<PAGE>


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


                                    FORM 10-Q


          /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000

                                       OR

         / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

             FOR THE TRANSITION PERIOD FROM __________ TO __________


                         COMMISSION FILE NUMBER 0-26707


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


             WASHINGTON                                    91-1628103
     (State or other jurisdiction of                 (I.R.S. Employer
     incorporation or organization)                   Identification Number)

                              411 1ST AVENUE SOUTH
                                 SUITE 200 NORTH
                                SEATTLE, WA 98104
                    (Address of principal executive offices)


                                 (206) 223-1996
              (Registrant's telephone number, including area code)


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

As of May 8, 2000, there were 55,458,426 shares outstanding of the Registrant's
common stock.


                                       1
<PAGE>



                                SHOPNOW.COM INC.

                                    FORM 10-Q

                                      INDEX


<TABLE>
<CAPTION>
                                                                                                           PAGE
<S>               <C>                                                                                      <C>
PART I            FINANCIAL INFORMATION

ITEM 1:           Financial Statements

                  Consolidated Balance Sheets as of March 31, 2000
                     and December 31, 1999..............................................................     4
                  Consolidated Statements of Operations for the three
                     months ended March 31, 2000 and 1999...............................................     5
                  Consolidated Statements of Cash Flows for the three
                     months ended March 31, 2000 and 1999...............................................     6
                  Notes to Interim Consolidated Financial Statements....................................     7

ITEM 2:           Management's Discussion and Analysis of Financial
                     Condition and Results of Operations................................................    14

ITEM 3:           Quantitative and Qualitative Disclosures about Market Risk............................    30


PART II           OTHER INFORMATION

ITEM 1:           Legal Proceedings.....................................................................    31

ITEM 2:           Changes in Securities and Use of Proceeds.............................................    31

ITEM 3:           Defaults Upon Senior Securities.......................................................    32

ITEM 4:           Submission of Matters to a Vote of Security Holders...................................    32

ITEM 5:           Other Information.....................................................................    32

ITEM 6:           Exhibits and Reports on Form 8-K......................................................    33


SIGNATURES..............................................................................................    34

EXHIBITS................................................................................................    35
</TABLE>


                                       2
<PAGE>



PART I.  FINANCIAL INFORMATION

ITEM 1.


                                       3
<PAGE>



                                SHOPNOW.COM INC.
                           CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                              March 31,         December 31,
                                                                                                2000               1999
                                                                                             ---------           ---------
                                                                                            (unaudited)
<S>                                                                                          <C>                 <C>
                                     ASSETS
Current assets:
    Cash and cash equivalents........................................................        $  17,393           $  10,660
    Short-term investments...........................................................          107,299              52,172
    Investments in marketable equity securities......................................           19,893              30,884
    Accounts receivable, net.........................................................           11,040               6,591
    Unbilled services................................................................            1,622               2,102
    Prepaid expenses and other.......................................................           14,504               5,559
                                                                                             ---------           ---------
         Total current assets........................................................          171,751             107,968

Property and equipment, net..........................................................           23,910              19,385
Goodwill, net........................................................................           31,874              23,860
Other intangible assets, net.........................................................          115,342             104,713
Other assets, net....................................................................           28,297              18,248
                                                                                             ---------           ---------
         Total assets................................................................        $ 371,174           $ 274,174
                                                                                             =========           =========

                        LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Accounts  payable................................................................        $  11,041           $   8,330
    Accrued liabilities..............................................................           12,076               8,778
    Current portion of notes and leases payable......................................            6,771               8,565
    Customer deposits................................................................            1,234               2,194
    Deferred revenue.................................................................            9,058               5,786
                                                                                             ---------           ---------
         Total current liabilities...................................................           40,180              33,653

Notes and leases payable, less current portion.......................................            4,366               5,409
Put warrant liability................................................................                -               1,388
Deferred tax liabilities.............................................................              655               4,511
                                                                                             ---------           ---------
         Total liabilities...........................................................           45,201              44,961
                                                                                             ---------           ---------
Commitments
Shareholders' equity:
    Convertible preferred stock, $0.001 par value:  authorized shares - 5,000,000;
        none issued and outstanding .................................................                -                   -
    Common stock, $0.001 par value:  authorized shares - 200,000,000; issued
         and outstanding shares - 52,451,581 at March 31, 2000 and 42,923,035 at
         December 31, 1999...........................................................          457,864             325,502
    Common stock warrants............................................................            7,737               8,260
    Deferred compensation............................................................           (8,058)             (6,713)
    Accumulated other comprehensive (loss) income....................................           (3,492)              7,470
    Accumulated deficit..............................................................         (128,078)           (105,306)
                                                                                             ---------           ---------
            Total shareholders' equity..............................................           325,973             229,213
                                                                                             ---------           ---------
            Total liabilities and shareholders' equity...............................        $ 371,174           $ 274,174
                                                                                             =========           =========
</TABLE>



The accompanying notes are an integral part of these consolidated balance
sheets.


                                       4
<PAGE>


                                SHOPNOW.COM INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                                                                                                  For the Three Months
                                                                                                      Ended March 31,
                                                                                               ---------------------------
                                                                                                    2000            1999
                                                                                               -----------     -----------
<S>                                                                                            <C>             <C>
Revenues...................................................................................    $    18,682     $     7,568
Cost of revenues...........................................................................         10,393           7,140
                                                                                               -----------     -----------
     Gross profit..........................................................................          8,289             428
                                                                                               -----------     -----------
Operating expenses:
     Sales and marketing...................................................................         22,100           5,263
     General and administrative............................................................          3,234           1,313
     Research and development..............................................................          4,215           1,452
     Amortization of intangible assets.....................................................         13,492             558
     Stock-based compensation..............................................................          1,856             137
                                                                                               -----------     -----------
         Total operating expenses..........................................................         44,897           8,723
                                                                                               -----------     -----------
         Loss from operations..............................................................        (36,608)         (8,295)
                                                                                               -----------     -----------
Nonoperating income (expense):
     Gain on sale of marketable equity securities..........................................          1,086               -
     Interest income, net..................................................................            834              15
                                                                                               -----------     -----------
         Total nonoperating income.........................................................          1,920              15
                                                                                               -----------     -----------
         Net loss before income tax benefit................................................        (34,688)         (8,280)
                                                                                               -----------     -----------
Income tax benefit.........................................................................         11,916               -
                                                                                               -----------     -----------
         Net loss..........................................................................    $   (22,772)    $    (8,280)
                                                                                               ===========     ===========

