team cannot work together effectively and cannot master the details
of our business and our market, then our business will be harmed, and we will
incur additional costs in seeking and retaining new management personnel. The
loss of services of these or any other executive officers or the loss of the
services of other key employees could harm our business. In addition, if we fail
to attract and successfully integrate new personnel, or retain and motivate our
current personnel, our business, financial condition and results of operations
could be materially adversely affected.

We cannot assure you that we will be able to generate revenues or profits from
operations in the secondary market for domain names or that ICANN will not
impose restrictions on the ability of accredited registrars to conduct business
in this sector.

      The secondary market for domain names is still in its nascent stages of
development. In September 2000, we acquired Afternic.com, Inc., a business which
has only been in operation since September 1999. Through Afternic, we provide a
secondary market for companies and individuals to buy and sell domain names, as
well as appraisal and escrow services for these names. The growth of the
secondary market did not meet our expectations and we did not generate the
anticipated level of revenues. As a result, and because market conditions and
attendant multiples used to estimate terminal values have become and remain
significantly depressed since our acquisition of Afternic, our results for the
quarter ended September 30, 2001 included a one-time $32.5 million write down of
intangible assets associated with the acquisition of Afternic.

      In addition, we cannot be certain that ICANN will not impose certain terms
and conditions on us relating to the integration of Afternic's secondary market
operations with our current operations.

If we continue to incur expenses related to credit card chargebacks and refunds,
our business, financial condition and results of operations could be materially
adversely affected.

      A substantial majority of our revenues are obtained through online credit
card transactions. Under current credit card practices, we are liable for
fraudulent credit card transactions because we do not obtain the cardholder's
signature at the time of the transaction, even though the financial institution
issuing the credit card may have approved the transaction. If a significant
percentage of our customers request refunds or chargebacks to their credit cards
based on claims that their credit card was used fraudulently or without their
consent, our business could be materially adversely affected. Although we have
implemented procedures to reduce fraudulent credit card transactions, we have a
high rate of chargebacks or refunds. If we cannot decrease our rate of
chargebacks or credit card refunds we experience, we may continue to experience
a decrease of our net revenues, damage our relationship with customers, credit
card issuers and processors, and our own creditors and in turn lose our ability
to process certain credit card transactions.


                                       27
<PAGE>

If we fail to comply with the regulations of the country code registries or are
unable to register domain names with those registries, our business could be
materially adversely affected.

      Each of the country code registries requires registrars to comply with
specific regulations. Many of these regulations vary from country code to
country code. If we fail to comply with the regulations imposed by country code
registries, these registries will likely prohibit us from registering or
continuing to register domain names in their country codes. Further, in most
cases, our rights to provide country code domain name registration services are
not governed by written contract. In the case of our existing written contracts,
there is uncertainty as to which country's law may govern. As a result, we
cannot be certain that we will continue to be able to register domain names in
the ccTLDs we currently offer. Any restrictions on our ability to offer domain
name registrations in a significant number of country codes, or in a significant
country, could materially adversely affect our business, financial condition and
results of operations.

If country code registries cease operations or otherwise fail to process
registrations or related information accurately, we would be unable to honor our
subscriptions relating to those country codes.

      Country code registries may be administered by the host country,
entrepreneurs or other third parties. If these registry businesses cease
operations or otherwise fail to process domain name registrations or the related
information in ccTLDs, we would be unable to honor the subscriptions of
registrants who have registered, or are in the process of registering, domain
names in the applicable ccTLD. If we are unable to honor a substantial number of
subscriptions for our customers for any reason or if the country code registries
fail to process our customers' registrations in a timely and accurate fashion,
our business, financial condition and results of operations could be materially
adversely affected.

We cannot assure you that our standard agreements will be enforceable.

      We rely on several agreements that govern the terms of the services we
provide to our users, including, but not limited to, domain name registration
and secondary market services. These agreements contain a number of provisions
intended to limit our potential liability arising from our providing services
for our customers including liability resulting from our failure to register or
maintain domain names. As most of our customers use our services online,
execution of our agreements by customers occurs electronically or, in the case
of our terms of use, is deemed to occur because of a user's continued use of the
website following notice of those terms. We believe that our reliance on these
agreements is consistent with the practices in our industry, but if a court were
to find that either one of these methods of execution is invalid or that key
provisions of our services agreements are unenforceable, we could be subject to
liability that could have a materially adverse effect on our business, financial
condition and results of operations.


                                       28
<PAGE>

Our failure to register or maintain or renew the domain names that we process on
behalf of our customers, may subject us to negative publicity or claims of loss,
which could have a material adverse effect on our business.

      Clerical errors or systems failures have resulted in our failure to
properly register or to maintain or renew the registration of domain names that
we process on behalf of our customers. Our failure to properly register or to
maintain or renew the registration of our customers' domain names, even if we
are not at fault, may subject us to negative publicity or claims of loss, which,
together with the costs associated with defending such claims, could have a
material adverse effect on our business, financial condition and results of
operations.

We may be held liable if third parties misappropriate our users' personal
information.

      A fundamental requirement for online communications is the secure
transmission of confidential information over public networks. If third parties
succeed in penetrating our network security or otherwise misappropriate our
customers' personal or credit card information, we could be subject to
liability. Our liability could include claims for unauthorized purchases with
credit card information, impersonation or other similar fraud claims as well as
for other misuses of personal information, including for unauthorized marketing
purposes. These claims could result in litigation and adverse publicity, which
could have a material adverse effect on our business, financial condition and
results of operations, as well as our reputation.

      In addition, the Federal Trade Commission and state agencies have
investigated various Internet companies regarding their use of personal
information. The federal government has enacted legislation protecting the
privacy of consumers' nonpublic personal information. We cannot assure you that
our current information-collection procedures and disclosure policies will be
found to be in compliance with existing or future laws or regulations. Our
failure to comply with existing laws, including those of foreign countries, the
adoption of new laws or regulations regarding the use of personal information
that require us to change the way we conduct our business or an investigation of
our privacy practices could make it cost-prohibitive to operate our business and
prevent us from pursuing our business strategies.

We may incur significant expenses related to the security of personal
information online.

      The need to physically secure and securely transmit confidential
information online has been a significant barrier to electronic commerce and
online communications. Any well-publicized compromise of security could deter
people from using online services such as the ones we offer, or from using them
to conduct transactions that involve transmitting confidential information.
Because our success depends on the general acceptance of online services and
electronic commerce, we may incur significant costs to protect against the
threat of security breaches or to alleviate problems caused by these breaches.


                                       29
<PAGE>

We may not be able to protect and enforce our intellectual property rights or
protect ourselves from the claims of third parties.

We may be unable to protect and enforce our intellectual property rights from
infringement.

      We rely upon copyright, trade secret and trademark law, invention
assignment agreements and confidentiality agreements to protect our proprietary
technology and other assets, including software, applications and trademarks,
and other intellectual property to the extent that protection is sought or
secured at all. We do not currently have patents on any of our technologies or
processes. While we typically enter into confidentiality agreements with our
employees, consultants and strategic partners, and generally control access to
and distribution and use of our proprietary information, we cannot ensure that
our efforts to protect our proprietary information will be adequate against
infringement or misappropriation of our intellectual property by third parties,
particularly in foreign countries where laws or law enforcement practices may
not protect our proprietary rights as fully as in the United States.

      We have received initial rejections from the U.S. Patent and Trademark
Office on our trademark applications for "register" and "register.com" based on
descriptiveness. We have responded to these initial rejections arguing that
these brands have become widely known through extensive use in commerce and are
valid trademarks. While we will be taking all reasonable measures to secure
federal trademark registrations for the "register" and "register.com" marks, we
cannot assure you that we will be able to obtain these registrations. Our
inability to obtain these trademark registrations could materially harm our
business.

      Effective trademark, service mark, copyright and trade secret protection
may not be available in every country in which our services are or will be made
available. We also expect to license proprietary rights such as trademarks or
copyrighted material to strategic partners in the course of planned national and
international expansion. While we will attempt to ensure in our agreements that
licensees will maintain the quality of our service, we cannot assure you that
they will not take actions that might diminish the value of our proprietary
rights or reputation, which could thereby materially harm our business.

      Furthermore, because the validity, enforceability and scope of protection
of proprietary rights in Internet-related industries is uncertain and still
evolving, we cannot assure you that we will be able to defend our proprietary
rights. In addition to being difficult to police, once any infringement is
detected, disputes concerning the ownership or rights to use intellectual
property could be costly and time-consuming to litigate, may distract management
from operating the business and may result in our losing significant rights and
our ability to operate our business.

We cannot assure you that third parties will not develop technologies or
processes similar or superior to ours.

      We cannot ensure that third parties will not be able to independently
develop technology, processes or other intellectual property that is similar to
or superior to ours. The unauthorized reproduction or other misappropriation of
our intellectual property rights, including copying the look, feel and
functionality of our website, could enable third parties to benefit from our


                                       30
<PAGE>

technology without our receiving any compensation and could materially adversely
affect our business, financial condition and results of operations.

We may be subject to claims of alleged infringement of intellectual property
rights of third parties.

      We do not conduct comprehensive patent searches to determine whether our
technology infringes patents held by others. In addition, technology development
in Internet-related industries is inherently uncertain due to the rapidly
evolving technological environment. There may be numerous patent applications
pending, many of which are confidential when filed, with regard to technologies
similar to our own. To date, we have not been notified that our technologies
infringe the proprietary rights of any third parties. However, third parties may
assert infringement claims against us with respect to past, current or future
technologies, and these claims and any resultant litigation, should it occur,
could subject us to significant liability for damages. Even if we prevail,
litigation could be time-consuming and expensive to defend, and could result in
the diversion of management's time and attention. Any claims from third parties
may also result in limitations on our ability to use the intellectual property
subject to these claims unless we are able to enter into agreements with the
third parties making these claims. Such royalty or licensing agreements, if
required, may be unavailable on terms acceptable to us, if at all. If a
successful claim of infringement is brought against us and we fail to develop
non-infringing technology or to license the infringed or similar technology on a
timely basis, it could materially adversely affect our business, financial
condition and results of operations.

      We rely on certain technologies that we license from other parties. For
instance, VeriSign has licensed us the right to use key software products and
database technology. We cannot assure you that these third-party technology
licenses will not infringe on the proprietary rights of others or will continue
to be available to us on commercially reasonable terms, if at all. The loss of
such technology could require us to obtain substitute technology of lower
quality or performance standards or at greater cost, which could materially harm
our business.

The nature of our services may subject us to alleged infringement and other
claims relating specifically to domain names.

      As a registrar of domain names, a provider of web-hosting services, and a
participant in the secondary market for domain names, we may be subject to
various claims, including claims from third parties asserting trademark
infringement or dilution, unfair competition and violations of publicity and
privacy rights, to the extent that such parties consider their rights to be
violated by the registration of particular domain names by our users or our
hosting of our users' websites or secondary market activities.

      For example, we provide an automated service enabling users to register
domain names and do not monitor or review the content of such domain names.
Users might register a domain names which, based on the nature and content of
such domain names, could be considered obscene, hateful or defamatory, or which
could infringe or dilute a third party's intellectual property. The law relating
to the liability of registrars stemming from the activities of registrants in
this regard is currently unsettled both within the United States and abroad, and
the actions of our users may therefore expose us to significant liability. Even
if we were to prevail in a dispute


                                       31
<PAGE>

concerning such actions, litigation could be time-consuming and expensive to
defend, and could result in the diversion of management's time and attention.

      In addition, the Anticybersquatting Consumer Protection Act was enacted in
November 1999 to curtail a practice commonly known in the industry as
"cybersquatting." A cybersquatter is generally defined in this Act as one who
registers a domain name that is identical or similar to another party's
trademark or the name of a living person, in each case with the bad faith intent
to profit from use of the domain name. Cybersquatting is a problem that could be
exacerbated with any additional top level domain names that may be established
by ICANN. Although the Act states that registrars may not be held liable for
registering or maintaining a domain name for another person absent a showing of
the registrar's bad faith intent to profit from the use of the domain name,
registrars may be held liable if they fail to comply promptly with procedural
provisions under the Act. If we are held liable under this law, any liability
could have a material adverse effect on our business, financial condition and
results of operations.

      Although established case law and statutory law have, to date, shielded us
from liability relating to cybersquatting registrations on our site in the
primary registration market, this law remains new and unsettled in many
jurisdictions and the application of these laws and precedent to the secondary
market or other domain name registration related services is still undeveloped.
Therefore, we cannot predict what our potential liabilities may be with respect
to allegations that our participation in the secondary market facilitates
cybersquatting. Any determination that our secondary market activities or other
domain name registration related services facilitate cybersquatting could have a
material adverse effect on our business, financial condition and results of
operations.

General economic trends and the events of September 11, 2001 may reduce our
sales.

      Our sales are subject to risks arising from adverse changes in domestic
and global economic conditions and fluctuations in consumer confidence and
spending. As such, our sales may decline as a result of factors outside of our
control, such as acts of war and terrorism. Although there was a general
economic slowdown prior to the events of September 11, 2001, this slowdown was
more pronounced thereafter and may worsen depending upon future events occurring
in response to September 11, 2001. These events include, without limitation,
global perception of the United States' response to the events of September 11,
2001, continued involvement of the United States in armed conflicts and
retaliatory terrorist attacks against United States targets. Any of these events
could cause consumer confidence and spending to decrease or result in increased
volatility in the United States and worldwide financial markets and economy. If
the current economic slowdown continues, or worsens or if any of these events
occur our sales may decline and our business, financial condition and results of
operations may be adversely affected.


                                       32
<PAGE>

                Risks Related to Our Technology and the Internet

Systems disruptions and failures could cause our customers and advertisers to
become dissatisfied with us and may impair our business.

Our customers, advertisers and business alliances may become dissatisfied with
our products and services due to interruptions in access to our website.

      Our ability to maintain our computer and telecommunications equipment in
working order and to reasonably protect them from interruption is critical to
our success. Our website must accommodate a high volume of traffic and deliver
frequently updated information. Our website has in the past experienced slower
response times as a result of increased traffic. We have conducted planned site
outages and experienced unplanned site outages with minimal impact on our
business. If we were to experience a substantial increase in traffic and fail to
increase our capacity, our customers would experience slower response times or
disruptions in service. Our customers, advertisers and business partners may
become dissatisfied by any systems failure that interrupts our ability to
provide our products and services to them. Substantial or repeated system
failures would significantly reduce the attractiveness of our website and could
cause our customers, advertisers and business partners to switch to another
domain name registration service provider.

Our customers, advertisers and business partners may become dissatisfied with
our products and services due to interruptions in our access to the registration
systems of generic top level domain or country code registries.

      We depend on the registration systems of generic top level domain and
country code registries to register domain names on behalf of our customers. We
have in the past experienced problems with the registration systems of these top
level domain registries, including outages, particularly during their
implementation phase. Because the registration systems are relatively new, we
cannot assure you that they will be able to handle the growing traffic generated
by large numbers of registrars or registrations. Any significant outages in the
registration systems of these registries would prevent us from delivering or
delay our delivery of our services to our customers. Prolonged or repeated
interruptions in our access to the registries could cause our customers,
advertisers and business alliances to switch to another domain name registration
service provider.

Delays or systems failures unrelated to our systems could harm our business.

      Our customers depend on ISPs, online service providers and others to
access our websites. Many of these parties have experienced outages and could in
the future experience outages, delays and other difficulties due to systems
failures unrelated to our systems. Although we carry general liability
insurance, our insurance may not cover any claims by dissatisfied customers,
advertisers or parties to our strategic alliances, or may be inadequate to
indemnify us for any liability that may be imposed in the event that a claim
were brought against us. Our business could be materially harmed by any system
failure, security breach or other damage that interrupts or delays our
operations.


                                       33
<PAGE>

Our business would be materially harmed if our computer systems become damaged.

      Our network and communications systems are located at hosting facilities
in New Jersey and New York. We are continually building out our systems located
at these facilities and may in the future add additional facilities to make our
systems geographically redundant. We cannot assure you that our systems are, or
ever will be geographically redundant, particularly because of the proximity of
our current facilities to one another and in light of the increased threat of
terrorism following the recent events of September 11, 2001. Fires, floods,
earthquakes, power losses, telecommunications failures, break-ins and similar
events could damage these systems. Computer viruses, electronic break-ins, human
error or other similar disruptive problems could also adversely affect our
systems.

      Despite any precautions we may take, the occurrence of a natural disaster,
a decision to close a facility we are using without adequate notice for
financial reasons or other unanticipated problems at any of our facilities
including our hosting facilities, could result in lengthy interruptions in our
services. This risk has increased since Exodus Communications, Inc., which
operates our New Jersey hosting facility, filed for Chapter 11 protection under
the federal bankruptcy laws in September 2001. In addition, the failure by
Exodus or our other hosting facilities to provide our required data
communications or any damage to or failure of our systems could result in
interruptions in our service. Such interruptions would reduce our revenues and
profits, and our future revenues and profits would be harmed if our users were
to believe that our systems are unreliable. In addition, our business
interruption insurance may not be adequate to compensate us for losses that may
occur. Accordingly, any significant damage to our systems or disruption in our
ability to provide our services would have a material adverse effect on our
business, financial condition and results of operations.

Our ability to deliver our products and services and our financial condition
depend on our ability to license third-party software, systems and related
services on reasonable terms from reliable parties.

      We depend upon various third parties for software, systems and related
services, including access to the various registration systems of domain name
registries. Many of these parties have a limited operating history or may depend
on reliable delivery of services from others. If these parties fail to provide
reliable software, systems and related services on agreeable license terms, we
may be unable to deliver our products and services.

Failure by our third-party service providers to deliver such services will have
a negative effect on our business.

      We have engaged Cybersource to process credit card payments for our
individual customers. Therefore, if Cybersource or its system fails for any
reason to process credit card payments in a timely fashion, the domain name
reservation process will be delayed and customers may be unable to obtain their
desired domain name.

      In addition, we offer services to our users, including electronic mail and
digital certificates, through various third party service providers engaged to
perform on our behalf. In the event that these service providers fail to
maintain adequate levels of support or otherwise


                                       34
<PAGE>

discontinue such lines of business, we may experience a negative impact to our
customer relations and may have to pursue replacement third party relationships.

Our failure to respond to the rapid technological changes in our industry may
harm our business.

      If we are unable, for technological, legal, financial or other reasons, to
adapt in a timely manner to changing market conditions or customer requirements,
we could lose customers, strategic alliances and market share. The Internet and
electronic commerce are characterized by rapid technological change. Sudden
changes in user and customer requirements and preferences, the frequent
introduction of new products and services embodying new technologies and the
emergence of new industry standards and practices could render our existing
products, services and systems obsolete. The emerging nature of products and
services in the domain name registration industry and their rapid evolution will
require that we continually improve the performance, features and reliability of
our products and services. Our success will depend, in part, on our ability:

      o     to enhance our existing products and services;

      o     to develop and license new products, services and technologies that
            address the increasingly sophisticated and varied needs of our
            current and prospective customers; and

      o     to respond to technological advances and emerging industry standards
            and practices on a cost-effective or timely basis.

