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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                            ------------------------

                                   FORM 10-K
                            ------------------------
(MARK ONE)

      [X]   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934.

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

      [ ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934.

         FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .

                         COMMISSION FILE NUMBER 0-27541

                               WEBVAN GROUP, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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                    DELAWARE                                        77-0446411
          (STATE OR OTHER JURISDICTION                           (I.R.S. EMPLOYER
       OF INCORPORATION OR ORGANIZATION)                      IDENTIFICATION NUMBER)

               310 LAKESIDE DRIVE
                FOSTER CITY, CA                                       94404
    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                        (ZIP CODE)
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       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (650) 627-3000

  SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT: COMMON STOCK,
                               $0.0001 PAR VALUE

     Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. YES [X]  NO [ ]

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-K contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]

     The aggregate market value of the voting stock held by persons other than
those who may be deemed affiliates of the Company as of March 15, 2000, was
approximately $1,262,685,000. Shares of Common Stock held by each executive
officer and director and by each person who owns 5% or more of the outstanding
Common Stock have been excluded in that such persons may under certain
circumstances be deemed to be affiliates. This determination of executive
officer or affiliate status is not necessarily a conclusive determination for
other purposes.

     The number of shares of the Registrant's Common Stock outstanding as of
March 15, 2000 was 328,980,854.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Proxy Statement for the Registrant's 2000 Annual Meeting of
Stockholders to be held on June 1, 2000 are incorporated by reference in Part
III of this Form 10-K.

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                               TABLE OF CONTENTS

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PART I
     Item 1.  Business....................................................    3
     Item 2.  Properties..................................................   11
     Item 3.  Legal Proceedings...........................................   11
     Item 4.  Submission of Matters to a Vote of Security Holders.........   11

PART II
     Item 5.  Market for the Registrant's Common Equity and Related
              Stockholder Matters.........................................   11
     Item 6.  Selected Consolidated Financial Data........................   12
     Item 7.  Management's Discussion and Analysis of Financial Condition
              and Results of Operations...................................   13
     Item     Quantitative and Qualitative Disclosures About Market
       7A.    Risk........................................................   27
     Item 8.  Financial Statements........................................   29
     Item 9.  Changes In and Disagreement With Accountants on Accounting
              and Financial Disclosure....................................   48

PART III
     Item     Directors and Executive Officers of the Registrant..........   48
       10.
     Item     Executive Compensation......................................   48
       11.
     Item     Security Ownership of Certain Beneficial Owners and
       12.    Management..................................................   48
     Item     Certain Relationships and Related Transactions..............   48
       13.

PART IV
     Item     Exhibits, Financial Statement Schedules and Reports on Form
       14.    8-K.........................................................   48
SIGNATURES................................................................   50
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                                     PART I

     This report contains certain forward-looking statements (as such term is
defined in Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934) and information relating to us that are based
on the beliefs of our management as well as assumptions made by and information
currently available to our management, including statements related to the
designed capacity of our distribution centers, the time required for a
distribution center to operate at designed capacity, the timing and amount of
our capital expenditures and financing needs, and the economics of a
distribution center including its revenue potential, average order size, orders
processed per day, cash flow potential and operating margin. In addition, when
used in this report, the words "likely," "will," "suggests," "may," "would,"
"could," "anticipate," "believe," "estimate," "expect," "intend," "plan,"
"predict" and similar expressions and their variants, as they relate to us or
our management, may identify forward-looking statements. Such statements reflect
the judgement of the Company as of the date of this annual report on Form 10-K
with respect to future events, the outcome of which is subject to certain risks,
including the risk factors set forth below, which may have a significant impact
on our business, operating results or financial condition. Investors are
cautioned that these forward-looking statements are inherently uncertain. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results or outcomes may vary materially from
those described herein. Webvan undertakes no obligation to update forward
looking statements, whether as a result of new information, future events or
otherwise.

ITEM 1. BUSINESS

     Webvan is an Internet retailer offering same-day delivery of consumer
products through an innovative proprietary business design that integrates our
Webstore, distribution center and delivery system. Our current product offerings
are principally focused on food, non-prescription drug products and general
merchandise including housewares, pet supplies and books.

THE WEBVAN WEBSTORE

     Our Webstore is a user-friendly, informative and personalized web site
which enables users to quickly and easily navigate and purchase from a wide
selection of items. The Webstore makes the shopping experience easy for the
customer by offering them multiple methods for shopping the site. The store
directory is divided into twelve intuitively organized categories and allows the
customer to quickly and efficiently find items. Once customers find the item
they want, they may add it to the shopping cart or may save it to a shopping
list. The shopping cart is always visible on the screen and instantly updates
and calculates the order total while the customer shops. Our Webstore promotes
brand loyalty and repeat purchases by providing a convenient, easy-to-use
experience that encourages customers to return frequently.

     HOME PAGE. Our home page serves as the entry point and gives visitors a
glimpse of the wide selection available on the site. On our home page, customers
find weekly specials on brand name products, a clearly defined directory
structure and links that showcase specific products and areas of the site.

     BROWSING. Our Webstore displays a store directory which allows visitors to
browse through all the categories of products Webvan offers. The categories are
intuitively organized by type of product and enable the user to drill down from
general to more specific categories, such as moving from produce to fruits to
bananas. The browsing tool also enables customers to see all products in a
particular category before making a selection, similar to scanning the shelves
of a neighborhood store. In addition, each item on the site has an image and
many grocery products have nutritional information attached, which further
enhances the user experience.

     SEARCHING. Our Webstore contained an interactive, searchable database of
approximately 18,000 SKUs at year end. The customer can search based on product
type, brand name or category. The search results page displays each relevant
item, along with the product category and subcategories.

     CONTENT AND FEATURES. Webvan offers an array of content on the site to
enhance the user experience and encourage visitors to try new items. Our weekly
electronic magazine, Sensations, features special recipes,

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cooking tips, features authored by food and health experts, and the opportunity
to interact with culinary professionals. As we accumulate data, our Webstore can
be personalized to appeal to individual customer preferences and buying habits.

     PERSONALIZATION AND LISTS. Our Webstore enables a customer to personalize
their shopping experience. The site's shopping list feature allows customers to
create and retain personal shopping lists in their profiles. Multiple lists can
be saved for weekly shopping, specific events or special occasions. Once a list
has been created and saved, it can be retrieved and modified at any time,
enabling customers to shop and check out in a few minutes. We believe that the
personalization of a customer's shopping experience is an important element of
our value proposition and we intend to continue to enhance our personalization
services. For instance, we recently introduced the "My Personal Market" category
which generates a shopping category with everything a customer has ever
purchased at webvan.com sorted by product category as well as a shopping
category with a customer's 50 most frequently purchased items sorted by purchase
frequency.

     DELIVERY. Customers schedule their delivery by selecting a time from a grid
of 30-minute alternatives. Our real-time inventory tracking and delivery route
software systems are designed to help ensure that the groceries a customer
orders will be available so that they can be delivered at the delivery time
window selected by the customer. Using this system, the customer is able to
select and schedule a delivery to occur within an available specific 30-minute
window, on the same day or up to four days after the order is placed. Deliveries
are currently made from 7:00 a.m. to 10:00 p.m. every day of the week from our
Oakland facility. Our customers must be at home to accept delivery of perishable
or frozen items or regulated products such as alcohol and tobacco.
Non-perishable items may be delivered when the customer is not home.

     For the year, 92% of our deliveries were on time. While we strive to
maintain high on-time delivery rate and order fulfillment accuracy rates, we
have, on occasion, experienced operational "bugs" that have resulted in a high
proportion of late deliveries or order fulfillment inaccuracies on particular
days. Any material decrease in our on-time delivery rate or in order fulfillment
accuracy would likely have an adverse impact on our consumer acceptance of our
service and on our ability to increase average daily order volume. A prolonged
decline in our on-time delivery rate or in order fulfillment accuracy would have
an adverse impact on our financial results.

TECHNOLOGY

     We have developed a technologically advanced systems platform, which
integrates our entire business process from end to end. We have built an array
of proprietary advanced inventory management, warehouse management, route
management and materials handling systems and software to manage the entire
customer ordering and delivery flow process. Our proprietary automated materials
handling controller communicates with the Webstore and warehouse management
system and issues instructions to the various mechanized areas of the
distribution center to ensure the proper fulfillment of orders. We designed the
system to utilize automated conveyors and carousels to transport items to
centrally located employees. As a result, the system is designed to allow us to
increase volume without a proportionate increase in human resources.

     Once a delivery is scheduled, a route planning feature of the system
determines the most efficient route to deliver goods to the customer's home. The
courier communicates with the route planner and delivery scheduler modules
throughout the delivery process through the use of a wireless mobile field
device. Each aspect of this process is tightly integrated and enables us to
provide high quality service to our customers.

     We have devoted over 50 person years of effort to our software development
effort. Our software development expenses were approximately $15 million, $3
million and $0.2 million in 1999, 1998 and 1997, respectively.were We are
continuously refining and modifying our systems based on our experience and an
attempt to incorporate additional features that make order processing more
efficient and customer experience more rewarding. We outsource most of our
network operations functions and employ our own customer services personnel. The
continued uninterrupted operation of our Webstore and transaction-processing
systems is essential to our business, and it is the job of the site operations
staff to ensure, to the greatest extent possible, the reliability of our
Webstore and transaction-processing systems. Webvan's web and database servers
are hosted at AboveNet Communications, Inc. in Santa Clara County, California.
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DISTRIBUTION CENTER ROLL OUT

     We currently operate a 336,000 square foot distribution center facility in
Oakland, California. The distribution center was designed to process product
volumes equivalent to approximately 18 supermarkets and is the hub for the
receipt and distribution of products and allows for efficient sorting and
distribution of products. The distribution center is a clean, climate-controlled
facility segmented into separate ambient, refrigerated and frozen areas that
store grocery items at optimal temperatures. Identical software systems will be
implemented at each distribution center, enabling the easy replication of the
distribution center model across multiple locations and allowing for central
management of the entire system. We intend to pursue a roll out of distribution
centers into various locations in the U.S. to capitalize on what we view as a
substantial market opportunity. Our first facility in Oakland, California was
commercially launched in June 1999. Our second distribution center in Atlanta,
Georgia is scheduled to open in the second quarter of 2000. Other planned
openings in 2000 include Chicago and Seattle and we plan to have distribution
centers open in a total of 15 geographic markets by the end of 2001. We plan to
locate our distribution centers in industrially zoned areas, which generally
have lower real estate costs than traditional supermarkets located in commercial
areas.

     In July 1999, we entered into an agreement with Bechtel Corporation for the
construction of up to 26 additional distribution centers after Atlanta over the
next three years in various locations that we designate. We believe that our
alliance with Bechtel will enable us to more aggressively and cost-effectively
roll out distribution centers in other markets by utilizing their engineering,
design, procurement and construction expertise. Bechtel will be responsible for
substantially all aspects of the build-out program and will deliver completed
distribution centers to Webvan. We expect Bechtel to leverage its strengths in
engineering management to incorporate improvements to the design of our
distribution centers. For instance, "build-to-suit" design specifications are
currently being designed with Bechtel to be provided to potential landlords for
the development of buildings with "standardized" or identical layouts. Although
the Company has no specific capital commitment under our agreement, our
expenditures under the contract are estimated to be approximately $1.0 billion.
We estimate the average cost of the construction of and equipment of
distribution centers under our contract with Bechtel at $30.0 million to $35.0
million based on our experience to date and on efficiencies we expect will be
progressively realized over the course of our contract from our relationship
with Bechtel, including cost of construction efficiencies we expect to follow
from "build-to-suit" design specifications. Bechtel is to perform services under
its agreement with us within schedule and budgetary parameters determined by
Webvan, and will be eligible to receive cash incentive payments to the extent
distribution centers are completed within the preestablished parameters. Under
our agreement with Bechtel, Bechtel has agreed not to provide substantially
similar services to any other entity operating in a number of Internet retail
segments. We also issued Bechtel a warrant to purchase up to 1,800,000 shares of
our stock. The warrant has been exercised as to 150,000 shares and becomes
exercisable as to 150,000 additional shares when the first six distribution
centers are completed and as to an additional 57,690 shares upon the completion
of each distribution center within agreed upon schedule and budgetary
parameters.

     We currently obtain all of our carousels for our distribution centers from
Diamond Phoenix Corporation. Under our agreement with Diamond Phoenix, Diamond
Phoenix has agreed not to sell carousels to any other entity operating in a
number of Internet retail segments. In the event that the supply of carousels
from Diamond Phoenix were delayed or terminated for any reason, the Company
believes that it could obtain similar carousels from other sources; however, the
integration of such other carousels into our distribution centers could result
in construction delays and could require modifications to our software systems.
Accordingly, any such delay or termination of our relationship with Diamond
Phoenix could cause a material delay in our planned expansion program. In
addition, in connection with this arrangement, we made a minority equity
investment in Diamond Phoenix.

DELIVERY OPERATIONS

     The distribution center will serve as the center of our hub-and-spoke
delivery system. Orders are collected from the Webstore, routed and managed by
the distribution center, transferred to stations and delivered from the stations
to customers' homes. This model enables us to efficiently and cost effectively
deliver consumer goods to the home by combining centralized order fulfillment
with decentralized delivery.
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We use temperature-controlled trucks to deliver from the distribution center to
the station and smaller vans to deliver from the station to the home. The
stations are strategically positioned throughout a delivery region within
approximately 50 miles of a distribution center and typically within
approximately 10 miles of target customer residences. Our initial market in the
San Francisco Bay Area, has 12 stations, and we expect other distribution
centers to support from 12 to 15 stations. We deliver to the customer's door in
a smaller van complete with refrigeration equipment to keep chilled and frozen
items at temperatures that insure their quality and freshness. Each customer's
order is delivered in environmentally-friendly reusable containers, called
totes.

     All of our couriers are Webvan employees. We utilize strict hiring
standards in choosing couriers and require each new employee to complete an
intensive training program. The courier training lasts three weeks and includes
32 hours of classroom training, 24 hours of driving training and 16 hours of on
the job training. Couriers are trained in responsible driving practices,
verification procedures related to the sale of alcohol and tobacco products,
courtesy and the proper handling of totes and products. Our couriers receive a
competitive compensation package, including cash and stock options, and are
incentivized to reinforce our brand and help to create a lasting one-to-one
relationship with our customers. In addition, couriers have been trained to
answer questions about the service and handle service issues directly and
promptly at the customer residence. If the customer is not satisfied with the
products received, the courier is able to initiate a transaction to replace
items or credit the customer's bill.

CUSTOMER SERVICE

     We believe that our ability to establish and maintain long-term
relationships with our customers and to encourage repeat visits and purchases
depends on the strength of our customer support and service operations and
staff. We seek to achieve frequent communication with and feedback from our
customers to continually improve the Webvan service. Webvan offers a number of
automated help options as well as an on-line "chat" system that connects
customers and customer service representatives on the website and an easy-to-use
direct e-mail service to enable customers to ask questions and to encourage
feedback and suggestions. We plan to respond to customer email inquiries within
12 hours of the submission and allow for a maximum response time of 24 hours.
Our team of customer support and service personnel are responsible for handling
general customer inquiries, answering customer questions about the ordering
process, and investigating the status of orders, deliveries and payments. Users
can contact customer service representatives via our toll free telephone number
to ask questions. Our automated customer service function distributes e-mails to
customers after registration and after each order is placed. We plan to enhance
the automation of the tools used by our customer support and service staff in
the future.

MARKETING AND PROMOTION

     Our marketing and promotion program is designed to strengthen the Webvan
brand name, drive trials of our service in our target markets, build strong
customer loyalty and maximize repeat usage and purchases. We intend to build our
brand name and customer loyalty through our public relations programs,
advertising campaigns and promotional activities. Our efforts focus on building
credibility with customers and achieving market acceptance for our services. We
expect to advertise locally in our initial launch markets and plan to tailor our
advertising to each specific market.

     In the future, Webvan expects to be able to provide increasingly targeted
and customized services by using the customer purchasing, preference and
behavioral data obtained through the traffic and purchases generated at the
Webstore. We also build brand loyalty though personalized interaction with
customers through prompt, professional delivery persons and through use of
Webvan delivery vehicles. By offering customers a compelling and personalized
value proposition, our goal is to increase the number of visitors that make a
purchase, to encourage repeat visits and purchases and to extend customer
retention. In addition, loyal, satisfied customers generate strong word-of-mouth
support and awareness which drive new customer acquisitions and increased order
volumes.

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MERCHANTS AND VENDORS

     Webvan sources grocery products from a network of food and drug
manufacturers, wholesalers and distributors. We source products from a network
of manufacturers, distributors and wholesalers. We currently rely on rapid
fulfillment from national and regional distributors for a substantial portion of
our grocery items. We purchase a number of top grocery brands and high volume
grocery items directly from manufacturers and may increase our use of direct
suppliers as our product volumes increase with additional distribution centers.
We also utilize premium specialty suppliers or local sources for gourmet foods,
farm fresh produce, fresh fish and meats. Because we cover a broad area and
service high volumes from a single point of distribution, we offer our suppliers
a very efficient product supply model which is reflected in the discounts and
pricing we receive. When we select a new product for purchase, it is entered
into the inventory management system and our Webstore. We employ advanced
replenishment and expiration date controls to manage our inventory and maintain
product freshness. As of December 31, 1999, we were purchasing products from
approximately 30 distributors and directly from approximately 230 vendors.

LEVERAGE DISTRIBUTION SYSTEM TO ENTER ADDITIONAL CONSUMER PRODUCT CATEGORIES.

     Our initial focus is on groceries and non-prescription drugstore offerings
because we believe this is the best way to establish long-term relationships
with customers given the frequency with which people shop for these products
compared to other items and the size of the grocery and drugstore market. We
believe that customer reliance on the convenience and reliability of Webvan
deliveries to their homes will enable implementation of the larger strategy of
using our distribution system to sell products in other consumer product
categories and ultimately to position ourselves as the preferred choice of
customers for purchasing products over the Internet that are delivered to the
home.

COMPETITION

     Local, regional, and national food chains, independent food stores and
markets, as well as online grocery retailers comprise our principal competition
as an on-line grocery retailer, although we also face substantial competition
from convenience stores, liquor retailers, membership warehouse clubs, specialty
retailers, supercenters, and drugstore chains. To the extent that we add
non-grocery store product categories to our offering, local, regional and
national retailers in those product categories, as well as online retailers in
those product categories, will provide our principal competition in those areas.
Many of our existing and potential competitors, particularly traditional grocers
and retailers and certain online retailers, are larger and have substantially
greater resources than we do. We expect this competition in the online grocery
and non-grocery areas will intensify as more traditional and online grocery
retailers offer competitive services. For instance, in Seattle, where we expect
to begin operations this year, Albertson's, a traditional supermarket chain, has
introduced an Internet based service, and we expect competition from such
retailers to intensify in the near future.

     Our initial distribution center in Oakland, California, operates in the San
Francisco Bay Area market. In this market, we compete primarily with traditional
grocery retailers and with online grocers NetGrocer and Peapod. Homegrocer has
announced plans to introduce its online grocery service in Atlanta. Our
potential competitors in markets other than the San Francisco Bay Area include
between five and ten full-service grocery retailers operating exclusively
online. The number and nature of competitors and the amount of competition we
will experience will vary over time and by market area. In other markets, we
expect to compete with current online offerings from these companies and others,
including HomeGrocer, HomeRuns, ShopLink, GroceryWorks and Streamline. Many of
these services charge membership, delivery or service fees, and often offer
their goods at a premium to traditional supermarkets. In addition, most
competing online retailers currently use manual shopping and retrieval systems
which we believe lack the capability to process a large number of orders for a
large number of customers in a cost efficient manner.