Basic and diluted net loss per share.......................................................    $     (0.48)    $     (1.78)
                                                                                               ===========     ===========
Weighted average shares outstanding used to compute basic and
     diluted net loss per share............................................................     47,581,471       4,645,206
                                                                                               ===========     ===========
Pro forma basic and diluted net loss per share.............................................                    $     (0.48)
                                                                                                               ===========

Weighted average shares outstanding used to compute pro forma
     basic and diluted net loss per share..................................................                     17,169,592
                                                                                                               ===========
</TABLE>



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


                                       5
<PAGE>



                                SHOPNOW.COM INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                                  For the Three Months
                                                                                                      Ended March 31,
                                                                                                 -------------------------
                                                                                                   2000            1999
                                                                                                 ---------       ---------
<S>                                                                                              <C>             <C>
Operating activities:
      Net loss...............................................................................    $ (22,772)      $  (8,280)
      Adjustments to reconcile net loss to net cash used in operating activities-
         Depreciation and amortization.......................................................       15,806           1,055
         Deferred income tax benefit.........................................................      (11,916)              -
         Amortization of deferred compensation...............................................        1,856             137
         Changes in operating assets and liabilities, excluding effects of
            acquired businesses-
              Accounts receivable, net.......................................................       (4,179)            497
              Prepaid expenses and other assets..............................................       (7,764)           (433)
              Unbilled services and customer deposits........................................         (730)           (443)
              Accounts payable and accrued liabilities.......................................        4,768            (859)
              Deferred revenue...............................................................        3,231              79
                                                                                                 ---------       ---------
              Net cash used in operating activities..........................................      (21,700)         (8,247)
                                                                                                 ---------       ---------
Investing activities:
      Purchases of short-term investments....................................................     (104,768)            (59)
      Sales of short-term investments........................................................       49,703               -
      Sales of marketable equity securities..................................................           29               -
      Purchases of property and equipment....................................................       (6,483)         (1,553)
      Investments in equity and debt securities and other assets.............................      (10,531)           (199)
      Acquisition of businesses, net of cash acquired of $259 in 2000 and none in 1999 ......       (5,826)             -
                                                                                                 ---------       ---------
              Net cash used in investing activities..........................................      (77,876)         (1,811)
                                                                                                 ---------       ---------
Financing activities:
      Payments on line of credit.............................................................            -            (237)
      Proceeds from debt financing...........................................................            -           3,500
      Payments on long-term debt.............................................................       (3,038)           (344)
      Proceeds from sales of preferred stock.................................................            -           3,400
      Proceeds from sale of common stock.....................................................      109,347              55
                                                                                                 ---------       ---------
              Net cash provided by financing activities......................................      106,309           6,374
                                                                                                 ---------       ---------
Net increase (decrease) in cash and cash equivalents.........................................        6,733          (3,684)
Cash and cash equivalents at beginning of period.............................................       10,660           9,849
                                                                                                 ---------       ---------
Cash and cash equivalents at end of period...................................................    $  17,393       $   6,165
                                                                                                 =========       =========
Supplementary disclosure of cash flow information:
      Cash paid during the period for interest...............................................    $     390       $      47
                                                                                                 =========       =========
      Cash paid during the period for income taxes...........................................    $       -       $       -
                                                                                                 =========       =========
      Non-cash investing and financing activities:
         Common stock, options and warrants issued and liabilities assumed
              as part of business and technology acquisitions................................    $  18,992       $       -
                                                                                                 =========       =========
</TABLE>


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


                                       6
<PAGE>



                                SHOPNOW.COM INC.

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1. ORGANIZATION AND BACKGROUND:

THE COMPANY

ShopNow.com Inc. (the Company), a Washington corporation, provides an end-to-end
solution that enables businesses to engage in e-commerce with other businesses,
merchants and shoppers. The Company's end-to-end solution consists of access to
online marketplaces and networks combined with a suite of e-commerce enabling
products and services. These services include custom application and online
store development and design, hosting and maintenance, sales and marketing
services, technology licensing and transaction processing. The Company maintains
an on-line marketplace, referred to as the ShopNow Network, which aggregates
merchants and shoppers over a distributed network of web sites. In January 2000,
the Company launched a business-to-business portal and marketplace, known as the
Business Commerce Network, which is designed to enable businesses to engage in
online transactions with other businesses.

The Company is subject to the risks and challenges associated with other
companies at a similar stage of development, including dependence on key
management personnel, successful development and marketing of its products and
services, the continued acceptance of the Internet as a medium for electronic
commerce, competition from substitute products and services from companies with
greater financial, technical, management and marketing resources and risks
associated with recent acquisitions. Further, during the period required to
develop commercially viable products, services and sources of revenues, the
Company may require additional funds that may not be readily available.

PUBLIC OFFERINGS

On October 4, 1999, the Company closed its initial public offering (IPO) of
7,250,000 shares of common stock at $12.00 per share, for proceeds net of
underwriters' fees and commissions of $80.9 million. At closing, all of the
Company's issued and outstanding shares of convertible preferred stock were
converted into shares of common stock on a one-for-one basis. On November 2,
1999, the underwriters of the IPO exercised their over-allotment option and sold
an additional 1,087,500 shares at $12.00 per share, for proceeds net of
underwriters' fees and commissions of $12.1 million. The combined net proceeds
to the Company, less additional offering costs of approximately $1.9 million,
were $91.1 million. In addition, a $1.0 million promissory note in connection
with the Company's acquisition of GO Software, Inc. (GO) and a $4.0 million
bridge loan with a financial institution plus accrued interest were repaid.