      The development of additional products and services and other proprietary
technology involves significant technological and business risks and requires
substantial expenditures and lead time. We may be unable to use new technologies
effectively or adapt our websites, internally developed technology or
transaction-processing systems to customer requirements or emerging industry
standards. Updating our technology internally and licensing new technology from
third parties may require us to incur significant additional capital
expenditures.

If Internet usage does not grow, or if the Internet does not continue to expand
as a medium for commerce, our business may suffer.

      Our success depends upon the continued development and acceptance of the
Internet as a widely used medium for commerce and communication. Rapid growth in
the uses of and interest in the Internet is a relatively recent phenomenon, and
we cannot assure you that use of the Internet will continue to grow at its
current pace. A number of factors could prevent continued growth, development
and acceptance, including:

      o     the unwillingness of companies and consumers to shift their
            purchasing from traditional vendors to online vendors;

      o     the Internet infrastructure may not be able to support the demands
            placed on it, and its performance and reliability may decline as
            usage grows;


                                       35
<PAGE>

      o     security and authentication issues may create concerns with respect
            to the transmission over the Internet of confidential information,
            such as credit card numbers, and attempts by unauthorized computer
            users, so-called hackers, to penetrate online security systems; and

      o     privacy concerns, including those related to the ability of websites
            to gather user information without the user's knowledge or consent,
            may impact consumers' willingness to interact online.

      Any of these issues could slow the growth of the Internet, which could
have a material adverse effect on our business, financial condition and results
of operations.

We depend on the technological stability and maintenance of the Internet
infrastructure.

      Our success and the viability of the Internet as an information medium and
commercial marketplace will depend in large part upon the stability and
maintenance of the infrastructure for providing Internet access and carrying
Internet traffic. Failure to develop a reliable network system or timely
development and acceptance of complementary products, such as high-speed modems,
could materially harm our business. In addition, the Internet could lose its
viability due to delays in the development or adoption of new standards and
protocols required to handle increased levels of Internet activity or due to
increased government regulation.

We may become subject to burdensome government regulations and legal
uncertainties affecting the Internet.

      To date, government regulations have not materially restricted the use of
the Internet. The legal and regulatory environment pertaining to the Internet,
however, is uncertain and may change. Both new and existing laws may be applied
to the Internet by state, federal or foreign governments, covering issues that
include:

      o     sales and other taxes;

      o     user privacy;

      o     the expansion of intellectual property rights;

      o     pricing controls;

      o     characteristics and quality of products and services;

      o     consumer protection;

      o     cross-border commerce;

      o     libel and defamation;

      o     copyright, trademark and patent infringement;

      o     security;


                                       36
<PAGE>

      o     pornography; and

      o     other claims based on the nature and content of Internet materials.

      The adoption of any new laws or regulations or the new application or
interpretation of existing laws or regulations to the Internet could hinder the
growth in use of the Internet and other online services generally and decrease
the acceptance of the Internet and other online services as media of
communications, commerce and advertising. Our business may be harmed if any
slowing of the growth of the Internet reduces the demand for our services. In
addition, new legislation could increase our costs of doing business and prevent
us from delivering our products and services over the Internet, thereby harming
our business, financial condition and results of operations.

The introduction of tax laws targeting companies engaged in electronic commerce
could materially adversely affect our business, financial condition and results
of operations.

      We file tax returns in such states as required by law based on principles
applicable to traditional businesses. However, one or more states could seek to
impose additional income tax obligations or sales tax collection obligations on
out-of-state companies, such as ours, which engage in or facilitate electronic
commerce. A number of proposals have been made at state and local levels that
could impose such taxes on the sale of products and services through the
Internet or the income derived from such sales. Such proposals, if adopted,
could substantially impair the growth of electronic commerce and materially
adversely affect our business, financial condition and results of operations.

      On November 28, 2001, President Bush signed the Internet Tax
Nondiscrimination Act, which limits the ability of the states to impose taxes on
Internet-based transactions. While this legislation provides significant
benefits to Internet-based businesses, it will expire on November 1, 2003 and if
not renewed, would allow various states to impose taxes on Internet-based
commerce. The imposition of such taxes could materially adversely affect our
business, financial condition and results of operations.

                                Investment Risks

Our stock price, like that of many Internet companies, is highly volatile.

      The market price of our common stock has been and is likely to continue to
be highly volatile and significantly affected by a number of factors, including:

      o     general market and economic conditions and market conditions
            affecting technology and Internet stocks generally;

      o     limited availability of our shares on the open market;

      o     actual or anticipated fluctuations in our quarterly or annual
            registrations or operating results;


                                       37
<PAGE>

      o     announcements of technological innovations, acquisitions or
            investments, developments in Internet governance or corporate
            actions such as stock splits; and

      o     industry conditions and trends.

      The stock market has experienced extreme price and volume fluctuations
that have particularly affected the market prices of the securities of
Internet-related companies. These fluctuations may adversely affect the market
price of our common stock.

Our directors, executive officers and principal stockholders own a significant
percentage of our shares, which will limit your ability to influence corporate
matters.

      As of March 1, 2002, our directors, executive officers and principal
stockholders beneficially owned approximately 25% of our common stock.
Accordingly, these stockholders could have significant influence over the
outcome of any corporate transaction or other matter submitted to our
stockholders for approval, including mergers, consolidations and the sale of all
or substantially all of our assets, and also could prevent or cause a change in
control. The interests of these stockholders may differ from the interests of
our other stockholders. In addition, third parties may be discouraged from
making a tender offer or bid to acquire us because of this concentration of
ownership.

Shares eligible for public sale could adversely affect our stock price.

      Currently 35,002 shares of common stock held by the former stockholders of
Inabox are subject to lock-up agreements with us pursuant to which 11,667
unregistered shares will be released from the lock-up on a monthly basis until
the expiration of the lock-up agreement on June 4, 2002. In addition, as of
February 15, 2002, 1,004,147 shares of common stock held by the former
stockholders of Afternic.com are also subject to lock-up agreements and will be
released on a monthly basis until the expiration of the lock-up agreements on
September 15, 2004. Of the 1,004,147 shares, 2,796 shares are covered by a
registration statement and 29,596 are not covered by a registration statement.
Additionally, a number of holders of our common stock and common stock issuable
upon the exercise of warrants have the right to require us to register their
shares under the Securities Act. If we register these shares, they can be sold
in the public market. The market price of our common stock could decline as a
result of sales by these existing stockholders of their shares of common stock
in the market or the perception that these sales could occur. These sales also
might make it difficult for us to sell equity securities in the future at a time
and price that we deem appropriate.

Our charter documents and Delaware law may inhibit a takeover that stockholders
may consider favorable.

      Provisions in our amended and restated certificate of incorporation, our
amended and restated bylaws and Delaware law could delay or prevent a change of
control or change in management that would provide stockholders with a premium
to the market price of their common stock. The authorization of undesignated
preferred stock, for example, gives our board the ability to issue preferred
stock with voting or other rights or preferences that could impede the success
of any attempt to change control of the company. If a change of control or
change in


                                       38
<PAGE>

management is delayed or prevented, this premium may not be realized or the
market price of our common stock could decline.

Item 2. Properties.

      We currently lease approximately 31,000 square feet of space in one
location in New York City, New York under a contract that expires in 2009. We
recently entered into a lease for approximately 10,000 additional square feet in
the same location under a contract that expires in 2003. We have also entered
into a three year lease for 6,500 square feet of space in Maryland under a
contract that expires in 2004. In addition, we have entered into a five year
lease, renewable for up to an additional ten years, for 20,000 square feet of
space in Nova Scotia, Canada. Virtual Internet, our newly acquired subsidiary,
owns approximately 2,000 square feet of space in London, England. In addition,
Virtual Internet leases approximately 12,000 square feet of space in London
under contracts that expire on dates ranging from 2002 through 2006. We believe
that this space will meet our needs for at least twelve months.

Item 3. Legal Proceedings.

      In November 2001, the Company, its Chairman, President, Chief Executive
Officer Richard D. Forman, former Vice President of Finance and Accounting Alan
G. Breitman, Goldman Sachs & Co. and Lehman Brothers, Inc, two of the
underwriters in the syndicate for our March 3, 2000 initial public offering,
were named as defendants in a class action complaint alleging violations of the
federal securities laws in the United States District Court, Southern District
of New York. Goldman Sachs & Co. and Lehman Brothers, Inc. distributed 172,500
of the 5,750,000 shares in the IPO. The complaint seeks unspecified damages as a
result of various alleged securities law violations arising from activities
purportedly engaged in by the underwriters in connection with our initial public
offering. Plaintiffs allege that the underwriter defendants agreed to allocate
stock in the Company's initial public offering to certain investors in exchange
for excessive and undisclosed commissions and agreements by those investors to
make additional purchases of stock in the aftermarket at pre-determined prices.
Plaintiffs allege that the prospectus for the Company's initial public offering
was false and misleading in violation of the securities laws because it did not
disclose these arrangements. We intend vigorously to defend the action, which is
being coordinated with over three hundred other nearly identical actions filed
against other companies before one judge in the U.S. District Court for the
Southern District of New York. No date has been set for any response to the
complaint.

      Although there are other various claims, lawsuits and pending actions
against us incidental to the operation of our business, we do not believe they
are material legal proceedings and we are not aware of any other pending or
threatened litigation that we would reasonably expect to affect our business
materially and adversely.

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

      No matter was submitted to a vote of security holders during the fourth
quarter of 2001.


                                       39
<PAGE>

                                     PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

      Our common stock has been quoted on the Nasdaq National Market under the
symbol RCOM since our initial public offering on March 3, 2000. Prior to that
date, there was no public market for our common stock. The following table sets
forth, for the periods indicated, the high and low sales prices per share of the
common stock as reported on the Nasdaq National Market.

                                                           High           Low
                                                           ----           ---
            Year Ending December 31, 2001:
                Fourth Quarter                          $  12.00       $   7.27
                Third Quarter                              14.77           8.30
                Second Quarter                             15.50           5.16
                First Quarter                               8.25           5.00

            Year Ending December 31, 2000:
                Fourth Quarter                          $   9.47       $   5.00
                Third Quarter                              38.75           6.56
                Second Quarter                             69.63          18.86
                First Quarter (since March 3)             116.00          24.00

On March 21, 2002, the last sale price of our common stock reported by the
Nasdaq National Market was $8.77 per share. As of March 5, 2002, we had
approximately 109 holders of record of our common stock.

                                DIVIDEND POLICY

      We have never declared or paid any cash dividends on our common stock. We
currently anticipate retaining any future earnings for the development and
operation of our business. Accordingly, we do not anticipate declaring or paying
any cash dividends in the foreseeable future.


                                       40
<PAGE>

Item 6. Selected Financial Data.

      The following selected financial data was derived from financial
statements audited by PricewaterhouseCoopers LLP, independent accountants, for
the respective periods. This information should be read in conjunction with
management's discussion and analysis of financial condition and results of
operations and the financial statements, including the notes thereto, included
elsewhere in this annual report.

<TABLE>
<CAPTION>
                                                                    Year Ended December 31,
                                            -----------------------------------------------------------------------------
                                                 2001            2000             1999            1998            1997
                                            -------------    -------------    ------------    ------------    -----------
<S>                                         <C>              <C>              <C>             <C>             <C>
Statement of Operations Data:
  Net revenues ..........................   $ 116,280,759    $  86,109,514    $  9,644,552    $  1,319,359    $   713,263
  Cost of revenues ......................      34,790,136       23,868,757       3,082,499         461,152        191,539
                                            -------------    -------------    ------------    ------------    -----------
  Gross profit ..........................      81,490,623       62,240,757       6,562,053         858,207        521,724
                                            -------------    -------------    ------------    ------------    -----------
  Operating expenses:
       Sales and marketing ..............      33,531,706       47,311,275       7,149,693         863,720        366,975
       Research and development .........       7,740,645        5,580,131       1,767,158         276,687         71,471
    General and administrative
      (including non-cash compensation of
      $1,771,104, $2,173,422, $4,929,200,
      $149,682, and $0, respectively) ...      14,769,678       13,433,737       7,309,390         945,107        263,017
  Amortization of goodwill and
     other intangibles ..................      45,298,619        5,582,202              --              --             --
                                            -------------    -------------    ------------    ------------    -----------
  Total operating expenses ..............     101,340,648       71,907,345      16,226,241       2,085,514        701,463
                                            -------------    -------------    ------------    ------------    -----------
Loss from operations ....................     (19,850,025)      (9,666,588)     (9,664,188)     (1,227,307)      (179,739)
Other income (expenses), net ............       8,663,665        9,519,597         887,270          66,559        (25,787)
Gain on sale of investment ..............              --        4,603,457              --              --             --
Income tax expense ......................     (10,400,302)      (4,186,658)             --              --             --
                                            -------------    -------------    ------------    ------------    -----------
Net (loss) income .......................   $ (21,586,662)   $     269,808    $ (8,776,918)   $ (1,160,748)   $  (205,526)
                                            =============    =============    ============    ============    ===========
Basic (loss) earnings per share .........   $       (0.58)   $        0.01    $      (0.46)   $      (0.07)   $     (0.02)
                                            =============    =============    ============    ============    ===========
Weighted average shares used in
   basic (loss) earnings per share ......      37,424,379       31,393,613      19,117,027      15,697,013      8,884,709
                                            =============    =============    ============    ============    ===========
Diluted (loss) earnings per share .......   $       (0.58)   $        0.01    $      (0.46)   $      (0.07)   $     (0.02)
                                            =============    =============    ============    ============    ===========
Weighted average shares used in
   diluted (loss) earnings per share ....      37,424,379       39,183,902      19,117,027      15,697,013      8,884,709
                                            =============    =============    ============    ============    ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                              December 31,
                                            -----------------------------------------------------------------------------
                                                 2001            2000             1999            1998            1997
                                            -------------    -------------    ------------    ------------    -----------
<S>                                         <C>              <C>              <C>             <C>             <C>
Balance Sheet Data:
   Cash and cash equivalents ............   $  61,932,096    $  60,155,747    $ 40,944,122    $  1,284,684    $    60,845
   Short-term investments ...............      78,185,921       65,283,178       4,723,050              --             --
   Working capital (deficiency) .........     120,591,414       92,159,845      29,813,357         569,616     (1,131,173)
   Available-for-sale securities ........      57,651,023       47,980,150              --              --             --
   Total assets .........................     268,788,653      292,616,635      68,336,046       1,611,025        180,786
   Total deferred revenues ..............      77,378,268       88,516,215      32,101,232         113,527         32,038
   Total liabilities ....................      93,195,676      103,722,134      46,423,191         788,245      1,243,457
   Stockholders' equity (deficit) .......   $ 175,592,977    $ 188,894,501    $ 21,912,855    $    822,780    $(1,062,671)
</TABLE>


                                       41
<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.

Overview and Significant Accounting Policies

      We are a provider of global domain name registration and Internet services
for businesses and consumers that wish to have a unique address and branded
identity on the Internet. Domain names serve as part of the infrastructure for
Internet communications, including websites, email, audio, video and telephony.

      We began processing registrations in the generic top level domains (gTLD)
..com, .net and .org in June 1999 and, as such, were the first registrar
accredited by the Internet Corporation for Assigned Names and Numbers (ICANN) to
compete in the domain name registration market after ICANN introduced
competition in the industry. We had approximately 3.3 million domain name
registrations under management as of December 31, 2001. Currently, we register,
renew and transfer domain names across the .com, .net and .org gTLDs, in new
gTLDs such as .biz, .info and .name and in over 250 country code top level
domains (ccTLDs), such as .co.uk and .org.uk for the United Kingdom, .de for
Germany and .jp for Japan.

      We believe that we offer a quick and user-friendly registration process as
well as responsive and reliable customer support. We also offer a suite of
value-added products and services targeted to assist our customers in developing
and maintaining their online identities, including:

          Products and Services                   Products and Services
             Provided by Us                            Resold By Us

o     website-creation tools under      o     email
      the names FirstStepSite(R)and
      WebSiteNow!(TM)

o     intellectual property and         o     search engine submission
      brand protection services               services
      related to domain names

o     domain name re-sale services,     o     digital certificates
      such as auctions, appraisals
      and escrow services, offered
      through our subsidiary
      Afternic.com

      Domain name registration activity is driven by the use of the Internet by
businesses and consumers for electronic commerce and communication, the
promotion, marketing and protection of brand and identity across the world and
other online activities. Our mission is to become the preferred partner for
customers who seek to create, enhance and manage their Internet presence.

      Our retail customers are typically small to medium-size businesses as well
as small office/home office and individuals. Generally, these customers purchase
domain name registration services directly from our website at www.register.com.
Our Corporate Services division provides domain name registration and related
products and services to large


                                       42
<PAGE>

corporations enterprises with specialized registration needs including global
registration and management services, brand and trademark protection and
enhanced security.

      In order to extend our distribution we maintain a Global Partner Network
of Internet Service Providers (ISPs), web-hosting companies, telecom carriers,
web portals and other e-businesses. Using our flexible software solutions, these
companies are authorized to resell our domain name registration services and
related products and services to their customers.

      Recently we launched Registry Advantage(TM), a domain registry solution,
to enable registries of all sizes to take advantage of our systems on an
outsourced basis, and offering them a full domain registry solution.

      Through our RegistryPro subsidiary, we are establishing a registry for the
new gTLD .pro, which will be dedicated to certified professionals such as
lawyers, doctors and accountants. RegistryPro is still finalizing contract
negotiations with ICANN on which its launch is dependent. We also have a small
equity stake in Afilias, the consortium of 18 registrars, which manages the
registry for the new gTLD .info which went live in October 2001.

      We are the successor by merger to Forman Interactive Corp. Forman
Interactive commenced operations in 1994 as a developer of electronic commerce
software, and began offering web-hosting and related products and services in
1997. In February 1998, we began to distribute domain names for free and, to a
lesser extent, on a commission basis when we distributed domain names for
international registrars and registries. In April 1999, we commenced offering
registration services for ccTLDs. On June 23, 1999, Forman Interactive merged
with and into Register.com, Inc. and we began operating as a paid registrar in
the .com, .net and .org domains. In June 2000, we acquired Inabox, Inc. and we
used Inabox's software to develop our FirstStepSite(R), WebsiteNOW!(TM) products
and My.register.com, one of the reseller solutions offered to our Global Partner
Network. We acquired Inabox, Inc. for approximately $1.0 million in cash and
280,019 shares of our common stock. In September 2000, we acquired Afternic.com,
Inc., a leading secondary market exchange for domain names, for approximately
$10.0 million cash and 4,378,289 shares of our common stock. Each of these
transactions was accounted for using the purchase method of accounting. As a
result, the financial results of Inabox and Afternic.com are consolidated with
our financial results from the dates of their respective acquisitions.