     The principal competitive factors that affect our business are location,
breadth of product selection, quality, service, convenience, price and consumer
loyalty to traditional and online grocery and non-grocery retailers. In the
grocery business, we believe that we compete favorably with respect to each of
these factors as

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compared to other online grocery retailers. However, many traditional grocery
retailers may have substantially greater levels of consumer loyalty and serve
many more locations than we currently do. As we expand into additional product
categories, our ability to attract and retain customers for these products will
be a function of the same competitive factors. If we fail to compete effectively
in any one or more of these areas, we may lose existing and potential customers,
which could materially harm our business.

GOVERNMENT REGULATION

     In addition to regulations applicable to businesses generally or directly
applicable to electronic commerce, we are subject to a variety of regulations
concerning the handling, sale and delivery of food, alcohol and tobacco
products. Currently, we are not subject to regulation by the United States
Department of Agriculture, or USDA. Whether the handling of certain food items
in our distribution facility, such as meat and fish, will subject us to USDA
regulation in the future will depend on several factors, including whether we
sell food products on a wholesale basis or whether we obtain food products from
non-USDA inspected facilities. Although we have designed our food handling
operations to comply with USDA regulations, we cannot assure you that the USDA
will not require changes to our food handling operations. We will also be
required to comply with local health regulations concerning the preparation and
packaging of our prepared meals and other food items. Any applicable federal,
state or local regulations may cause us to incur substantial compliance costs or
delay the availability of a number of items at one or more of our distribution
centers. In addition, any inquiry or investigation from a food regulatory
authority could have a negative impact on our reputation. Any of these events
could have a material adverse effect on our business and expansion plans and
could cause us to lose customers.

     We will be required to obtain state, and in some cases county or municipal
licenses and permits for the sale of alcohol and tobacco products in each
location in which we seek to open a distribution center. Given the complexity of
these regulations governing the issuance of these permits and licenses and the
fact that most were enacted prior to the existence of an Internet-based sales
model, we cannot assure you that we will be able to obtain any required permits
or licenses in a timely manner, or at all. We may be forced to incur substantial
costs and experience significant delays in obtaining these permits or licenses.
For instance, we will not have an alcohol license in Atlanta when we open our
distribution center, and our pursuit of regulatory or legislative clarification
to existing rules in order to obtain a license may be ultimately unsuccessful or
expensive. In addition, the United States Congress is considering enacting
legislation which would restrict the interstate sale of alcoholic beverages over
the Internet. Changes to existing laws or our inability to obtain required
permits or licenses could prevent us from selling alcohol or tobacco products in
one or more of our geographic markets or a portion of those markets where a
market extends over two or more licensing jurisdictions. Any of these events
could substantially harm our net sales, gross profit and ability to attract and
retain customers.

     The adoption of laws or regulations relating to large-scale retail store
operations could adversely affect the manner in which we currently conduct our
business. For example, the Governor of California recently vetoed legislation
which would have prohibited a public agency from authorizing retail store
developments exceeding 100,000 square feet if more than a small portion of the
store were devoted to the sale of non-taxable items, such as groceries. While it
is not clear whether our operations would be considered a retail store for
purposes of this kind of legislation, we cannot assure you that other state or
local governments will not seek to enact similar laws or that we would be
successful if forced to challenge the applicability of this kind of legislation
to our distribution facilities. The expenses associated with any challenge to
this kind of legislation could be material. If we are required to comply with
new regulations or legislation or new interpretations of existing regulations or
legislation, this compliance could cause us to incur additional expenses or
alter our business model.

     In addition, because of the increasing popularity of the Internet, it is
possible that a number of laws and regulations may be adopted with respect to
the Internet and e-commerce that could adversely affect the manner in which we
conduct our business. These laws may cover issues such as user privacy, freedom
of expression, pricing, content and quality of products and services, taxation,
advertising, intellectual property rights and information security. Furthermore,
the growth of electronic commerce may prompt calls for more stringent consumer
protection laws. Several states have proposed legislation to limit the uses of
personal user
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information gathered online or require online services to establish privacy
policies. The Federal Trade Commission has also initiated action against at
least one online service regarding the manner in which personal information is
collected from users and provided to third parties. We do not currently provide
user-specific personal information regarding our users to third parties.
However, the adoption of such consumer protection laws could create uncertainty
in web usage and reduce the demand for our products and services.

     We are not certain how our business may be affected by the application of
existing laws governing issues such as property ownership, copyrights,
encryption and other intellectual property issues, taxation, libel, obscenity
and export or import matters. The vast majority of these laws were adopted prior
to the wide use of the Internet. As a result, they do not contemplate or address
the unique issues of the Internet and related technologies. Changes in laws
intended to address these issues could create uncertainty in the Internet market
place. This uncertainty could reduce demand for our services or increase the
cost of doing business as a result of litigation costs or increased service
delivery costs.

INTELLECTUAL PROPERTY

     We regard patent rights, copyrights, service marks, trademarks, trade
secrets and similar intellectual property as important to our success. We rely
on patent, trademark and copyright law, trade secret protection and
confidentiality or license agreements with our employees, customers, partners
and others to protect our proprietary rights; however, the steps we take to
protect our proprietary rights may be inadequate. We have filed trademark
registration applications, including for the marks "WEBVAN", "WEBVAN.COM," the
Webvan logo and "THE ONLY .COM YOU REALLY NEED". We currently have no patents
protecting our technology. From time to time, we have filed and expect to file
patent applications directed to aspects of our proprietary technology. We cannot
assure you that any of these applications will be approved, that any issued
patents will protect our intellectual property or that any issued patents or
trademark registrations will not be challenged by third parties. In addition,
other parties may independently develop similar or competing technology or
design around any patents that may be issued to us.

EMPLOYEES

     As of December 31, 1999, we had 959 full-time employees consisting of 101
in software development, 242 in operations, administration and customer service,
33 in merchandising, 15 in marketing and 568 at our distribution centers. We
expect to hire additional personnel as we expand our operations and staff
additional distribution centers. None of our employees are represented by a
labor union. We have not experienced any work stoppages and consider our
employee relations to be good.

EXECUTIVE OFFICERS

     Our executive officers and certain information about them as of December
31, 1999 are as follows:

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<S>                                         <C>   <C>
Louis H. Borders..........................  51    Chairman of the Board
George T. Shaheen.........................  55    President, Chief Executive Officer and Director
Robert H. Swan............................  39    Chief Financial Officer
Arvind Peter Relan........................  37    Senior Vice President, Platform Group
Mark X. Zaleski...........................  37    Senior Vice President, Area Operations
F. Terry Bean.............................  52    Senior Vice President, Human Resources
</TABLE>

     Louis H. Borders has served as our Chairman of the Board since founding
Webvan in December 1996. Mr. Borders served as President and Chief Executive
Officer of Webvan from December 1996 to September 1999. Mr. Borders co-founded
Synergy Software, a software consulting company, in November 1989 and served on
its board of directors from November 1989 to November 1997. Mr. Borders founded
Borders Books, a retail bookstore chain, in 1971 and served as President and
Chief Executive Officer until 1983 and as Chairman from 1983 to 1992. He also
developed the advanced information systems used by Borders Books to manage
inventory across diverse geographic and demographic regions. In addition, Mr.
Borders is chairman of

                                        9
<PAGE>   10

Mercury Capital Management, an investment firm he founded in 1995. Mr. Borders
holds a B.A. in Mathematics from the University of Michigan.

     George T. Shaheen has served as President and Chief Executive Officer and
as a member of the Board of Webvan since September 1999. Prior to joining
Webvan, he had been the managing partner and chief executive officer of Andersen
Consulting, a global consulting firm, since the firm became an independent unit
in 1989. He joined Andersen Consulting in 1967 and became a partner in 1977.
From 1980 to 1985, he oversaw the consulting practice for North and South
Carolina before heading the Northern California Consulting practice based in San
Francisco. Prior to becoming managing partner and chief executive officer of
Andersen Consulting, Mr. Shaheen was managing partner of the Southeast U.S.
Region and North American practices. In addition, he was the practice director
for Japan and the Pacific Northwest. Mr. Shaheen is also a director of Siebel
Systems, Inc., a software company. He is on the Board of Trustees at Bradley
University and is a member of the Board of Advisors for the Northwestern
University J.L. Kellogg Graduate School of Business. Mr. Shaheen received a
bachelor's degree in marketing and a master's degree in finance from Bradley
University.

     Robert H. Swan has served as Chief Financial Officer since February 2000;
from October 1999 until February 2000 he served as Vice President, Finance of
Webvan. From September 1985 to October 1999, Mr. Swan held a variety of
positions at General Electric Company, most recently as Vice President, Finance
and Chief Financial Officer of GE Lighting. From January 1997 to June 1998, Mr.
Swan served as Vice President, Finance of GE Medical Systems in Europe. From
October 1994 to January 1997, Mr. Swan served as Chief Financial Officer of GE
Transportation Systems. From May 1988 to October 1994, Mr. Swan held several
assignments with GE's Corporate Audit Staff. Mr. Swan holds a B.S. in Management
from the State University of New York at Buffalo and an M.B.A. from the State
University of New York at Binghamton.

     Arvind Peter Relan has served as Senior Vice President Platform Group of
Webvan since March 2000; from February 1998 until March 2000 he served as Senior
Vice President, Technology of Webvan. From May 1994 to February 1998, Mr. Relan
served in various management positions at Oracle Corporation, a software
company, most recently as Vice President of Internet Server Products in its
Application Server Division. In 1995, Mr. Relan founded Oracle's Internet Server
Division, including Oracle's patented Web Request Broker technology, Oracle
Application Server and Oracle Internet Commerce Server. From 1988 to 1994, Mr.
Relan held various positions at Hewlett-Packard, a computer systems, equipment
and services company, including principal technologist for the HP Openview
Platform. Mr. Relan holds a B.S. in Computer Engineering from the University of
California, Los Angeles and a M.S. in Engineering Management from Stanford
University.

     Mark X. Zaleski has served as Senior Vice President, Area Operations of
Webvan since July 1999. From December 1998 to July 1999, he served as Chief
Operating Officer of Webvan. From 1994 to 1998, Mr. Zaleski served in various
executive management positions for ACNielsen, a market research company, most
recently as Senior Vice President and Group Managing Director of Central Europe.
From 1985 to 1994, Mr. Zaleski held several positions at Federal Express, most
recently as a Managing Director for Federal Express, Europe. From 1985 to 1988,
Mr. Zaleski held various management positions in hub, ground operation and sales
for Federal Express. Mr. Zaleski holds a B.S. in Business Administration and an
M.B.A. from the European University in Antwerp, Belgium.

     F. Terry Bean has served as Senior Vice President, Human Resources since
March 2000. From August 1998 to May 1999 Mr. Bean served as vice president of
human resources and corporate services for Equiva Services, a joint venture
between Shell Oil Company, Texaco and Saudi Aramco. From 1994 to July 1998, he
was with Office Depot, Inc., serving first as the executive vice president,
human resources, and from 1997 to 1998, as senior vice president of the
company's commercial business unit. From 1989 to 1994, he was the senior vice
president, human resources for Roses Stores, Inc. in Henderson, North Carolina
and from 1978 to 1989, he held a series of senior positions within the personnel
services group at Federal Express Corporation. Mr. Bean received his bachelor's
degree in business from Memphis State University.

                                       10
<PAGE>   11

     Officers serve at the discretion of the Board and are appointed annually.
The employment of each of our officers is at will and may be terminated at any
time, with or without cause. There are no family relationships between any of
the directors or executive officers of Webvan.

ITEM 2. PROPERTIES

     Our corporate offices are located in Foster City, California, where we
lease a total of approximately 200,000 square feet under leases that expire
between August 2001 and November 2012 which we anticipate will satisfy our
corporate office space needs for the foreseeable future.

     We lease approximately 340,000 square feet in Oakland, California for our
distribution center under a lease that expires in June 2008, with an option to
extend the lease for an additional five years. We lease approximately 350,000
square feet in Suwanee, Georgia for our second distribution center, serving
Atlanta, which is expected to open in the second quarter of 2000. This lease
expires in July 2009, with two options to extend the lease for additional five
year periods. We have also signed leases for sites in Springfield, Virginia;
Grapevine, Texas; Carol Stream, Illinois, Kent, Washington; Denver, Colorado;
North Bergen, New Jersey; Logan, New Jersey; Bronx, New York; Ayer,
Massachusetts; Foothill Ranch, Orange County, California; and Glen Burnie,
Maryland; on which we plan to construct distribution centers averaging
approximately 350,000 square feet in existing or to-be-built buildings that will
serve the metropolitan areas of the District of Columbia, Dallas, Chicago,
Seattle, Denver, northern New Jersey, Philadelphia, New York City, Boston,
Orange County and Baltimore respectively. We are evaluating sites and
negotiating leases for additional distribution centers in other markets.
Although we expect those sites to be available, we cannot assure you that
suitable sites will be available on commercially reasonable terms. We do not own
any real estate and expect to lease distribution center and station locations in
the other markets we enter.

ITEM 3. LEGAL PROCEEDINGS

     From time to time, we may be involved in litigation relating to claims
arising out of our ordinary course of business. We are not currently a party to
any material litigation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Not Applicable.

                                    PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

     We effected the initial public offering of our Common Stock on November 4,
1999. As of March 15, 2000, there were approximately 560 registered holders of
our Common Stock. Our Common Stock is listed for quotation in the Nasdaq
National Market under the Symbol "WBVN." The following table sets forth for the
periods indicated, the high and low prices of our Common Stock as quoted in the
Nasdaq National Market.

<TABLE>
<CAPTION>
                                                            HIGH       LOW
                                                           ------    --------
<S>                                                        <C>       <C>
Fiscal year ended December 31, 1999
  Fourth Quarter (from November 4, 1999).................  $34.00    $15.0625
</TABLE>

     We have not paid any dividends since our inception and do not intend to pay
any dividends on our capital stock in the foreseeable future.

                                       11
<PAGE>   12

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.

     You should read the following selected consolidated financial data in
conjunction with our consolidated financial statements and the notes to those
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere in this report. Historical results
are not necessarily indicative of future results.

<TABLE>
<CAPTION>
                                                 PERIOD FROM
                                                 DECEMBER 17,
                                               1996 (INCEPTION)        YEARS ENDED DECEMBER 31,
                                               TO DECEMBER 31,       -----------------------------
                                                     1997               1998              1999
                                               ----------------      -----------      ------------
                                                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S>                                            <C>                   <C>              <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net sales....................................    $        --         $        --      $     13,305
Cost of goods sold...........................             --                  --            11,289
                                                 -----------         -----------      ------------
  Gross profit (loss)........................             --                  --             2,016
Operating expenses:
  Sales and marketing expenses...............             --                  --            11,746
  Software development.......................            244               3,010            15,237
  General and administrative.................          2,612               8,825            92,406
  Amortization of deferred stock
     compensation............................             --               1,060            36,520
                                                 -----------         -----------      ------------
          Total operating expenses...........          2,856              12,895           155,909
                                                 -----------         -----------      ------------
Loss from operations.........................         (2,856)            (12,895)         (153,893)
                                                 -----------         -----------      ------------
Interest income..............................             85                 923            11,480
Interest expense.............................             69                  32             2,156
                                                 -----------         -----------      ------------
  Net interest income........................             16                 891             9,324
                                                 -----------         -----------      ------------
Net loss.....................................    $    (2,840)        $   (12,004)     $   (144,569)
                                                 ===========         ===========      ============
Basic and diluted net loss per share.........    $      (.33)(1)     $      (.31)(1)  $      (1.43)
                                                 ===========         ===========      ============
Weighted average shares outstanding -- basic
  and diluted................................      8,575,050(1)       39,343,747(1)    101,043,634
                                                 ===========         ===========      ============
OTHER OPERATING DATA:
Capital expenditures.........................    $       265         $    32,669      $     64,253
Depreciation and amortization................             57               1,323            44,232
</TABLE>

<TABLE>
<CAPTION>
                                                                      DECEMBER 31,
                                                              -----------------------------
                                                               1997      1998        1999
                                                              ------    -------    --------
                                                                     (IN THOUSANDS)
<S>                                                           <C>       <C>        <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and equivalents........................................  $2,935    $13,839    $ 60,220
Working capital.............................................   7,693     10,923     605,618
Total assets................................................   8,279     60,009     757,793
Long-term liabilities.......................................      17     14,337      12,147
Total shareholder's equity..................................   7,972     33,612     705,252
</TABLE>

---------------
(1) As restated, see Note 15 of Notes to Consolidated Financial Statements.

                                       12
<PAGE>   13

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

     We are an Internet retailer offering same-day delivery of consumer products
through an innovative proprietary business design which integrates our Webstore,
distribution center and delivery system. Our current product offerings are
principally focused on food, non-prescription drug products and general
merchandise, such as housewares, pet supplies and books .

     We were incorporated in December 1996 as Intelligent Systems for Retail,
Inc. In April 1999, we changed our name to Webvan Group, Inc. We commenced our
grocery delivery service in May 1999 on a beta test basis to approximately 1,100
persons and commercially launched our Webstore on June 2, 1999. For the period
from inception in December 1996 to June 1999, our primary activities consisted
of raising capital, recruiting and training employees, developing our business
strategy, designing a business system to implement our strategy, constructing
and equipping our first distribution center and developing relationships with
vendors. Since launching our service in June 1999, we have continued these
operating activities and have also focused on building sales momentum,
establishing additional vendor relationships, promoting our brand name,
enhancing our distribution, delivery and customer service operations and
construction of additional distribution centers. Our cost of sales and operating
expenses have increased significantly since inception and are expected to
continue to increase. This trend reflects the costs associated with our
formation and larger sales volumes, as well as increased efforts to promote the
Webvan brand, build market awareness, attract new customers, recruit personnel,
build out our distribution centers, refine and modify our operating systems and
develop our Webstore and associated systems that we use to process customers'
orders and payments.

     Our prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stage of
development, particularly companies in new and rapidly evolving markets. These
risks for Webvan include an unproven business system and our ability to
successfully manage our growth. To address these risks, we must:

     - develop and increase our customer base;

     - implement and successfully execute our business and marketing strategy;

     - continue to develop, test, increase the capacity of and enhance our
       Webstore, order fulfillment, transaction processing and delivery systems;

     - respond to competitive developments; and

     - attract, retain and motivate quality personnel.

     Since our inception, we have incurred significant losses, and as of
December 31, 1999, we had an accumulated deficit of $159.4 million. As of
December 31, 1999 our initial distribution center in Oakland, California was
operating at less than 25% of the capacity for which it was designed.

     We do not expect any of our distribution centers to operate at designed
capacity for several years following their commercial launch, and we cannot
assure you that any distribution center will ever operate at or near its
designed capacity. From the commercial launch of our Webstore on June 2, 1999
through December 31, 1999 we delivered orders to over 47,000 separate customers
which generated approximately $13.3 million in net sales. During that period,
over 71% of our orders were from customers who had previously used our service
and our average order size was approximately $77.65. We expect that the addition
of new distribution centers will cause our average order size to fluctuate,
based on the number and timing of new distribution center openings and the
expectation that average order size will initially be lower at a new
distribution center. There can be no assurance that our average order size will
not decline significantly in future periods.

     We believe that our success and our ability to achieve profitability will
depend on our ability to:

     - substantially increase the number of customers and our average order
       size;

     - ensure that our technologies and systems function properly at increased
       order volumes;

                                       13
<PAGE>   14

     - realize repeat orders from a significant number of customers;

     - achieve favorable gross and operating margins; and

     - rapidly expand and build out distribution centers in new markets.