On February 18, 2000, the Company closed a supplemental public offering (SPO) of
7,913,607 shares of common stock at $14.50 per share, for proceeds net of
underwriters' fees and commissions of $108.7 million. Additional offering costs
incurred by the Company relating to the SPO were approximately $700,000.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

UNAUDITED INTERIM FINANCIAL DATA

The interim consolidated financial statements are unaudited and have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. These consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in the Company's December 31, 1999 Form 10-K as filed with the
Securities and Exchange Commission on February 10, 2000. The financial
information included herein reflects all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of



                                       7
<PAGE>

management, necessary for a fair presentation of the results for interim
periods. The results of operations for the three- month periods ended March 31,
2000 and 1999 are not necessarily indicative of the results to be expected for
the full year.

PRINCIPLES OF CONSOLIDATION

The Company's consolidated financial statements include 100% of the assets,
liabilities and results of operations of all subsidiaries in which the Company
has a controlling ownership interest of greater than 50%. Equity investments in
which the Company holds less than a 20% ownership interest are recorded at cost
and are included in other assets, net in the accompanying consolidated balance
sheets. All significant intercompany transactions and balances have been
eliminated.

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, the 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.

REVENUE RECOGNITION

The Company derives substantially all of its revenues from the ShopNow Network
and the Business Commerce Network, which includes providing services to
businesses.

Revenues from the ShopNow Network, which is a network of proprietary and
affiliated web sites, including www.shopnow.com, the BottomDollar Network
(including www.bottomdollar.com and other affiliated BottomDollar sites),
www.chaseshop.com and www.speedyclick.com are generated primarily from
advertising and merchandising paid by merchants as well as from leads and orders
delivered to merchants. Advertising consists of the sale of impressions on one
or more of the Company's network of web sites; merchandising consists of the
sale of specific positions or category sponsorships on the sites. These
agreements typically have a term of one to four months. Advertising and
merchandising revenues are recognized ratably over the term of the applicable
agreement. Where billings exceed revenues earned on these agreements, the
amounts are included in the accompanying consolidated balance sheets as deferred
revenue. In certain circumstances, the Company offers products directly to
shoppers via the www.chaseshop.com portal. In these instances where the Company
acts as merchant-of-record, the Company records as revenue the full sales price
of the product sold and records the full cost of the product to the Company as
cost of revenues, upon shipment of the product. Revenues generated from the
Company's ceased BuySoftware.com business are included in the accompanying March
31, 1999 interim consolidated statements of operations, as management did not
cease operations of BuySoftware.com until June 1999.

Revenues from the Business Commerce Network are derived primarily from providing
services, transaction processing, advertising and technology licensing to
businesses and from the Company's proprietary business-to-business portal
located at www.b2bnow.com. Revenues from services are generated principally
through development fees, hosting fees and sales and marketing services. These
services can be purchased as a complete end-to-end suite of services or
separately. The Company recognizes revenues from development of custom
applications and online stores and marketing projects on a percentage of
completion basis over the period of development or the period of the marketing
project. These projects generally range from two to five months. Hosting
contracts typically have a term of one year, with fees charged and earned on a
monthly basis. The Company bears full credit risk with respect to these sales.
Anticipated losses on these contracts are recorded when identified. To date,
losses have not been significant. Contract costs include all direct labor,
material, subcontract and other direct project costs and certain indirect costs
related to contract performance. Changes in job performance, job conditions and
estimated profitability, including those arising from contract penalty
provisions and final contract settlements that may result in revision to costs
and income, are recognized in the period in which the revisions are determined.
Unbilled services typically represent amounts earned under the Company's
contracts not billed due to timing or contract terms, which usually consider
passage of time, achievement of certain milestones or completion of the project.
Where billings exceed revenues earned on contracts, the amounts are included in
the accompanying consolidated balance sheets as customer deposits, as the
amounts typically relate to ancillary services, whereby the



                                       8
<PAGE>

Company is acting in an agency capacity. Fee revenue from ancillary services
provided by the services division is recognized upon completion of the related
job by the applicable third party vendor.

Revenues are also generated from fees paid to the Company by businesses and
merchants that license the Company's transaction processing and fraud prevention
technologies and on-line payment gateways, as well as other e-commerce enabling
technologies. Revenues include licensing fees, per-transaction fees and in
certain cases monthly hosting and maintenance fees, which are recognized in the
period earned. Revenues generated from technology licensing are recognized in
accordance with Statement of Position 97-2, "Software Revenue Recognition."
Where billings exceed revenues earned on these contracts, the amounts are
included in the accompanying consolidated balance sheets as deferred revenue.
Businesses and merchants that utilize the Company's payment processing
technologies act as the merchant-of-record and bear the full credit risk on
those sales of goods and services. Revenues from b2bNow.com are generated
primarily from the sales of advertising and merchandising products similar to
those sold on the ShopNow Network.

INCOME TAXES

Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
The Company's income tax benefit of $11.9 million recognized for the period
ended March 31, 2000, is the result of changes in the Company's deferred tax
accounts, which have principally been created as a result of the Company's
recent business acquisitions and from the Company's generation of net operating
losses.

PRO FORMA NET LOSS PER SHARE

Pro forma basic and diluted net loss per share is computed based on the weighted
average number of shares of common stock outstanding, giving effect to the
conversion of all outstanding convertible preferred stock that automatically
converted to common stock upon the closing of the Company's IPO discussed in
Note 1, using the if-converted method from the original issuance date. Both
diluted net loss per share and pro forma diluted net loss per share exclude the
impact of stock options and warrant exercises as the effect of their inclusion
would be antidilutive.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," to provide guidance on the recognition, presentation and disclosure
of revenues in financial statements. The Company believes its revenue
recognition practices are in conformity with the guidelines prescribed in SAB
No. 101.