Recent Event - Acquisition of Virtual Internet plc

      On February 1, 2002, through one of our newly established subsidiaries,
Register.com (U.K.) Limited, we announced a recommended cash offer for all
outstanding shares of Virtual Internet plc. The offer valued Virtual Internet at
approximately (pound)11.99 million (approximately $16.9 million). Our offer was
declared unconditional on February 22, 2002 and we have purchased all shares
tendered prior to that date. Together with shares we had acquired in the market
directly, we currently own approximately 97% of Virtual Internet's shares. Our
offer for the remaining shares will close on March 27, 2002. To the extent any
shares are not tendered by March 27, 2002, we expect to acquire such shares
through the compulsory acquisition procedure pursuant to the U.K. Companies Act.
Virtual Internet shareholders, other than shareholders in certain jurisdictions
outside of the U.K., were given the opportunity to elect to receive loan notes


                                       43
<PAGE>

to be issued by Register.com (U.K.) Limited in exchange for their Virtual
Internet shares. For the year ended October 31, 2001 under U.K. generally
accepted accounting principles, Virtual Internet's turnover and gross profit
amounted to (pound)9.3 million and (pound)6.5 million (approximately $13.1 and
$9.2 million), respectively, and it reported loss for the same period of
(pound)19.7 million (approximately $27.8 million).

Net Revenues

      We derive our net revenues from domain name registrations, online products
and services and advertising. Net revenues from domain name registrations
consist of fees paid by registrants over the course of the registration period
reduced by referral commissions and a provision for credit card chargebacks. We
currently earn registration fees in connection with new, renewal, extended and
transferred registrations. Registration periods generally range from one to ten
years.

      Under current credit card practices, we are liable for fraudulent credit
card transactions because we do not obtain the cardholder's signature at the
time of the transaction, even though the financial institution issuing the
credit card may have approved the transaction. If a significant percentage of
customers request refunds or chargebacks to their credit cards based on claims
that their credit card was used fraudulently or without their consent, our
business could be materially adversely affected. As a result, we must estimate
the amount of credit card chargebacks we will receive in the future related to
credit card sales in the current period. In determining our estimate, we review
historical rates of credit card chargebacks, current economic trends and changes
in acceptance of our products and services on a monthly basis. Deferred revenues
and net revenues are presented net of provisions recorded for potential
chargebacks.

      In addition to our standard registration fees published on our
www.register.com website, we have a number of different fee structures for our
domain name registration services. Our Corporate Services division delivers a
diversified range of higher-priced services for our corporate customers and
extends volume-based discounts for domain name registrations and transfers. We
pay referral commissions based on a percentage of the net registration revenues
derived from registrations processed through certain participants in our Global
Partner Network and those we process through our www.register.com website
referred to us by participants in our affiliate network. Other participants in
our Global Partner Network (those who use our My.register.com(TM) and TPP
interfaces) pay us a fee per registration, discounted off of our standard
registration fee.

      Domain name registration revenues are deferred at the time of the
registration and are recognized ratably over the term of the registration
period. Under this subscription-based model, we recognize revenue when we
provide the registration services, including customer service and maintenance of
the individual domain name records. We require prepayment via credit card for
all online domain name registration sales, which provides us with the full cash
fee at the beginning of the registration period while recognizing the revenues
over the registration period. For some of our customers who register domain
names through our Corporate Services division and for some participants in our
Global Partner Network, we establish lines of credit based on credit worthiness.


                                       44
<PAGE>

      We believe that the high growth rate experienced in the domain name
registration market in late 1999 and 2000 is not an indication of anticipated
future growth rates. During that period substantial numbers of domain name
registrations were driven by factors including: (i) the recognition by
businesses that they needed to establish an online presence; (ii) significant
registration activity by domain name speculators, who register names with the
intention of reselling them rather than putting them to use; and (iii) extremely
strong growth in new business start-ups in the Internet sector. In late 2000,
the domain name registration market's growth rate began to decrease; and in the
fourth quarter of 2001, the overall number of .com, .net and .org gTLDs in the
registry decreased from 32 million as of September 30, 2001 to 28.8 million as
of December 31, 2001. This is due, in large part, to the large number of names
which were registered in 1999 and 2000, by domain name speculators who register
names with the intention of reselling them rather than putting them to use.
Because we had a significant number of such speculative names registered through
various aggressive promotions on our NameDemo.com services, which we
discontinued in February 2001, in the fourth quarter of 2001 a significant
percentage of the domain name registrations managed by us were not renewed and
lapsed. This resulted in a decrease of our total names under management from
approximately 3.8 million as of September 30, 2001 to approximately 3.3 million
as of December 31, 2001.

      Our number of paid domain name registrations, renewals and transfers,
decreased sequentially each quarter from the first quarter of 2000 until the
introduction of new gTLDs in the fourth quarter of 2001. Looking forward, we
believe that the introduction of new gTLDs will be an important driver of the
future growth of the domain name registration market. We believe that there will
be a natural absorption of the new gTLDs and that anything in excess of this
absorption will be primarily a function of the success of our marketing efforts.
Consequently, we anticipate that as each new gTLD is introduced, there will be
an initial increase in new registrations, which will level off over time.
Registration renewals contribute to our revenues from domain name registrations
as our customers' initial registrations reach the end of their terms and a
portion of these customers renew their registrations. Over time, as the
percentage of names held by speculators decreases, we expect to see an increase
in renewal rates across the industry. Taking into account all of these dynamics,
we anticipate that revenues from domain name registrations will remain
relatively flat for the short term, but will increase over time if our marketing
efforts are successful. We also anticipate that revenue from domain names will
continue to be the largest component of our revenues.

      Online products and services, which primarily consist of intellectual
property services related to the introduction of new gTLDs, applications for new
gTLDs, email, domain name forwarding, web-hosting, site submission to search
engines and software, are sold either as one time offerings or annual or monthly
subscriptions, depending on the product or service offering. These revenues are
recognized ratably over the period in which we provide our services. Our
software revenues consist solely of software sales by our Inabox subsidiary. To
date, these software revenues have not been material and we do not expect these
revenues to be material for the foreseeable future. We offer web-hosting through
our own servers and through web-hosting services provided by third parties. In
1999, we shifted our business model and have chosen to direct our resources
toward our domain name registration business and not toward our own web-hosting
business. As such, while we continue to offer our own legacy web-hosting
services, we do not actively promote this service and, therefore, do not
anticipate significant revenue growth


                                       45
<PAGE>

from our own web-hosting service in future periods. We intend, however, to
continue actively promoting web-hosting services provided by third parties.

      From May 2001 through September 2001, we offered Brand Protection Plans
for .biz and domain name applications for .biz and .info. The .info registry
began offering real-time registration services on October 1, 2001 and .biz began
offering real-time registration services on November 7, 2001. The Brand
Protection Plan included IP (Intellectual Property) claim filing and
notification services, domain name application submissions and the registration
of the .biz domain name should the customer obtain it. Revenues from domain name
applications, which may or may not result in domain registrations, and related
services for both .biz and .info were recognized upon the sale of the
applications and related services. In the fourth quarter 2001, we decided to
refund approximately $700,000 of .biz applications sold in the third quarter due
to the registry's decision, announced in the fourth quarter, to cancel these
applications and to establish a new process to register the affected names.
Revenue opportunities from other products and services may arise from time to
time in connection with the sale of intellectual property related services
associated with the introduction of new top level domain names. To date, these
products and services have been designed by the different new gTLD registries
and, as such, we cannot be certain as to which opportunities will arise nor the
success we will meet in selling these products and services.

      Advertising revenues are derived from the sale of sponsorships and banner
advertisements under short-term contracts that range from one month to one year
in duration. We recognize these revenues ratably over the period in which the
advertisements are displayed provided that no significant company obligation
remains and collection of the resulting receivable is probable.

Cost of Revenues

      Our cost of revenues consists of the costs associated with providing
domain name registrations and online products and services. Cost of revenues for
domain name registrations primarily consists of registry fees, depreciation on
the equipment used to process the domain name registrations, the fees paid to
the co-location facilities maintaining our equipment and fees paid to the
financial institutions to process credit card payments on our behalf. We pay
registry fees for gTLDs ranging from $5.30 per year for each .biz and .info
domain name registration to $6 per year for each .com, .net and .org domain name
registration and registry fees of approximately $5 to $160 for one- or two-year
country code domain name registrations. The largest component of our cost of
revenues is the registry fees which, while paid in full at the time that the
domain name is registered, are recorded as a prepaid expense and recognized
ratably over the term of the registration.

      Cost of revenues for our online products and services consists of fees
paid to third-party service providers, depreciation on the equipment used to
deliver the services, fees paid to the co-location facilities maintaining our
equipment and fees paid to the financial institutions to process credit card
payments on our behalf. The cost of revenues for online products and services
are recognized ratably over the periods in which the services are provided.

      There are no material costs associated with our software revenues.


                                       46
<PAGE>

      While we have no direct cost of revenues associated with our advertising
revenue, we do incur operational costs including salaries and commissions, which
are classified as operating expenses. We have no incremental cost of revenues
associated with delivering advertisements since we use the same equipment to
deliver the advertisements as we use for our domain name registration services.

Operating Expenses

      Our operating expenses consist of sales and marketing, research and
development, general and administrative, non-cash compensation expenses, and
amortization of goodwill and other intangible assets. Our sales and marketing
expenses consist primarily of employee salaries, marketing programs such as
advertising, registry fees associated with the domain names registered through
NameDemo.com (discontinued in February 2002) or as part of our promotional
campaigns which offered free registrations and, to a lesser extent, commissions
paid to our sales representatives. Research and development expenses consist
primarily of employee salaries, fees for outside consultants and related costs
associated with the development and integration of new products and services,
the enhancement of existing products and services and quality assurance. General
and administrative expenses, excluding non-cash compensation, consist primarily
of employee salaries and other personnel-related expenses for executive,
financial and administrative personnel, as well as professional services fees
and bad debt accruals. Non-cash compensation expenses are related to grants of
stock options and warrants made to employees, directors, consultants and
vendors. Facilities expenses are allocated across our different operating
expense categories. In addition to the $1.8 million, $2.2 million and $4.9
million of non-cash compensation expenses recorded in 2001, 2000 and 1999,
respectively, we will record approximately $2.9 million in additional non-cash
compensation charges through 2005 as follows: $1.8 million in 2002, $830,000 in
2003, $100,000 in 2004 and $164,000 in 2005 and thereafter. These charges
primarily relate to the issuance of employee stock options having exercise
prices below fair market value on the date of grant. The non-cash compensation
charges will reduce our earnings or increase our losses, as applicable, in
future periods.

      We review our goodwill and intangible assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of these
assets may not be recoverable. Factors we consider important in reviewing our
goodwill and other intangible assets for impairment include significant changes
in historical or projected operating results, significant changes in the manner
of use of acquired assets or the strategy for our business, and significant
negative industry or economic trends. When we determine that the carrying amount
of our goodwill and other intangible assets may not be recoverable, we measure
any impairment based upon the estimated future discounted cash flows, using a
discount rate commensurate with current industry trends.

      Due to a significantly lower than expected demand for Afternic's services
experienced in the first year following the acquisition, as well as the fact
that market conditions and attendant multiples used to estimate terminal values
have become and remain significantly depressed since our acquisition of
Afternic, we concluded that an other than temporary impairment of goodwill had
occurred. As a result, we recorded an impairment charge in the quarter ended
September 30, 2001, in the approximate amount of $32.5 million.


                                       47
<PAGE>

Income Taxes

      In preparing our financial statements, we make estimates of our current
tax exposure and temporary differences resulting from timing differences for
reporting items for book and tax purposes, the most significant of which is
deferred revenue. We recognize deferred taxes by the asset and liability method
of accounting for income taxes. Under the asset and liability method, deferred
income taxes are recognized for differences between the financial statement and
tax bases of assets and liabilities at enacted statutory tax rates in effect for
the years in which the differences are expected to reverse. The effect on
deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date. In addition, valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.

Net Income (Losses)

      We incurred net losses of $21.6 million and $8.8 million for the years
ended December 31, 2001 and 1999, respectively. We had net income of $270,000
for the year ended December 31, 2000. Our net loss for 2001 included a one-time
write down of approximately $32.5 million of intangible assets associated with
the acquisition of Afternic and the reversal of a tax valuation allowance of
$2.5 million. Although we achieved profitability for the year ended December 31,
2000, this profitability was due, in part, to a one-time gain of $4.6 million
from the sale of our investment in a private company combined with interest
income. We anticipate that our operating expenses will increase in the
foreseeable future as we explore strategic opportunities, develop new products
and services, expand internationally, increase our sales and marketing
operations, develop new distribution channels and strategic relationships,
improve our operational and financial systems and broaden our customer service
capabilities. Furthermore, we anticipate that losses at RegistryPro and Virtual
Internet plc will reduce our profitability in 2002.

Results of Operations

Years Ended December 31, 2001 and 2000

Net Revenues

      Total net revenues increased from $86.1 million for 2000 to $116.3 million
for 2001.

      Domain name registrations. Revenues from domain name registrations
increased 42.8% from the $70.8 million for 2000 to $101.4 million for 2001.
Revenues from sales of new renewed and transferred domain name registrations in
the current period were lower. This decrease was offset by the recognition of a
greater amount of deferred revenue during 2001 as compared to the amount
recognized during 2000. We had a net decrease in deferred revenue during 2001 of
$11.1 million as compared to a $56.4 million increase in deferred revenue for
2000. The decrease was primarily the result of the decrease in paid new domain
registrations since March 31, 2000 as compared to the increase in paid new
domain registrations for the periods prior to March 31, 2000, as well as lower
average registration term in the current period. We had $77.4 million of
deferred revenue at December 31, 2001, decreasing from $88.5 million at December
31, 2000.


                                       48
<PAGE>

      Online Products and Services. Revenues from online products and services
increased 87.4% from $3.0 million for 2000 to $5.5 million for 2001. The
increase resulted primarily from sales of Brand Protection Plans and .biz and
..info domain name applications.

      Advertising. Revenues from advertising decreased 22.5% from $12.3 million
for 2000 to $9.4 million for 2001, primarily from the decreased rates and volume
of advertising and sponsorships sold on our www.register.com, FirstStepSite(R)
and other web pages. We anticipate that revenues from advertising in future
periods will remain stable as we continue to face increasing challenges in the
Internet advertising market.

Cost of Revenues

      Total cost of revenues increased from $23.9 million for 2000 to $34.8
million for 2001.

      Cost of Domain Name Registrations. Cost of domain name registrations
increased 40.5% from $23.5 million for 2000 to $33.0 million for 2001. The
dollar amounts of registry fees paid were lower in the current period. This
decrease was offset by the recognition of a significantly greater amount of
prepaid registry fees during 2001 as compared to the amounts recognized during
2000. We anticipate that the cost of revenues for domain name registrations will
track our revenue from domain name registrations and continue to be the largest
component of our cost of revenues.

      Cost of Online Products and Services. Cost of online products and services
increased 362.5% from $390,000 for 2000 to $1.8 million for 2001 primarily due
to fees paid to the .biz registry in connection with sales of our Brand
Protection Plans and .biz domain name applications.

Operating Expenses

      Total operating expenses increased from $71.9 million for 2000 to $101.3
million for 2001.

      Sales and Marketing. Sales and marketing expenses decreased 29.1% from
$47.3 million for 2000 to $33.5 million for 2001. The decrease was primarily due
to a decrease in media advertising. In addition, sales and marketing expenses
for 2000 included registry fees associated with free registrations effected
through promotional campaigns run principally in September 2000 and
registrations effected through NameDemo.com, which we stopped accepting in
February 2001. We anticipate that sales and marketing expenses for 2002 will
show an increase as compared to 2001 as we market new products and services in
accordance with our customer segmentation strategy and expand into new markets.

      Research and Development. Research and development expenses increased
38.7% from $5.6 million for 2000 to $7.7 million for 2001. The increase resulted
primarily from salaries associated with new personnel in technology to support
our growth. We anticipate that research and development expenses will continue
to increase as we develop and modify our systems to accommodate growth in our
business.


                                       49
<PAGE>

      General and Administrative. General and administrative expenses increased
9.9% from $13.4 million for 2000 to $14.8 million for 2001. The increase was
primarily due to salaries associated with newly hired personnel and related
costs required to manage our growth and facilities expansion. We expect that our
general and administrative expenses will increase as appropriate to support our
overall growth. Non-cash compensation expenses, included herein, decreased from
$2.2 million for 2000 to $1.8 million for 2001. The non-cash compensation
expenses were primarily attributable to the amortization of deferred
compensation related to employee stock options. Based principally on grants of
stock options and warrants made to date, we will record approximately $2.9
million of non-cash compensation charges in future periods as follows: $1.8
million in 2002, $830,000 in 2003, $100,000 in 2004 and $164,000 in 2005 and
thereafter.

      Amortization and write-down of Goodwill and Other Intangibles.
Amortization and write-down of goodwill and other intangibles increased from
$5.6 million for 2000 to $45.3 million for 2001. The amortization and write-down
of goodwill and other intangibles are related to the acquisitions of Inabox in
June 2000 and Afternic in September 2000, and includes an impairment charge
recorded in the quarter ended September 30, 2001 in the approximate amount of
$32.5 million. In addition to the impairment charge, amortization of goodwill
was higher in 2001 as compared to 2000 because the current period includes a
full year of amortization for both acquisitions. In accordance with the
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"), we ceased amortization of goodwill effective
January 1, 2002.

Other Income, Net

      Other Income (expenses), net. Other income, net, which consisted primarily
of interest income, net of interest expense, decreased from $9.5 million for
2000 to $8.7 million for 2001. The decrease was primarily due to a shift in our
portfolio from higher rate taxable securities to lower rate tax exempt
securities and lower interest rates in the current period.

      Gain on Sale of Investment. Gain on sale of investment of $4.6 million for
2000 was the result of the gain on sale of shares of a private company after
that company was acquired by a public company. We had no gain on sale of
investment in 2001.

Income Tax Expense

      The provision for income taxes was $10.4 million for 2001, which includes
the reversal of $2.6 million in valuation reserves previously recorded as a
deferred tax asset. Amortization and write-down of goodwill and other
intangibles is not deductible for income tax purposes. Income tax expense for
2000 was $4.2 million.

Net Income (loss)

      Net loss for 2001 was $21.6 million compared to a net income of $270,000
for 2000.


                                       50
<PAGE>

Years Ended December 31, 2000 and 1999

      Because we only began operating as a domain name registrar in the second
quarter of 1999 and generated only limited revenues from domain name
registration services prior to this time, we believe that comparisons of 1999
against 2000 is not meaningful and you should not rely upon it as an indication
of our future performance.

Net Revenues

      Total net revenues increased from $9.6 million for the year ended December
31, 1999 to $86.1 million for the year ended December 31, 2000.