     To meet these challenges, we intend to continue to invest heavily in
marketing and promotion, distribution facilities and equipment, technology and
personnel. As a result, we expect to incur substantial operating losses for the
foreseeable future and the rate at which such losses will be incurred may
increase significantly from current levels. In addition, our limited operating
history makes the prediction of future results of operations difficult, and
accordingly, we cannot assure you that we will achieve or sustain revenue growth
or profitability.

RESULTS OF OPERATIONS

FISCAL YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

NET SALES

     Net sales are comprised of the price of groceries and other products we
sell, net of returns and credits. We commenced commercial operations in June
1999. Net sales were $13.3 million for our fiscal year ended December 31, 1999.
We did not have any net sales in the comparable prior year periods. In December
1999, we launched our "America's Second Harvest Food Donation Program" in which
individual or corporate customers order food from Webvan (included in Net Sales)
for donation to local foodbanks. Net sales under this program were approximately
$.8 million of which approximately $.7 million were purchased by entities and
individuals associated or affiliated with Webvan or investors in Webvan. Our
average order size was $77.65 for the whole year and $81.31 for the fourth
quarter, not including net sales under the Second Harvest program. We expect
that the addition of new distribution centers will cause our average order size
to fluctuate, based on the number and timing of new distribution center
openings, as increases in average order size at distribution centers with longer
operating histories will be offset by lower average orders sizes at new
distribution centers.

COST OF GOODS SOLD

     Cost of goods sold includes the cost of the groceries and other products we
sell, adjustments to inventory and payroll and related expenses for the
preparation of our home replacement meals. Cost of goods sold was $11.3 million
for the fiscal year ended December 31, 1999. We did not have any cost of goods
sold in the comparable prior year periods. The Company's gross profit as a
percentage of net sales was 15.2% for the fiscal year ended December 31, 1999.
Gross profit is expected to fluctuate as a result of a variety of factors,
including the number of distribution centers launched in the reporting period,
and the level of inventory spoilage related to perishables.

OPERATING EXPENSES

     SOFTWARE DEVELOPMENT. Software development expenses include the payroll and
consulting costs for software developers directly involved in programming our
computer systems. Software development expenses were $15.2 million for 1999,
$3.0 million for 1998, and $.2 million for 1997. These increases were primarily
attributable to increases in the number of employees and consultants required
for developing, enhancing and increasing the capacity of our Web site, order
processing, accounting, distribution center and delivery systems. Payroll and
related expenses for 1999 increased to $7.9 million from $2.4 million in 1998
and $0 in 1997. Consulting expenses for 1999 increased to $6.2 million from $.9
million in 1998 and $0 for 1997. We believe that continued investment in
software development is critical to attaining our strategic objectives and, as a
result, expect software development expenses to increase significantly in future
quarters.

     GENERAL AND ADMINISTRATIVE. General and administrative expenses include
costs related to fulfillment and delivery of products, real estate, technology
operations, equipment leases, merchandising, finance, customer service and
professional services, as well as non-cash compensation and related expenses.
General and administrative expenses increased to $92.4 million in 1999 from $8.8
million in 1998 and $2.6 million in
                                       14
<PAGE>   15

1997. Of this $83.6 million increase in 1999 over 1998, $31.6 million pertained
to certain non-cash compensation and other expenses comprised primarily of
payroll and related charges in connection with the terms of Mr. Shaheen's
employment and $30.7 million pertained to aggregate distribution center
operating expenses for our Bay Area distribution center and other distribution
centers in their pre-launch phase. Such expenses were $31.9 million in 1999
versus only $1.2 million in 1998. There were no distribution center expenses in
1997. At our corporate headquarters, payroll and related costs increased to
$14.5 million in 1999 from $4.1 million in 1998 and $.9 million in 1997.
Additionally, consulting and professional fees and rent and facility charges
also contributed to the company's general and administrative expense increases.
As we roll out our business in new markets, we expect general and administrative
expenses, including pre-launch distribution center expenses, to increase
significantly.

     MARKETING AND SALES. Marketing and sales expenses include the costs of the
creative development and placement of our advertisements, promotions, public
relations, and the payroll and related expenses of our headquarters marketing
staff. Marketing expenses were $11.7 million during 1999 compared to none in
1998 and 1997. The external costs of our advertisements and promotions for 1999
were $7.2 million compared to none in 1998 and 1997. Payroll and related
expenses were $3.2 million for 1999, compared to none in 1998 and 1997. As we
launch our business in new markets, we expect marketing expenses will increase
as the company continues to build brand awareness and increase its customer
base.

     AMORTIZATION OF STOCK-BASED COMPENSATION. Deferred stock-based compensation
primarily represents the difference between the exercise price and the deemed
fair value of our common stock for accounting purposes on the date certain stock
options were granted. During 1999, amortization of stock-based compensation was
$36.5 million compared to $1.1 million for 1998, and $0 for 1997.

INTEREST INCOME (EXPENSE) NET

     Interest income (expense), net consists of earnings on our cash and cash
equivalents and interest payments on our loan and lease agreements. Net interest
income was $9.3 million in 1999, $.9 million in 1998 and $16,000 in 1997. These
increases were primarily due to earnings on higher average cash and cash
equivalent balances during the relevant years.

LIQUIDITY AND CAPITAL RESOURCES

     Since inception, we have financed our operations primarily through private
sales of preferred stock which through September 30, 1999 totaled $393.6 million
(net of issuance costs) and the initial public stock offering of our common
stock in November, 1999 which totaled $402.6 million (net of underwriter's
discount and other issuance costs). Net cash used in operating activities was
$58.8 million for 1999. Operating activities in 1998 used net cash of $2.2
million and for 1997 used $2.4 million. Net cash used in operating activities
for each of these periods primarily consisted of net losses in addition to
increases in prepaid expenses, partially offset by increases in accounts
payable, accrued liabilities, amortization of deferred compensation, non-cash
compensation expenses, depreciation and amortization, as applicable.

     Net cash used in investing activities was $641.1 million in 1999, of which
$571.6 million was used to invest in marketable securities. Net cash used in
investing activities was $39.0 million in 1998, of which $2.7 million was used
to invest in marketable securities, and for 1997, net cash used for investing
activities was $5.3 million, of which $5.0 million was used to invest in
marketable securities. Net cash used in investing activities for each of these
periods consisted, otherwise, primarily of leasehold improvements and purchases
of equipment and systems, including computer equipment and fixtures and
furniture.

     Net cash provided by financing activities was $746.3 million in 1999, $52.1
million in 1998 and $10.7 million in 1997. In November 1999, we sold an
aggregate of 28,750,000 shares of common stock in the initial public offering at
a price of $15.00 per share. Net cash provided by financing activities during
1999 primarily consisted of proceeds from the issuance of preferred stock of
$348.0 million as well as the proceeds from the issuance of public stock of
$431.3 million, (approximately $402.6 million net of underwriter's discount and
other issuance costs). Net cash from financing activities during 1998 and 1997
included proceeds from the issuance of preferred shares of $34.8 million and
$10.7 million respectively. As of December 31,
                                       15
<PAGE>   16

1999, our principal sources of liquidity consisted of $60.2 million of cash and
cash equivalents and $578.6 million of marketable securities.

     As of December 31, 1999, our principal commitments consisted of obligations
of approximately $15.9 million outstanding under capital leases and loans. As of
December 31, 1999, we had capital commitments of approximately $100 million
principally related to the construction of and equipment for future distribution
centers. We anticipate a substantial increase in our capital expenditures and
lease commitments to support our anticipated growth in operations, systems and
personnel. We anticipate capital expenditures of from $300 to $350 million for
the 12 months ending December 31, 2000, based on the recently announced
acceleration of our expansion plans, although this amount may fluctuate based on
the number, actual cost and timing of the build out of additional distribution
centers. In July 1999, we entered into an agreement with Bechtel Corporation for
the construction of up to 26 additional distribution centers over the next three
years. Although the Company has no specific capital commitment under this
agreement, our expenditures under the contract are estimated to be approximately
$1.0 billion. Specific capital commitments under this contract are incurred only
as we determine to proceed with a scheduled build out of a distribution center.
The decision to proceed with each distribution center will require us to commit
to additional lease obligations and to purchase equipment and install leasehold
improvements.

     We currently anticipate that our available funds will be sufficient to meet
our anticipated needs for working capital and capital expenditures for the 12
months ending December 31, 2000. We intend to raise additional funds to support
our business plan for 2001 or curtail our expansion plans. We cannot be certain
that additional financing will be available to us on favorable terms when
required, or at all. If we issue additional securities to raise funds, those
securities may have rights, preferences or privileges senior to those of the
rights of our common stock and our stockholders may experience additional
dilution. Our future capital needs will be highly dependent on the number and
actual cost of additional distribution centers we open, the timing of these
openings and the success of these facilities once they are launched. Thus, any
projections of future cash needs and cash flows are subject to substantial
uncertainty. If our available funds and cash generated from operations are
insufficient to satisfy our liquidity requirements, we may seek to sell
additional equity or debt securities, obtain a line of credit or curtail our
expansion plans. In addition, from time to time we may evaluate other methods of
financing to meet our longer term needs on terms that are attractive to us.

YEAR 2000 COMPLIANCE

     As of March 15, 2000 we had not experienced any material problems
associated with the occurrence of the year 2000.

                     FACTORS THAT MAY AFFECT FUTURE RESULTS

     In addition to other information in this Annual Report on Form 10-K, the
following important factors should be carefully considered in evaluating us and
our business because such factors currently have a significant impact or may
have a significant impact on our business, prospects, financial condition or
results of operations.

WE ARE AN EARLY-STAGE COMPANY OPERATING IN A NEW AND RAPIDLY EVOLVING MARKET.

     We were incorporated in December 1996. From 1997 through May 1999, we were
focused on developing our Webstore and constructing and equipping our first
distribution center serving the San Francisco Bay Area. We did not begin
commercial operations until June 1999. Our limited operating history makes an
evaluation of our business and prospects very difficult. You must consider our
business and prospects in light of the risks and difficulties we encounter as an
early stage company in the new and rapidly evolving market of e-commerce. These
risks and difficulties include, but are not limited to: a complex and unproven
business system; lack of sufficient customers, orders, net sales or cash flow;
difficulties in managing rapid growth in personnel and operations; high capital
expenditures associated with our distribution centers, systems and technologies;
and lack of widespread acceptance of the Internet as a means of purchasing
groceries and other consumer products.
                                       16
<PAGE>   17

     We cannot be certain that our business strategy will be successful or that
we will successfully address these risks. Our failure to address any of the
risks described above could have a material adverse effect on our business.

OUR BUSINESS SYSTEM IS NEW AND UNPROVEN AT HIGH VOLUMES, AND THE ACTUAL CAPACITY
OF OUR SYSTEM MAY BE LESS THAN ITS DESIGNED CAPACITY.

     We have designed a new business system which integrates our Webstore,
highly automated distribution center and complex order fulfillment and delivery
operations. We have only been delivering products to customers commercially
since we launched our Webstore on June 2, 1999 and the average daily volume of
orders that we have had to fulfill to date has been significantly below our
designed capacity of 8,000 orders per day and the levels that are necessary for
us to achieve profitability. Although our initial distribution center was
designed to process product volumes equivalent to approximately 18 supermarkets,
as of December 31, 1999 we were operating at less than 25% of such designed
capacity.

     We do not expect our distribution centers to operate at designed capacity
for several years following their commercial launch, and we cannot assure you
that any distribution center will ever operate at or near its designed capacity.
If a distribution center is able to operate at its designed capacity seven days
per week, we estimate that it would generate annual revenue of approximately
$300 million assuming an average order size of approximately $103.00. We
recently increased our days of operations at our Oakland distribution center to
seven days a week. We cannot assure you how long it will take from the time of
launch before any new distribution center will effectively operate at seven days
a week. Our average order size for the fourth quarter of 1999 was $81.31. Thus,
in Oakland, in addition to significantly increasing the number of orders per day
we process, our average order size will have to increase by over $20.00 for the
distribution center to be able to generate annual revenue of $300 million at its
designed capacity. We cannot assure you that our average order size at our
Oakland distribution center will remain at current levels or increase in the
future or that the average order size at other distribution centers will be
similar to our Oakland distribution center. If the average order size of any
distribution center does not increase substantially from the amounts expected in
the earlier quarters of its operation based on our experience in Oakland or if a
distribution center is not able to operate at designed capacity seven days per
week, our annual revenue at that distribution center will be substantially less
than $300 million.

     It is not practicable to test our system at high volumes except by
processing commercial orders. As part of our testing process, we have
voluntarily limited the number of customer orders accepted in any given delivery
window in an effort to ensure that our systems and technologies function
properly while maintaining a high level of customer service. We plan to
incrementally increase our voluntary limit on orders as our systems and
technologies are proven at each incremental volume level. As a result, the
success of our system in a high order volume environment has yet to be proven.
Based on our operational experiences, refinements and modifications to our
business systems and technologies in connection with the process of scaling our
business to its design capacity may be necessary or advisable and the costs
associated with them may be material. In addition, new system and technology
features developed in response to our marketing and operational experience have
to be integrated coherently into our systems and technologies. We cannot assure
you that our business system will be able to accommodate a significant increase
in the number of customers and orders, or that our initial distribution center
or other distribution centers will in fact ever operate at or near designed
capacity. If we are unable to effectively accommodate substantial increases in
customer orders, we may lose existing customers or fail to add new customers,
which would adversely affect our business, net sales and operating margins.

OUR BUSINESS SYSTEM IS COMPLEX, AND WE ARE PERIODICALLY AFFECTED BY OPERATIONAL
DIFFICULTIES.

     Our business system relies on the complex integration of numerous software
and hardware subsystems that utilize advanced algorithms to manage the entire
process from the receipt and processing of goods at our distribution center to
the picking, packing and delivery of these goods to customers in a 30-minute
delivery window. We have, from time to time, experienced operational "bugs" in
our systems and technologies which have resulted in order errors such as missing
items and delays in deliveries. Operational bugs may arise from
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<PAGE>   18

one or more factors including electro-mechanical equipment failures, computer
server or system failures, network outages, software performance problems or
power failures. We expect bugs to continue to occur from time to time, and we
cannot assure you that our operations will not be adversely affected. In
addition, difficulties in implementing refinements or modifications to our
systems have, from time to time, caused us to suffer unanticipated system
disruptions, which impair the quality of our service during the period of
disruption. The efficient operation of our business system is critical to
consumer acceptance of our service. If we are unable to meet customer demand or
service expectations as a result of operational issues, we may be unable to
develop customer relationships that result in repeat orders, which would
adversely affect our business and net sales.

OUR BUSINESS SYSTEM MAY NOT BE READILY OR COST-EFFECTIVELY REPLICABLE IN
ADDITIONAL GEOGRAPHIC MARKETS.

     A critical part of our business strategy is to expand our business by
opening additional distribution centers in new and existing markets to achieve
economies of scale and leverage our significant and ongoing capital investment
in our proprietary business system. While we currently plan to have distribution
centers open in 15 markets by the end of 2001, our expansion strategy is
dependent upon the ability of our proprietary business system and enabling
software to be readily replicated to facilitate our expansion into additional
geographic markets on a timely and cost-effective basis. Because our business
system is extremely complex and we currently have only one operational
distribution center, we have not demonstrated whether our proprietary business
system is in fact readily and cost-effectively replicable.

     Our ability to successfully and cost-effectively replicate our business
system in additional geographic markets will also depend upon a number of
factors, including: the availability of appropriate and affordable sites that
can accommodate our distribution centers; our ability to successfully and
cost-effectively hire and train qualified employees to operate new distribution
centers; our ability to develop relationships with local and regional
distributors, vendors and other product providers; acceptance of our product and
service offerings; and competition.

     The number, timing and cost of opening of new distribution centers are
dependent on these factors and are therefore subject to considerable
uncertainty. If the replication element of our expansion strategy fails, we
could incur substantial additional operating costs and be forced to delay our
entrance into other markets.

     In addition, we currently obtain all of our carousels for our distribution
centers from Diamond Phoenix Corporation. In the event that the supply of
carousels from Diamond Phoenix was delayed or terminated for any reason, we
believe that we could obtain similar carousels from other sources; however, the
integration of other carousels into the complex systems of our distribution
centers could result in construction delays and could require modifications to
our software systems. Accordingly, any delay or termination of our relationship
with Diamond Phoenix could cause a material delay and increased cost in our
planned expansion program.

OUR EXPANSION PLANS ARE DEPENDENT ON THE PERFORMANCE OF, AND OUR RELATIONSHIP
WITH, BECHTEL CORPORATION.

     In July 1999, we entered into an agreement with Bechtel for the
construction of up to 26 additional distribution centers over the next three
years. We expect that our next 26 distribution centers following our Atlanta,
Georgia distribution center will be constructed by Bechtel pursuant to this
agreement. These distribution centers may not necessarily be in 26 different
markets. The success of our expansion program is highly dependent on the success
of our relationship with Bechtel and Bechtel's ability to perform its
obligations under the contract. Our working relationship with Bechtel has just
recently commenced and we cannot assure you that we will not encounter
unexpected delays or design problems in connection with the build-out of our
distribution centers. We also cannot assure you that expected cost efficiencies
on which are based our estimates of the average cost of a distribution center
will result from our relationship with Bechtel and Bechtel's acquisition of
experience in the construction of our distribution centers. If our relationship
with Bechtel fails for any reason, we would be forced to engage another
contractor, which would likely result in a significant delay in our expansion
plans and could result in increased costs of constructing and equipping our
distribution centers.

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WE HAVE NO EXPERIENCE IN MANAGING GEOGRAPHICALLY DIVERSE OPERATIONS.

     Although we plan to expand geographically, we have no experience operating
in any other regions or in managing multiple distribution centers. Accordingly,
the success of our planned expansion will depend upon a number of factors,
including: our ability to integrate the operations of new distribution centers
into our existing operations; our ability to coordinate and manage distribution
operations in multiple, geographically distant locations; our ability to respond
to issues specific to other geographic areas, such as adverse seasonal weather
conditions that are not present in the Bay Area; and our ability to establish
and maintain adequate management and information systems and financial controls.

     Our failure to successfully address these factors could have a material
adverse effect on our ability to expand and on our results of operations.

WE ANTICIPATE FUTURE LOSSES AND NEGATIVE CASH FLOW.

     We have experienced significant net losses and negative cash flow since our
inception. As of December 31, 1999, we had an accumulated deficit of $159.4
million. We incurred net losses of $144.6 million and $12.0 million in 1999 and
1998, respectively. We will continue to incur significant capital and operating
expenses over the next several years in connection with our planned expansion,
including:

     - the construction of and equipment for new distribution centers in
       additional geographic markets at an estimated cost of $30.0 million to
       $35.0 million per distribution center based on our experience to date and
       efficiencies we expect will be progressively realized over the course of
       our contract with Bechtel, such as savings associated with procurement
       for multiple sites and the design of standardized build-to-suit buildings
       which will is expected to reduce construction time and result in
       construction efficiencies;

     - the continued expansion and development of operations at our Oakland
       distribution center;

     - increases in personnel at our Oakland and future distribution centers;

     - brand development, customer service, marketing and other promotional
       activities;

     - the continued development of our computer network, Webstore, warehouse
       management and order fulfillment systems and delivery infrastructure; and

     - the development of strategic business relationships.