In March 2000, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 44 (FIN 44), "Accounting for Certain Transactions Involving
Stock Compensation." FIN 44 clarifies certain issues relating to the application
of Accounting Principles Board Opinion No. 25 and related interpretations, which
are the authoritative pronouncements the Company uses to account for its
stock-based compensation transactions. FIN 44 is effective July 1, 2000, however
certain conclusions reached in FIN 44 are applicable for transactions
consummated after either December 15, 1998 or January 12, 2000. The Company does
not believe that the adoption of FIN 44 will have a material effect on the
Company's financial position or results of operations.

RECLASSIFICATIONS

Certain information reported in previous periods has been reclassified to
conform to the current period presentation.




                                       9
<PAGE>

NOTE 3. COMPREHENSIVE LOSS:

The following table represents the Company's comprehensive loss for the
three-month periods ended March 31, 2000 and 1999:

<TABLE>
                                                                                            For the Three Months
                                                                                               Ended March 31,
                                                                                          ------------------------
                                                                                            2000            1999
                                                                                          --------        --------
                                                                                               (in thousands)
<S>                                                                                       <C>             <C>
Net loss before income tax benefit ........................................               $(34,688)       $ (8,280)
                                                                                          --------        --------
Other comprehensive loss, before taxes:
     Unrealized loss on marketable equity securities .......................                 (9,876)              -
     Reclassification adjustment for gains included in net loss ...........                 (1,086)              -
                                                                                          --------        --------
     Total other comprehensive loss .......................................                (10,962)              -
                                                                                          --------        --------
Comprehensive loss before income tax benefit ..............................               $(45,650)       $ (8,280)
                                                                                          ========        ========
</TABLE>

NOTE 4. ACQUISITIONS:

In June 1999, the Company acquired GO Software, Inc. (GO). GO develops and
markets transaction processing software for personal computers that can function
on a stand-alone basis or can interface with core corporate accounting systems.
The Company paid GO $4.7 million in cash, issued a $1.0 million promissory note
bearing interest at 10%, and issued 1,123,751 shares of common stock, valued at
$8.54 per share, for a total purchase price of $15.4 million. The acquisition
was accounted for using the purchase method of accounting. Of the excess
purchase price of approximately $14.4 million, $13.8 million was allocated to
acquired technology and $556,000 was allocated to goodwill, which are both being
amortized over a three-year life. The note bore interest at 10% and was repaid
in full upon completion of the Company's IPO.

Also in June 1999, the Company acquired CardSecure, Inc. (CardSecure) for a
purchase price of approximately $3.5 million. CardSecure is a developer of
e-commerce enabled Web sites. The acquisition was accounted for using the
purchase method of accounting. The excess purchase price of approximately $3.5
million was allocated to acquired technology and is being amortized over a
three-year life.

On November 12, 1999, the Company acquired SpeedyClick, Corp. (SpeedyClick), a
California corporation, for $55.6 million of cash, common stock and common stock
options. SpeedyClick, a privately held company, maintains an Internet web site
that focuses on entertainment and interactivity. Upon effectiveness of the
acquisition, a total of 3,799,237 shares of common stock valued at $13.31 per
share were issued to the owners of SpeedyClick. Options to purchase SpeedyClick
common stock were assumed by the Company and converted into 157,527 options to
purchase the Company's common stock. The Company also paid cash consideration of
$3.0 million to the owners of SpeedyClick. The Company accounted for this
transaction as a purchase. Of the $55.6 million in consideration paid,
approximately $27.9 was allocated to proprietary concepts, $14.7 million to
customer lists and $13.0 million to goodwill. These intangible assets are being
amortized over a three-year life.

On December 3, 1999, the Company acquired Cortix, Inc. (Cortix), an Arizona
corporation doing business as 20-20Consumer.com, for $14.4 million of cash and
common stock. Cortix, a privately held company, is an operator of comparison
shopping services including online reviews and ratings for commerce-oriented
businesses, merchants and products. Upon effectiveness of the acquisition,
711,435 shares of common stock valued at $18.81 per share were issued to the
owners of Cortix. The Company also paid cash consideration of $1.0 million to
the owners of Cortix. The Company accounted for this transaction as a purchase.
Of the $14.4 million in consideration paid, approximately $11.3 million was
allocated to acquired technology, $1.6 million to customer lists and $1.3
million to goodwill. These intangible assets are being amortized over a
three-year life.

On December 17, 1999, the Company acquired WebCentric Inc., (WebCentric) a
Kansas corporation doing business as bottomdollar.com, for $40.2 million of
common stock, common stock options and approximately $1.4 million of cash.
WebCentric, a privately held company, develops e-commerce integration technology
and applications, including a comparison shopping engine that allows consumers
to search and compare the products and services of several leading Internet
merchants. Upon effectiveness of the acquisition, a total of 2,161,904 shares of
common



                                       10
<PAGE>

stock valued at $16.89 per share were issued to the owners of WebCentric. In
addition, the Company issued replacement stock options to purchase an aggregate
of 121,544 shares of the Company's common stock to certain employees and owners
of WebCentric. The Company accounted for this transaction as a purchase. Of the
$40.2 million in consideration paid, approximately $31.8 million was allocated
to acquired technology, $3.3 million to customer lists and $4.6 million to
goodwill. These intangible assets are being amortized over a three-year life.

On December 20, 1999, the Company entered into a letter of intent to acquire
Ubarter.com, Inc. (Ubarter), for approximately $45.0 million of common stock and
common stock warrants. Ubarter, a publicly traded company, is an e-commerce
company specializing in online business-to-business barter exchange. The
acquisition is expected to close in the second quarter of 2000 subject to the
Company's effectiveness of a registration statement on Form S-4 with the
Securities and Exchange Commission and the approval of the shareholders of
Ubarter.