      Domain name registrations. Revenues from domain name registrations
increased from $4.5 million for 1999 to $70.8 million for 2000. This increase
was primarily due to the shift in our business from serving as a distributor of
domain names to serving as a registrar for generic top-level domain names in
June 1999. Additionally, we had $32.1 million of deferred revenue at December
31, 1999, increasing to $88.5 million at December 31, 2000.

      Online Products and Services. Revenues from online products and services
increased 42.9% from $2.1 million for 1999 to $3.0 million for 2000. The
increase resulted primarily from increased sales of email and domain name
forwarding services.

      Advertising. Revenues from advertising increased from $3.1 million for
1999 to $12.3 million for 2000, primarily from the increased number of page
views and the volume of advertising and sponsorships sold on our
www.register.com, FirstStepSite(R) and other web pages.

Cost of Revenues

      Total cost of revenues increased from $3.1 million for 1999 to $23.9
million for 2000.

      Cost of Domain Name Registrations. Cost of domain name registrations
increased from $2.5 million for the year ended December 31, 1999 to $23.5
million for the year 2000. The increase was primarily due to the shift in our
business from serving as a distributor of domain names to serving as a registrar
for generic top level domain names in June 1999. As a distributor, we generally
passed through registry costs to the applicable registry or registrar.

      Cost of Online Products and Services. Cost of online products and services
decreased $158,000 from $548,000 for 1999 to $390,000 for 2000 due primarily to
cost cutbacks and renegotiated contracts with certain vendors.

Operating Expenses

      Total operating expenses increased from $16.2 million for 1999 to $71.9
million for 2000.

      Sales and Marketing. Sales and marketing expenses increased from $7.1
million for 1999 to $47.3 million for 2000. The increase was primarily due to
the costs associated with our


                                       51
<PAGE>

radio, print media and television advertising campaigns. The radio and print
campaign was launched in September 1999, while the television campaign began in
May 2000. The increase is also due to (i) salaries associated with newly hired
sales, marketing and customer service professionals and (ii) the registry fees
associated with (a) registrations affected through NameDemo.com (which was
launched in August 2000) and (b) free registrations offered through promotional
campaigns run principally in September 2000.

      Research and Development. Research and development expenses increased from
$1.8 million for 1999 to $5.6 million for 2000. The increase resulted primarily
from salaries associated with new personnel in technology to support our growth.

      General and Administrative. General and administrative expenses, exclusive
of non-cash compensation, increased from $2.4 million for 1999 to $11.3 million
for 2000. The increase was primarily due to salaries associated with newly hired
personnel and related costs required to manage our growth and facilities
expansion. Non-cash compensation expenses, included herein, decreased from $4.9
million for 1999 to $2.2 million for 2000. In 1999, the expense was primarily
associated with the modification of warrants previously granted to some of our
stockholders and the issuance of warrants in connection with a financial
consulting agreement, and a minimal portion of the expense was the result of the
amortization of deferred compensation related to employee stock options. In
2000, the non-cash compensation expense was primarily attributable to the
amortization of deferred compensation related to employee stock options.

      Amortization and write-down of Goodwill and Other Intangibles.
Amortization of goodwill and other intangibles was $5.6 million for 2000 and
related to the goodwill and intangibles associated with our acquisitions of
Inabox and Afternic.com. We had no amortization of goodwill and other
intangibles for 1999.

Other Income, Net

      Other Income (expenses), net. Other income, net consisted primarily of
interest income, net of interest expense increased from $0.9 million for 1999 to
$9.5 million for 2000. The increase was primarily due to interest earned on our
cash balance as a result of our equity financings, including our initial public
offering, and cash provided by operations.

      Gain on Sale of Investment. Gain on sale of investment of $4.6 million for
2000 was the result of the gain on sale of shares of a private company after
that company was acquired by a public company. We had no gain on sale of
investment in 1999.

Income Tax Expense

      Income tax expense was $4.2 million for 2000 due to the other income, net,
described above and the fact that the amortization of goodwill and other
intangibles is not deductible for income tax purposes. There was no income tax
expense for 1999 due to our operating loss, the absence of amortization of
goodwill and other intangibles and the relatively small amount of other income,
net.


                                       52
<PAGE>

Net Income (loss)

      Net income for 2000 was $270,000 compared to a net loss for 1999 of $8.8
million.

Quarterly Results of Operations

      The following table sets forth selected unaudited quarterly statements of
operations data, in dollar amounts and as percentages of net revenue, for the
four quarters ended December 31, 2001 and for the four quarters ended December
31, 2000. In our opinion this information has been prepared substantially on the
same basis as the audited financial statements appearing elsewhere in this
annual statement, and all necessary adjustments, consisting only of normal
recurring adjustments, have been included in the amounts stated below to present
fairly the unaudited quarterly results of operations data. The quarterly data
should be read with our financial statements and the notes to those statements
appearing elsewhere in this annual statement and in our prospectus. The
operating results for any quarter are not necessarily indicative of results for
any future period.

<TABLE>
<CAPTION>
                                                          Three Months Ended
                             ----------------------------------------------------------------------------
                               December        September       June 30,        March 31,       December
                               31, 2001        30, 2001          2001            2001          31, 2000
                             ------------    ------------    ------------    ------------    ------------
                                                            (in thousands)
<S>                          <C>             <C>             <C>             <C>             <C>
Net revenues .............   $     26,103    $     29,532    $     29,987    $     30,660    $     28,870
Cost of revenues .........          7,377          10,323           8,640           8,451           7,935
                             ------------    ------------    ------------    ------------    ------------
Gross profit .............         18,726          19,209          21,347          22,209          20,935
                             ------------    ------------    ------------    ------------    ------------
Operating costs and
   expenses
   Sales and marketing ...         10,254           6,549           8,500           8,210          10,849
   Research and
     development .........          2,028           1,684           2,043           1,986           2,272
   General and
     administrative
     (including non-cash
     compensation of
     $453, $452, $441,
     $424, $438, $445,
     $458, and $832,
     respectively) .......          3,037           3,945           3,463           4,343           4,738
   Amortization of
     goodwill and other
     intangibles .........          1,140          36,402           3,874           3,882           3,894
                             ------------    ------------    ------------    ------------    ------------
Total operating costs and
   expenses ..............         16,459          48,580          17,880          18,421          21,753
                             ------------    ------------    ------------    ------------    ------------
Income (loss) from
   operations ............          2,267         (29,371)          3,467           3,788            (818)
Other income (expenses),
   net ...................          2,002           1,899           2,288           2,475           2,799
Gain on sale of investment             --              --              --              --           4,603

Income tax expense .......         (1,026)         (1,318)         (3,745)         (4,312)         (4,187)
                             ------------    ------------    ------------    ------------    ------------
Net income (loss) ........   $      3,243    $    (28,790)   $      2,010    $      1,951    $      2,397
                             ============    ============    ============    ============    ============
  Basic (loss) earnings
     per share ...........   $       0.09    $      (0.77)   $       0.05    $       0.05    $       0.07
                             ============    ============    ============    ============    ============
  Weighted average shares
     used in basic (loss)
     earnings per share ..     38,088,771      37,603,345      37,086,091      36,896,280      36,775,701
                             ============    ============    ============    ============    ============
  Diluted (loss) earnings
     per share ...........   $       0.07    $      (0.77)   $       0.05    $       0.04    $       0.06
                             ============    ============    ============    ============    ============

<CAPTION>
                                           Three Months Ended
                             --------------------------------------------
                               September         June          March 31,
                               30, 2000        30, 2000          2000
                             ------------    ------------    ------------
                                            (in thousands)
<S>                          <C>             <C>             <C>
Net revenues .............   $     24,572    $     20,250    $     12,418
Cost of revenues .........          6,546           5,287           4,101
                             ------------    ------------    ------------
Gross profit .............         18,026          14,963           8,317
                             ------------    ------------    ------------
Operating costs and
   expenses
   Sales and marketing ...         14,309          14,980           7,173
   Research and
     development .........          1,354           1,236             718
   General and
     administrative
     (including non-cash
     compensation of
     $453, $452, $441,
     $424, $438, $445,
     $458, and $832,
     respectively) .......          4,064           2,102           2,530
   Amortization of
     goodwill and other
     intangibles .........          1,390             299              --
                             ------------    ------------    ------------
Total operating costs and
   expenses ..............         21,117          18,617          10,421
                             ------------    ------------    ------------
Income (loss) from
   operations ............         (3,091)         (3,654)         (2,104)
Other income (expenses),
   net ...................          2,946           2,662           1,113
Gain on sale of investment             --              --              --

Income tax expense .......             --              --              --
                             ------------    ------------    ------------
Net income (loss) ........   $       (145)   $       (992)   $       (991)
                             ============    ============    ============
  Basic (loss) earnings
     per share ...........   $      (0.00)   $      (0.03)   $      (0.04)
                             ============    ============    ============
  Weighted average shares
     used in basic (loss)
     earnings per share ..     32,810,931      31,623,494      24,180,105
                             ============    ============    ============
  Diluted (loss) earnings
     per share ...........   $      (0.00)   $      (0.03)   $      (0.04)
                             ============    ============    ============
</TABLE>


                                       53
<PAGE>


<TABLE>
<CAPTION>
                                                          Three Months Ended
                             ----------------------------------------------------------------------------
                               December        September       June 30,       March 31,        December
                               31, 2001        30, 2001          2001           2001           31, 2000
                             ------------    ------------    ------------    ------------    ------------
                                                             (in thousands)
<S>                          <C>             <C>             <C>             <C>             <C>
  Weighted average shares
     used in diluted
     (loss) earnings per
     share ...............     45,019,140      37,603,345      43,919,019      43,466,795      42,763,561
                             ============    ============    ============    ============    ============

<CAPTION>
                                           Three Months Ended
                             --------------------------------------------
                               September         June          March 31,
                               30, 2000        30, 2000          2000
                             ------------    ------------    ------------
                                            (in thousands)
<S>                          <C>             <C>             <C>
  Weighted average shares
     used in diluted
     (loss) earnings per
     share ...............     32,810,931      31,623,494      24,180,105
                             ============    ============    ============
</TABLE>


                                       54
<PAGE>

<TABLE>
<CAPTION>
                                                                           Three Months Ended
                                  -------------------------------------------------------------------------------------------------
                                  December    September     June 30,     March 31,    December    September    June 30,   March 31,
                                  31, 2001    30, 2001        2001         2001       31, 2000    30, 2000       2000       2000
                                  --------    ---------     --------     ---------    --------    ---------    --------   ---------
<S>                                  <C>          <C>          <C>          <C>          <C>          <C>         <C>        <C>
Net revenues ................        100%         100%         100%         100%         100%         100%        100%       100%
Cost of revenues ............         28           35           29           28           27           27          26         33
                                    ----         ----         ----         ----         ----         ----        ----       ----
Gross profit ................         72           65           71           72           73           73          74         67
                                    ----         ----         ----         ----         ----         ----        ----       ----
Operating costs and expenses
   Sales and marketing ......         39           22           28           27           38           58          82         58
   Research and development .          8            6            7            6            8            6           6          6
   General and
     administrative
     (including non-cash
     compensation) ..........         12           13           12           14           17           17          10         20
   Amortization of goodwill
     and other intangibles ..          4          123           13           13           13            5           1         --
                                    ----         ----         ----         ----         ----         ----        ----       ----
Total operating costs and
   expenses .................         63          164           60           60           76           86          99         84
                                    ----         ----         ----         ----         ----         ----        ----       ----
Income (loss) from operations          9          (99)          11           12           (3)         (13)        (25)       (17)
Other income (expenses), net           8            6            8            8           10           12          13          9
Gain on sale of investment ..         --           --           --           --           16           --          --         --
Income tax expense ..........         (4)          (4)         (12)         (14)         (15)          --          --         --
                                    ----         ----         ----         ----         ----         ----        ----       ----
Net income (loss) ...........         13%         (97)%          7%           6%           8%          (1)%       (12)%       (8)%
                                    ====         ====         ====         ====         ====         ====        ====       ====
</TABLE>

Liquidity and Capital Resources

      Historically, we have funded our operations and met our capital
expenditure requirements primarily through sales of equity securities, cash
generated from operations and borrowings. We issued 5,222,279 shares of our
common stock to the public on March 3, 2000, which generated approximately
$115.3 million after deducting the underwriting discount and other offering
expenses.

      At December 31, 2001, the combined total of our (i) cash and cash
equivalents, (ii) short-term investments and (iii) marketable securities totaled
$197.8 million. This is compared to $173.4 million at December 31, 2000.

      On February 1, 2002, through one of our newly established subsidiaries,
Register.com (U.K.) Limited, we announced a recommended cash offer for all
outstanding shares of Virtual Internet plc for (pound).468 per share
(approximately $.66 per share). The offer valued Virtual Internet at
approximately (pound)11.99 million (approximately $16.9 million). Our offer was
declared unconditional on February 22, 2002 and we have purchased all shares
tendered prior to that date. Together with shares we had acquired in the market
directly, we currently own approximately 97% of Virtual Internet's shares. Our
offer for the remaining shares will close on March 27, 2002. To the extent any
shares are not tendered by March 27, 2002, we expect to acquire such shares
through the compulsory acquisition procedure pursuant to the U.K. Companies Act.
Virtual Internet shareholders, other than shareholders in certain jurisdictions
outside of the U.K., were given the opportunity to elect to receive loan notes
to be issued by Register.com (U.K.) Limited in exchange for their Virtual
Internet shares. These loan notes bear interest at a floating rate of LIBOR
minus 1% and may be redeemed at the request of the holder at any time between
six months after the date of issue and June 30, 2003, at which time they mature.
We issued approximately (pound)6.0 million (approximately $8.4 million) in loan
notes and the remainder of the purchase price has been paid in cash. The loan
notes are guaranteed as to principal only by


                                       55
<PAGE>

Barclays Bank plc, which guarantee is currently supported by a cash deposit of
(pound)6.0 million (approximately $8.4) by us. This deposit guarantees the
payment of the loan notes and the cash portion of the Virtual Internet
acquisition is being funded with our available cash resources.

      Our business generated $24.3 million of cash from operations in 2001
compared to $31.9 million in 2000. The decrease in cash generated from
operations was primarily due to a decrease in domain name registrations.

      Net cash used for investing activities was $23.6 million in 2001 compared
to $129.2 million in 2000. Approximately 91% and 84% of the cash used for
investing activities related to our purchase of short-term investments and
marketable securities in 2001 and 2000, respectively. In 2000, the balance
related primarily to our acquisitions of Inabox and Afternic.com, an investment
in a privately held company, the purchase of property and equipment and
investment in our systems infrastructure.

      Net cash provided by financing activities totaled $1.1 million in 2001
compared to $116.5 million in 2000. In 2001 all of our financing activities were
attributable to the issuance of common stock upon the exercise of warrants. In
2000 substantially all of the financing activities were attributable to the
initial public offering of our common stock.

      Although we have no material commitments for capital expenditures or other
long-term obligations, we anticipate that we will increase our capital
expenditures and lease commitments consistent with our anticipated growth in
operations, infrastructure and personnel, including the addition of new products
and services, implementation of additional co-location facilities and various
capital expenditures associated with expanding our facilities. We currently
anticipate that we will continue to experience growth in our operating expenses
for the foreseeable future and that our operating expenses will be a material
use of our cash resources. We believe that our existing cash and cash from
operations will be sufficient to meet our anticipated cash needs for working
capital and capital expenditures for at least the next 12 months.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

      Our exposure to market risk is limited to interest income sensitivity,
which is affected by changes in the general level of U.S. interest rates. We
believe that we are not subject to any material interest rate risk because all
of our investments are in fixed-rate, short-term securities having a maturity of
not more than two years with a majority having a maturity of under one year. The
fair value of our investment portfolio or related income would not be
significantly impacted by either a 100 basis point increase or decrease in
interest rates due mainly to the fixed-rate, short-term nature of the
substantial majority of our investment portfolio. We did not have any foreign
currency hedging or derivative instruments at December 31, 2001.

      We generally do not enter into financial instruments for trading or
speculative purposes and do not currently utilize derivative financial
instruments. In one instance in 2000, we purchased a put on shares of a public
company that had acquired a privately owned company in which we had an
investment. We subsequently sold the put at a profit and also sold the shares of
the underlying company at a profit. While we have no present intention of
utilizing derivative


                                       56
<PAGE>

financial instruments in the future, it is possible that we may enter into
similar transactions under comparable circumstances, should they arise. We have
no long-term debt.


                                       57
<PAGE>

Item 8. Financial Statements and Supplementary Data.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            PAGE
                                                                            ----

Report of PricewaterhouseCoopers LLP, Independent Accountants..............   59
Consolidated Balance Sheets as of December 31, 2001 and 2000...............   60
Consolidated Statements of Operations for the years ended
     December 31, 2001, 2000 and 1999......................................   61
Consolidated Statements of Changes in Stockholders' Equity
     for the years ended December 31, 2001, 2000 and 1999..................   62
Consolidated Statements of Cash Flows for the years ended
     December 31, 2001, 2000 and 1999......................................   63
Notes to Consolidated Financial Statements.................................   64


                                       58
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of Register.com, Inc.