     If a distribution center, viewed as a stand-alone business unit without
regard to headquarters' costs, is able to successfully operate at the volume and
cost levels expected to be reached by a distribution center at the end of the
first year of operation, we expect that the annualized earnings before interest,
taxes, depreciation and amortization for that distribution center, would be
positive and the distribution center would start to generate significant cash
flow beginning in the fifth quarter of operations. If a distribution center is
able to generate positive operating cash flow from operations, we plan to use
the cash flow to fund capital expenditures for other distribution centers. If a
distribution center, viewed as a stand-alone business unit without regard to
headquarters' costs, is able to operate successfully at volumes and costs
expected to be reached through the end of the third year of operation, we expect
that the annualized earnings before interest, taxes, depreciation and
amortization for that distribution center, from its launch through the end of
that three-year period, would approximate the expected costs of constructing and
equipping such distribution center. We cannot assure you that our distribution
centers will be able to successfully operate at expected volume or cost levels,
which are dependant upon a numbers of factors including the geographic density
of customers and the productivity of our employees.

     As a result of the factors described above, we expect to continue to have
operating losses and negative cash flow on a quarterly and annual basis for the
foreseeable future. To achieve profitability, we must accomplish the following
objectives: substantially increase our number of customers and the number of
orders placed by our customers; generate a sufficient average order size;
realize a significant number of repeat orders from our customers; and achieve
favorable gross and operating margins. We cannot assure you that we will be able
to achieve these objectives.

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<PAGE>   20

     With respect to operating margins, we estimate that, as a result of the
potential advantages of our business model compared to traditional supermarkets,
if our distribution center is able to operate at its designed capacity of 8,000
orders per day seven days per week and at an average order size of $103.00 per
order, we can achieve an operating margin of 12%. However, we cannot assure you
that we will be able to achieve 8,000 orders per day at an average order size of
$103.00 and at expected cost levels and any failure to do so will result in
lower operating margins.

     In addition, because of the significant capital and operating expenses
associated with our expansion plan, our overall losses will increase
significantly from current levels. If we do achieve profitability, we cannot be
certain that we would be able to sustain or increase such profitability on a
quarterly or annual basis in the future. If we cannot achieve or sustain
profitability, we may not be able to meet our working capital requirements,
which would have a material adverse effect on our business.

THE SIGNIFICANT CAPITAL INVESTMENT REQUIRED BY OUR BUSINESS DESIGN MAY ADVERSELY
AFFECT OUR ABILITY TO ENTER ADDITIONAL MARKETS IN A TIMELY AND EFFECTIVE MANNER
AND COULD HARM OUR COMPETITIVE POSITION.

     Our business design requires a significant capital investment to build,
equip and launch distribution centers and local stations in the markets in which
we seek to operate. Our competitors have developed or may develop systems that
are not as highly automated or capital-intensive as ours. This could enable them
to commence operations in a particular geographic market before we are able to
do so, which could harm our competitive position. In addition, because of the
substantial capital costs associated with the development of our distribution
centers, we will be unable to achieve profitability or reduce our operating
losses if we do not process sufficient order volumes.

WE FACE INTENSE COMPETITION FROM TRADITIONAL AND ONLINE RETAILERS OF GROCERY
PRODUCTS AND OTHER PRODUCTS.

     The grocery retailing market is extremely competitive. Local, regional, and
national food chains, independent food stores and markets, as well as online
grocery retailers comprise our principal competition as an on-line grocery
retailer, although we also face substantial competition from convenience stores,
liquor retailers, membership warehouse clubs, specialty retailers, supercenters,
and drugstore chains. To the extent that we add non-grocery store product
categories to our offering, local, regional and national retailers in those
product categories, as well as online retailers in those product categories,
will provide our principal competition in those areas. Many of our existing and
potential competitors, particularly traditional grocers and retailers and
certain online retailers, are larger and have substantially greater resources
than we do. We expect this competition in the online grocery and other product
categories will intensify as more traditional and online grocery retailers offer
competitive services.

     Our initial distribution center in Oakland, California operates in the San
Francisco Bay Area market. In this market, we compete primarily with traditional
grocery retailers and with online grocers NetGrocer and Peapod. The number and
nature of competitors and the amount of competition we will experience will vary
by market area. In other markets, we expect to compete with these and other
online grocers, including HomeGrocer, HomeRuns, GroceryWorks, Shoplink and
Streamline. The principal competitive factors that affect our business are
location, breadth of product selection, quality, service, price and consumer
loyalty to traditional and online grocery retailers. If we fail to effectively
compete in any one of these areas, we may lose existing and potential customers
which would have a material adverse effect on our business, net sales and
operating margins.

IF WE FAIL TO GENERATE SUFFICIENT LEVELS OF REPEAT ORDERS AND MARKET
PENETRATION, OUR BUSINESS AND NET SALES WILL BE ADVERSELY AFFECTED.

     In the online retail industry, customer attrition rates, or the rates at
which subscribers cancel a service, are generally high. Although we do not
charge on a subscription basis for our service, we do depend upon customers to
continue to order from us after their initial order is placed, and we compete to
retain customers once they have used our service.

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<PAGE>   21

     In addition, the success of our business depends on our ability to
establish sufficient levels of market penetration in each market in which we
operate. This in turn will depend upon our ability to achieve customer loyalty
by means of a high quality of customer service and operational execution. In
general, in most of our initial markets, we believe we will need to achieve
penetration levels of approximately 1% to 3% of the households in order for our
distribution center in a market to be successful. However, we cannot assure you
as to the levels of penetration we will achieve in any market, and even if we do
achieve these levels of penetration, we cannot assure you that we will achieve
positive earnings. If we experience significant decreases in repeat customer
orders as a percentage of orders delivered, or if we are unable to establish
sufficient customer loyalty to achieve market penetration levels, our business
and net sales could be materially adversely affected.

THE INTERNET MAY FAIL TO BECOME A WIDELY ACCEPTED MEDIUM FOR GROCERY SHOPPING.

     We rely solely on product orders received through our Webstore for sales.
The market for e-commerce is new and rapidly evolving, and it is uncertain
whether e-commerce will achieve and sustain high levels of demand and market
acceptance, particularly with respect to the grocery industry. Our success will
depend to a substantial extent on the willingness of consumers to increase their
use of online services as a method to buy groceries and other products and
services. Our success will also depend upon our vendors' acceptance of our
online service as a significant means to market and sell their products.
Moreover, our growth will depend on the extent to which an increasing number of
consumers own or have access to personal computers or other systems that can
access the Internet. If e-commerce in the grocery industry does not achieve high
levels of demand and market acceptance, our business will be materially
adversely affected.

OUR EFFORTS TO BUILD STRONG BRAND IDENTITY AND CUSTOMER LOYALTY MAY NOT BE
SUCCESSFUL.

     Since we only recently launched the Webvan brand, we currently do not have
strong brand identity or brand loyalty. We believe that establishing and
maintaining brand identity and brand loyalty is critical to attracting consumers
and vendors. Furthermore, we believe that the importance of brand loyalty will
increase with the proliferation of Internet retailers. In order to attract and
retain consumers and vendors, and respond to competitive pressures, we intend to
increase spending substantially to create and maintain brand loyalty among these
groups. We plan to accomplish this goal by expanding our current radio and
newspaper advertising campaigns and by conducting online and television
advertising campaigns. We believe that advertising rates, and the cost of our
advertising campaigns in particular, could increase substantially in the future.
In addition we must continue to invest in the creation of a world class customer
service function as a failure of our customer service representatives to
promptly respond to customer inquiries and concerns in a helpful manner may
negatively impact customer loyalty. If our branding efforts are not successful
or our ability to provide high quality customer care are not successful, our net
sales and ability to attract customers will be materially and adversely
affected.

     Promotion and enhancement of the Webvan brand will also depend on our
success in consistently providing a high-quality consumer experience for
purchasing groceries and other products. If consumers, other Internet users and
vendors do not perceive our service offerings to be of high quality, or if we
introduce new services that are not favorably received by these groups, the
value of the Webvan brand could be harmed. Any brand impairment or dilution
could decrease the attractiveness of Webvan to one or more of these groups,
which could harm our reputation, reduce our net sales and cause us to lose
customers.

IF WE ARE UNABLE TO OBTAIN SUFFICIENT QUANTITIES OF PRODUCTS FROM OUR KEY
VENDORS, OUR NET SALES WOULD BE ADVERSELY AFFECTED.

     We expect to derive a significant percentage of our net sales from
high-volume items, well-known brand name products and fresh foods. We source
products from a network of manufacturers, wholesalers and distributors. We
currently rely on national and regional distributors for a substantial portion
of our items. We also utilize premium specialty suppliers or local sources for
gourmet foods, farm fresh produce, fresh fish and meats. From time to time, we
may experience difficulty in obtaining sufficient product allocations from a key
vendor. In addition, our key vendors may establish their own online retailing
efforts, which may impact our ability to get sufficient product allocations from
these vendors. Many of our key vendors also supply products
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<PAGE>   22

to the retail grocery industry and our online competitors. If we are unable to
obtain sufficient quantities of products from our key vendors to meet customer
demand, our net sales and results of operations would be materially adversely
affected.

WE CURRENTLY OPERATE ONLY ONE DISTRIBUTION CENTER WHICH IS LOCATED IN THE SAN
FRANCISCO BAY AREA.

     We currently operate only one distribution center which is located in
Oakland, California and serves the San Francisco Bay Area. Even after our second
distribution center in Atlanta opens, our business and operations would be
materially adversely affected if any of the following events affected our
current distribution center or the San Francisco Bay Area and our insurance was
inadequate to cover us for losses associated with: prolonged power or equipment
failures; disruptions in our web site, computer network, software and our order
fulfillment and delivery systems; disruptions in the transportation
infrastructure including bridges, tunnels and roads; refrigeration failures; or
fires, floods, earthquakes or other disasters.

     Since the San Francisco Bay Area is located in an earthquake-sensitive
area, we are particularly susceptible to the risk of damage to, or total
destruction of, our distribution center and the surrounding transportation
infrastructure caused by earthquakes. We cannot assure you that we are
adequately insured to cover the total amount of any losses caused by any of the
above events. In addition, we are not insured against any losses due to
interruptions in our business due to damage to or destruction of our
distribution center caused by earthquakes or to major transportation
infrastructure disruptions or other events that do not occur on our premises.

WE WILL NEED SUBSTANTIAL ADDITIONAL CAPITAL TO FUND OUR PLANNED EXPANSION, AND
WE CANNOT BE SURE THAT ADDITIONAL FINANCING WILL BE AVAILABLE.

     We require substantial amounts of working capital to fund our business. In
addition, the opening of new distribution centers and the continued development
of our order fulfillment and delivery systems requires significant amounts of
capital. The rate at which our capital is utilized is affected by the pace of
our expansion, which we have recently accelerated. Since our inception, we have
experienced negative cash flow from operations and expect to experience
significant negative cash flow from operations for the foreseeable future. In
the past, we have funded our operating losses and capital expenditures through
proceeds from equity offerings, debt financing and equipment leases. We continue
to evaluate alternative means of financing to meet our needs on terms that are
attractive to us. We currently anticipate that our available funds will be
sufficient to meet our anticipated needs for working capital and capital
expenditures through December 31, 2000. We intend to raise additional funds to
support our business plan for 2001 or curtail our expansion plans. We cannot be
certain that additional financing will be available to us on favorable terms
when required, or at all.

     In July 1999, we entered into an agreement with Bechtel for the
construction of up to 26 additional distribution centers over the next three
years. Although the Company has no specific capital commitment under this
agreement, our expenditures under the contract are estimated to be approximately
$1.0 billion. Specific capital commitments under this contract are incurred only
as we determine to proceed with a scheduled build out of a distribution center.
Our future capital needs will be highly dependent on the number and actual cost
of additional distribution centers we open, the timing of openings and the
success of our facilities once they are launched. We cannot assure you of the
actual cost of our additional distribution centers. Therefore, we will need to
raise additional capital to fund our planned expansion. If we are unable to
obtain sufficient additional capital when needed, we could be forced to alter
our business strategy, delay or abandon some of our expansion plans or sell
assets. Any of these events would have a material adverse effect on our
business, financial condition or ability to reduce losses or generate profits.
In addition, if we raise additional funds through the issuance of equity,
equity-linked or debt securities, those securities may have rights, preferences
or privileges senior to those of the rights of our common stock and our
stockholders may experience dilution.

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<PAGE>   23

OUR LIMITED OPERATING HISTORY MAKES FINANCIAL FORECASTING DIFFICULT FOR US AND
FOR FINANCIAL ANALYSTS THAT MAY PUBLISH ESTIMATES OF OUR FINANCIAL RESULTS.

     As a result of our limited operating history, it is difficult to accurately
forecast our total revenue, revenue per distribution center, gross and operating
margins, real estate and labor costs, average order size, number of orders per
day and other financial and operating data. We have a limited amount of
meaningful historical financial data upon which to base planned operating
expenses. We base our current and future expense levels on our experience of the
last six months, our operating plans and estimates of future revenue, and our
expenses are dependent in large part upon our facilities and product costs.
Sales and operating results are difficult to forecast because they generally
depend on the growth of our customer base and the volume of the orders we
receive, as well as the mix of products sold. As a result, we may be unable to
make accurate financial forecasts and adjust our spending in a timely manner to
compensate for any unexpected revenue shortfall. We believe that these
difficulties also apply to financial analysts that may publish estimates of our
financial results. This inability to accurately forecast our results could cause
our net losses in a given quarter to be greater than expected and could cause a
decline in the trading price of our common stock.

OUR QUARTERLY OPERATING RESULTS ARE EXPECTED TO BE VOLATILE AND DIFFICULT TO
PREDICT BASED ON A NUMBER OF FACTORS THAT WILL ALSO AFFECT OUR LONG-TERM
PERFORMANCE.

     We expect our quarterly operating results to fluctuate significantly in the
future based on a variety of factors. These factors are also expected to affect
our long-term performance. Some of these factors include the following: the
timing of our expansion plans as we construct and begin to operate new
distribution centers in additional geographic markets; changes in pricing
policies or our product and service offerings; increases in personnel, marketing
and other operating expenses to support our anticipated growth; our inability to
obtain new customers or retain existing customers at reasonable cost; our
inability to manage our distribution and delivery operations to handle
significant increases in the number of customers and orders or to overcome
system or technology difficulties associated with these increases; our inability
to adequately maintain, upgrade and develop our Webstore, our computer network
or the systems that we use to process customer orders and payments; competitive
factors; and technical difficulties, system or web site downtime or Internet
brownouts.

     In addition to these factors, our quarterly operating results are expected
to fluctuate based upon seasonal purchasing patterns of our customers and the
mix of groceries and other products sold by us. Because of our short operating
history and limited geographical coverage, we may not accurately predict the
seasonal purchasing patterns of our customers and may experience unexpected
difficulties in matching inventory to demand by customers.

     Due to all of these factors, we expect our operating results to be volatile
and difficult to predict. As a result, quarter-to-quarter comparisons of our
operating results may not be good indicators of our future performance. In
addition, it is possible that in any future quarter our operating results could
be below the expectations of investors generally and any published reports or
analyses of Webvan. In that event, the price of our common stock could decline,
perhaps substantially.

IF WE EXPERIENCE PROBLEMS IN OUR DELIVERY OPERATIONS, OUR BUSINESS COULD BE
SERIOUSLY HARMED.

     We use our own couriers to deliver products from our distribution center to
our local stations, and from the local stations to our customers. We are
therefore subject to the risks associated with our ability to provide delivery
services to meet our shipping needs, including potential labor activism or
employee strikes, inclement weather, disruptions in the transportation
infrastructure, including bridges, roads and traffic congestion. While we strive
to maintain high on-time delivery rates and order fulfillment accuracy rates, we
have, on occasion, experienced operational "bugs" that have resulted in a high
proportion of late deliveries or order fulfillment inaccuracies on particular
days. Operational bugs may arise from one or more factors including electro-
mechanical equipment failures, computer server or system failures, network
outages, software performance problems or power failures. To date, these bugs
have been corrected in a short period of time by Webvan employees and have not
resulted in any long term impact on our operations. Any material decrease in our
on-time delivery rate or in order fulfillment accuracy would likely have an
adverse impact on our consumer

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<PAGE>   24

acceptance of our service and harm our reputation and brand, and a prolonged
decline in our on-time delivery rate or in order fulfillment accuracy would have
an adverse impact on our financial results.

OUR NET SALES WOULD BE HARMED IF OUR ONLINE SECURITY MEASURES FAIL.

     Our relationships with our customers may be adversely affected if the
security measures that we use to protect their personal information, such as
credit card numbers, are ineffective. If, as a result, we lose many customers,
our net sales and results of operations would be harmed. We rely on security and
authentication technology to perform real-time credit card authorization and
verification with our bank. We cannot predict whether events or developments
will result in a compromise or breach of the technology we use to protect a
customer's personal information.

     Furthermore, our computer servers may be vulnerable to computer viruses,
physical or electronic break-ins and similar disruptions. We may need to expend
significant additional capital and other resources to protect against a security
breach or to alleviate problems caused by any breaches. We cannot assure you
that we can prevent all security breaches, and any failure to do so could have a
material adverse effect on our reputation and results of operations.

THE LOSS OF THE SERVICES OF ONE OR MORE OF OUR KEY PERSONNEL, OR OUR FAILURE TO
ATTRACT, INTEGRATE NEW HIRES AND RETAIN OTHER HIGHLY QUALIFIED PERSONNEL IN THE
FUTURE WOULD SERIOUSLY HARM OUR BUSINESS.

     The loss of the services of one or more of our key personnel could
seriously harm our business. We depend on the continued services and performance
of our senior management and other key personnel, particularly Louis H. Borders,
our founder and Chairman of the Board, and George T. Shaheen, our President and
Chief Executive Officer. Our future success also depends upon the continued
service of our executive officers and other key software development,
merchandising, marketing and support personnel. The competition for talented
employees in the San Francisco Bay Area is intense and our ability to retain key
employees at our headquarters is a function of a number of factors, some of
which are beyond our control, such as the value of other opportunities perceived
to be available in the Bay Area. None of our officers or key employees is bound
by an employment agreement and our relationships with these officers and key
employees are at will. Several key members of our management team have recently
joined us. If we do not effectively integrate these employees into our business,
if they do not work together as a management team to enable us to implement our
business strategy, or if we are unable to retain them due to increased demand
for their services, our business will suffer. Additionally, there are low levels
of unemployment in the San Francisco Bay Area and in many of the regions in
which we plan to operate. These low levels of unemployment have led to pressure
on wage rates, which can make it more difficult and costly for us to attract and
retain qualified employees. Our inability to hire and train qualified employees
in accordance with our schedule for meeting demand at any distribution center as
we scale order volumes at that distribution center could have a negative impact
on our ability to attract and retain customers. The loss of key personnel, or
the failure to attract additional personnel, could have a material adverse
effect on our business, results of operations and performance in specific
geographic markets.

WE MAY NEED TO CHANGE THE MANNER IN WHICH WE CONDUCT OUR BUSINESS IF GOVERNMENT
REGULATION OF THE INTERNET INCREASES OR IF REGULATION DIRECTED AT LARGE-SCALE
RETAIL OPERATIONS IS DEEMED APPLICABLE TO US.