On January 13, 2000, the Company, through its wholly owned subsidiary 3037952
Nova Scotia Company, a Nova Scotia Company, acquired Pronet Enterprises Ltd.
(Pronet), a Canadian company, for approximately $12.8 million, of which $3.2
million was paid in cash, $2.2 million in non-cash deferred tax liabilities
assumed and $7.4 million in common stock and common stock options issued to
Pronet shareholders. Pronet, a privately held company, operates a
business-to-business portal and marketplace that aggregates businesses that seek
to transact with one another. Upon effectiveness of the acquisition, a total of
162,508 shares of common stock, valued at $17.60 per share, were issued to the
shareholders Pronet. In addition, the Company issued options to purchase 351,666
shares of common stock to the two principals of Pronet. The Company accounted
for this transaction as a purchase. Of the $12.8 million in consideration paid,
approximately $6.3 million was allocated to acquired technology, $2.7 million to
customer lists and $3.8 million to goodwill. These intangible assets are being
amortized over a three-year life.

On January 18, 2000, the Company acquired AXC Corporation, (AXC) a Washington
corporation, for approximately $17.9 million, of which $2.2 million was paid in
cash, $4.1 million in non-cash deferred tax liabilities assumed and $11.6
million in common stock and common stock options issued to AXC shareholders.
AXC, a privately held company, provides e-commerce consulting services to
businesses. Upon effectiveness of the acquisition, a total of 540,296 shares of
common stock valued at $17.60 per share were issued to the owners of AXC. In
addition, the Company issued replacement stock options to purchase an aggregate
of 72,089 shares of the Company's common stock to certain employees and owners
of AXC. The Company accounted for this transaction as a purchase. Of the $17.9
million in consideration paid, approximately $7.2 million was allocated to
assembled workforce, $4.9 million to customer lists, $5.0 million to goodwill
and $800,000 to working capital. The intangible assets acquired are being
amortized over a three-year life.

UNAUDITED PRO FORMA COMBINED RESULTS

The following summarizes the unaudited pro forma results of the Company's
operations for the three-month periods ended March 31, 2000 and 1999 as if the
GO, CardSecure, SpeedyClick, Cortix, WebCentric, Pronet and AXC transactions
occurred as of January 1, 1999. The pro forma results are presented for the
purposes of additional analysis only and do not purport to present the results
of operations that would have occurred for the periods presented or that may
occur in the future.

<TABLE>
<CAPTION>
                                                  For the Three Months
                                                    Ended March 31,
                                              ----------------------------
                                                2000                1999
                                              --------            --------
                                                 (in thousands, except
                                                     share amounts)
<S>                                           <C>                 <C>
Revenues .................................... $ 18,954            $  9,421
Net loss before taxes .......................  (38,260)            (22,262)
Net loss per share before taxes .............    (0.80)              (1.66)
</TABLE>



                                       11
<PAGE>

5. INVESTMENTS IN MARKETABLE EQUITY SECURITIES:

At March 31, 2000, the Company held 476,410 shares of 24/7 Media and 55,122
shares of FreeShop.com Inc., both of which are publicly traded companies subject
to the reporting requirements of the Securities and Exchange Commission. The
Company classifies these investments as available for sale and are stated at
fair value in accordance with Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities." This
statement specifies that available for sale securities are reported at fair
value with changes in unrealized gains and losses recorded directly to
shareholders' equity, which are reflected in accumulated other comprehensive
income (loss) in the accompanying consolidated balance sheets. Fair value is
based on quoted market prices.

6. DEBT OBLIGATIONS:

In March 1999, the Company entered into a loan and security agreement with a
financial institution for a term loan and line of credit. In May 1999, the
agreement was amended and restated to allow the Company to borrow up to $8.5
million at any one time, consisting of a $3.5 million term loan (term loan), a
$4.0 million bridge loan (bridge loan) and a line of credit of up to $2.5
million ($1.0 million until the bridge loan is repaid). The line of credit bears
interest at the financial institution's base rate plus 2%, is secured by
substantially all assets of the Company and was amended in January 2000 to
expire on March 31, 2001. The term loan bears interest at 12%, is secured by
substantially all assets of the Company and matures in March 2002. The bridge
loan bore interest at 12% and was repaid in October 1999, as discussed in
Note 1.

7. SEGMENT INFORMATION:

The following table represents the Company's segment information for the
three-month periods ended March 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                                           For the Three Months
                                                                                              Ended March 31,
                                                                                          ----------------------
                                                                                            2000          1999
                                                                                          --------      --------
                                                                                             (in thousands)
<S>                                                                                       <C>           <C>
Revenues from unaffiliated customers:
    ShopNow Network .......................................................               $ 10,637      $    345
    Services ..............................................................                  4,702         1,729
    b2bNow.com, transaction processing and technology licensing ...........                  3,343             -
    BuySoftware.com .......................................................                      -         5,494
                                                                                          --------      --------
         Total revenues from unaffiliated customers .......................                 18,682         7,568
                                                                                          --------      --------
Cost of revenues:
    ShopNow Network .......................................................                  7,162           303
    Services ..............................................................                  3,113           952
    b2bNow.com, transaction processing and technology licensing ...........                    118             -
    BuySoftware.com .......................................................                      -         5,885
                                                                                          --------      --------
         Total cost of revenues ...........................................                 10,393         7,140
                                                                                          --------      --------
         Gross profit .....................................................               $  8,289      $    428
                                                                                          ========      ========
Profit reconciliation:
    Gross profit for reportable segments ..................................               $  8,289      $    428
    Operating expenses ....................................................                (44,897)       (8,723)
    Nonoperating expenses, net ............................................                  1,920            15
    Income tax benefit ....................................................                 11,916             -
                                                                                          --------      --------
         Net loss .........................................................               $(22,772)     $ (8,280)
                                                                                          ========      ========
</TABLE>


The Company does not track assets by operating segments. Consequently is it not
practicable to show assets by operating segments.



                                       12
<PAGE>

8. RELATED PARTY TRANSACTIONS:

During the three-month period ended March 31, 2000, the Company purchased
approximately $1.0 million in marketing and advertising services from 24/7
Media, a significant shareholder of the Company. Also during the same period
ended March 31, 2000, the Company recognized approximately $657,000 in licensing
revenues from PrivaSeek, Inc., in which the Company also owns a minority
interest.