      In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Register.com, Inc. at December 31, 2001 and 2000, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United States of America. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
New York, New York
January 28, 2002, except as to Note 15, which is as of February 22, 2002


                                       59
<PAGE>

                               REGISTER.COM, INC.
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                December 31,
                                                                            2001             2000
                                                                       -------------    -------------
<S>                                                                    <C>              <C>
Assets
Current Assets
   Cash and cash equivalents .......................................   $  61,932,096    $  60,155,747
   Short-term investments ..........................................      78,185,921       65,283,178
   Accounts receivable, less allowance of $2,178,582 and
     $1,748,824, respectively ......................................      11,875,899        6,596,089
   Prepaid domain name registry fees ...............................      13,844,918       16,855,163
   Deferred tax asset, net .........................................      18,415,311       20,754,301
   Prepaid income taxes ............................................              --        3,774,077
   Other current assets ............................................       5,183,609        2,974,136
                                                                       -------------    -------------
                                                Total current assets     189,437,754      176,392,691
Fixed assets, net ..................................................       8,035,792        9,371,754
Prepaid domain name registry fees, net of current portion ..........       4,718,324        4,423,227
Other investments ..................................................         395,566          600,000
Marketable securities ..............................................      57,651,023       47,980,150
Goodwill and other intangibles, net ................................       8,550,194       53,848,813
                                                                       -------------    -------------
                                                        Total assets   $ 268,788,653    $ 292,616,635
                                                                       =============    =============
Liabilities and Stockholders' Equity
Current Liabilities
   Accounts payable and accrued expenses ...........................   $  12,365,186    $  13,502,152
   Deferred revenue, net ...........................................      53,028,932       69,026,927
   Other current liabilities .......................................       3,452,222        1,703,767
                                                                       -------------    -------------
                                           Total current liabilities      68,846,340       84,232,846
Deferred revenue, net of current portion ...........................      24,349,336       19,489,288
                                                                       -------------    -------------
                                                   Total liabilities      93,195,676      103,722,134
                                                                       -------------    -------------
Commitments and contingencies

Stockholders' equity
   Preferred stock--$.0001 par value, 5,000,000 shares authorized;
     none issued and outstanding at December 31, 2001 and 2000 .....              --               --
   Common stock--$.0001 par value, 200,000,000 shares authorized;
     38,296,581 issued and outstanding at December 31, 2001 and
     36,823,281 issued and outstanding at December 31, 2000 ........           3,830            3,682
   Additional paid-in capital ......................................     210,678,973      204,676,750
   Unearned compensation ...........................................      (3,006,867)      (4,287,988)
   Accumulated other comprehensive income ..........................       1,385,666          384,020
   Accumulated deficit .............................................     (33,468,625)     (11,881,963)
                                                                       -------------    -------------
                                          Total stockholders' equity     175,592,977      188,894,501
                                                                       -------------    -------------
                          Total liabilities and stockholders' equity   $ 268,788,653    $ 292,616,635
                                                                       =============    =============
</TABLE>

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


                                       60
<PAGE>

                               REGISTER.COM, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                 Year ended December 31,
                                                           2001            2000            1999
                                                      -------------    ------------    ------------
<S>                                                   <C>              <C>             <C>
Net revenues ......................................   $ 116,280,759    $ 86,109,514    $  9,644,552
Cost of revenues ..................................      34,790,136      23,868,757       3,082,499
                                                      -------------    ------------    ------------
   Gross profit ...................................      81,490,623      62,240,757       6,562,053
                                                      -------------    ------------    ------------
Operating costs and expenses
   Sales and marketing ............................      33,531,706      47,311,275       7,149,693
   Research & development .........................       7,740,645       5,580,131       1,767,158
   General & administrative (including non-cash
     compensation of $1,771,104, $2,173,421 and
     $4,929,200, respectively) ....................      14,769,678      13,433,737       7,309,390
   Amortization of goodwill and other intangibles .      45,298,619       5,582,202              --
                                                      -------------    ------------    ------------
     Total operating costs and expenses ...........     101,340,648      71,907,345      16,226,241
                                                      -------------    ------------    ------------
Loss from operations ..............................     (19,850,025)     (9,666,588)     (9,664,188)
Other income (expenses), net ......................       8,663,665       9,519,597         887,270
Gain on sale of investment ........................              --       4,603,457              --
                                                      -------------    ------------    ------------
(Loss) income before provision for income taxes ...     (11,186,360)      4,456,466      (8,776,918)
Provision for income taxes ........................     (10,400,302)     (4,186,658)             --
                                                      -------------    ------------    ------------
     Net (loss) income ............................     (21,586,662)        269,808      (8,776,918)
Other comprehensive (loss) income
     Unrealized gain on marketable securities .....       1,001,646         384,020              --
                                                      -------------    ------------    ------------
     Comprehensive (loss) income ..................   $ (20,585,016)   $    653,828    $ (8,776,918)
                                                      =============    ============    ============
     Basic (loss) earnings per share ..............   $       (0.58)   $       0.01    $      (0.46)
                                                      =============    ============    ============
     Weighted average shares used in basic (loss)
       earnings per share .........................      37,424,379      31,393,613      19,117,027
                                                      =============    ============    ============
     Diluted (loss) earnings per share ............   $       (0.58)   $       0.01    $      (0.46)
                                                      =============    ============    ============
     Weighted average shares used in diluted (loss)
       earnings per share .........................      37,424,379      39,183,902      19,117,027
                                                      =============    ============    ============
</TABLE>

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


                                       61
<PAGE>

                               REGISTER.COM, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                               Series A
                                              Convertible
                                            Preferred Stock           Common Stock           Additional
                                          -------------------    ----------------------        Paid-in
                                          Shares       Amount    Shares          Amount        Capital
                                          ------       ------    ------          ------      -----------
<S>                                     <C>            <C>      <C>           <C>            <C>
Balance at January 1, 1999 ..........           --       --     17,295,882         1,729       4,301,871
Sale of exchangeable preferred stock            --       --             --            --       2,840,625
Sale and issuance of common stock
  and warrants ......................           --       --      2,041,666           204       6,693,293
Sale and issuance of Series A
  convertible preferred stock and
  warrants ..........................    4,694,333      469             --            --      15,289,552
Conversion of exchangeable preferred
  stock to common stock .............           --       --      1,499,999           150              --
Issuance of common stock and
  warrants for services .............           --       --             --            --         721,858
Issuance of compensatory stock
  options ...........................           --       --             --            --       2,871,145
Amortization of unearned compensation           --       --             --            --              --
Modification of common stock and
  warrants ..........................           --       --             --            --       3,878,000
Exercise of employee stock options ..           --       --        175,000            18          62,482
Exercise of warrants ................           --       --         52,500             5          50,995
Net loss ............................           --       --             --            --              --
                                       -----------    -----     ----------   -----------   -------------

Balance at December 31, 1999 ........    4,694,333    $ 469     21,065,047   $     2,106   $  36,709,821
Sale and issuance of common stock ...           --       --      5,222,279           522     115,292,625
Issuance of common stock for
  acquisitions ......................                            4,658,308           466      47,427,925
Conversion of exchangeable preferred
  stock to common stock .............   (4,694,333)    (469)     4,694,333           469              --
Issuance of compensatory stock
  options ...........................           --       --             --            --       3,894,547
Issuance of shares for the Employee
  Stock Purchase Plan ...............           --       --         33,619             3         200,030
Amortization of unearned compensation           --       --             --            --         (80,908)
Exercise of stock options, inclusive
  of related tax benefit ............           --       --        427,457            43         893,222
Exercise of warrants ................           --       --        722,238            73         339,488
Net unrealized holding gain in
  marketable securities .............           --       --             --            --              --
Net income ..........................           --       --             --            --              --
                                       -----------    -----     ----------   -----------   -------------

Balance at December 31, 2000 ........           --       --     36,823,281         3,682     204,676,750
Issuance of shares for the Employee
  Stock Purchase Plan ...............           --       --         66,774             7         399,167
Amortization of unearned compensation           --       --             --            --         (10,010)
Exercise of stock options, inclusive
  of related tax benefit ............           --       --        794,011            79       4,905,264
Exercise of warrants ................           --       --        570,428            57         207,810
Issuance of restricted stock ........           --       --         42,087             5         499,992
Net unrealized holding gain in
  marketable securities .............           --       --             --            --              --
Net income (loss) ...................           --       --             --            --              --
                                       -----------    -----     ----------   -----------   -------------
Balance at December 31, 2001 ........           --    $  --     38,296,581   $     3,830   $ 210,678,973
                                       ===========    =====     ==========   ===========   =============

<CAPTION>

                                                       Accumulated
                                                         other
                                          Unearned    comprehensive   Accumulated
                                        Compensation     income          Deficit          Total
                                        ------------  ------------    ------------    -------------
<S>                                     <C>            <C>            <C>             <C>
Balance at January 1, 1999 ..........      (105,967)                    (3,374,853)         822,780
Sale of exchangeable preferred stock             --             --              --        2,840,625
Sale and issuance of common stock
  and warrants ......................            --             --              --        6,693,497
Sale and issuance of Series A
  convertible preferred stock and
  warrants ..........................            --             --              --       15,290,021
Conversion of exchangeable preferred
  stock to common stock .............            --             --              --              150
Issuance of common stock and
  warrants for services .............            --             --              --          721,858
Issuance of compensatory stock
  options ...........................    (2,871,145)            --              --               --
Amortization of unearned compensation       329,342             --              --          329,342
Modification of common stock and
  warrants ..........................            --             --              --        3,878,000
Exercise of employee stock options ..            --             --              --           62,500
Exercise of warrants ................            --             --              --           51,000
Net loss ............................            --             --      (8,776,918)      (8,776,918)
                                        -----------    -----------    ------------    -------------

Balance at December 31, 1999 ........   $(2,647,770)            --    $(12,151,771)   $  21,912,855
Sale and issuance of common stock ...            --             --              --      115,293,147
Issuance of common stock for
  acquisitions ......................                                                     47,428,391
Conversion of exchangeable preferred
  stock to common stock .............            --             --              --               --
Issuance of compensatory stock
  options ...........................    (3,894,547)            --              --               --
Issuance of shares for the Employee
  Stock Purchase Plan ...............            --             --              --          200,033
Amortization of unearned compensation     2,254,329             --              --        2,173,421
Exercise of stock options, inclusive
  of related tax benefit ............            --             --              --          893,265
Exercise of warrants ................            --             --              --          339,561
Net unrealized holding gain in
  marketable securities .............            --        384,020              --          384,020
Net income ..........................            --             --         269,808          269,808
                                        -----------    -----------    ------------    -------------

Balance at December 31, 2000 ........    (4,287,988)       384,020     (11,881,963)     188,894,501
Issuance of shares for the Employee
  Stock Purchase Plan ...............            --             --              --          399,174
Amortization of unearned compensation     1,771,104             --              --        1,761,094
Exercise of stock options, inclusive
  of related tax benefit ............            --             --              --        4,905,343
Exercise of warrants ................            --             --              --          207,867
Issuance of restricted stock ........      (489,983)            --              --           10,014
Net unrealized holding gain in
  marketable securities .............            --      1,001,646              --        1,001,646
Net income (loss) ...................            --             --     (21,586,662)     (21,586,662)
                                        -----------    -----------    ------------    -------------
Balance at December 31, 2001 ........   $(3,006,867)   $ 1,385,666    $(33,468,625)   $ 175,592,977
                                        ===========    ===========    ============    =============
</TABLE>

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


                                       62
<PAGE>

                               REGISTER.COM, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                         Year ended December 31,
                                                                 2001             2000            1999
                                                             -------------    -------------    ------------
<S>                                                          <C>              <C>              <C>
Cash flows from operating activities
Net income (loss) ........................................   $ (21,586,662)   $     269,808    $ (8,776,918)
Adjustments to reconcile net income (loss) to net cash
   provided by (used in) operating activities
   Deferred revenues .....................................     (11,137,947)      56,414,983      31,987,705
   Depreciation and amortization .........................      48,829,232        7,695,756         347,860
   Compensatory stock options and warrants expense .......       1,771,104        2,173,421       4,929,200
   Deferred income taxes .................................       2,338,990      (12,176,256)     (8,578,045)
   Tax benefit from exercise of employee stock options ...       4,423,929               --              --
Changes in assets and liabilities affecting operating
   cash flows
   Accounts receivable ...................................      (5,279,810)      (4,079,903)     (2,448,677)
   Prepaid domain name registry fees .....................       2,715,148      (12,747,329)     (8,531,061)
   Prepaid income taxes ..................................       3,774,077       (3,774,077)             --
   Other current assets ..................................      (2,209,473)      (2,778,940)       (191,271)
   Other assets ..........................................              --               --          30,643
   Accounts payable and accrued expenses .................      (1,057,961)       2,313,863       2,764,386
   Accrued registry fees .................................         163,032        1,133,432       3,175,982
   Accrued advertising ...................................        (242,037)       1,541,779       1,962,235
   Income taxes payable ..................................              --       (5,608,198)      5,608,198
   Other current liabilities .............................       1,748,455        1,536,910         166,857
                                                             -------------    -------------    ------------
     Net cash provided by operating activities ...........      24,250,077       31,915,249      22,447,094
                                                             -------------    -------------    ------------
Cash flows from investing activities
   Purchases of fixed assets .............................      (2,194,651)      (9,026,922)     (2,543,715)
   Deferred offering costs ...............................              --          390,000        (390,000)
   Purchases of investments ..............................    (139,830,313)    (128,363,188)     (4,723,050)
   Maturities of investments .............................     118,462,777       19,722,910              --
   Acquisitions, net .....................................              --      (11,942,927)             --
                                                             -------------    -------------    ------------
     Net cash used in investing activities ...............     (23,562,187)    (129,220,127)     (7,656,765)
                                                             -------------    -------------    ------------
Cash flows from financing activities
   Repayment of notes payable ............................              --               --         (52,040)
   Net proceeds from issuance of common stock and warrants       1,088,459      116,550,328       6,806,999
   Net proceeds from issuance of preferred stock and
     warrants ............................................              --               --      18,130,796
   Principal payments on capital lease obligations .......              --          (33,825)        (16,610)
                                                             -------------    -------------    ------------
     Net cash provided by financing activities ...........       1,088,459      116,516,503      24,869,145
                                                             -------------    -------------    ------------
Net increase in cash and cash equivalents ................       1,776,349       19,211,625      39,659,474
Cash and cash equivalents at beginning of period .........      60,155,747       40,944,122       1,284,648
                                                             -------------    -------------    ------------
Cash and cash equivalents at end of period ...............   $  61,932,096    $  60,155,747    $ 40,944,122
                                                             =============    =============    ============
Supplemental disclosure of cash flow information:
Cash paid for interest ...................................   $          --    $      15,493    $      6,008
Cash paid for income taxes ...............................   $          --    $  25,261,509    $  2,969,847
</TABLE>

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


                                       63
<PAGE>

                               REGISTER.COM, INC.
                          Notes to Financial Statements

1. Nature of Business And Organization

Nature of Business

      Register.com, Inc. (the "Company" or "Register.com") provides Internet
domain name registration and other online products and services such as web
hosting, email, domain name forwarding and advertising. The Company also markets
software for creation of Internet websites.

      In April 1999, the Company was selected as one of the initial five-testbed
registrars by the ICANN, an independent non-profit organization selected by the
Department of Commerce to manage and oversee the system for generic top-level
domain name registration. In June 1999, the Company commenced online
registration as an ICANN-accredited registrar of .com, .net and .org domains.

      In June 2000, the Company acquired Inabox, Inc., developers of website
creation software (Note 13). In September 2000, the Company acquired
Afternic.com, Inc., a secondary market exchange for domain names (Note 13). In
September 2000, the Company made an investment in RegistryPro, a joint venture
that has obtained preliminary approval from ICANN to act as the registry for the
..pro generic top level domain, which will be dedicated to certified
professionals (Note 5).

Organization

      The Company originally operated as Forman Interactive Corp. ("Forman"), a
New York corporation that was formed in November 1994. Pursuant to a Merger
Agreement dated June 23, 1999 by and among Register.com, a Delaware corporation
formed in May 1999 specifically for the purpose of this merger, and Forman, the
stockholders of Forman exchanged their shares for an equivalent number of shares
of Register.com. References herein to the operations and historical financial
information of the "Company" prior to the date of the merger refer to the
operations and historical financial information of Forman. On March 3, 2000, the
Company sold shares of its common stock through its initial public offering
(Note 6).

Stock Split

      In January 2000, the Company effected a 3.5 to 1 stock split. All common
and preferred shares, options, warrants and related per-share data reflected in
the accompanying financial statements and notes thereto have been adjusted to
give retroactive effect to the stock split.


                                       64
<PAGE>

2. Summary of Significant Accounting Policies

Principles of Consolidation

      The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. Inter-company balances and transactions have
been eliminated.

Cash equivalents

      The Company considers all highly liquid investments purchased with an
initial maturity of 90 days or less to be cash equivalents. The Company
maintains its cash balances in highly rated financial institutions. At times,
such cash balances may exceed the Federal Deposit Insurance Corporation limit.
The Company has pledged approximately $7,425,000 and $3,591,000 of its cash
equivalents and short-term investments as collateral against outstanding letters
of credit as of December 31, 2001 and 2000, respectively.

Investments

      The Company classifies the debt securities it has purchased as marketable
securities in accordance with the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." These securities are carried at fair market value, with
unrealized gains and losses reported in stockholders' equity as a component of
other comprehensive income (loss). Gains or losses on securities sold are based
on the specific identification method.

      Securities with maturities of less than one year are classified as
short-term investments, and securities with maturities of greater than a year
are non-current and are classified as marketable securities, within the
consolidated balance sheet.

Fixed assets

      Depreciation of equipment and furniture and fixtures is provided for by
the straight-line method over their estimated useful lives of three to five
years. Amortization of leasehold improvements is provided for by the
straight-line method over the shorter of their estimated useful life or the
lease term. The costs of additions and improvements are capitalized, and repairs
and maintenance costs are charged to operations in the periods incurred.

Long-lived assets

      The Company reviews for the impairment of long-lived assets whenever
events or circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment loss would be recognized when estimated undiscounted
future cash flows expected to result from the use of the asset and its eventual
disposition is less than its carrying amount. If such assets are considered
impaired, the amount of the impairment loss recognized is measured as the amount
by which the carrying value of the asset exceeds the fair value of the asset,
fair value being determined based upon discounted cash flows or appraised
values, depending on the nature of the asset. To date, the Company has
identified no such impairment losses.


                                       65
<PAGE>

Revenue recognition

      The Company's revenues are primarily derived from domain name registration
fees, advertising and online products and services.

Domain name registration fees

      Registration fees charged to end-users for registration services are
recognized on a straight-line basis over the life of the registration term for
initial registrations and registration renewals. Substantially all end-user
subscribers pay for services with major credit cards for which the Company
receives daily remittances from the credit card carriers. A provision for
chargebacks from the credit card carriers is included in accounts payable and
accrued expenses. Such amounts are separately recorded and deducted from gross
registration fees in determining net revenues. Referral commissions earned by
the Company's private label and co-brand partners are deducted from gross
registration revenue in determining net revenues.

Online products and services

      Revenue from online products and services is recognized on a straight-line
basis over the period in which services are provided. Payments received in
advance of services being provided are included in deferred revenue. Revenues
from escrow services are recognized upon completion of the escrow service
provided.

Advertising

      Advertising revenues are derived principally from short-term advertising
contracts in which the Company typically guarantees a minimum number of
impressions or pages to be delivered to users over a specified period of time
for a fixed fee. Advertising revenues are recognized ratably in the period in
which the advertisement is displayed, provided that no significant obligations
remain, at the lesser of the ratio of impressions delivered over total
guaranteed impressions or the straight-line basis over the term of the contract.
To the extent that minimum guaranteed impressions are not met, the Company
defers recognition of the corresponding revenues until the guaranteed
impressions are achieved.

Deferred revenue

      Deferred revenue primarily relates to the unearned portion of revenues
related to the unexpired term of registration fees, net of an estimate for
credit card chargebacks and external commissions, deferred advertising revenue
and online products and services revenue.

Prepaid domain name registry fees

      Prepaid domain name registry fees represent amounts paid to registries for
..com, .net, .org and country code domains for updating and maintaining the
registries. Domain name registry fees are recognized on a straight-line basis
over the life of the registration term for initial registrations and
registration renewals.


                                       66
<PAGE>

Research and development and software development costs

      Research and development costs, other than certain software development
costs, are charged to expense as incurred. Software development costs incurred
subsequent to the establishment of technological feasibility and prior to the
general release of the product or service to the public, are capitalized and
amortized to cost of revenues over the estimated useful life of the related
product or service. Software development costs eligible for capitalization have
not been significant to date.