     The adoption or modification of laws or regulations relating to the
Internet and large-scale retail store operations could adversely affect the
manner in which we currently conduct our business. In addition, the growth and
development of the market for online commerce may lead to more stringent
consumer protection laws which may impose additional burdens on us. Laws and
regulations directly applicable to communications or commerce over the Internet
are becoming more prevalent. The United States government recently enacted
Internet laws regarding privacy, copyrights, taxation and the transmission of
sexually explicit material. The Federal Trade Commission has indicated that it
will investigate the practices of Internet companies relating to the handling of
user-specific data. The law of the Internet, however, remains largely unsettled,
even in areas where there has been some legislative action. It may take years to
determine whether and how existing laws such as those governing intellectual
property, privacy, libel and taxation apply to the Internet. In addition, the
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<PAGE>   25

Governor of California recently vetoed legislation which would have prohibited a
public agency from authorizing retail store developments exceeding 100,000
square feet if more than a small portion of the store were devoted to the sale
of non-taxable items, such as groceries. While it is not clear whether our
operations would be considered a retail store for purposes of this kind of
legislation, we cannot assure you that other state or local governments will not
seek to enact similar laws or that we would be successful if forced to challenge
the applicability of this kind of legislation to our distribution facilities.
The expenses associated with any challenge to this kind of legislation could be
material. If we are required to comply with new regulations or legislation or
new interpretations of existing regulations or legislation, this compliance
could cause us to incur additional expenses or alter our business model.

WE MAY INCUR SIGNIFICANT COSTS OR EXPERIENCE PRODUCT AVAILABILITY DELAYS IN
COMPLYING WITH REGULATIONS APPLICABLE TO THE SALE OF FOOD PRODUCTS.

     We are not currently subject to regulation by the United States Department
of Agriculture, or USDA. Whether the handling of food items in our distribution
facility, such as meat and fish, will subject us to USDA regulation in the
future will depend on several factors, including whether we sell food products
on a wholesale basis or whether we obtain food products from non-USDA inspected
facilities. Although we have designed our food handling operations to comply
with USDA regulations, we cannot assure you that the USDA will not require
changes to our food handling operations. We will also be required to comply with
local health regulations concerning the preparation and packaging of our
prepared meals and other food items. Any applicable federal, state or local
regulations may cause us to incur substantial compliance costs or delay the
availability of a number of items at one or more of our distribution centers. In
addition, any inquiry or investigation from a food regulatory authority could
have a negative impact on our reputation. Any of these events could have a
material adverse effect on our business and expansion plans and could cause us
to lose customers.

WE MAY NOT BE ABLE TO OBTAIN REQUIRED LICENSES OR PERMITS FOR THE SALE OF
ALCOHOL AND TOBACCO PRODUCTS IN A COST-EFFECTIVE MANNER OR AT ALL.

     We will be required to obtain state licenses and permits for the sale of
alcohol and tobacco products in each location in which we seek to open a
distribution center. We cannot assure you that we will be able to obtain any
required permits or licenses in a timely manner, or at all. We may be forced to
incur substantial costs and experience significant delays in obtaining these
permits or licenses. In addition, the United States Congress is considering
enacting legislation which would restrict the interstate sale of alcoholic
beverages over the Internet. Changes to existing laws or our inability to obtain
required permits or licenses could prevent us from selling alcohol or tobacco
products in one or more of our geographic markets. Any of these events could
substantially harm our net sales, gross profit and ability to attract and retain
customers.

IN THE FUTURE WE MAY FACE POTENTIAL PRODUCT LIABILITY CLAIMS.

     We cannot assure you that the products that we deliver will be free from
contaminants. Grocery and other related products occasionally contain
contaminants due to inherent defects in the products or improper storage or
handling. If any of the products that we sell cause harm to any of our
customers, we could be subject to product liability lawsuits. If we are found
liable under a product liability claim, or even if we are required to defend
ourselves against such a claim, our reputation could suffer and customers may
substantially reduce their orders or stop ordering from us.

OUR NET SALES WOULD BE HARMED IF WE EXPERIENCE SIGNIFICANT CREDIT CARD FRAUD.

     A failure to adequately control fraudulent credit card transactions would
harm our net sales and results of operations because we do not carry insurance
against this risk. We may suffer losses as a result of orders placed with
fraudulent credit card data even though the associated financial institution
approved payment of the orders. Under current credit card practices, we are
liable for fraudulent credit card transactions because we do not obtain a
cardholder's signature. Because we have had an extremely short operating
history, we cannot predict our future levels of bad debt expense.
                                       25
<PAGE>   26

IF THE PROTECTION OF OUR TRADEMARKS AND PROPRIETARY RIGHTS IS INADEQUATE, OUR
BUSINESS MAY BE SERIOUSLY HARMED.

     We regard patent rights, copyrights, service marks, trademarks, trade
secrets and similar intellectual property as important to our success. We rely
on patent, trademark and copyright law, trade secret protection and
confidentiality or license agreements with our employees, customers, partners
and others to protect our proprietary rights; however, the steps we take to
protect our proprietary rights may be inadequate. We currently have no patents.
We have filed, and from time to time expect to file, patent applications
directed to aspects of our proprietary technology. We cannot assure you that any
of these applications will be approved, that any issued patents will protect our
intellectual property or that any issued patents will not be challenged by third
parties. In addition, other parties may independently develop similar or
competing technology or design around any patents that may be issued to us. Our
failure to protect our proprietary rights could materially adversely affect our
business and competitive position.

INTELLECTUAL PROPERTY CLAIMS AGAINST US CAN BE COSTLY AND COULD RESULT IN THE
LOSS OF SIGNIFICANT RIGHTS.

     Patent, trademark and other intellectual property rights are becoming
increasingly important to us and other e-commerce vendors. Many companies are
devoting significant resources to developing patents that could affect many
aspects of our business. Other parties may assert infringement or unfair
competition claims against us that could relate to any aspect of our
technologies, business processes or other intellectual property. We cannot
predict whether third parties will assert claims of infringement against us, the
subject matter of any of these claims, or whether these assertions or
prosecutions will harm our business. If we are forced to defend ourselves
against any of these claims, whether they are with or without merit or are
determined in our favor, then we may face costly litigation, diversion of
technical and management personnel, inability to use our current web site
technology, or product shipment delays. As a result of a dispute, we may have to
develop non-infringing technology or enter into royalty or licensing agreements.
These royalty or licensing agreements, if required, may be unavailable on terms
acceptable to us, or at all. If there is a successful claim of patent
infringement against us and we are unable to develop non-infringing technology
or license the infringed or similar technology on a timely basis, our business
and competitive position may be materially adversely affected.

ANY DEFICIENCIES IN OUR SYSTEMS OR THE SYSTEMS OF THIRD PARTIES ON WHICH WE RELY
COULD ADVERSELY AFFECT OUR BUSINESS AND RESULT IN A LOSS OF CUSTOMERS.

     Our Webstore has experienced in the past and may experience in the future
slower response times or disruptions in service for a variety of reasons
including failures or interruptions in our systems. In addition, our users
depend on Internet service providers, online service providers and other web
site operators for access to our Webstore. Many of them have experienced
significant outages in the past and could experience outages, delays and other
difficulties due to system failures unrelated to our systems. Moreover, the
Internet infrastructure may not be able to support continued growth in its use.
Any of these problems could have a material adverse effect on our business and
could result in a loss of customers.

     Our communications hardware and certain of our other computer hardware
operations are located at the facilities of AboveNet Communications, Inc. in
Santa Clara County, California. The hardware for the warehouse management and
materials handling systems of each distribution center is maintained at that
distribution center. Fires, floods, earthquakes, power losses,
telecommunications failures, break-ins and similar events could damage these
systems or cause them to fail completely. For instance, a power failure in
October 1999 at the facilities of our previous webstore server host caused our
Webstore to be inaccessible for approximately two hours. To date, we have
experienced several other instances when our Webstore was inaccessible for
unexpected reasons. Computer viruses, electronic break-ins or other similar
disruptive problems could also adversely affect our Webstore. Our business could
be adversely affected if our systems were affected by any of these occurrences.
Problems faced by AboveNet, with the telecommunications network providers with
whom it contracts or with the systems by which it allocates capacity among its
customers, including Webvan, could adversely impact the customer shopping
experience and consequently,

                                       26
<PAGE>   27

our business. Our insurance policies may not adequately compensate us for any
losses that may occur due to any failures or interruptions in our systems.

OUR STOCK PRICE IS LIKELY TO BE VOLATILE AND COULD DECLINE SUBSTANTIALLY.

     The stock market has experienced significant price and volume fluctuations,
and the market prices of technology companies, particularly consumer-oriented
Internet-related companies, have been highly volatile. For instance, prices of
many "Business-to-Consumer" Internet retailer companies have on average declined
substantially since the time of our initial public offering. The price at which
our common stock trades is likely to be volatile and may fluctuate substantially
due to factors such as:

     Our historical and anticipated quarterly and annual operating results;

     Variations between our actual results and the expectations of investors or
published reports or analyses of Webvan;

     Changes in analysts' estimates of our performance or industry performance;

     Announcements by us or others and developments affecting our business,
systems or expansion plans;

     Sales of large blocks of our common stock; and

     Conditions and trends in e-commerce industries, particularly the online
grocery industry.

     In the past, securities class action litigation has often been instituted
against companies following periods of volatility in the market price of their
securities. This type of litigation could result in substantial costs and a
diversion of management's attention and resources.

FUTURE SALES OF OUR COMMON STOCK MAY CAUSE OUR STOCK PRICE TO DECLINE.

     If our stockholders sell substantial amounts of our common stock in the
public market, the market price of our common stock could decline. All of the
28,750,000 shares of our common stock sold in our initial public offering in
November 1999 are freely tradable, without restriction, in the public market.
Our directors, officers and stockholders have entered into lock-up agreements in
connection with that offering generally providing that they will not offer,
sell, contract to sell or grant any option to purchase or otherwise dispose of
our common stock or any securities exercisable for or convertible into our
common stock without the prior written consent of Goldman, Sachs & Co. According
to the lock-up agreements, beginning on February 2, 2000, each stockholder was
entitled to offer, sell, transfer, assign, pledge or otherwise dispose of up to
15% of his or her shares beneficially owned as of December 31, 1999; and each
such stockholder was entitled on March 15 to offer, sell, transfer, assign,
pledge or otherwise dispose of an additional 25% of his or her shares
beneficially owned as of December 31, 1999. As a result, a substantial number of
shares of our common stock will be eligible for sale in the public market prior
to the expiration of the customary 180-day lock-up period following an initial
public offering. The lock-up restrictions will expire in their entirety on May
3, 2000, at which time an additional substantial number of shares of our common
stock will be eligible for sale in the public market.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Webvan maintains a short-term investment portfolio primarily consisting of
corporate debt securities with maturities of thirteen months or less. These
available-for-sale securities are subject to interest rate risk and will rise
and fall in value if market interest rates change. The extent of this risk is
not quantifiable or predictable due to the variability of future interest rates.
Webvan does not expect any material loss with respect to its investment
portfolio.

     Webvan's restricted cash balance is invested in certificates of deposit.
Accordingly, changes in market interest rates have no material effect on
Webvan's operating results, financial condition and cash flows. There is
inherent roll over risk on these certificates of deposit as they mature and are
renewed at current market rates. The extent of this risk is not quantifiable or
predictable due to the variability of future interest rates.

                                       27
<PAGE>   28

     The following table provides information about Webvan's investment
portfolio, restricted cash, capital lease obligations and long-term debt as of
December 31, 1999, and presents principal cash flows and related weighted
averages interest rates by expected maturity dates.

<TABLE>
<CAPTION>
                                                     YEAR OF MATURITY
                                       ---------------------------------------------    TOTAL
                                                                                       CARRYING
                                         2000       2001      2002     2003    2004     VALUE
                                       --------   --------   ------   ------   -----   --------
                                                        (DOLLARS IN THOUSANDS)
<S>                                    <C>        <C>        <C>      <C>      <C>     <C>
Cash and Equivalents................   $ 60,220         --       --       --      --   $ 60,220
  Average interest rate.............       4.84%        --       --       --      --       4.84%
Corporate and Government Debt
  Securities........................   $318,617    259,944       --       --      --   $578,561
  Average interest rate.............       5.47%      6.03%      --       --      --       5.72%
Restricted Cash -- Certificates of
  Deposit...........................   $  1,924         --       --       --      --   $  1,924
  Average interest rate.............       4.49%        --       --       --      --       4.49%
Capital Lease Obligations...........   $    667   $    775   $  734   $  283      --   $  2,459
  Average fixed interest rate.......      15.77%     15.81%   15.28%   13.81%     --      15.43%
Long-term Debt......................   $  3,639   $  4,577   $5,149   $   65   $  46   $ 13,476
  Average fixed interest rate.......      16.24%     16.24%   16.25%    9.68%   8.57%     16.21%
</TABLE>

     Fair value approximates carrying value for the above financial instruments.

                                       28
<PAGE>   29

ITEM 8. FINANCIAL STATEMENTS

     The following consolidated financial statements, and the related notes
thereto, of Ariba and the Report of Independent Auditors are filed as a part of
this Form 10-K.

<TABLE>
    <S>                                                           <C>
    Independent Auditors' Report................................   30
    Consolidated Balance Sheets.................................   31
    Consolidated Statements of Operations and Comprehensive
      Loss......................................................   32
    Consolidated Statements of Shareholders' Equity.............   33
    Consolidated Statements of Cash Flows.......................   34
    Notes to Consolidated Financial Statements..................   35
</TABLE>

                                       29
<PAGE>   30

                          INDEPENDENT AUDITORS REPORT

To the Board of Directors and Shareholders of
Webvan Group, Inc.:
Foster City, California

     We have audited the accompanying consolidated balance sheets of Webvan
Group, Inc. (formerly Intelligent Systems for Retail, Inc.) and Subsidiary
(collectively "Webvan") as of December 31, 1999 and 1998, and the related
consolidated statements of operations and comprehensive loss, shareholders'
equity, and cash flows for each of the two years in the period ended December
31, 1999 and for the period from December 17, 1996 (date of incorporation) to
December 31, 1997. These financial statements are the responsibility of Webvan's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
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.

     In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Webvan at December 31, 1999 and
1998, and the results of its operations and its cash flows for the periods
stated above, in conformity with generally accepted accounting principles.

     As discussed in Note 15, the accompanying 1997 and 1998 consolidated
financial statements have been restated as to the basic and diluted net loss per
share and the weighted average shares outstanding -- basic and diluted.

/s/ Deloitte & Touche LLP

San Jose, California
January 26, 2000

                                       30
<PAGE>   31

                       WEBVAN GROUP, INC. AND SUBSIDIARY

                          CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

                                     ASSETS

<TABLE>
<CAPTION>
                                                              DECEMBER 31,    DECEMBER 31,
                                                                  1999            1998
                                                              ------------    ------------
<S>                                                           <C>             <C>
Current Assets:
  Cash and Equivalents......................................    $ 60,220        $13,839
  Marketable Securities.....................................     578,561          7,728
  Inventories...............................................       1,508             --
  Related Party Receivable..................................         320             --
  Prepaid Expenses and Other Current Assets.................       3,678            114
                                                                --------        -------
          Total Current Assets..............................     644,287         21,681
Property, Equipment and Leasehold Improvements, Net.........      99,978         32,624
Deposits and Other Long-term Assets.........................      13,528          5,704
                                                                --------        -------
          Total Assets......................................    $757,793        $60,009
                                                                ========        =======
                           LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Accounts Payable..........................................    $ 18,333        $ 6,815
  Accrued Liabilities.......................................      16,030            706
  Current Portion of Long-term Obligations..................       4,306          3,237
                                                                --------        -------
          Total Current Liabilities.........................      38,669         10,758
Long-term Obligations.......................................      12,147         14,337
Redeemable Common Stock.....................................       1,725          1,302
Shareholders' Equity:
  Series A preferred stock, no par value;
     112,635 shares authorized; 112,635 shares outstanding
     at December 31, 1998 and zero at December 31, 1999;
     (liquidation preferences of $10,794 at December 31,
     1998)..................................................          --         10,759
  Series B preferred stock, no par value;
     41,814 shares authorized; 39,101 shares issued and
     outstanding at December 31, 1998 and zero at December
     31, 1999; (liquidation preference of $35,713 at
     December 31, 1998).....................................          --         34,823
  Common stock, $.0001 par value;
     360,000 and 800,000 shares authorized; 78,590 and
     321,583 issued and outstanding at December 31, 1998 and
     December 31, 1999, respectively........................     959,288         11,921
  Additional Paid-in Capital................................       5,280          1,686
  Deferred Compensation.....................................     (99,178)       (10,737)
  Accumulated Deficit.......................................    (159,413)       (14,844)
  Accumulated Other Comprehensive Income (Loss).............        (725)             4
                                                                --------        -------
          Total Shareholders' Equity........................     705,252         33,612
                                                                --------        -------
          Total.............................................    $757,793        $60,009
                                                                ========        =======
</TABLE>

                See notes to consolidated financial statements.
                                       31
<PAGE>   32

                       WEBVAN GROUP, INC. AND SUBSIDIARY

          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                    PERIOD FROM
                                                                                 DECEMBER 17, 1996
                                                   YEAR ENDED DECEMBER 31,    (DATE OF INCORPORATION)
                                                   -----------------------        TO DECEMBER 31,
                                                      1999         1998                1997
                                                   ----------    ---------    -----------------------
<S>                                                <C>           <C>          <C>
Net Sales........................................  $  13,305     $     --             $    --
Cost of Goods Sold...............................     11,289           --                  --
                                                   ---------     --------             -------
Gross Profit.....................................      2,016           --                  --
                                                   ---------     --------             -------
Sales and Marketing Expenses.....................     11,746           --                  --
Software Development Expenses....................     15,237        3,010                 244
General and Administrative Expenses..............     92,406        8,825               2,612
Amortization of Deferred Compensation............     36,520        1,060                  --
                                                   ---------     --------             -------
          Total Expenses.........................    155,909       12,895               2,856
                                                   ---------     --------             -------
Loss from Operations.............................   (153,893)     (12,895)             (2,856)
Interest Income..................................     11,480          923                  85
Interest Expense.................................      2,156           32                  69
                                                   ---------     --------             -------
Net Interest Income..............................      9,324          891                  16
                                                   ---------     --------             -------
Net Loss.........................................   (144,569)     (12,004)             (2,840)
Unrealized Gain (Loss) on Marketable
  Securities.....................................       (729)           4                  --
                                                   ---------     --------             -------
Comprehensive Loss...............................  $(145,298)    $(12,000)            $(2,840)
                                                   =========     ========             =======
Basic and Diluted Net Loss Per Share.............  $   (1.43)    $  (0.31)            $ (0.33)
                                                   =========     ========             =======
  (Restated as to 1998 and 1997 -- See Note 15)
Weighted Average Shares Outstanding -- Basic and
  Diluted........................................    101,044       39,344               8,575
                                                   =========     ========             =======
  (Restated as to 1998 and 1997 -- See Note 15)
</TABLE>

                See notes to consolidated financial statements.
                                       32
<PAGE>   33