9. SUBSEQUENT EVENT:

On April 11, 2000, the Company acquired Freemerchant.com, Inc. (Freemerchant), a
Delaware corporation, for approximately $37.6 million, of which $2.0 million was
paid in cash, $10.0 million in non-cash deferred tax liabilities assumed and
$25.6 million in common stock and common stock options issued to Freemerchant
shareholders. Freemerchant, a privately held company, has developed on-line
store-builder technology for small- to medium-sized merchants that seek a
low-cost entry point to e-commerce, as well as providing hosting services to
those merchants. Upon effectiveness of the acquisition, a total of 2,573,723
shares of common stock, valued at $8.80 per share, were issued to the
shareholders of Freemerchant. In addition, the Company issued options to
purchase 293,596 shares of common stock to certain Freemerchant shareholders and
employees. The Company accounted for this transaction as a purchase. Allocations
of the excess purchase price of this acquisition have not yet been determined.
All intangible assets are expected to be amortized over a three-year estimated
useful life.



                                       13
<PAGE>

ITEM 2.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
             RESULTS OF OPERATIONS

The matters discussed in this report contain forward-looking statements that
involve known and unknown risks and uncertainties, such as statements of our
plans, objectives, expectations and intentions. Words such as "may," "could,"
"would," "expect," "anticipate," "intend," "plan," "believe," "estimate," and
variations of such words and similar expressions are intended to identify such
forward-looking statements. You should not place undue reliance on these
forward-looking statements, which are based on our current expectations and
projections about future events, are not guarantees of future performance, are
subject to risks, uncertainties and assumptions (including those described
below) and apply only as of the date of this report. Our actual results could
differ materially from those anticipated in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed below in "Additional Factors That May Affect Future
Results" as well as those discussed in this section and elsewhere in this
report, and the risks discussed in the "Risk Factors" section included in our
December 31, 1999 10-K filed on February 10, 2000 with the Securities and
Exchange Commission.

OVERVIEW

We provide an end-to-end solution that enables businesses to engage in
e-commerce with other businesses, merchants and shoppers. Our end-to-end
solution consists of access to our online marketplaces and networks combined
with a suite of e-commerce enabling products and services. These services
include custom application and online store development and design, hosting and
maintenance, sales and marketing services and transaction processing. We
maintain an on-line marketplace, referred to as the ShopNow Network, which
aggregates merchants and shoppers over a distributed network of web sites. In
January 2000, we launched a business-to-business portal and marketplace, known
as the Business Commerce Network, which is designed to enable businesses to
engage in online transactions with other businesses.

We were incorporated in January 1994 and initially operated as a computer
services company. In 1996, we began to change the focus of our business to
conducting commerce over the Internet. In May 1997, we launched BuySoftware.com,
an online computer products store. During 1998, we completed three acquisitions,
including the acquisition of Media Assets, Inc., a direct marketing company,
launched ShopNow.com and began offering merchants e-commerce enabling products
and services. In April 1999, we changed our name from TechWave Inc. to
ShopNow.com Inc. In June 1999, we ceased operation of BuySoftware.com because we
determined it was inconsistent with our evolving strategy. We consummated two
acquisitions in the second quarter of 1999, three in the fourth quarter of 1999
and two in the first quarter of 2000.

We derive substantially all of our revenues from the ShopNow Network and the
Business Commerce Network, which includes providing services to businesses.

Revenues from the ShopNow Network, which is a network of proprietary and
affiliated web sites, including www.shopnow.com, the BottomDollar Network
(including www.bottomdollar.com and other affiliated BottomDollar sites),
www.chaseshop.com and www.speedyclick.com are generated primarily from
advertising and merchandising paid by merchants as well as from leads and orders
delivered to merchants. Advertising consists of the sale of impressions on one
or more of the our network of web sites; merchandising consists of the sale of
specific positions or category sponsorships on the sites. These agreements
typically have a term of one to four months. Advertising and merchandising
revenues are recognized ratably over the term of the applicable agreement. In
certain circumstances, we offer products directly to shoppers via the
www.chaseshop.com portal. In these instances where we act as merchant-of-record,
we record as revenue the full sales price of the product sold and records the
full cost of the product to us as cost of revenues, upon shipment of the
product. Revenues generated from our ceased BuySoftware.com business are
included in our March 31, 1999 operations, as management did not cease
operations of BuySoftware.com until June 1999.

Revenues from the Business Commerce Network are derived primarily from providing
services, transaction processing, and technology licensing to businesses and
from the our proprietary business-to-business portal located at www.b2bnow.com.
Revenues from services are generated principally through development fees,
hosting fees and sales and marketing services. These services can be purchased
as a complete end-to-end suite of services or separately. We recognize revenues
from development of custom applications and online stores and marketing projects
on a percentage of completion basis over the period of development or the period
of the marketing project.



                                       14
<PAGE>

These projects generally range from two to five months. Hosting contracts
typically have a term of one year, with fees charged and earned on a monthly
basis. We bear full credit risk with respect to these sales. Contract costs
include all direct labor, material, subcontract and other direct project costs
and certain indirect costs related to contract performance.

Revenues are also generated from fees paid to us by businesses and merchants
that license our transaction processing and fraud prevention technologies and
on-line payment gateways, as well as other e-commerce enabling technologies.
Revenues include licensing fees, per-transaction fees and in certain cases
monthly hosting and maintenance fees, which are recognized in the period earned.
Revenues generated from technology licensing are recognized in accordance with
Statement of Position 97-2, "Software Revenue Recognition." Businesses and
merchants that utilize our payment processing technologies act as the
merchant-of-record and bear the full credit risk on those sales of goods and
services. Revenues from b2bNow.com are generated primarily from the sales of
advertising and merchandising products similar to those sold on the ShopNow
Network.