Advertising costs

      The Company expenses the costs of advertising in the period in which the
costs are incurred. Advertising expenses were approximately $15,531,000,
$36,674,000 and $4,089,000 for the years ended December 31, 2001, 2000 and 1999,
respectively.

Income taxes

      The Company recognizes deferred taxes by the asset and liability method of
accounting for income taxes. Under the asset and liability method, deferred
income taxes are recognized for differences between the financial statement and
tax bases of assets and liabilities at enacted statutory tax rates in effect for
the years in which the differences are expected to reverse. The effect on
deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date. In addition, valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.

Fair value of financial instruments

      The carrying value of cash and cash equivalents, accounts receivable, and
accounts payable approximate fair value due to the relatively short-term nature
of these instruments.

Concentration of credit risk

      Concentration of credit risks associated with registration receivables is
limited due to the wide variety and number of customers, as well as their
dispersion across geographic areas. Additionally, the majority of the Company's
net receivables at December 31, 2001 and 2000 are comprised of amounts due from
credit card carriers. The Company has no derivative financial instruments.

Use of estimates

      The preparation of financial statements in conformity with generally
accepted accounting principles requires the management of the Company to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. The Company's most significant estimates
relate to the realizability of deferred tax assets and the amortization period
of intangible assets. Actual results could differ from those estimates. The
markets for the Company's products and services are characterized by intense
competition, technology advances and new product/service introductions, all of
which could impact the future realizability of the Company's assets.


                                       67
<PAGE>

Stock based compensation

      The Company accounts for employee stock-based compensation in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations ("APB No. 25"). The Company applies the
disclosure requirements of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123") (Note 8).

Earnings (loss) per share

      The Company accounts for earnings per share in accordance with Statement
of Financial Accounting Standards No. 128, "Earnings Per Share."

      Basic earnings (loss) per share ("Basic EPS") is computed by dividing net
income (loss) available to common stockholders by the weighted average number of
common shares outstanding during the period. Diluted earnings (loss) per share
("Diluted EPS") gives effect to all dilutive potential common shares outstanding
during a period. In computing Diluted EPS, the treasury stock method is used in
determining the number of shares assumed to be purchased from the conversion of
common stock equivalents.

      Diluted earnings (loss) per share for the year ended December 31, 2001
excludes 2,292,169 stock options outstanding with exercise prices ranging from
$0.00 to $58.06 per share, and 4,791,233 of common shares issuable upon the
exercise of outstanding warrants, with exercise prices ranging from $.01 to
$4.08 per share because their effects are anti-dilutive. Diluted earnings (loss)
per share for the year ended December 31, 2000 excludes 147,119 stock options
outstanding with exercise prices ranging from $26.40 to $58.06 per share,
because their effects are anti-dilutive. Diluted earnings (loss) per share for
the year ended December 31, 1999 does not include the effect of 4,694,333 shares
of Series A Convertible Preferred Stock outstanding because its effect is
anti-dilutive. Diluted earnings (loss) per share for the years ended December
31, 1999 does not include 3,277,435 of stock options outstanding with exercise
prices ranging from $.17 to $1.71 per share because their effects are
anti-dilutive. Additionally, diluted earnings (loss) per share for the years
ended December 31, 1999 excludes 6,155,675 of common shares issuable upon the
exercise of outstanding warrants, with exercise prices ranging from $.01 to
$4.08 per share because their effects are anti-dilutive.


                                       68
<PAGE>

The following is reconciliation from Basic EPS to Diluted EPS for each of the
last three years:

<TABLE>
<CAPTION>
                                                        Weighted Average
                                        Net Income      Shares Outstanding        EPS
-------------------------------------------------------------------------------------------
<S>                                    <C>                   <C>               <C>
2001
         Basic                         $(21,586,662)         38,424,379        $   (0.58)
         Effect of dilution:
         Stock Options                           --                  --            --
         Warrants                                --                  --            --
-------------------------------------------------------------------------------------------
         Diluted                       $(21,586,662)         38,424,379        $   (0.58)
-------------------------------------------------------------------------------------------
2000
         Basic                         $    269,808          31,393,613        $    0.01
         Effect of dilution:
         Stock Options                           --           2,428,628            --
         Warrants                                --           5,361,661            --
-------------------------------------------------------------------------------------------
         Diluted                       $    269,808          39,183,902        $    0.01
-------------------------------------------------------------------------------------------
1999
         Basic                         $ (8,776,918)         19,117,027        $   (0.46)
         Effect of dilution:
         Stock Options                           --                  --            --
         Warrants                                --                  --            --
-------------------------------------------------------------------------------------------
         Diluted                       $ (8,776,918)         19,117,027        $   (0.46)
-------------------------------------------------------------------------------------------
</TABLE>

Comprehensive income

      The Company follows SFAS No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"). This statement requires companies to classify items of their
comprehensive income by their nature in the financial statements and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. The difference between net income and comprehensive income
was $1,001,646 and $384,020, the net unrealized gain in marketable securities,
for the years ended December 31, 2001 and 2000, respectively.

Segment reporting

      The Company follows SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"), which established
standards for reporting information about operating segments in annual financial
statements. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. The Company operates in one
business segment.

Recent accounting pronouncements

      In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, "Business Combinations" ("SFAS 141") and Statement No. 142, "Goodwill
and Other Intangible Assets" ("SFAS 142").

      SFAS 141 establishes accounting and reporting for business combinations by
requiring that all business combinations be accounted for under the purchase
method. Use of the pooling-


                                       69
<PAGE>

of-interests method is no longer permitted. Statement 141 requires that the
purchase method be used for business combinations initiated after June 30, 2001.
The adoption of SFAS 141 is not expected to have a material impact on the
Company's financial condition or results of operations.

      SFAS 142 requires that goodwill no longer be amortized to earnings, but
instead be reviewed for impairment. The Company adopted the Statement and ceased
amortization of goodwill effective January 1, 2002.

      In August 2001, FAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets," was issued, replacing FAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
and portions of APB Opinion 30, "Reporting the Results of Operations." FAS No.
144 provides a single accounting model for long-lived assets to be disposed of
and changes the criteria that would have to be met to classify an asset as
held-for-sale. FAS No. 144 retains the requirement of APB Opinion 30, to report
discontinued operations separately from continuing operations and extends that
reporting to a component of an entity that either has been disposed of or is
classified as held for sale. FAS No. 144 is effective January 1, 2002 for the
Company. The adoption of SFAS 144 is not expected to have a material impact on
the Company's financial condition or results of operations.

3. Fixed Assets

Fixed assets consist of the following:

                                                           December 31,
                                                           ------------
                                                       2001            2000
                                                       ----            ----
Computer equipment .............................   $ 11,011,221    $  9,254,881
Furniture and fixtures .........................        305,987         215,740
Office equipment ...............................        416,555         430,029
Leasehold improvements .........................      2,482,554       2,121,015
                                                   ------------    ------------

                                                     14,216,317      12,021,665
Less: accumulated depreciation and amortization      (6,180,525)     (2,649,911)
                                                   ------------    ------------
Total fixed assets .............................   $  8,035,792    $  9,371,754
                                                   ============    ============


                                       70
<PAGE>

4. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:

                                                            December 31,
                                                            ------------
                                                      2001              2000
                                                      ----              ----
Trade accounts payable .....................       $ 3,973,684       $ 3,025,609
Accrued compensation and benefits ..........         2,593,856         1,767,612
Accrued registry fees ......................         2,205,582         2,042,550
Provision for chargebacks ..................           772,214         3,258,542
Accrued advertising ........................           178,419           420,456
Accrued professional fees ..................         1,028,454         1,019,210
Other ......................................         1,612,977         1,968,173
                                                   -----------       -----------

                                                   $12,365,186       $13,502,152
                                                   ===========       ===========

5. Investments

As of December 31, 2001 and 2000, short-term investments and marketable
securities consisted of the following:

<TABLE>
<CAPTION>
                                                                                         Gross             Gross
                                                                                       Unrealized       unrealized
2001                                               Fair Value      Amortized Cost    Holding Gains    Holding Losses
----------------------------------------           ----------      --------------    -------------    --------------
<S>                                                <C>              <C>               <C>               <C>
Short-term investments:
   Municipal debt obligations                      $38,913,261      $39,287,933       $   374,672       $        --
   Corporate debt securities                        34,265,746       34,970,697           704,951                --
   International debt obligations                    5,006,914        5,123,450           116,536                --
                                                   -----------      -----------       -----------       -----------
         Total short-term investments              $78,185,921      $79,382,080       $ 1,196,159       $        --

Marketable securities
   Municipal debt obligations                      $57,651,023      $57,788,392       $   206,390       $   (69,021)

<CAPTION>
                                                                                         Gross             Gross
                                                                                       Unrealized       unrealized
2000                                               Fair Value      Amortized Cost    Holding Gains    Holding Losses
----------------------------------------           ----------      --------------    -------------    --------------
<S>                                                <C>              <C>               <C>               <C>
Short-term investments:
   Certificates of deposit                         $15,748,468      $15,748,468       $        --       $        --
   Corporate debt securities                        40,151,217       40,245,387            96,961            (2,791)
   U.S. government obligations                       9,383,493        9,379,508             2,280            (6,265)
                                                   -----------      -----------       -----------       -----------
         Total short-term investments              $65,283,178      $65,373,363       $    99,241       $    (9,056)

Marketable securities
   Corporate debt securities                       $31,835,286      $32,078,446       $   249,309       $    (6,149)
   U.S. government obligations                      11,075,464       11,073,553             4,615            (6,526)
   Foreign government obligations                    5,069,400        5,121,986            52,586                --
                                                   -----------      -----------       -----------       -----------
         Total marketable securities               $47,980,150      $48,273,985       $   306,510       $   (12,675)
</TABLE>

      The Company classifies its existing debt securities as marketable
securities in accordance with the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for


                                       71
<PAGE>

Certain Investments in Debt and Equity Securities." These securities are carried
at fair market value, with unrealized gains and losses reported in stockholders'
equity as a component of other comprehensive income (loss). Gains or losses on
securities sold are based on the specific identification method. The net
unrealized holding gains of $1,385,666 and $384,020 on these securities are
included in the accumulated comprehensive income at December 31, 2001 and 2000,
respectively.

      Securities with maturities of less than one year are classified as
short-term investments, and securities with maturities of greater than a year
are non-current and are classified as marketable securities, within the
consolidated balance sheet.

      Other investments, for the year ended December 31, 2001 consist of a
$395,566 investment in Affilias USA, Inc., a registry for the .info generic
top-level-domain.

6. Stockholders' Equity

Authorized Capital

      In June 1999, the Company amended its certificate of incorporation to
increase the authorized shares of Common Stock to 25,000,000 and Preferred Stock
to 5,000,000 shares.

      In January 2000, the Company amended its certificate of incorporation to
increase the authorized shares of Common Stock to 60,000,000.

      In March 2000, the Company amended its certificate of incorporation to
increase the authorized shares of Common Stock to 200,000,000.

Common Stock

      In January and May 1998, the Company completed private placements of an
aggregate of 6,440,000 shares of common stock at $.36 per share, providing
proceeds, net of offering expenses, of $2,290,732. In connection with these
placements, the Company issued warrants to acquire an aggregate of 1,143,338
shares of its common stock as a finders fee to two individuals who were members
of two different entities that are principal stockholders of the Company (Note
7). Additionally, the Company issued warrants to acquire up to 2,450,001 shares
of common stock to all stockholders of record prior to the January 1998 private
placement, on a pro rata basis to their stock holdings (Note 7).

      In June 1998, the Company completed a private placement of 466,666 shares
of common stock at $.43 per share, providing proceeds of $200,000.

      In May 1999, the Company completed a private placement of 2,041,666 shares
of its common stock and a warrant to acquire 700,000 shares of its common stock
at an exercise price of $.01 per share (Note 7), providing gross proceeds of
$7,000,000 and proceeds, net of offering expenses, of $6,693,497. In addition,
the Company and the investor entered into a two-year marketing agreement that
allows for cross marketing among each of the parties websites (Note 10). In
addition, the Company issued the placement agent in the offering warrants to
acquire 308,959 shares of common stock at an exercise price of $4.08 per share
(Note 7).


                                       72
<PAGE>

      In March 2000, the Company sold 5,222,279 shares of common stock through
its initial public offering, including 222,279 shares as a result of the
underwriters' exercise of their over allotment option. Net proceeds from the
offering and over allotment were approximately $115.3 million, after deducting
the discount granted to the underwriters and other offering expenses. At the
time of the initial public offering, all of the Company's preferred stock
automatically converted into 4,694,333 shares of common stock.

      During 2001, the Company issued 56,377 of restricted stock to various
employees at exercise prices ranging from $0.00 to $11.49 per share. The Company
has recorded the fair value of the restricted stock, in the amount of $499,997,
at the time of issuance as deferred compensation, which is being amortized as
non-cash compensation expense over the three year vesting period of the grants.

Exchangeable Preferred Stock

      In March 1999, the Company completed a private placement of 1,499,999
shares of exchangeable preferred stock at a price of $2.00 per share, providing
proceeds, net of expenses, of $2,840,775. The Company also issued the investor
warrants to acquire 420,000 shares of common stock at an exercise price of $2.14
per share in exchange for financial consulting services (Note 7). In addition,
the Company issued the placement agent in the offering warrants to acquire
185,490 shares of common stock at an exercise price of $4.08 per share (Note 7).
On August 15, 1999, the Exchangeable Preferred Stock automatically converted
into 1,499,999 shares of common stock.

Series A Convertible Preferred Stock

      In June and July 1999, the Company completed a private placement of
4,694,333 shares of its Series A Convertible Preferred Stock (the "Series A
Stock") at $3.43 per share, providing proceeds, net of offering expenses, of
$15,290,021. In addition, the Company also issued the investors warrants to
acquire an aggregate of 938,888 shares of common stock at an exercise price of
$3.43 per share (Note 7). Additionally, the Company entered into a marketing and
distribution agreement with one investor who purchased 1,405,835 shares of the
Company's Series A Convertible Preferred Stock (Note 10). Each share of Series A
Convertible Preferred Stock converted into one share of common stock at the date
of the initial public offering.

Voting

      Each share of common stock entitles the holder to one vote on all matters
submitted to a vote of the Company's stockholders.

Conversion

      All shares of preferred stock converted into the equivalent number of
shares of common stock at the completion of the Company's March 2000 initial
public offering.


                                       73
<PAGE>

7. Warrants

      In January and April 1998, and in connection with a private placement of
common stock, the Company issued warrants to acquire 571,669 shares of common
stock at an exercise price of $.36 per share and warrants to acquire 571,669
shares of common stock at an exercise price of $.86 per share as a finders fee.
The warrants were immediately exercisable and expire at various dates through
May 2003.

      In January 1998, and in connection with the January 1998 private placement
of common stock, the Company issued warrants to acquire up to, in the aggregate,
2,450,001 shares of its common stock at $.36 per share to all the stockholders
of record prior to the private placement. The warrants were issued to
stockholders on a pro rata basis to their stock holdings prior to the private
placement. Under the initial terms of the agreement, the vesting of these
warrants was contingent upon the Company reaching certain revenue targets for
the quarter ended June 30, 2000. In June 1999, the Company and the warrant
holders modified the terms of the warrant to (i) remove the revenue targets,
(ii) fix the aggregate number of shares at 2,450,001, and (iii) increase the
exercise price to $.97 per share. The Company has recorded compensation expense
in the amount of $3,878,000 based upon the difference between the fair value of
the Common Stock and the exercise price of the warrants at the time of
modification. In December 1999, warrants to acquire 52,500 shares of common
stock were exercised, providing gross proceeds of $51,000.

      In September 1998, the Company issued warrants to acquire an aggregate of
3,500 shares of common stock to consultants at an exercise price of $.43 per
share. The Company has recorded the estimated fair value of the warrants, in the
amount of $2,587, at the time of grant as consulting expense. The warrants are
exercisable through September 2008.

      In March 1999, in connection with a private placement of Exchangeable
Preferred Stock, the Company entered into a six-month financial advisory
services agreement with the acquirer of the Exchangeable Preferred Stock. Under
the terms of the agreement, the Company issued the investor warrants to acquire
420,000 shares of common stock at an exercise price of $2.14 per share. The
warrants expire in February 2004. The Company has recorded the estimated fair
value of the warrants, in the amount of $493,320, as consulting expense.

      In May 1999, in connection with a private placement of the Company's
common stock (Note 6), the Company issued the purchaser warrants to acquire
700,000 shares of common stock at an exercise price of $.01 per share. The
warrants are exercisable through May 2002.

      In February, March, May and June 1999, the Company issued warrants to
acquire an aggregate of 45,749 shares of common stock to consultants at exercise
prices ranging from $.57 to $1.57 per share. The Company has recorded the
estimated fair value of the warrants, in the amount of $75,890, at the time of
grant as consulting expense. The warrants are exercisable through May 2009.

      In March and May 1999, the Company issued warrants to acquire an aggregate
of 494,449 shares of common stock at an exercise price of $4.08 per share as a
fee for the March


                                       74
<PAGE>

1999 sale of Exchangeable Preferred Stock and the May 1999 sale of common stock.
The warrants expire in March and May 2004.

      In June 1999, and in connection with a private placement of Series A
Convertible Preferred Stock, the Company issued the investors warrants to
acquire an aggregate of 938,888 shares of common stock at an exercise price of
$3.43 per share. The warrants are exercisable through June 2004.

      In November 1999, the Company issued warrants to acquire 12,250 shares of
common stock to a consultant at an exercise price of $2.86 per share. The
Company has recorded the estimated fair value of the warrants, in the amount of
$151,928, at the time of grant as consulting expense. The warrants are
exercisable through November 2009.