                       WEBVAN GROUP, INC. AND SUBSIDIARY

                CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                             CONVERTIBLE              CONVERTIBLE             CONVERTIBLE
                                                              SERIES A                 SERIES B                SERIES C
                                                           PREFERRED STOCK          PREFERRED STOCK         PREFERRED STOCK
                                                       -----------------------   ---------------------   ---------------------
                                                          SHARES       AMOUNT      SHARES      AMOUNT      SHARES      AMOUNT
                                                       ------------   --------   -----------   -------   -----------   -------
<S>                                                    <C>            <C>        <C>           <C>       <C>           <C>
Issuance of Series A preferred, net of $35 issuance
 costs, October 1997.................................   112,582,992   $ 10,754                 $    --                 $    --
Issuance of restricted common stock, April through
 September 1997......................................
Common stock issued for services, December 1997......
Net Loss.............................................
                                                       ------------   --------   -----------   -------   -----------   -------
Balances, December 31, 1997..........................   112,582,992     10,754            --        --            --        --
Issuance of Series A preferred, January 1998.........        52,176          5
Issuance of Series B preferred, net of $890 issuance
 costs, May through September 1998                                                39,101,304    34,823
Series B preferred warrants granted for debt, May
 1998................................................
Exercise of Options during 1998......................
Options granted for services, September and November
 1998................................................
Deferred compensation................................
Amortization of deferred compensation................
Accumulated other comprehensive income
Net Loss
                                                       ------------   --------   -----------   -------   -----------   -------
Balance at December 31, 1998.........................   112,635,168     10,759    39,101,304    34,823            --        --
Issuance of Series B preferred, January 99...........                                 12,000        11
Issuance of Series C preferred, net of issuance costs
 $(2,383)............................................                                                     32,341,200    72,776
Issuance of Series D preferred, net of issuance costs
 ($100)..............................................
Exercise of Warrants.................................                                                        150,000       349
Conversion of preferred stock into common stock......  (112,635,168)   (10,759)  (39,113,304)  (34,834)  (32,491,200)  (73,125)
Exercise of options during 1999......................
Issuance of Common Stock.............................
Shares issued for services rendered..................
Public stock offering, net of $28,603................
Executive Stock Issuance, September 1999.............
Executive Stock Issuance, September 1999.............
Deferred Compensation................................
Amortization of Deferred Compensation................
Net Loss.............................................
Accumulated Other Comprehensive loss.................
Issuance of Shareholder Note.........................
                                                       ------------   --------   -----------   -------   -----------   -------
Balance at December 31, 1999.........................            --   $     --            --   $    --            --   $    --
                                                       ============   ========   ===========   =======   ===========   =======

<CAPTION>
                                                            CONVERTIBLE
                                                              SERIES D
                                                          PREFERRED STOCK            COMMON STOCK
                                                       ----------------------   ----------------------     ADDITIONAL
                                                         SHARES       AMOUNT      SHARES       AMOUNT    PAID-IN-CAPITAL
                                                       -----------   --------   -----------   --------   ---------------
<S>                                                    <C>           <C>        <C>           <C>        <C>
Issuance of Series A preferred, net of $35 issuance
 costs, October 1997.................................                $     --                 $     --       $   --
Issuance of restricted common stock, April through
 September 1997......................................                            64,380,972         53
Common stock issued for services, December 1997......                                13,500          5
Net Loss.............................................
                                                       -----------   --------   -----------   --------       ------
Balances, December 31, 1997..........................           --         --    64,394,472         58           --
Issuance of Series A preferred, January 1998.........
Issuance of Series B preferred, net of $890 issuance
 costs, May through September 1998
Series B preferred warrants granted for debt, May
 1998................................................                                                         1,679
Exercise of Options during 1998......................                            14,195,250         66
Options granted for services, September and November
 1998................................................                                                             7
Deferred compensation................................                                           11,797
Amortization of deferred compensation................
Accumulated other comprehensive income
Net Loss
                                                       -----------   --------   -----------   --------       ------
Balance at December 31, 1998.........................           --         --    78,589,722     11,921        1,686
Issuance of Series B preferred, January 99...........
Issuance of Series C preferred, net of issuance costs
 $(2,383)............................................
Issuance of Series D preferred, net of issuance costs
 ($100)..............................................   21,670,605    274,900
Exercise of Warrants.................................                               379,000                   3,563
Conversion of preferred stock into common stock......  (21,670,605)  (274,900)  205,910,277    393,618
Exercise of options during 1999......................                             6,186,887      1,299
Issuance of Common Stock.............................                               450,000      2,246
Shares issued for services rendered..................                                67,000        378           31
Public stock offering, net of $28,603................                            28,750,000    402,648
Executive Stock Issuance, September 1999.............                             1,250,000     15,000
Executive Stock Issuance, September 1999.............                                           12,000
Deferred Compensation................................                                          124,961
Amortization of Deferred Compensation................
Net Loss.............................................
Accumulated Other Comprehensive loss.................
Issuance of Shareholder Note.........................                                           (4,783)
                                                       -----------   --------   -----------   --------       ------
Balance at December 31, 1999.........................           --   $     --   321,582,886   $959,288       $5,280
                                                       ===========   ========   ===========   ========       ======

<CAPTION>

                                                                                    NET UNREALIZED
                                                                                    GAIN (LOSS) ON       TOTAL
                                                         DEFERRED     ACCUMULATED     MARKETABLE     SHAREHOLDERS'
                                                       COMPENSATION     DEFICIT       SECURITIES        EQUITY
                                                       ------------   -----------   --------------   -------------
<S>                                                    <C>            <C>           <C>              <C>
Issuance of Series A preferred, net of $35 issuance
 costs, October 1997.................................   $      --      $      --        $  --          $  10,754
Issuance of restricted common stock, April through
 September 1997......................................                                                         53
Common stock issued for services, December 1997......                                                          5
Net Loss.............................................                     (2,840)                         (2,840)
                                                        ---------      ---------        -----          ---------
Balances, December 31, 1997..........................          --         (2,840)          --              7,972
Issuance of Series A preferred, January 1998.........                                                          5
Issuance of Series B preferred, net of $890 issuance
 costs, May through September 1998                                                                        34,823
Series B preferred warrants granted for debt, May
 1998................................................                                                      1,679
Exercise of Options during 1998......................                                                         66
Options granted for services, September and November
 1998................................................                                                          7
Deferred compensation................................     (11,797)                                            --
Amortization of deferred compensation................       1,060                                          1,060
Accumulated other comprehensive income                                                      4                  4
Net Loss                                                                 (12,004)                        (12,004)
                                                        ---------      ---------        -----          ---------
Balance at December 31, 1998.........................     (10,737)       (14,844)           4             33,612
Issuance of Series B preferred, January 99...........                                                         11
Issuance of Series C preferred, net of issuance costs
 $(2,383)............................................                                                     72,776
Issuance of Series D preferred, net of issuance costs
 ($100)..............................................                                                    274,900
Exercise of Warrants.................................                                                      3,912
Conversion of preferred stock into common stock......                                                         --
Exercise of options during 1999......................                                                      1,299
Issuance of Common Stock.............................                                                      2,246
Shares issued for services rendered..................                                                        409
Public stock offering, net of $28,603................                                                    402,648
Executive Stock Issuance, September 1999.............                                                     15,000
Executive Stock Issuance, September 1999.............                                                     12,000
Deferred Compensation................................    (124,961)                                            --
Amortization of Deferred Compensation................      36,520                                         36,520
Net Loss.............................................                   (144,569)                       (144,569)
Accumulated Other Comprehensive loss.................                                    (729)              (729)
Issuance of Shareholder Note.........................                                                     (4,783)
                                                        ---------      ---------        -----          ---------
Balance at December 31, 1999.........................   $ (99,178)     $(159,413)       $(725)         $ 705,252
                                                        =========      =========        =====          =========
</TABLE>

                See notes to consolidated financial statements.

                                       33
<PAGE>   34

                       WEBVAN GROUP, INC. AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                               PERIOD FROM
                                                                                              DECEMBER 17,
                                                                                              1996 (DATE OF
                                                               YEAR ENDED     YEAR ENDED    INCORPORATION) TO
                                                              DECEMBER 31,   DECEMBER 31,     DECEMBER 31,
                                                                  1999           1998             1997
                                                              ------------   ------------   -----------------
<S>                                                           <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Loss..................................................   $(144,569)      $(12,004)         $(2,840)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
    Depreciation and amortization...........................       7,712            263               57
    Accretion on redeemable common stock....................         423          1,242               --
    Amortization of deferred compensation...................      36,520          1,060               --
    Stock compensation and options issued for services......      29,020              7               95
    Undistributed income on short-term investments..........          --             --              (47)
    Issuance of warrants....................................       2,173             --               --
    Changes in operating assets and liabilities:............          --             --               --
      Inventories...........................................      (1,508)            --               --
      Prepaid and other current assets......................      (3,684)          (109)              (5)
      Accounts payable......................................       8,105          6,643              172
      Accrued liabilities...................................       6,499            588              118
      Other long-term obligations...........................         511             90               17
                                                               ---------       --------          -------
        Net cash used in operating activities...............     (58,798)        (2,220)          (2,433)
                                                               ---------       --------          -------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property, equipment and leasehold
    improvements............................................     (64,253)       (32,669)            (265)
  Purchases of marketable securities........................    (571,562)        (2,681)          (4,996)
  Purchases of investments..................................        (482)          (518)              --
  Deposits and other assets.................................      (4,666)        (1,330)             (88)
  Restricted cash...........................................        (156)        (1,768)              --
                                                               ---------       --------          -------
        Net cash used in investing activities...............    (641,119)       (38,966)          (5,349)
                                                               ---------       --------          -------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Sublessee security deposit................................          26             --               --
  Proceeds from shareholder loans...........................          --             --            2,038
  Repayment of shareholder loans............................          --             --           (2,038)
  Proceeds from long-term debt..............................          --         17,168               --
  Repayment of long-term debt...............................      (3,221)          (471)              --
  Proceeds from capital lease financing.....................       2,200            794               --
  Repayment of capital lease obligations....................        (511)           (32)              --
  Loan fees capitalized.....................................          --           (323)              --
  Net proceeds from Series A preferred stock................          --              5           10,664
  Net proceeds from Series B preferred stock................          11         34,823               --
  Net proceeds from Series C preferred stock................      73,125             --               --
  Net proceeds from Series D preferred stock................     274,900             --               --
  Shareholder note receivable...............................      (4,783)            --               --
  Proceeds from common stock issued.........................       1,903             78               53
  Net proceeds from initial public offering.................     402,648             --               --
  Proceeds from redeemable common stock issued..............          --             48               --
                                                               ---------       --------          -------
        Net cash provided by financing activities...........     746,298         52,090           10,717
                                                               ---------       --------          -------
Net Increase in Cash and Equivalents........................      46,381         10,904            2,935
Cash and Equivalents, Beginning of Period...................      13,839          2,935               --
                                                               ---------       --------          -------
Cash and Equivalents, End of Period.........................   $  60,220       $ 13,839          $ 2,935
                                                               =========       ========          =======
SUPPLEMENTAL CASH FLOW INFORMATION:
  Interest paid.............................................   $   2,436       $     32          $    69
                                                               =========       ========          =======
</TABLE>

                See notes to consolidated financial statements.
                                       34
<PAGE>   35

                       WEBVAN GROUP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

     Organization -- Webvan Group, Inc., formerly Intelligent Systems for
Retail, Inc., and subsidiary (collectively,"Webvan" or the "Company") was
incorporated in California on December 17, 1996. On April 21, 1999, Intelligent
Systems for Retail, Inc. changed its name to Webvan Group, Inc. and
reincorporated in Delaware in October 1999. Webvan is an Internet retailer
offering home delivery of a variety of product offerings, including groceries,
non-prescription drug products and other general merchandise. Webvan began
selling and delivering products on a beta test basis in May 1999, and opened to
the public in June 1999. Prior to 1999, Webvan was a development stage company.

     On March 26, 1998, Webvan formed a wholly-owned subsidiary Webvan -- Bay
Area, Inc. ("WBA"). WBA operates Webvan's San Francisco Bay Area distribution
center and cross docking stations that provide the internet-based retail service
and home delivery to this region.

     Consolidation -- The accompanying consolidated financial statements include
the accounts of Webvan and its wholly-owned subsidiary, WBA. Intercompany
balances and transactions have been eliminated in the consolidated financial
statements.

     Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

     Cash Equivalents -- Webvan considers all highly liquid instruments acquired
with an original maturity of three months or less when purchased to be cash
equivalents. The recorded carrying amounts of the Company's cash equivalents
approximate their fair market value due to their highly liquid nature.

     Marketable Securities -- Webvan considers all investments with a maturity
of more than three months but less than one year when purchased and investments
to be sold within one year to be short-term and available for sale.

     Concentration of Credit Risk -- Financial instruments that potentially
subject Webvan to concentrations of credit risk consist principally of cash,
cash equivalents and short-term investments to the extent these exceed federal
insurance limits. Risks associated with cash, cash equivalents and marketable
securities are mitigated by banking with and purchasing commercial paper, market
auction preferred stock, corporate notes, and corporate bonds from credit-worthy
institutions.

     Supplier Concentration -- During 1999, Webvan purchased goods for resale
from numerous suppliers for its Bay Area operation. During 1999, two significant
suppliers of food products accounted for approximately 34% and 12% of Webvan's
purchases of goods for resale, respectively. Although products are available
from other sources, the vendors' inability to supply products in a timely manner
could adversely affect the Company's ability to satisfy customer demands.

     Property, Equipment and Leasehold Improvements -- Property, equipment and
leasehold improvements are stated at cost less accumulated depreciation and
amortization. Depreciation on property and equipment is taken on assets placed
into service using the straight-line method over estimated useful lives of three
to seven years, and leasehold improvements are amortized, using the
straight-line method, over the shorter of the lease term or the estimated useful
lives of the improvements.

     The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of". The Company assesses the impairment of long-lived assets

                                       35
<PAGE>   36
                       WEBVAN GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

whenever events and circumstances indicate that the carrying value of an asset
may not be recoverable. No such impairments have been identified to date.

     Loan Fees -- Webvan capitalizes loan and capital lease origination fees,
including the fair value of warrants and amortizes them over the life of the
related obligations.

     Income Taxes -- Income taxes are provided at current rates. Deferred income
taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and amounts
used for income tax purposes. Under the provisions of SFAS No. 109, "Accounting
for Income Taxes," a valuation allowance is provided when it is more likely than
not that some portion or all of the deferred tax assets recorded will not be
recognized.

     Stock Options -- As permitted by SFAS No. 123, "Accounting for Stock-Based
Compensation," Webvan accounts for stock options to employees using the
intrinsic value method in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees." As required by SFAS No. 123,
the pro forma impact on earnings and earnings per share resulting from the fair
value method is disclosed in Note 8.

     Revenue Recognition -- The Company recognizes revenues from product sales
and delivery, net of returns and discounts, when the products are delivered to
customers.

     Net Loss Per Share -- Basic net loss per share excludes dilution and is
computed by dividing net loss by the weighted average number of common shares
outstanding for the period (excluding shares subject to repurchase). Diluted net
loss per common share was the same as basic net loss per common share for all
periods presented since the effect of any potentially dilutive securities is
excluded as they are anti-dilutive because of Webvan's net losses.

     Capitalized Software -- The Company capitalizes internally developed
software costs in accordance with the provisions of Statement of Position
("SOP") 98-1, "Accounting for Costs of Computer Software Developed or Obtained
for Internal Use." Capitalized costs are amortized on a straight line basis over
the useful life of the software once it is placed into service.

     Start-Up Costs -- The company expenses the costs of start-up activities and
organization costs as they are incurred, in accordance with SOP 98-5, "Reporting
on the Cost of Start-up Activities."

     Recently Issued Accounting Standards -- In June 1998, the FASB issued SFAS
No. 133 "Accounting for Derivative Instruments and Hedging Activities" which
defines derivatives, requires that all derivatives be carried at fair value, and
provides for hedging accounting when certain conditions are met. Webvan will
adopt this statement in its first fiscal quarter of its fiscal year ending
December 31, 2001. Management has not fully assessed the implications of
adopting this new standard.

 2. INVESTMENTS

     On November 24, 1998, an agreement was signed between an equipment
manufacturer and Webvan. As per the agreement, Webvan acquired 1,000 shares of
such equipment manufacturer for a total amount of $1,000,000 which represents a
less than 10% interest in the manufacturer. Investments are recorded at cost as
fair market value is not readily determinable, and are included in other
long-term assets on the accompanying balance sheets.

 3. MARKETABLE SECURITIES

     The fair value of marketable securities at December 31, 1999 and 1998 are
presented below. Fair values are based on quoted market prices. The Company's
marketable securities are classified as available-for-sale, as

                                       36
<PAGE>   37
                       WEBVAN GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

the Company intends to sell them as needed for operations. Balances at year-end
consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                             DECEMBER 31, 1999
                                                   --------------------------------------
                                                                 UNREALIZED
                                                   AMORTIZED     GAIN (LOSS)      MARKET
                                                     COST       ON INVESTMENT     VALUE
                                                   ---------    -------------    --------
<S>                                                <C>          <C>              <C>
Money market funds.............................    $ 47,470         $  --        $ 47,470
US government instruments......................     329,990           654         330,644
Asset backed securities........................     160,505          (825)        159,680
Commercial paper...............................       5,505             2           5,507
Foreign debt securities........................       1,683            (5)          1,678
Corporate notes................................      87,111          (551)         86,560
                                                   --------         -----        --------
          Total................................     632,264          (725)        631,539
Less amounts included in cash and
  equivalents..................................      52,975             3          52,978
                                                   --------         -----        --------
                                                   $579,289         $(728)       $578,561
                                                   ========         =====        ========
</TABLE>

<TABLE>
<CAPTION>
                                                                 DECEMBER 31, 1998
                                                         ---------------------------------
                                                                     UNREALIZED
                                                         AMORTIZED    GAIN ON      MARKET
                                                           COST      INVESTMENT     VALUE
                                                         ---------   ----------    -------
<S>                                                      <C>         <C>           <C>
Money market funds.....................................   $    27       $--        $    27
Commercial paper.......................................     9,781         3          9,784
Commercial notes.......................................     3,164         1          3,165
Commercial bonds.......................................     1,285        --          1,285
Market auction preferred...............................     7,306        --          7,306
                                                          -------       ---        -------
          Total........................................    21,563         4         21,567
Less amounts included in cash and equivalents..........    13,837         2         13,839
                                                          -------       ---        -------
                                                          $ 7,726       $ 2        $ 7,728
                                                          =======       ===        =======
</TABLE>

 4. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

     Property, equipment and leasehold improvements at December 31, 1999, and
1998 consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                           ------------------
                                                            1999       1998
                                                           -------    -------
<S>                                                        <C>        <C>
Computer equipment and software..........................  $18,122    $ 2,284
Machinery and equipment..................................   20,184      2,026
Leasehold improvements...................................   21,816        407
Furniture and fixtures...................................    2,656        287
                                                           -------    -------
                                                            62,778      5,004
Accumulated depreciation and amortization................   (7,260)      (310)
                                                           -------    -------
                                                            55,518      4,694
Construction in progress.................................   44,460     27,930
                                                           -------    -------
Property, equipment and leasehold improvements, net......  $99,978    $32,624
                                                           =======    =======
</TABLE>

     Equipment under capital leases amounted to $2,994,000 and $794,000 at year
end 1999 and 1998. Accumulated amortization on capital leases as of year end
1999 and 1998 was $911,000 and $72,000.

                                       37
<PAGE>   38
                       WEBVAN GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Construction in progress includes costs incurred in the construction of
Webvan's distribution centers. Such costs include the purchase and installation
of materials handling equipment, refrigeration and freezer storage units, and
related finance charges.

 5. BORROWING ARRANGEMENTS

     In December 1998, WBA entered into a $17,000,000 loan and security
agreement. The loan is payable in monthly installments of $472,000 from January
1999 through June 2002 with an additional $2,550,000 payment of the remaining
balance payable in June 2002. Based upon this repayment schedule, the imputed
interest on this loan is 16.33%. The loan is secured by substantially all the
assets of Webvan Bay Area, and is guaranteed by Webvan Group, Inc.

     Related to the above financing, Webvan issued warrants to the lenders to
purchase an aggregate of 2,233,578 shares of Series B preferred stock at an
exercise price of $0.91 per share. The fair value of the warrants at the date
granted was $1,564,000 and was capitalized with loan fees (see Note 8). Webvan
also paid $323,000 in loan fees. The loan fees are being amortized over the 42
month term of the loan.