Cost of revenues generated from the ShopNow Network include the portion of our
Internet telecommunications connections that are directly attributable to
traffic on the ShopNow Network and the direct labor costs incurred in
maintaining and enhancing our network infrastructure. In order to fulfill our
obligations under our lead and order delivery advertising programs, we
occasionally purchase shopping traffic from third parties by placing on their
web sites advertisements that, when clicked on by a visitor, send the visitor to
the ShopNow Network. Any shopping traffic that we purchase from a third party
that is used to fulfill these obligations is included as cost of revenues. Cost
of revenues on the products that we sell as merchant-of-record includes the cost
of the product, credit card fees and shipping costs. Cost of revenues generated
from providing services includes all direct labor costs incurred in connection
with the provision of services, as well as fees charged by third-party vendors
that have directly contributed to the design, development and implementation of
our services. Cost of revenues generated from licensing e-commerce-enabling
technologies and from our proprietary business-to-business portal consists
primarily of telecommunications costs and direct labor costs incurred in
maintaining and enhancing our network infrastructure.

FINANCIAL DATA

The following table presents selected operating data for the ShopNow Network.
This information should be read in conjunction with the other information
presented in Management's Discussion and Analysis of Financial Condition and
Results of Operations. The operating data presented below for any quarter are
not necessarily indicative of data for any future period.


<TABLE>
<CAPTION>
                                                                            March 31,     December 31,    September 30,
                                                                              2000            1999            1999
                                                                             -------        -------          -------
<S>                                                                         <C>           <C>             <C>
Number of merchants listed on the ShopNow Network (1)................         61,000         48,000           37,000
Number of premier merchants listed on the ShopNow Network (2)........             97             68               32
Average revenue per premier merchant per month.......................        $47,504        $34,991          $25,689
Number of businesses listed in the Business Commerce Network (3).....        610,000              -                -
Number of development contracts (4)..................................              8              5                4
</TABLE>

(1)      Represents the number of merchants listed on the ShopNow Network as of
         the last day of the applicable quarter.

(2)      Premier merchants include those merchants that contribute greater than
         $10,000 of revenue per month to the ShopNow Network.

(3)      Represents the number of businesses listed in the Business Commerce
         Network directory as of the last day of the applicable quarter. The
         Business Commerce Network launched in January 2000.

(4)      Represents development contracts for our business customers where our
         total development fees from these contracts exceed $100,000.



                                       15
<PAGE>

RESULTS OF OPERATIONS

REVENUES. Total revenues for the three-month period ended March 31, 2000 were
$18.7 million, compared to $7.6 million for the same period ended March 31,
1999, an increase of $11.1 million. The increase was due primarily to the
expansion of our networks and increased demand for our services. We continued to
experience growth in our merchant listings, shopper traffic and affiliate and
syndication shopping sites, which resulted in increased merchandising and
advertising revenues, transaction processing fees and sales of products to
shoppers, exclusive of BuySoftware.com. The BuySoftware.com portion of revenues
for the three-month period ended March 31, 1999 was $5.5 million.

COST OF REVENUES. The cost of revenues for the three-month period ended March
31, 2000 was $10.4 million, compared to $7.1 million for the same period ended
March 31, 1999, an increase of $3.3 million. The increase in our cost of
revenues was directly attributable to the increase in revenues during the same
period from the ShopNow Network and the Business Commerce Network. The
BuySoftware.com portion of cost of revenues for the three-month period ended
March 31, 1999 was $5.9 million.

GROSS PROFIT. Gross profit for the three-month period ended March 31, 2000 was
$8.3 million, compared to $428,000 for the same period ended March 31, 1999, an
increase of $7.9 million. As a percent of revenues, our gross profits were 44.3%
compared to 5.7% for the same periods. This increase in gross profit percentage
was due primarily to the increase in higher-margin revenues during the first
quarter of 2000, while decreasing our concentration of revenues from product
sales to shoppers, which historically has contributed only flat or negative
gross profits. While we expect to continue to increase our gross profits both in
absolute dollars and as a percentage of revenues, we do not expect that the rate
of growth achieved historically will continue.

SALES AND MARKETING. Sales and marketing expenses consist primarily of costs
associated with marketing programs such as advertising and public relations, as
well as salaries and commissions. Sales and marketing expenses for the
three-month period ended March 31, 2000 were $22.1 million, compared to $5.3
million for the same period ended March 31, 1999, an increase of $16.8 million.
The increase was due primarily to increased spending as a result of our
expansion of the ShopNow Network and our launch and expansion of the Business
Commerce Network, both of which resulted in additional personnel and nationwide
television, print and radio advertisements. We anticipate continued growth in
our sales and marketing expenses during the remainder of 2000.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries and other personnel-related costs for executive,
financial, human resources, information services and other administrative
personnel, as well as legal, accounting and insurance costs. General and
administrative expenses for the three-month period ended March 31, 2000 were
$3.2 million, compared to $1.3 million for the same period ended March 31, 1999,
an increase of $1.9 million. The increase was due primarily to an increase in
personnel from internal growth and acquisitions. We anticipate continued growth
in our general and administrative expenses during the remainder of 2000.

RESEARCH AND DEVELOPMENT. Research and development expenses consist primarily of
salaries and related costs associated with the development of new products and
services, the enhancement of existing products and services, and the performance
of quality assurance and documentation activities. Research and development
expenses for the three-month period ended March 31, 2000 were $4.2 million,
compared to $1.5 million for the same period ended March 31, 1999, an increase
of $2.7 million. The increase was due primarily to the development and
enhancement of our technology platform, as well as to an increase in technology
personnel. These employees focus on developing our technology platform as well
as building the overall infrastructure that supports the ShopNow Network and the
Business Commerce Network. We anticipate continued growth in our research and
development expenses during the remainder of 2000.

AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets resulting
from acquisitions is primarily related to the amortization of customer lists,
domain names, acquired technology, proprietary concepts, assembled workforce and
goodwill. Amortization of intangible assets expense for the three-month period
ended March 31, 2000 was $13.5 million, compared to $558,000 for the same period
ended March 31, 1999, an increase of $12.9 million. This increase was due
primarily to the increase in intangible assets and related amortization expenses
from business acquisitions completed during the last three quarters of 1999 and
the first quarter of 2000, including the acquisitions of GO Software, Inc.,
SpeedyClick, Corp., Cortix, Inc., WebCentric, Inc., Pronet Enterprises Ltd. and
AXC Corporation.