      The following table is a summary of the common shares issuable upon
exercise of warrants outstanding at December 31, 2001:

                                                Shares Issuable  Exercise Price
Issuance Date                  Expiration Date   Upon Exercise     Per Share
                               ---------------   -------------   --------------

January 1998                   January 2003          135,625          $0.36
January 1998                   January 2003          135,625          $0.86
January 1998                   June 2005           2,304,813          $0.97
April 1998                     May 2003              102,085          $0.36
April 1998                     May 2003               74,085          $0.86
September 1998                 September 2008          1,500          $0.43
March 1999                     March 2009              5,250          $0.57
March 1999                     February 2004         420,000          $2.14
March 1999                     March 2004            185,490          $4.08
May 1999                       May 2002              700,000          $0.01
May 1999                       May 2009                5,250          $1.43
May 1999                       May 2004              308,959          $4.08
June 1999                      June 2009               5,250          $1.57
June 1999                      June 2004             281,819          $3.43
November 1999                  November 2009          12,250          $2.86
                                                   ---------          -----
Total shares and average exercise price            4,678,001          $1.38
                                                   =========          =====

8. Stock Option Plans

Amended and Restated 2000 Stock Incentive Plan

      The Company's Amended and Restated 2000 Stock Incentive Plan (the "2000
Plan") supercedes the 1997 and 1999 Stock Option Plans. The 1997 and 1999 Stock
Option Plans have been incorporated into the 2000 Plan, and no further grants
will be under those predecessor plans. The 2000 Plan permits the grant of both
incentive stock options and non-qualified stock


                                       75
<PAGE>

options and other equity based awards. Incentive stock options and certain other
awards may only be granted to employees of the Company whereas non-qualified
stock options and certain other awards may be granted to employees, non-employee
directors and consultants. The maximum aggregate number of shares reserved for
issuance under the 2000 Plan is 8,851,340. The share reserve is automatically
increased on the first trading day of each calendar year by a number of shares
equal to 2% of the total number of shares of common stock outstanding on the
last trading day of the prior calendar year, up to a maximum annual increase of
1,750,000 shares. On January 2, 2002 and 2001, respectively, the share reserve
increased by 765,932 and 735,408. The Compensation Committee determines the
exercise price and other terms of options and other awards (except automatic
option grants to non-employee directors) under the 2000 Plan. All non-employee
Board members, other than 3% Stockholders, are automatically granted an option
to acquire 25,000 shares of common stock on the date of initial election or
appointment to the Board, which option exercise price will equal the fair market
value of the Company's common stock on the date of grant, and which vests in
annual installments over two years. In addition, each non-employee Board member,
other than 3% Stockholders, who continues to serve as a director on the date of
each regularly scheduled quarterly meeting of the Board will receive an option
grant to purchase 2,500 shares of common stock on each such meeting date at an
exercise price equal to the fair market value of the Company's common stock on
the date of grant. Each 2,500-share option grant will vest upon the optionee's
completion of one year of board service measured from the grant date. 3%
Stockholder means a non-employee Board member who, as of March 3, 2000, directly
or indirectly, owned stock possessing at least 3% of the total combined voting
power of the outstanding securities of the Company (or any Parent or Subsidiary)
or was affiliated with or was a representative of such a 3% or greater
stockholder and is compensated for his/her membership on the Board of Directors
by any such 3% or greater stockholder.

Stock option activity under the 2000 Plan is summarized as follows:

                                                                Weighted Average
                                            Number of shares     Exercise Price
                                            ----------------     --------------

Outstanding at January 1, 1999                      745,850       $     0.42
Granted..................................         1,063,510             1.28
Exercised................................          (175,000)            0.36
Forfeited................................          (141,925)            1.12

Outstanding at December 31, 1999                  1,492,435             1.01
Granted..................................         3,501,674            23.81
Exercised................................          (420,590)            0.84
Forfeited................................          (999,087)           15.44

Outstanding at December 31, 2000                  3,574,432            19.00
Granted..................................         2,674,088             8.92
Exercised................................          (356,550)            1.07


                                       76
<PAGE>

Forfeited................................          (1,079,895)         18.57
                                                   ----------     ----------

Outstanding at December 31, 2001                    4,812,075     $    14.56
                                                   ----------     ----------

Options available for future grant                  2,321,193
                                                   ----------     ----------

The following table summarizes information about options outstanding under the
2000 Plan at December 31, 2001:

<TABLE>
<CAPTION>
                                         Options Outstanding                          Options Exercisable
                             Number       Weighted-Average                            -------------------
                         Outstanding at       Remaining          Weighted                                 Weighted
                          December 31,    Contractual Life       Average       Number Exercisable at      Average
  Exercise Price              2001             (Years)        Exercise Price     December 31, 2001     Exercise Price
------------------       --------------   -----------------   --------------   ---------------------   --------------
<S>                          <C>               <C>              <C>              <C>                   <C>
$ 0.00 - $ 5.20              481,440           7.57             $ 1.24             285,795             $ 1.21
$ 5.63 - $ 6.13              175,059           9.18             $ 5.67              17,867             $ 5.70
$ 6.28 - $ 6.28              626,673           9.18             $ 6.28              78,867             $ 6.28
$ 6.38 - $ 8.56              515,783           9.03             $ 7.33              76,685             $ 7.23
$ 8.72 - $11.45              674,097           9.73             $10.36              22,875             $10.03
$11.50 - $11.50               10,000           9.96             $11.50                   0             $ 0.00
$12.86 - $12.86              497,522           8.07             $12.86             270,172             $12.86
$12.96 - $12.97              568,770           9.51             $12.97              13,716             $12.97
$14.31 - $26.40              544,709           8.20             $23.88             386,131             $24.55
$30.00 - $58.06              718,022           8.30             $37.43             221,661             $36.29
                           ---------           ----             ------           ---------             ------
$ 0.00 - $58.06            4,812,075           8.76             $14.56           1,373,769             $16.68
                           =========           ====             ======           =========             ======
</TABLE>

      As permitted by SFAS No. 123 "Accounting for Stock-Based Compensation",
the Company accounts for its stock-based compensation arrangements pursuant to
APB Opinion No. 25, "Accounting for Stock Issued to Employees." In accordance
with the provisions of SFAS No. 123, the Company discloses the pro forma effects
of accounting for these arrangements using the minimum value method to determine
fair value. Based on the fair value of the stock options at the grant date the
Company's net loss would have been adjusted to the pro forma amounts indicated
below:

<TABLE>
<CAPTION>
                                                             December 31,
                                                             ------------
                                             2001                2000                1999
                                             ----                ----                ----
<S>                                     <C>                  <C>                 <C>
Net income (loss)
As reported ........................    $(21,586,662)        $   269,808         $(8,776,918)
Pro forma ..........................    $(24,972,686)        $(6,772,394)        $(8,828,475)
Net earnings (loss) per share
As reported-basic ..................          $(0.58)              $0.01              $(0.46)
As reported-diluted ................          $(0.58)              $0.01              $(0.46)
As reported-diluted ................          $(0.67)             $(0.21)             $(0.46)
</TABLE>

                                       77
<PAGE>

<TABLE>
<S>                                     <C>                  <C>                 <C>
Pro forma diluted ..................          $(0.67)             $(0.21)             $(0.46)
</TABLE>

      Prior to completion of the Company's initial public offering in March
2000, the fair value of each option grant to employees was estimated using the
minimum value method of the Black-Scholes option-pricing model, which assumes no
volatility. The values were obtained using assumptions, which were arrived using
information provided by management of the Company. Changes in the information
would affect the assumptions and the option prices derived from the assumptions.
The weighted average assumptions used for grants made in 2001, 2000 and 1999
were as follows:

                                               2001          2000          1999
                                               ----          ----          ----

Risk free interest rate ..............          4.5%          6.2%          5.5%
Expected lives (years) ...............          5.0           5.0           5.0
Expected dividends ...................          0.0%          0.0%          0.0%
Volatility ...........................         80.1%       0% to 100%        --

      The fair value of options and warrants (Note 7) granted to non-employees
is estimated using the Black-Scholes option-pricing model. The values were
obtained using assumptions, which were arrived using information provided by
management of the Company. Changes in the information would affect the
assumptions and the option prices derived from the assumptions. The weighted
average assumptions used for grants to non-employees made in 2001, 2000 and 1999
were as follows: risk free interest rate of 4.5%, 6.2% and 5.5%, respectively;
expected lives of 5 to 10 years based upon the term of the option or warrant;
expected dividends of 0% for each year; and a volatility of 80.1%, 100% and 0%,
respectively.

      The following table is a summary of the weighted average exercise price
and grant date fair values of options and warrants granted to employees and
consultants during the years ended December 31, 2001, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                 2001                 2000                  1999
                                                                 ----                 ----                  ----

                                                          Exercise   Fair       Exercise  Fair       Exercise   Fair
                                                           Price     Value       Price    Value       Price     Value
                                                           -----     -----       -----    -----       -----     -----
<S>                                                        <C>       <C>       <C>       <C>         <C>        <C>
Options granted to employees and consultants:
Exercise price less than fair value of stock on date
  of grant                                                 $0.01     $9.19     $ 12.86   $ 6.57      $ 1.28     $ 3.10
Exercise price equal to fair value of stock on date
  of grant                                                 $8.92     $8.92       26.82    16.86          --         --
Exercise price greater than fair value of stock on
  date of grant                                               --        --       24.17     2.10          --         --
Warrant grants to employees and consultants for
  services:
Exercise price less than fair value of stock on date
  of grant                                                    --        --          --       --        1.22       3.93
Exercise price equal to fair value of stock on date
  of grant                                                    --        --          --       --          --         --
Exercise price greater than fair value of stock on
  date of grant                                               --        --          --       --       $2.14      $1.17
</TABLE>

9. Employee Stock Purchase Plan

      The Company's Employee Stock Purchase Plan (the "Plan") was adopted by the
board and approved by the stockholders on January 26, 2000 and became effective
on March 3, 2000,


                                       78
<PAGE>

the date of the Company's initial public offering. The Plan qualifies under
Section 423 of the Code and provides substantially all full time employees an
opportunity to purchase shares of the Company's Common Stock through payroll
deductions of up to 10% of eligible compensation. Semiannually, on May 1 and
November 1, participant account balances are used to purchase stock at the
lesser of 85 percent of the fair market value of the Company's common stock on
the participant's entry date into the offering period or the fair market value
on the semi-annual purchase date. A total of 350,000 shares were initially
reserved for purchase under the Plan. The share reserve is automatically
increased on the first trading day of January of each year beginning in January
2001, by 0.25% of the total shares of common stock outstanding on the last
trading day of the prior calendar year. On January 1, 2001 and January 1, 2002,
respectively, the share reserve increased by 91,926 and 95,741 shares. Shares
purchased under the Plan were 66,774 and 33,619 for the years ended December 31,
2001 and 2000, respectively.

10. Related Party Transactions

XO Communications, Inc.

      In June 1999, the Company entered into a marketing and distribution
agreement with XO Communications, Inc. ("XO"), formerly, Concentric Network
Corporation. This agreement was amended in June and July of 2000. Under the
terms of the agreement, as amended, XO has agreed to purchase advertising from
the Company in minimum amounts that range over the term of the agreement and XO
has the right to terminate the agreement if certain performance metrics are not
met with respect to the advertising. In June 1999, XO also purchased 1,405,835
shares of the Company's Series A Convertible Preferred Stock (Note 6).

Staples

      In May 1999, the Company entered into a cooperative marketing agreement
with Staples. The initial term of the agreement ends on May 31, 2002, but
automatically renews for consecutive one-year terms unless terminated by either
party upon 60 days' written notice. No cash payments are required to be paid by
either Staples or us under this cooperative marketing agreement. In May 1999, we
sold 2,041,666 shares of our common stock to Staples, Inc. at a price of $3.43
per share. In connection with the transaction, we issued to Staples warrants to
purchase up to 700,000 shares of our common stock at an exercise price of
$0.0029.

Booz Allen & Hamilton Inc.

      In October 2000, the Company entered into a consulting arrangement with
Booz Allen & Hamilton Inc. ("Booz Allen"). Under the terms of this agreement,
Booz Allen provided the Company with consulting services over a ten-week period
for a fee of $570,000. Reginald Van Lee, a member of the Company's Board of
Directors, is a Partner at Booz Allen.

11. Income Taxes

      Net operating loss carryforwards and temporary differences between the
carrying amounts of assets and liabilities for financial reporting and income
tax purposes result in a net deferred tax asset of $18,415,311, $23,315,073 and
$11,921,024 at December 31, 2001, 2000


                                       79
<PAGE>

and 1999, respectively. The Company has recorded a valuation allowance in the
amount of, $0, $2,560,722 and $3,342,979 at December 31, 2001, 2000 and 1999,
respectively, to offset the deferred tax benefit amount.

The provision for income taxes for the years ended December 31, 2001, 2000 and
1999 consists of the following:

                                                    December 31,
                                                    ------------
                                        2001            2000            1999
                                        ----            ----            ----
Current:
Federal ........................    $ 5,634,363    $ 10,980,078     $ 5,210,244
State ..........................      2,251,716       3,670,304       3,367,801
                                    -----------    ------------     -----------
Total current ..................      7,886,079      14,650,382       8,578,045
                                    -----------    ------------     -----------
Deferred:
Federal ........................      1,511,998      (8,767,397)     (5,210,244)
State ..........................      1,002,225      (1,696,327)     (3,367,801)
                                    -----------    ------------     -----------
Total deferred .................      2,514,223     (10,463,724)     (8,578,045)
                                    -----------    ------------     -----------
Total provision for income taxes    $10,400,302    $  4,186,658     $        --
                                    ===========    ============     ===========

The components of the net deferred tax asset as of December 31, 2001, 2000 and
1999 consist of the following:

                                                   December 31,
                                                   ------------
                                        2001           2000             1999
                                        ----           ----             ----
Deferred tax assets:
Allowance for doubtful accounts .   $   810,687   $    769,482     $    144,070
Accrued expenses ................       168,892         65,895          472,264
Depreciation and amortization ...       288,977             --               --
Unrealized gain .................       202,400             --               --
Stock compensation ..............         6,479        439,308          547,551
Deferred revenue ................    23,034,300     29,589,348       14,704,541
                                    -----------    ------------     -----------
Total deferred tax asset ........    24,511,735     30,864,033       15,868,426
                                    -----------    ------------     -----------

Deferred tax liabilities:
Prepaid domain name registry fees     5,711,924      7,009,755        3,907,804
Allowance for returns ...........       384,500             --               --
Depreciation and amortization ...            --        370,236           39,598
Unrealized gain .................            --        168,969               --
                                    -----------    ------------     -----------


                                       80
<PAGE>

                                                   December 31,
                                                   ------------
                                        2001           2000             1999
                                        ----           ----             ----
Total deferred tax liabilities ..     6,096,424      7,548,960        3,947,402
                                    -----------    ------------     -----------
Net deferred tax asset ..........    18,415,311     23,315,073       11,921,024
Less: valuation allowance .......            --     (2,560,772)      (3,342,979)
                                    -----------    ------------     -----------
Deferred tax asset, net .........   $18,415,311   $ 20,754,301     $  8,578,045
                                    ===========   ============     ============

The financial statement income tax provision differs from income taxes
determined by applying the statutory Federal income tax rate to the financial
statement net loss for the years ended December 31, 2001, 2000 and 1999, as a
result of the following:

<TABLE>
<CAPTION>
                                                                   December 31,
                                                                   ------------
                                                           2001        2000        1999
                                                           ----        ----        ----
<S>                                                       <C>         <C>         <C>
Tax benefit at Federal statutory rate .............       (35.0)%      35.0%      (35.0)%
State income tax benefit, net of Federal tax charge        (4.7)        4.0       (11.8)
Non-deductible compensation expenses ..............          --          --        15.5
Non-deductible goodwill amortization ..............       152.4        79.7          --
Valuation allowance ...............................       (19.8)      (24.8)       31.3
                                                          -----       -----       -----
                                                           92.9%       93.9%         --%
                                                          =====       =====       =====
</TABLE>

12. Commitments

Operating leases

      The Company leases office facilities under operating leases expiring
through 2009. Future minimum lease payments due under non-cancelable operating
leases were as follows:

      Years ending December 31,
      2002.......................................     $  1,021,966
      2003.......................................          935,217
      2004.......................................          964,148
      2005.......................................          855,758
      2006.......................................          840,010
      Thereafter.................................        2,220,223
                                                     -------------

      Total minimum lease payments...............    $   6,837,322
                                                     =============

      Rent expense for the years ended December 31, 2001, 2000 and 1999 was
approximately $743,000, $433,000 and $220,000, respectively.

Employment agreements


                                       81
<PAGE>

      In the normal course of business, the Company enters into employment
agreements with certain executives of the company.

13. Acquisitions

      In June 2000, the Company, through a newly formed wholly-owned subsidiary,
acquired all of the outstanding capital stock of Inabox, Inc. for approximately
$1.0 million cash and 280,019 shares of the Company's common stock. The total
value of the transaction at the time of the acquisition was approximately $11.7
million. The acquisition has been accounted for using the purchase method of
accounting, and accordingly the purchase price has been allocated to assets
acquired and liabilities assumed based on their respective fair values.
Intangible assets, representing the unallocated excess of purchase price, plus
transaction expenses, over the net assets acquired and liabilities assumed based
on their respective fair values. Intangible assets, representing the unallocated
excess of purchase price, plus transaction expenses, over the net assets
acquired, of approximately $11.6 million has been allocated to goodwill and
other intangibles and is being amortized on a straight-line basis over a period
of 39 months.

      In September 2000, the Company, through a newly formed wholly-owned
subsidiary, acquired Afternic.com, Inc. for approximately $10.0 million cash and
the issuance of 4,378,289 shares of our common stock to the stockholders of
Afternic.com, a portion of which cash and stock was used to satisfy existing
obligations of Afternic.com. The total value of the transaction at the time of
the acquisition was approximately $47.9 million. The acquisition has been
accounted for using the purchase method of accounting, and accordingly, the
purchase price has been allocated to assets acquired and liabilities assumed
based on their respective fair values. Intangible assets, representing the
unallocated excess of purchase price, plus transaction expenses, over the net
assets acquired, of approximately $47.9 million has been allocated to goodwill
and other intangibles and is being amortized on a straight-line basis over a
period of 48 months.

      We review our goodwill and intangible assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of these
assets may not be recoverable. Our policy is to assess the recoverability of
goodwill using estimated undiscounted cash flows. Those cash flows include an
estimated terminal value based on a hypothetical sale of an acquisition at the
end of the related goodwill amortization period. Due to significantly lower than
expected demand for Afternic's services experienced in the first year following
the acquisition, as well as the fact that market conditions and attendant
multiples used to estimate terminal values have become and remained
significantly depressed since our acquisition of Afternic, we concluded that an
other than temporary impairment of goodwill has occurred. As a result, we
recorded an impairment charge in the quarter ended September 30, 2001, in the
approximate amount of $32.5 million.

      At December 31, 2001, we had a remaining balance of $8.6 million of
goodwill and other intangible assets related to our acquisitions of Inabox and
Afternic.