     As part of an operating lease for the Oakland facility the landlord agreed
to finance $168,000 of improvements. The loan is payable in monthly installments
including interest at 11% from January 1, 1999 through July 2003.

     Future principal maturities under loan agreements as of December 31, 1999
are as follows (in thousands):

<TABLE>
<CAPTION>
                    YEAR ENDING
                   DECEMBER 31,
                   ------------
<S>                                                  <C>
  2000.............................................  $ 3,639
  2001.............................................    4,577
  2002.............................................    5,149
  2003.............................................       65
  2004.............................................       46
                                                     -------
                                                      13,476
Less current maturities............................    3,639
                                                     -------
                                                     $ 9,837
                                                     =======
</TABLE>

CAPITAL LEASE OBLIGATIONS

     In March 1998, Webvan entered into a $3,000,000 nonrevolving master lease
agreement. As part of the leasing arrangement, warrants for 164,232 shares of
Series B preferred stock were granted to the provider at an exercise price of
$0.91 per share. Such preferred shares were converted into common shares on a
one for one basis at the time of the Company's initial public offering in
November, 1999. The $115,000 fair value of the warrants at the date granted has
been capitalized with loan fees and is being amortized over a range of 36 to 48
months (see note 8).

                                       38
<PAGE>   39
                       WEBVAN GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Future lease payments under the lease agreement as of December 31, 1999 are
as follows (in thousands):

<TABLE>
<CAPTION>
                    YEAR ENDING
                    DECEMBER 31,
                    ------------
<S>                                                   <C>
  2000..............................................  $  980
  2001..............................................     978
  2002..............................................     816
  2003..............................................     290
                                                      ------
Total future lease payments.........................   3,064
Less portion relating to interest...................     605
                                                      ------
Total capital lease obligations.....................   2,459
Less current portion................................     667
                                                      ------
Total long-term portion.............................  $1,792
                                                      ======
</TABLE>

 6. SHAREHOLDERS' EQUITY

STOCK SPLITS

     In March 1998, January 1999, July 1999 and September 1999, the Company
effected two-for-one, two-for-one, two-for-one and three-for-two stock splits,
respectively, on the then outstanding shares, warrants and options. The splits
have been retroactively reflected in the financial statements and notes to the
financial statements.

CONVERTIBLE PREFERRED STOCK

     From October 1997 through January 1998, the Company sold 112,635,168 shares
of Series A preferred stock at $.0958 per share. From May through September
1998, the Company sold 39,113,304 shares of Series B preferred stock at $.91 per
share. From January through April 1999, the Company sold 32,341,200 shares of
Series C preferred stock at $2.32 per share. In September 1999, the Company
issued 150,000 shares of Series C preferred stock related to the exercise of
warrants. In July, 1999, the Company sold 21,670,605 shares of Series D
preferred stock at $12.69 per share. Each share of preferred stock was
convertible into one share of common stock at the option of the holder, and
automatically upon an underwritten initial public offering (IPO) of the
Company's common shares, meeting certain criteria. In November, 1999, at the
closing of the Company's initial public offering, all of the Company's preferred
stock was converted into 205,910,277 shares of common stock.

     The Board of Directors is authorized, without stockholder approval, to
issue up to an aggregate of 10,000,000 shares of preferred stock, in one or more
series, each of the series to have rights and preferences, including voting
rights, dividend rights, conversion rights, redemption privileges and
liquidation preferences, as shall be determined by the Board of Directors. No
shares of this preferred stock have been issued.

COMMON STOCK

     At December 31, 1999, Webvan had 800,000,000 authorized shares of common
stock of which 326,368,000 were issued and outstanding (including 4,785,000
shares of redeemable common stock). Webvan has the right to repurchase certain
shares until vesting is completed. See Note 9. At December 31, 1999, Webvan had
reserved 77,153,000 shares for issuance under stock option plans (including with
respect to options granted but not exercised).

     Webvan has recorded redeemable common stock, representing common stock sold
to employees who have put rights. The put rights allow the shareholders to sell
to the Company, at a price of $0.3658 per share, 2,871,000 shares of common
stock after February 1999, and an additional 1,914,000 shares of common stock

                                       39
<PAGE>   40
                       WEBVAN GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

after February 2000. Redeemable common stock was originally recorded at its
$0.0125 fair value as determined by the board of directors, and is being
accreted to the redemption amounts as compensation expense over the period the
put rights become exercisable. These rights expire in March 2000.

 7. STOCK OPTION PLAN

     On September 17, 1997, Webvan adopted the 1997 Stock Plan (the "1977
Plan"). A total of 79,500,000 shares of Webvan's common stock have been reserved
for issuance under the 1997 Plan, which expires on September 17, 2007. Options
are granted at fair market value at the date of grant based on the prior day's
closing stock price. As provided for in the 1997 Plan, incentive and
non-statutory stock options may be granted to employees, officers, directors or
consultants. Incentive options may only be granted to employees and at an
exercise price of no less than fair value on the date of grant. Non-statutory
options may be granted at less than fair value; such options may not be granted
at less than fair value in order to qualify as "performance based compensation"
within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as
amended. For owners of more than 10% of Webvan's stock, incentive options may
only be granted for an exercise price of no less than 110% of fair value.
Options generally become exercisable at a rate of 25% on the one year
anniversary of the vesting commencing date, which may precede the grant date,
with an additional 6.25% exercisable at the end of each quarter thereafter until
fully vested at the end of the fourth year. The term of an incentive option may
not exceed five years for grants to owners of more than 10% of Webvan's voting
power, nor exceed ten years for all other option holders.

     In August 1999, Webvan adopted the 1999 Nonstatutory Stock Option Plan (the
"NSO Plan"). A total of 23,000,000 shares of Webvan's common stock have been
reserved for issuance under the NSO Plan. The NSO Plan provides for the grant of
nonstatutory stock options to employees and consultants of Webvan. Executive
officers (subject to Section 16 of the Securities Exchange Act of 1934, as
amended) are only eligible to receive options under the NSO Plan in connection
with their initial employment by Webvan. The exercise price, vesting and term of
all stock options granted under the NSO Plan are determined by the
administrator.

     The 1997 Plan initially provided for the grant of 30,000,000 shares. During
1998 and 1999, Webvan's Board of Directors increased the 30,000,000 shares of
common stock reserved under the 1997 Plan as follows: 12,000,000 in May 1998;
6,000,000 in July 1998; 6,000,000 in October 1998; 12,000,000 in December 1998;
6,000,000 in January 1999 and 7,500,000 in August 1999. Including the 23,000,000
shares reserved under the NSO Plan, 77,153,000 shares are reserved in the option
pool as of December 31, 1999. At December 31, 1999, shares of common stock
available for future options grants under the 1997 Plan and the NSO Plan totaled
approximately 5.6 million.

                                       40
<PAGE>   41
                       WEBVAN GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Stock option activity under the Company's plans is summarized as follows:

<TABLE>
<CAPTION>
                                                                NUMBER OF
                                                                  SHARES        WEIGHTED AVERAGE
                                                              (IN THOUSANDS)     EXERCISE PRICE
                                                              --------------    ----------------
<S>                                                           <C>               <C>
Options granted during 1997 (weighted average fair value of
  $0.00016).................................................      12,588            $0.00081
Options canceled during 1997................................        (108)            0.00081
                                                                 -------
Balance, December 31, 1997 (none exercisable)...............      12,480             0.00081
Options granted during 1998 (weighted average fair value of
  $0.01740).................................................      46,437             0.10546
Options exercised during 1998...............................     (18,981)            0.00645
Options canceled during 1998................................      (3,210)            0.02735
                                                                 -------
Balance, December 31, 1998..................................      36,726             0.12758
Options granted during 1999(weighted average fair value of
  $8.64133).................................................      42,793             7.51307
Options exercised during 1999...............................      (6,187)            0.20936
Options canceled during 1999................................      (1,827)            1.96871
                                                                 -------
Balance, December 31, 1999..................................      71,505            $4.48233
                                                                 =======
</TABLE>

     Additional information regarding options outstanding as of December 31,
1999 is as follows:

<TABLE>
<CAPTION>
                                          OPTIONS OUTSTANDING
                           -------------------------------------------------        OPTIONS EXERCISABLE
                             NUMBER      WEIGHTED AVERAGE                      ------------------------------
                           OUTSTANDING      REMAINING                            NUMBER
                              AS OF      CONTRACTUAL LIFE   WEIGHTED AVERAGE   EXERCISABLE   WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES    12/31/99         (YEARS)         EXERCISE PRICE     12/31/99      EXERCISE PRICE
------------------------   -----------   ----------------   ----------------   -----------   ----------------
<S>                        <C>           <C>                <C>                <C>           <C>
$ 0.00083 - $ 0.10000      21,852,261          8.44            $ 0.05444        3,492,089       $ 0.05091
$ 0.41667 - $ 1.35000      14,301,210          9.15            $ 0.66348        1,803,465       $ 0.41667
$ 3.33333 - $ 3.33333       4,237,575          9.59            $ 3.33333          237,374       $ 3.33333
$ 8.00000 - $ 8.00000      16,276,950          9.71            $ 8.00000        3,750,000       $ 8.00000
$10.78667 - $12.00000      13,854,245          9.76            $11.22597          892,220       $11.62461
$14.00000 - $25.43750         982,950          9.91            $17.00987                0       $ 0.00000
                           ----------          ----            ---------       ----------       ---------
$ 0.00083 - $25.43750      71,505,191          9.21            $ 4.48233       10,175,148       $ 4.12475
</TABLE>

ADDITIONAL STOCK PLAN INFORMATION

     As discussed in Note 1, Webvan accounts for its stock-based awards using
the intrinsic value method in accordance with APB 25. Based on the stock value
and exercise prices, during the year ended December 31, 1999, $67,729,000 of
compensation expense has been recognized in the financial statements for
employee stock arrangements, including $36,520,000 of amortization of deferred
compensation. During the year ended December 31, 1998, $2,302,000 of
compensation expense was recognized, including $1,060,000 of amortization of
deferred compensation.

     SFAS 123 requires the disclosure of pro forma net income and earnings per
share as if Webvan had adopted the fair value method as of the beginning of the
period ended December 31, 1997. Webvan's calculations were made with the
following weighted average assumptions for 1999, 1998 and 1997: expected life of
60 months following the grant date; risk free interest rates of 6%; and no
dividends during the expected term. As to volatility, the assumed value for
1999, 1998 and 1997 was 80%, 0% and 0% respectively. Forfeitures are recognized
as they occur. If the computed fair value of 1999, 1998 and 1997 awards had been
charged to compensation over the vesting period of the awards, the net loss
would have been $194,742,000 ($(1.93) per share, (basic and diluted) in 1999,
$12,028,000 ($(0.31) per share, (basic and diluted) in 1998 and $2,841,000
($(0.33) per share, (basic and diluted) in 1997.

                                       41
<PAGE>   42
                       WEBVAN GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 8. NONCASH FINANCING ACTIVITIES

STOCK AND OPTIONS FOR SERVICES

     Webvan issued the following shares and options for certain consulting or
recruiting services that represent non-cash operating expenses (in thousands,
except per share amounts):

<TABLE>
<CAPTION>
                                                    DATE       NUMBER      FAIR VALUE    FAIR VALUE AT
                                                   ISSUED     OF SHARES    PER SHARE     ISSUANCE DATE
                                                   -------    ---------    ----------    -------------
<S>                                                <C>        <C>          <C>           <C>
Stock:
  Series A preferred stock.......................   1997         939        $0.09583         $ 90
  Common.........................................   1997         360         0.01250            5
  Series A preferred stock.......................   1998          51         0.09583            5
  Common.........................................   1999          67         14.3138          378
</TABLE>

<TABLE>
<CAPTION>
                                                                SHARES      EXERCISE
                                                     DATE     COVERED BY      PRICE      FAIR VALUE
                                                    ISSUED     OPTIONS      PER SHARE    GRANT DATE
                                                    ------    ----------    ---------    ----------
<S>                                                 <C>       <C>           <C>          <C>
Stock options  --
  Common..........................................   1998        160        $ 0.10000       $ 7
</TABLE>

     All preferred shares were converted into common shares on a one for one
basis at the time of the Company's initial public offering in November, 1999.

     In July 1999, the Company issued Yahoo! an option to purchase up to 150,000
shares of Webvan common stock at a price of $3.33 per share. The option vests
6.25% each quarter contingent upon the continued service of Yahoo!'s CEO on
Webvan's Board of Directors. The fair value of the options at the grant date was
determined to be $180,000 using the Black-Scholes option pricing model. Based
upon the terms of the option, it is subject to variable plan accounting using
the Multiple Award Method. As of December 31, 1999, the fair value of the
remaining options was $1,945,000. Compensation expense related to these options
amounted to approximately $225,000 for the year ended December 31, 1999.

     In October 1999, Webvan issued 40,500 shares of Webvan common stock to a
consultant in exchange for service, subject to restrictions which lapse as
services are provided. The agreement provides for an initial three month term,
as well as four six month extensions. As of December 31, 1999, 5,250 shares had
vested and restrictions thereupon had lapsed. The stock which vested was valued
at $87,000 based on the $16.50 market value of the stock on December 31, 1999.

     Webvan agreed to issue an option for up to 150,000 shares of common stock
at an exercise price of $10.79 per share in exchange for recruiting services.
The agreement provides that 6,000 options vest for each individual placed under
the agreement, contingent upon such individual's continued employment with the
Company for eight months following commencement of employment. Based upon the
terms of the agreement, the option is subject to variable plan accounting using
the Multiple Award Method. Through December 31, 1999, $31,000 of expense was
recorded for the fair value of options issued to the recruiter in respect of
individuals placed with the Company.

DEFERRED COMPENSATION

     In connection with the grant of certain stock options to employees in 1999
and 1998, the Company recorded deferred compensation of $124,961,000 and
$11,797,000 and amortization of deferred compensation expense of $36,520,000 and
$1,060,000, respectively, representing the difference between the deemed fair
value and the option exercise price. The deferred compensation is generally
being amortized over the four-year vesting period of the underlying options.

                                       42
<PAGE>   43
                       WEBVAN GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

WARRANTS FOR DEBT

     Webvan issued the following warrants in connection with its long-term debt
and capital lease arrangements (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                              SHARES
                                                   DATE     COVERED BY    EXERCISE PRICE    FAIR VALUE
                                                  ISSUED     WARRANTS       PER SHARE       GRANT DATE
                                                  ------    ----------    --------------    ----------
<S>                                               <C>       <C>           <C>               <C>
Series B preferred stock warrants...............   1998       2,398           $0.91          $ 1,679
</TABLE>

     The number of shares covered by warrants reflect the two-for-one stock
splits in March 1998, January 1999 and July 1999 and the three-for-two stock
split in September 1999. The fair value of the warrants was determined using the
Black-Scholes option pricing model with the following assumptions: expected life
ranging from five to seven years; risk-free interest rate of 6% in 1999, 1998
and 1997; no dividends during the expected term and volatility ranging from 80%
to 100%. The calculations are based on a single option valuation approach and
forfeitures are recognized as they occur.

WARRANTS FOR SERVICES

     On July 8, 1999, the Company signed an agreement (the "Agreement") with a
contractor to design, develop and construct up to 26 distribution center
warehouse facilities ("Distribution Centers") in the United States. The
Agreement includes a five year exclusivity clause. The Agreement expires July 8,
2002, unless extended by written agreement. As part of the Agreement, the
contractor was granted a warrant to purchase up to 1,800,000 shares of the
Company's Series C preferred stock at $2.32 per share (the "Warrant"). The
Warrant was exercisable as to 150,000 shares on July 8, 1999 and generally
becomes exercisable as to the remaining shares as Distribution Centers are
completed by the contractor within agreed upon schedule and budgetary
parameters. A portion of the Warrant shares will be forfeited to the extent
schedule and budgetary parameters are not met for any Distribution Center.

     Under the applicable accounting guidelines in Emerging Issues Task Force
Issue No. 96-18, "Accounting for Equity Instruments That are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services", the measurement date for the Warrant is July 8, 1999 as that is the
performance commitment date. As of July 8, 1999, the Company capitalized
approximately $1.3 million, the fair value of the warrant related to the 150,000
exercisable shares, as determined by the board of directors and is amortizing
that amount over the five year exclusivity period. No amount was capitalized as
of that date for the fair value of the Warrant related to the non-exercisable
shares as eventual exercisability is dependent on counterparty performance. Any
amounts capitalized will be based on the contractor's future performance and
will be amortized over the useful life of the Distribution Centers. If and when
the Warrant becomes exercisable as to additional shares, based on counterparty
performance, the Company will capitalize additional cost based on the then fair
value of the Warrant related to such additional exercisable shares.

 9. NET LOSS PER SHARE

     Net loss per share is calculated by dividing the net loss by the weighted
average shares outstanding for the period. The weighted average shares
outstanding excludes certain shares subject to repurchase by the Company. Shares
subject to repurchase by the Company include options exercised prior to vesting.
Shares subject to repurchase by the Company also include certain shares issued
in 1997 which vest under the agreements pursuant to which they were issued: The
Company's rights to repurchase all but 144,000 of the shares issued in 1997
expire on March 10, 2000.

                                       43
<PAGE>   44
                       WEBVAN GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The following is a reconciliation of the numerators and denominators used
in computing basic and diluted net loss per share (in thousands except per share
amounts):

<TABLE>
<CAPTION>
                                                                                       PERIOD FROM
                                                                                      DECEMBER 17,
                                                                                      1996 (DATE OF
                                                        YEAR ENDED     YEAR ENDED    INCORPORATION)
                                                       DECEMBER 31,   DECEMBER 31,   TO DECEMBER 31,
                                                           1999           1998            1997
                                                       ------------   ------------   ---------------
<S>                                                    <C>            <C>            <C>
Net loss (numerator), basic and diluted..............   $(144,569)      $(12,004)        $(2,840)
                                                        ---------       --------         -------
Shares (denominator):
  Weighted average common shares outstanding.........     123,101         76,934          37,407
  Weighted average common shares outstanding and
     subject to repurchase...........................     (22,057)       (37,590)        (28,832)
                                                        ---------       --------         -------
Weighted average shares outstanding -- basic and
  diluted*...........................................     101,044         39,344           8,575
                                                        =========       ========         =======
Net loss per share, basic and diluted*...............   $   (1.43)      $  (0.31)        $ (0.33)
                                                        =========       ========         =======
</TABLE>

*Restated as to 1998 and 1997 -- See Note 15.

     For the above-mentioned periods, the Company had securities outstanding
which could potentially dilute basic earnings per share in the future, but were
excluded from the computation of diluted net loss per share in the periods
presented, as their effect would have been anti-dilutive. Such outstanding
securities consist of the following (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                                        PERIOD FROM
                                                                                       DECEMBER 17,
                                                                                       1996 (DATE OF
                                                         YEAR ENDED     YEAR ENDED    INCORPORATION)
                                                        DECEMBER 31,   DECEMBER 31,   TO DECEMBER 31,
                                                            1999           1998            1997
                                                        ------------   ------------   ---------------
<S>                                                     <C>            <C>            <C>
Convertible preferred stock...........................          --        151,736         112,583
Shares of common stock subject to repurchase*.........       9,945         33,500          34,296
Outstanding options...................................      71,684         36,905          12,480
Warrants..............................................       3,831          2,398              --
                                                          --------       --------        --------
          Total.......................................      85,460        224,539         159,359
                                                          ========       ========        ========
Weighted average exercise price of options............    $4.48232       $0.12773        $0.00083
                                                          ========       ========        ========
Weighted average exercise price of warrants...........    $1.57870       $   0.91        $     --
                                                          ========       ========        ========
</TABLE>

---------------

* Restated as to 1998 and 1997 -- See Note 15.