                                       82
<PAGE>

      The following is a summary of all consideration paid for the acquisitions
of Inabox, Inc. and Afternic.com, Inc. during the year ended December 31, 2000:

             Fair value of common stock issued               $47,621,031
             Cash paid                                        10,933,553
             Transaction costs                                 1,009,374
                                                             -----------
             Total purchase price                            $59,563,958
                                                             ===========

The assets and the liabilities of the acquired entities were recorded at their
estimated fair market value at the date of acquisition. The allocations were as
follows:

             Current assets, net                             $   132,943
             Goodwill and other intangibles, net              59,431,015
                                                             -----------
             Total purchase price                            $59,563,958
                                                             ===========

14. Contingencies

Litigation

      In November 2001, the Company, its Chairman, President, Chief Executive
Officer Richard D. Forman, former Vice President of Finance and Accounting Alan
G. Breitman, Goldman Sachs & Co. and Lehman Brothers, Inc, two of the
underwriters in the syndicate for our March 3, 2000 initial public offering,
were named as defendants in a class action complaint alleging violations of the
federal securities laws in the United States District Court, Southern District
of New York. Goldman Sachs & Co. and Lehman Brothers, Inc. distributed 172,500
of the 5,750,000 shares in the IPO. The complaint seeks unspecified damages as a
result of various alleged securities law violations arising from activities
purportedly engaged in by the underwriters in connection with our initial public
offering. Plaintiffs allege that the underwriter defendants agreed to allocate
stock in the Company's initial public offering to certain investors in exchange
for excessive and undisclosed commissions and agreements by those investors to
make additional purchases of stock in the aftermarket at pre-determined prices.
Plaintiffs allege that the prospectus for the Company's initial public offering
was false and misleading in violation of the securities laws because it did not
disclose these arrangements. We intend vigorously to defend the action, which is
being coordinated with over three hundred other nearly identical actions filed
against other companies before one judge in the U.S. District Court for the
Southern District of New York. No date has been set for any response to the
complaint.

      There are various other claims, lawsuits and pending actions against the
Company incidental to the operations of its business. It is the opinion of
management, after consultation with counsel, that the ultimate resolution of
such claims, lawsuits and pending actions will not have a material adverse
effect on the Company's financial position, results of operations or liquidity.

15. Subsequent Events

      On February 1, 2002, the Company, through one of its newly established
subsidiaries, Register.com (U.K.) Limited, announced a recommended cash offer
for all outstanding shares of


                                       83
<PAGE>

Virtual Internet plc. The offer valued Virtual Internet at approximately
(pound)11.99 million (approximately $16.9 million). The Company's offer was
declared unconditional on February 22, 2002 and the Company has purchased all
shares tendered prior to that date. The Company's offer for the remaining shares
will close on March 27, 2002. To the extent any shares are not tendered by March
27, 2002, the Company expects to acquire such shares through the compulsory
acquisition procedure pursuant to the U.K. Companies Act. For the year ended
October 31, 2001 under U.K. generally accepted accounting principles, Virtual
Internet's turnover and gross profit amounted to (pound)9.3 million and
(pound)6.5 million (approximately $13.1 and $9.2 million) respectively and it
reported a loss for the same period of (pound)19.7 million (approximately $27.8
million).

      Virtual Internet's principal activities are online intellectual property
protection and web-hosting services. Its Net Searchers division, like our
Corporate Services division, is a provider of domain name registration and
intellectual property monitoring services to corporations and intellectual
property professionals. The Virtual Internet web-hosting business services
customers throughout Europe from a centralized multilingual operations center in
London. In addition to these activities, Virtual Internet founded RegistryPro
with the Company.


                                       84
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of Register.com, Inc.

In connection with our audits of the financial statements of Register.com, Inc.
as of December 31, 2001 and 2000 and for each of the three years in the period
ended December 31, 2001, which financial statements are included in the Form
10-K, we have also audited the financial statement schedule listed in Part II
herein.

In our opinion, this financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.

/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
New York, New York
January 28, 2002


                                       85
<PAGE>

                 Schedule II - Valuation and Qualifying Account

<TABLE>
<CAPTION>
                                             Balance at      Charged to                     Balance at
                                            Beginning of      Costs and                       End of
                                               Period         Expenses       Deductions       Period
<S>                                         <C>              <C>              <C>            <C>
For the year ended December 31, 2001:
     Provision for doubtful accounts        $1,748,824       $  429,758       $     --       $2,178,582
                                            ===========================================================
For the year ended December 31, 2000:
     Provision for doubtful accounts        $  314,516       $1,434,308       $     --       $1,748,824
                                            ===========================================================
For the year ended December 31, 1999:
     Provision for doubtful accounts        $   65,947       $  536,585       $288,016       $  314,516
                                            ===========================================================
</TABLE>


                                       86
<PAGE>

Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.

      Not applicable.

                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

      Incorporated by reference from the information in our proxy statement for
the 2002 Annual Meeting of Stockholders which we will file with the Securities
and Exchange Commission within 120 days of the end of the fiscal year to which
this report relates.

Item 11. Executive Compensation.

      Incorporated by reference from the information in our proxy statement for
the 2002 Annual Meeting of Stockholders which we will file with the Securities
and Exchange Commission within 120 days of the end of the fiscal year to which
this report relates.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

      Incorporated by reference from the information in our proxy statement for
the 2002 Annual Meeting of Stockholders which we will file with the Securities
and Exchange Commission within 120 days of the end of the fiscal year to which
this report relates.

Item 13. Certain Relationships and Related Transactions.

      Incorporated by reference from the information in our proxy statement for
the 2002 Annual Meeting of Stockholders which we will file with the Securities
and Exchange Commission within 120 days of the end of the fiscal year to which
this report relates.

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

      (a)   1. Consolidated Financial Statements.

                  The financial statements as set forth under Item 8 of this
            report are incorporated by reference.

            2. Financial Statement Schedules.

                  The Valuation and Qualifying Account Schedule as set forth
            under Item 8 of this report is incorporated by reference.


                                       87
<PAGE>

            3. Exhibits.

                  The following Exhibits are incorporated herein by reference or
                  are filed with this report as indicated below.


Exhibit
Number      Description

2.1++       Agreement and Plan of Merger and Reorganization, dated as of
            September 15, 2000, by and among Register.com, Inc., RCOM
            Acquisition Corp. II, Afternic.com, Inc., eXtraActive Incorporated
            and the Stockholders of Afternic.com, Inc. identified on Schedule 1
            thereto.

3.1(psi)    Amended and Restated Certificate of Incorporation.

3.2##       Certificate of Correction of Amended and Restated Certificate of
            Incorporation

3.3(o)      Amended and Restated Bylaws

4.1*        Specimen common stock certificate.

4.2*        See Exhibits 3.1, 3.2, and 3.3 for provisions of the certificate of
            incorporation and bylaws defining the rights of holders of Common
            Stock.

4.3.1**     Registration Rights Agreement dated June 30, 1999.

4.3.2+      Registration Rights Agreement dated June 4, 2000.

4.3.3++     Registration Rights Agreement dated September 15, 2000.

4.5*        Certificate of designations, preferences and relative,
            participating, optional and other special rights of preferred stock
            and qualifications, limitations and restrictions of Series A
            Convertible Preferred Stock.

4.6.1*      Form of warrant to purchase common stock issued to Series A
            Convertible Preferred Stockholders.

4.6.4*      Form of warrant to purchase common stock issued to Niles H. Cohen
            and Zachary Prensky.

4.6.5*'     Form of Amended and Restated Common Stock Purchase Warrant -- Series
            A issued to Richard D. Forman, Peter A. Forman, Dan Levine and
            Capital Express LLC.

4.6.6*      Warrants to purchase common stock issued to Legg Mason Wood Walker,
            Incorporated.

4.6.7*      Form of warrant to purchase common stock issued to consultants.

4.6.8*      Warrant to purchase common stock issued to Terrence Kaliner.

4.7.1*'     Employee Stock Option Certificate issued to Richard D. Forman.

4.7.2*      Stock Option Certificate issued to Pondfield Associates, Inc.

4.7.3^^'    Stock Issuance Agreement, dated May 11, 2001, with Rene Mathis.

4.8.1^^'    Stock Option Agreement, dated June 28, 2001, with Rajiv Samant.

4.8.2^^'    Stock Issuance Agreement, dated June 28, 2001, with Rajiv Samant.

4.9'        Stock Issuance Agreement, dated March 20, 2002, with Walt Meffert
            Jr.

10.1*       1997 Stock Option Plan.

10.2*       1999 Stock Option Plan.

10.3.1+++   Registrar Accreditation Agreement, dated November 30, 1999, by and
            between ICANN and Register.com, Inc.

10.3.2+     Registrar Accreditation Agreement, dated April 27, 2000, by and
            between ICANN and Register.com, Inc.

10.4*       Registrar License and Agreement, dated December 13, 1999, by and
            between Network Solutions, Inc. and Register.com, Inc.

10.5*       Lease between Pennbus Realties, Inc. and Forman Interactive Corp.


                                       88
<PAGE>

Exhibit
Number      Description

10.6*       2000 Stock Incentive Plan.

10.6.2      Amended and Restated 2000 Stock Incentive Plan (effective as of
            March 22, 2002).

10.7*       Employee Stock Purchase Plan.

10.8*'      Employment Agreement, dated November 15, 1995, with Richard D.
            Forman.

10.8.2*'    Employment Agreement, dated February 27, 2000, with Richard D.
            Forman.

10.9*'      Employment Agreement with Jack S. Levy.

10.10*      Marketing Agreement, dated as of May 21, 1999, with Staples, Inc.

10.11*      Joint Marketing and Distribution Agreement, dated as of June 25,
            1999, with Concentric Network Corporation.

10.11.2+    Amendment No. 1, dated as of June 30, 2000, with Concentric Network
            Corporation.

10.14^'     Offer Letter, dated March 12, 2001, with Rene M. Mathis.

10.15^^^'   Letter Agreement of Employment, dated June 11, 2001, with Rajiv
            Samant.

10.16^^^'   Promissory Note, dated July 24, 2001, with Rajiv Samant.

10.17^^^'   Promissory Note, dated August 7, 2001, with Rene M. Mathis.

10.18'      Offer Letter, dated October 8, 2001, with Walt Meffert Jr.

10.19'      Promissory Note, dated December 20, 2001, with Walt Meffert Jr.

10.20~      Lease between Yarmouth Area Industrial Commission and RCOM Canada,
            Corp.

21.1        Subsidiaries of Registrant.

23.1        Consent of PricewaterhouseCoopers LLP.

----------
*     Incorporated by reference to the identically numbered exhibit of
      Registration Statement No. 333-93533.

(psi) Incorporated by reference to Exhibit 3.2 of Registration Statement No.
      333-93533.

(o)   Incorporated by reference to Exhibit 3.4 of Registration Statement No.
      333-93533.

**    Incorporated by reference to Exhibit 4.3 of Registration Statement No.
      333-93533.

##    Incorporated by reference to the identically numbered exhibit of
      Registrant's Quarterly Report on Form 10-Q filed for the quarter ended
      March 31, 2000.

+     Incorporated by reference to the identically numbered exhibit of
      Registrant's Quarterly Report on Form 10-Q filed for the quarter ended
      June 30, 2000.

++    Incorporated by reference to the identically numbered exhibit of
      Registrant Current Report on Form 8-K dated September 29, 2000.

+++   Incorporated by reference to Exhibit 10.3 of Registration Statement No.
      333-93533.

^     Incorporated by reference to the identically numbered exhibit of
      Registrant's Annual Report on Form 10-K for the year ended December 31,
      2000.

^^    Incorporated by reference to the identically numbered exhibit of
      Registrant's Quarterly Report on Form 10-Q filed for the quarter ended
      March 31, 2001.

^^^   Incorporated by reference to the identically numbered exhibit of
      Registrant's Quarterly Report on Form 10-Q filed for the quarter ended
      June 30, 2001.

~     Incorporated by reference to Exhibit 10.15 of the Registrant's Quarterly
      Report on Form 10-Q filed for the quarter ended March 31, 2001

'     Indicates management contract or compensatory plan or arrangement of the
      Securities Exchange Act of 1934, as amended.


                                       89
<PAGE>

      (b) Reports on Form 8-K

      On November 7, 2001, we filed a Current Report on Form 8-K, Item 5
announcing a stock repurchase program. A copy of our press release issued on
November 5, 2001 concerning the program was incorporated by reference.


                                       90
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Register.com, Inc. has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on this 22nd day of March, 2002.

                                       REGISTER.COM,  INC.


                                       By: /s/ Richard D. Forman
                                           -------------------------------------
                                           Richard D. Forman
                                           President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
         Signature                      Title                                             Date


<S>                            <C>                                                   <C>
/s/ Richard D. Forman
---------------------------
Richard D. Forman              President, Chief Executive Officer and Director       March 22, 2002
                               (Principal Executive Officer)


/s/ Rene M. Mathis
---------------------------
Rene M. Mathis                 Chief Financial Officer (Principal Accounting and     March 22, 2002
                               Financial Officer)


/s/ Peter A. Forman
---------------------------
Peter A. Forman                Director                                              March 22, 2002


/s/ Samantha McCuen
---------------------------
Samantha McCuen                Director                                              March 22, 2002


/s/ Mitchell I. Quain
---------------------------
Mitchell I. Quain              Director                                              March 22, 2002
</TABLE>


                                       91
<PAGE>


<TABLE>
<S>                            <C>                                                   <C>
/s/ Jim Rosenthal
---------------------------
Jim Rosenthal                  Director                                              March 22, 2002


/s/ Reginald Van Lee
---------------------------
Reginald Van Lee               Director                                              March 22, 2002
</TABLE>



                                       92
<PAGE>
                                 EXHIBIT INDEX

Exhibit
Number      Description

2.1++       Agreement and Plan of Merger and Reorganization, dated as of
            September 15, 2000, by and among Register.com, Inc., RCOM
            Acquisition Corp. II, Afternic.com, Inc., eXtraActive Incorporated
            and the Stockholders of Afternic.com, Inc. identified on Schedule 1
            thereto.

3.1(psi)    Amended and Restated Certificate of Incorporation.

3.2##       Certificate of Correction of Amended and Restated Certificate of
            Incorporation

3.3(o)      Amended and Restated Bylaws

4.1*        Specimen common stock certificate.

4.2*        See Exhibits 3.1, 3.2, and 3.3 for provisions of the certificate of
            incorporation and bylaws defining the rights of holders of Common
            Stock.

4.3.1**     Registration Rights Agreement dated June 30, 1999.

4.3.2+      Registration Rights Agreement dated June 4, 2000.

4.3.3++     Registration Rights Agreement dated September 15, 2000.

4.5*        Certificate of designations, preferences and relative,
            participating, optional and other special rights of preferred stock
            and qualifications, limitations and restrictions of Series A
            Convertible Preferred Stock.

4.6.1*      Form of warrant to purchase common stock issued to Series A
            Convertible Preferred Stockholders.

4.6.4*      Form of warrant to purchase common stock issued to Niles H. Cohen
            and Zachary Prensky.

4.6.5*'     Form of Amended and Restated Common Stock Purchase Warrant -- Series
            A issued to Richard D. Forman, Peter A. Forman, Dan Levine and
            Capital Express LLC.

4.6.6*      Warrants to purchase common stock issued to Legg Mason Wood Walker,
            Incorporated.

4.6.7*      Form of warrant to purchase common stock issued to consultants.

4.6.8*      Warrant to purchase common stock issued to Terrence Kaliner.

4.7.1*'     Employee Stock Option Certificate issued to Richard D. Forman.

4.7.2*      Stock Option Certificate issued to Pondfield Associates, Inc.

4.7.3^^'    Stock Issuance Agreement, dated May 11, 2001, with Rene Mathis.

4.8.1^^'    Stock Option Agreement, dated June 28, 2001, with Rajiv Samant.

4.8.2^^'    Stock Issuance Agreement, dated June 28, 2001, with Rajiv Samant.

4.9'        Stock Issuance Agreement, dated March 20, 2002, with Walt Meffert
            Jr.

10.1*       1997 Stock Option Plan.

10.2*       1999 Stock Option Plan.

10.3.1+++   Registrar Accreditation Agreement, dated November 30, 1999, by and
            between ICANN and Register.com, Inc.

10.3.2+     Registrar Accreditation Agreement, dated April 27, 2000, by and
            between ICANN and Register.com, Inc.

10.4*       Registrar License and Agreement, dated December 13, 1999, by and
            between Network Solutions, Inc. and Register.com, Inc.

10.5*       Lease between Pennbus Realties, Inc. and Forman Interactive Corp.


<PAGE>

Exhibit
Number      Description

10.6*       2000 Stock Incentive Plan.

10.6.2      Amended and Restated 2000 Stock Incentive Plan (effective as of
            March 22, 2002).

10.7*       Employee Stock Purchase Plan.

10.8*'      Employment Agreement, dated November 15, 1995, with Richard D.
            Forman.

10.8.2*'    Employment Agreement, dated February 27, 2000, with Richard D.
            Forman.

10.9*'      Employment Agreement with Jack S. Levy.

10.10*      Marketing Agreement, dated as of May 21, 1999, with Staples, Inc.

10.11*      Joint Marketing and Distribution Agreement, dated as of June 25,
            1999, with Concentric Network Corporation.

10.11.2+    Amendment No. 1, dated as of June 30, 2000, with Concentric Network
            Corporation.

10.14^'     Offer Letter, dated March 12, 2001, with Rene M. Mathis.

10.15^^^'   Letter Agreement of Employment, dated June 11, 2001, with Rajiv
            Samant.

10.16^^^'   Promissory Note, dated July 24, 2001, with Rajiv Samant.

10.17^^^'   Promissory Note, dated August 7, 2001, with Rene M. Mathis.

10.18'      Offer Letter, dated October 8, 2001, with Walt Meffert Jr.

10.19'      Promissory Note, dated December 20, 2001, with Walt Meffert Jr.

10.20~      Lease between Yarmouth Area Industrial Commission and RCOM Canada,
            Corp.

21.1        Subsidiaries of Registrant.

23.1        Consent of PricewaterhouseCoopers LLP.

----------
*     Incorporated by reference to the identically numbered exhibit of
      Registration Statement No. 333-93533.

(psi) Incorporated by reference to Exhibit 3.2 of Registration Statement No.
      333-93533.

(o)   Incorporated by reference to Exhibit 3.4 of Registration Statement No.
      333-93533.

**    Incorporated by reference to Exhibit 4.3 of Registration Statement No.
      333-93533.

##    Incorporated by reference to the identically numbered exhibit of
      Registrant's Quarterly Report on Form 10-Q filed for the quarter ended
      March 31, 2000.

+     Incorporated by reference to the identically numbered exhibit of
      Registrant's Quarterly Report on Form 10-Q filed for the quarter ended
      June 30, 2000.

++    Incorporated by reference to the identically numbered exhibit of
      Registrant Current Report on Form 8-K dated September 29, 2000.

+++   Incorporated by reference to Exhibit 10.3 of Registration Statement No.
      333-93533.

^     Incorporated by reference to the identically numbered exhibit of
      Registrant's Annual Report on Form 10-K for the year ended December 31,
      2000.

^^    Incorporated by reference to the identically numbered exhibit of
      Registrant's Quarterly Report on Form 10-Q filed for the quarter ended
      March 31, 2001.

^^^   Incorporated by reference to the identically numbered exhibit of
      Registrant's Quarterly Report on Form 10-Q filed for the quarter ended
      June 30, 2001.

~     Incorporated by reference to Exhibit 10.15 of the Registrant's Quarterly
      Report on Form 10-Q filed for the quarter ended March 31, 2001

'     Indicates management contract or compensatory plan or arrangement of the
      Securities Exchange Act of 1934, as amended.