10. INCOME TAXES

     In 1999, when Webvan first generated revenues from operations, expenditures
accumulated during the development stage started being amortized for income tax
purposes over a five-year period. The deduction of these expenses for financial
statement purposes in years preceding the deduction for income tax purposes is a
temporary difference that creates a deferred tax asset. At statutory rates, the
deferred tax asset amounts to approximately $67.8 million which has been offset
by a valuation allowance of the same amount due to lack of operating history
combined with risks and uncertainties surrounding Webvan's ability to generate
future taxable income.

                                       44
<PAGE>   45
                       WEBVAN GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Significant components of the Company's deferred tax assets and liabilities
are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                1999       1998
                                                              --------    -------
<S>                                                           <C>         <C>
Deferred tax assets:
  Net operating loss carryforwards..........................  $ 35,779    $   101
  Start-up costs capitalized for tax purposes...............     9,614      5,384
  Deferred compensation.....................................    22,310         --
  Other.....................................................       105         34
                                                              --------    -------
Total deferred tax assets...................................    67,808      5,519
Valuation allowance.........................................   (67,808)    (5,519)
                                                              --------    -------
Net deferred tax assets.....................................  $     --    $    --
                                                              ========    =======
</TABLE>

     At December 31, 1999 the Company has federal net operating loss
carryforwards of approximately $87.8 million, expiring from 2012 to 2019. The
Company has research tax credit carryforwards available to offset future federal
taxes of $45,000, expiring from 2012 to 2014. The Company has state net
operating loss carryforwards of approximately $87.9 million, expiring from 2002
to 2004. The Company also has state tax credit carryforwards of approximately
$25,000, which do not expire.

     Utilization of the net operating losses and credits may be subject to an
annual limitation due to ownership change limitations provided by the Internal
Revenue Code and similar state provisions. The annual limitation may result in
the expiration of net operating losses and credits before utilization.

     The Company's effective tax rate differs from the expected benefit at the
federal statutory tax rate at December 31 as follows:

<TABLE>
<CAPTION>
                                                              1999    1998    1997
                                                              ----    ----    ----
<S>                                                           <C>     <C>     <C>
Federal statutory tax rate..................................   35%     35%     35%
State taxes, net of federal benefit.........................    6       6       6
Valuation allowance.........................................  (41)    (41)    (41)
                                                              ---     ---     ---
Effective tax rate..........................................   --%     --%     --%
                                                              ===     ===     ===
</TABLE>

11. LEASES

     Webvan leases facilities under noncancelable operating lease agreements
which expire at various dates through 2009.

     Future lease payments under the lease agreements as of December 31, 1999
(including leases for ten distribution centers leased as of December 31, 1999)
are as follows (in thousands):

<TABLE>
<CAPTION>
                   YEAR ENDING
                   DECEMBER 31,
                   ------------
<S>                                                 <C>
  2000............................................  $ 14,921
  2001............................................    16,817
  2002............................................    16,530
  2003............................................    16,665
  2004............................................    15,847
Thereafter........................................    94,402
                                                    --------
          Total future lease payments.............  $175,182
                                                    ========
</TABLE>

                                       45
<PAGE>   46
                       WEBVAN GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Facilities rent expense was $4,702,000, $1,026,000 and $123,000 for the
periods ended December 31, 1999, 1998 and 1997, respectively. In January 2000,
the Company signed an additional distribution center lease with annual payments,
commencing at $1,309,000, through 2010.

12. EMPLOYEE BENEFIT PLANS

     Webvan has a 401(k) profit-sharing plan (the 401(k) Plan) that covers
substantially all employees. The 401(k) Plan provides for voluntary salary
reduction contributions of up to 15% of eligible participants' annual
compensation subject to Internal Revenue Code limitations. Under the terms of
the 401(k) Plan, Webvan will match 100% of employees' contributions for the
first $500 and 25% thereafter to a maximum of $2,000 per year. Matching
contributions made during 1999, 1998 and 1997 were $503,000, $81,000 and
$17,000, respectively.

     In November 1999, the Company introduced its Employee Stock Purchase Plan
("ESPP") to its associates. A total of 5,000,000 shares of common stock have
been reserved for issuance under the ESPP. The first offering period commenced
in November 1999 and will end on or about August 14, 2000, and new offering
periods will end every six months thereafter. The number of shares reserved for
issuance under the ESPP will be subject to an annual increase on each
anniversary beginning January 1, 2000 equal to the lesser of the number of
shares issued under the ESPP in the prior year and an amount determined by
Webvan's board of directors.

     The ESPP permits eligible employees to purchase common stock through
payroll deductions up to a maximum of $25,000 per calendar year and up to 1,000
shares for each purchase period. The price at which common stock will be
purchased is equal to 85% of the fair market value of the common stock on the
first or last day of the applicable offering period, whichever is lower.

13. RELATED PARTY TRANSACTIONS

     A general contractor of Webvan has subcontracted with an equipment
manufacturer (see Note 2) to install equipment in Webvan's distribution center.
A total of $5.5 million of this work was completed by December 31, 1999 and is
included in fixed assets.

     In September 1999, the Company loaned an officer $4,783,000. The loan bears
interest at 6.26%, is secured by 1.25 million shares of Webvan common stock, and
matures in connection with the sale of the shares securing the note.

     Net sales in the fourth quarter of 1999 included approximately $0.8 million
of purchases under Webvan's Second Harvest Donation Program pursuant to which
individuals and entities order food from Webvan for donation to local foodbanks,
of which approximately $0.7 million was purchased by entities and individuals
associated or affiliated with Webvan, including an aggregate of $0.4 million by
E*Trade Group, Inc. and Yahoo! Inc., whose chief executive officers are
directors of Webvan.

14. SELECTED QUARTERLY DATA (UNAUDITED)
     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31, 1999
                                                     -----------------------------------------
                                                      FIRST      SECOND     THIRD      FOURTH
                                                     QUARTER    QUARTER    QUARTER    QUARTER
                                                     --------   --------   --------   --------
<S>                                                  <C>        <C>        <C>        <C>
Net Sales..........................................  $     12   $    383   $  3,841   $  9,069
Gross Profit.......................................         3        (27)  $    350   $  1,690
Net Loss...........................................   (11,690)   (23,444)  $(60,437)  $(48,998)
Basic and Diluted Net Loss per Share*..............     (0.21)     (0.38)  $  (0.88)  $  (0.22)
Weighted Average Shares Outstanding -- Basic and
  Diluted*.........................................    56,081     62,252     68,339    220,172
</TABLE>

                                       46
<PAGE>   47
                       WEBVAN GROUP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31, 1998
                                                     -----------------------------------------
                                                      FIRST     SECOND      THIRD      FOURTH
                                                     QUARTER    QUARTER    QUARTER    QUARTER
                                                     -------    -------    --------   --------
<S>                                                  <C>        <C>        <C>        <C>
Net Sales..........................................  $    --    $    --    $     --   $     --
Gross Profit.......................................       --         --    $     --   $     --
Net Loss...........................................   (1,021)    (2,241)   $ (3,234)  $ (5,508)
Basic and Diluted Net Loss per Share*..............    (0.03)     (0.06)   $  (0.08)  $  (0.12)
Weighted Average Shares Outstanding -- Basic and
  Diluted*.........................................   30,967     34,505      41,612     46,741
</TABLE>

* As restated -- See Note 15

     Subsequent to issuance of the Company's Consolidated Financial Statements
for the three and nine months ended September 30, 1999 and 1998, it was
determined that certain shares subject to repurchase (See Note 9) should have
been excluded from the weighted average shares outstanding for the three month
and nine month periods ended September 30, 1999 and 1998, used in calculating
net loss per share for such periods. Accordingly, the following amounts have
been restated for such periods:

<TABLE>
<CAPTION>
                                         3 MONTH ENDED SEPT. 30      9 MONTH ENDED SEPT. 30
                                        -------------------------   -------------------------
                                        AS PREVIOUSLY               AS PREVIOUSLY
                                          REPORTED       RESTATED     REPORTED       RESTATED
                                        -------------    --------   -------------    --------
<S>                                     <C>              <C>        <C>              <C>         <C>
1998 Shares outstanding...............      67,376        41,612        65,523        36,090
1999 Shares outstanding...............      78,983        68,339        75,213        60,929
1998 Net loss per share...............     $(0.05)       $ (0.08)      $(0.10)       $ (0.18)
1999 Net loss per share...............     $(0.77)       $ (0.88)      $(1.27)       $ (1.57)
</TABLE>

15. RESTATEMENT

     Subsequent to the issuance of the 1998 financial statements, it was
determined that 28,832,000 and 27,770,000 shares subject to repurchase should
have been excluded from the weighted average number of shares outstanding, for
1997 and 1998, respectively. As a result, basic and diluted net loss per share
has been restated from amount previously reported. This restatement had no
effect on our net loss for the periods ended December 31, 1997 and 1998.
Accordingly, the following amounts have been restated:

<TABLE>
<CAPTION>
                                                 AS REPORTED                              AS RESTATED
                                    --------------------------------------   --------------------------------------
                                      WEIGHTED AVERAGE        BASIC AND        WEIGHTED AVERAGE        BASIC AND
                                    SHARES OUTSTANDING --    DILUTED LOSS    SHARES OUTSTANDING --    DILUTED LOSS
                                      BASIC AND DILUTED       PER SHARE        BASIC AND DILUTED       PER SHARE
                                    ---------------------   --------------   ---------------------   --------------
<S>                                 <C>                     <C>              <C>                     <C>
1997..............................  37,407,000                  (.08)              8,575,000             (.33)
1998..............................  67,114,000                  (.18)             39,344,000             (.31)
</TABLE>

                                       47
<PAGE>   48

ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

     Not applicable.

                                    PART III

     Certain information required by Part III is omitted from this Report on
Form 10-K in that the Registrant will file its definitive Proxy Statement for
its Annual Meeting of Stockholders to be held on June 1, 2000, pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended (the "Proxy
Statement"), not later than 120 days after the end of the fiscal year covered by
this Report, and certain information included in the Proxy Statement is
incorporated herein by reference.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     (a) Executive Officers -- See the section entitled "Executive Officers" in
Part I, Item 1 hereof.

     (b) Directors -- The information required by this Item is incorporated by
reference to the section entitled "Election of Directors" in the Proxy
Statement.

     The disclosure required by Item 405 of Regulation S-K is incorporated by
reference to the section entitled "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

     The information required by this Item is incorporated by reference to the
sections entitled "Compensation of Executive Officers" and "Compensation of
Directors" in the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this Item is incorporated by reference to the
sections entitled "Principal Share Ownership" and "Security Ownership of
Management" in the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this Item is incorporated by reference to the
section entitled "Certain Transactions" in the Proxy Statement.

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

14(a) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                       DESCRIPTION OF DOCUMENT
-------                       -----------------------
<S>         <C>
 3.1(1)     Restated Certificate of Incorporation of the Registrant
 3.2(1)     Bylaws of the Registrant
 4.1(1)     Specimen Common Stock Certificate
 4.2(1)     Registration Rights Agreement dated October 29, 1997, as
              amended
10.1(1)     Form of Indemnification Agreement between the Registrant and
              each of its directors and officers
10.2(1)     1997 Stock Plan and form of agreements thereunder
10.3(1)     1999 Employee Stock Purchase Plan
10.4(1)     Lease Agreement dated April 1, 1998 between the Registrant
              and Lincoln Coliseum Distribution Center for premises in
              Oakland, California
10.5(1)     Lease Agreement dated March 4, 1999 between the Registrant
              and AMB Property, LP for premises in Atlanta, Georgia
</TABLE>

                                       48
<PAGE>   49

<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                       DESCRIPTION OF DOCUMENT
-------                       -----------------------
<S>         <C>
10.6(1)     Lease Agreement dated January 21, 1997 between the
              Registrant and Dove Holdings, Inc. for premises in Foster
              City, California
10.7(1)     Lease and Security Agreement dated November 18, 1998 between
              the Registrant and Lighthouse Capital Partners and other
              lenders
10.8(1)     Offer Letter dated March 18, 1999 between the Registrant and
              Kevin R. Czinger
10.9(1)     Offer Letter dated February 2, 1998 between the Registrant
              and Arvind Peter Relan
10.10(1)    Offer Letter dated December 14, 1998 between the Registrant
              and Mark X. Zaleski
10.11(1)    Offer Letter dated March 31, 1997 between the Registrant and
              Gary B. Dahl
10.12(1)    Offer Letter dated June 5, 1997 between the Registrant and
              Mark J. Holtzman
10.13(1)    Offer Letter dated September 3, 1997 between the Registrant
              and S. Coppy Holzman
10.14(1)    Contract dated July 8, 1999 for turnkey design/build
              construction and related services between the Registrant
              and Bechtel Corporation
10.15(1)    Warrant dated July 8, 1999 issued to Bechtel Corporation
10.16(1)    Warrant dated May 27, 1998 issued to Comdisco Ventures
10.17(1)    Warrant dated November 18, 1998 issued to Lighthouse Capital
              Partners
10.18(1)    Internet Data Services Agreement dated January 21, 1999
              between the Registrant and Exodus Communications, Inc.
10.19(1)    1999 Nonstatutory Stock Option Plan and form of agreements
              thereunder
10.20(1)    Employment Agreement between the Registrant and George T.
              Shaheen
10.21(1)    Offer Letter dated August 19, 1999 between the Registrant
              and Gregory Beutler
10.22(1)    Offer Letter dated July 25, 1999 between the Registrant and
              Vivek M. Joshi
10.23(1)    Offer Letter dated October 2, 1999 between the Registrant
              and Robert H. Swan
10.24(1)    Exclusive Supply and Sole Source Agreement between the
              Registrant and Diamond Phoenix Corporation
10.25(1)    Offer Letter dated November 10, 1998 between the Registrant
              and Christian T. Mannella
10.26       Offer Letter dated February 28, 2000 between the Registrant
              and F. Terry Bean
23.1        Consent of Deloitte & Touche LLP, Independent Auditors
24.1        Power of Attorney (see page 50)
27.1        Financial Data Schedule
</TABLE>

---------------
(1) Incorporated by reference from the Registrant's Registration Statement on
    Form S-1 (file no. 333-84703), as amended.

* Management contract or compensatory plan or arrangement required to be filed
  as an exhibit to this form.

14(b) REPORTS ON FORM 8-K:

     None

                                       49
<PAGE>   50

                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized, in Foster City, California, on March 30,
2000.

                                          WEBVAN GROUP, INC.

                                          By:     /s/ GEORGE T. SHAHEEN
                                            ------------------------------------
                                                     George T. Shaheen
                                                  Chief Executive Officer

                               POWER OF ATTORNEY

     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints George T. Shaheen and Robert H.
Swan, and each of them acting individually, as his attorney-in-fact, each with
full power of substitution for him in any and all capacities, to sign any and
all amendments to this report on Form 10-K, and file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming our signatures as they may
be signed by our attorney to any and all amendments to said Report.

     In accordance with the Exchange Act, this report has been signed below on
March 30, 2000 by the following persons on behalf of the Registrant and in the
capacities indicated.

<TABLE>
<CAPTION>
             SIGNATURE                               TITLE
             ---------                               -----
<C>                                   <S>                                   <C>
        /s/ LOUIS H. BORDERS          Chairman of the Board of Directors
------------------------------------
          Louis H. Borders

       /s/ GEORGE T. SHAHEEN          Chief Executive Officer
------------------------------------  (Principal Executive Officer) and
         George T. Shaheen            Director

         /s/ ROBERT H. SWAN           Chief Financial Officer
------------------------------------  (Principal Financial and Accounting
           Robert H. Swan             Officer)

        /s/ DAVID M. BEIRNE           Director
------------------------------------
          David M. Beirne

      /s/ CHRISTOS M. COTSAKOS        Director
------------------------------------
        Christos M. Cotsakos

           /s/ TIM KOOGLE             Director
------------------------------------
             Tim Koogle

       /s/ MICHAEL J. MORITZ          Director
------------------------------------
         Michael J. Moritz
</TABLE>

                                       50
<PAGE>   51

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
 NUMBER                       DESCRIPTION OF DOCUMENT
-------                       -----------------------
<C>         <S>
 3.1(1)     Restated Certificate of Incorporation of the Registrant
 3.2(1)     Bylaws of the Registrant
 4.1(1)     Specimen Common Stock Certificate
 4.2(1)     Registration Rights Agreement dated October 29, 1997, as
              amended
10.1(1)     Form of Indemnification Agreement between the Registrant and
              each of its directors and officers
10.2(1)     1997 Stock Plan and form of agreements thereunder
10.3(1)     1999 Employee Stock Purchase Plan
10.4(1)     Lease Agreement dated April 1, 1998 between the Registrant
              and Lincoln Coliseum Distribution Center for premises in
              Oakland, California
10.5(1)     Lease Agreement dated March 4, 1999 between the Registrant
              and AMB Property, LP for premises in Atlanta, Georgia
10.6(1)     Lease Agreement dated January 21, 1997 between the
              Registrant and Dove Holdings, Inc. for premises in Foster
              City, California
10.7(1)     Lease and Security Agreement dated November 18, 1998 between
              the Registrant and Lighthouse Capital Partners and other
              lenders
10.8(1)     Offer Letter dated March 18, 1999 between the Registrant and
              Kevin R. Czinger
10.9(1)     Offer Letter dated February 2, 1998 between the Registrant
              and Arvind Peter Relan
10.10(1)    Offer Letter dated December 14, 1998 between the Registrant
              and Mark X. Zaleski
10.11(1)    Offer Letter dated March 31, 1997 between the Registrant and
              Gary B. Dahl
10.12(1)    Offer Letter dated June 5, 1997 between the Registrant and
              Mark J. Holtzman
10.13(1)    Offer Letter dated September 3, 1997 between the Registrant
              and S. Coppy Holzman
10.14(1)    Contract dated July 8, 1999 for turnkey design/build
              construction and related services between the Registrant
              and Bechtel Corporation
10.15(1)    Warrant dated July 8, 1999 issued to Bechtel Corporation
10.16(1)    Warrant dated May 27, 1998 issued to Comdisco Ventures
10.17(1)    Warrant dated November 18, 1998 issued to Lighthouse Capital
              Partners
10.18(1)    Internet Data Services Agreement dated January 21, 1999
              between the Registrant and Exodus Communications, Inc.
10.19(1)    1999 Nonstatutory Stock Option Plan and form of agreements
              thereunder
10.20(1)    Employment Agreement between the Registrant and George T.
              Shaheen
10.21(1)    Offer Letter dated August 19, 1999 between the Registrant
              and Gregory Beutler
10.22(1)    Offer Letter dated July 25, 1999 between the Registrant and
              Vivek M. Joshi
10.23(1)    Offer Letter dated October 2, 1999 between the Registrant
              and Robert H. Swan
10.24(1)    Exclusive Supply and Sole Source Agreement between the
              Registrant and Diamond Phoenix Corporation
10.25(1)    Offer Letter dated November 10, 1998 between the Registrant
              and Christian T. Mannella
10.26       Offer Letter dated February 28, 2000 between the Registrant
              and F. Terry Bean
23.1        Consent of Deloitte & Touche LLP, Independent Auditors
24.1        Power of Attorney (see page 50)
27.1        Financial Data Schedule
</TABLE>

---------------
(1) Incorporated by reference from the Registrant's Registration Statement on
    Form S-1 (file no. 333-84703), as amended.

 *  Management contract or compensatory plan or arrangement required to be filed
    as an exhibit to this form.

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