                                       16
<PAGE>

Intangible assets acquired in business combinations are amortized over a
three-year period. We expect continued growth in our amortization of intangible
assets expense resulting from future business acquisitions.

STOCK-BASED COMPENSATION. Stock-based compensation expense is related to the
amortization of deferred compensation resulting from stock option grants to
employees with an option exercise price below the estimated fair market value of
our common stock as of the date of grant. Stock-based compensation expense for
the three-month period ended March 31, 2000 was $1.9 million, compared to
$137,000 for the same period ended March 31, 1999, an increase of $1.7 million.
The amount of deferred compensation resulting from these grants generally is
amortized over a three-year vesting period.

GAIN ON SALE OF MARKETABLE EQUITY SECURITIES. Gain on sale of marketable equity
securities for the three-month period ended March 31, 2000 was $1.1 million. We
did not liquidate any of our marketable equity securities during the three-month
period ended March 31, 1999.

INTEREST INCOME, NET. Interest income, net consists primarily of the combination
of interest income earned on our cash and cash equivalents and short-term
investments as well as interest expense incurred on our outstanding debt
obligations. Interest income, net for the three-month period ended March 31,
2000 was $834,000, compared to $15,000 for the same period ended March 31, 1999,
an increase of $819,000. Interest income, net increased due to the increase in
our cash and cash equivalents and short-term investments realized from
completion of our initial and supplemental public offerings of common stock.

INCOME TAX BENEFIT. Income tax benefit for the three-month period ended March
31, 2000 was $11.9 million. We did not realize any income tax benefits during
the three-month period ended March 31, 1999. The income tax benefit recognized
resulted principally from reductions of deferred tax liabilities created as a
result of business combinations. If we continue to consummate additional
business combinations that result in the recognition of deferred taxes, we may
incur additional tax deferred tax benefits. We have not paid nor have we
received refunds for federal income taxes and we do not expect to pay income
taxes or receive income tax refunds in the foreseeable future.

NET LOSS. Net loss for the three-month period ended March 31, 2000 was $22.8
million, compared to $8.3 million for the same period ended March 31, 1999, an
increase of $14.5 million. This increase was due primarily to an increase in our
operating expenses, most significantly sales and marketing expenses and
amortization of intangible assets, partially offset by our increase in gross
profit and income tax benefit during the same period. We expect to incur
additional net losses in 2000.

NET OPERATING LOSS CARRYFORWARDS

As of March 31, 2000, we had net operating loss carryforwards of approximately
$103.3 million. If not used, the net operating loss carryforwards will expire at
various dates beginning in 2012. The Tax Reform Act of 1986 imposes restrictions
on the use of net operating losses and tax credits in the event that there has
been an ownership change, as defined, of a corporation since the periods in
which the net operating losses were incurred. Our ability to use net operating
losses incurred prior to July 1999 is limited to approximately $14.3 million per
year due to sales of Series D and Series E convertible preferred stock to third
parties in April 1998 and the sale of Series I convertible preferred stock to
Chase Manhattan Bank in July 1999, which resulted in ownership changes. Our
deferred tax assets are recognizable only to the extent that they are offset by
deferred tax liabilities. To the extend that our deferred tax assets exceed our
deferred tax liabilities in the future, valuation allowances may be recorded
against our deferred tax assets. In concluding that valuation allowances may be
required, management considers such factors as our history of operating losses,
potential future losses and the nature of our deferred tax assets.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have experienced net losses and negative cash flows from
operations. As of March 31, 2000, we had an accumulated deficit of $128.1
million. We have financed our activities largely through issuances of common
stock and preferred stock, from the issuance of short- and long-term obligations
and from capital leasing transactions for certain of our fixed asset purchases.
Through March 31, 2000, our aggregate net proceeds have been $270.8 million from
issuing equity securities and $21.8 million from issuing debt securities. As of
March 31, 2000, we had $124.7 million in cash, cash equivalents and short-term
investments.



                                       17
<PAGE>

Net cash used in operating activities was $21.7 million for the three-month
period ended March 31, 2000, compared to $8.2 million for the same period in
1999. The increase was due primarily to the increase in our net loss for the
three-month period ended March 31, 2000 of $22.8 million compared to $8.3
million for the same period ended 1999.

Net cash used in investing activities was $77.9 million for the three-month
period ended March 31, 2000, compared to $1.8 million for the same period in
1999. The increase was due primarily to the net increase in purchases of
short-term investments of $55.1 million for the period-ended March 31, 2000,
compared to $30,000 for the same period in 1999, the increase in purchases of
property and equipment of $6.5 million for the period-ended March 31, 2000,
compared to $1.6 million for the same period in 1999, the increase in
investments in equity securities and other assets of $10.5 million for the
period-ended March 31, 2000, compared to $199,000 for the same period in 1999,
and the acquisition of businesses of $5.8 million for the period-ended March 31,
2000, compared to $0 for the same period in 1999.

Net cash provided by financing activities was $106.3 million for the three-month
period ended March 31, 2000, compared to $6.4 million for the same period in
1999. The increase was due primarily to the closing of our public offering of
7,913,607 shares of common stock at $14.50 per share, which resulted in proceeds
to us net of underwriters' fees and commissions of $108.7 million. Additional
offering costs incurred by the Company relating to the SPO were approximately
$700,000. This public offering was closed on February 18, 2000.

In March 1999 we entered into a loan and security agreement with Transamerica
Business Credit Corporation for a term loan and line of credit. In May 1999, the
agreement was amended and restated allowing us to borrow up to $8.5 million at
any one time, consisting of a $3.5 million term loan, a $4.0 million bridge loan
and a line of credit of up to $2.5 million, initially capped at $1.0 million
until the bridge loan is repaid. The line of credit bears interest at the
Transamerica Business Credit Corporation's base rate plus 2%, is secured by
substantially all of our assets and was amended in January 2000 to expire on
March 31, 2001. The term loan bears interest at 12%, is secured by substantially
all of our assets and matures in March 2002. The bridge loan bore interest at
12% and was repaid in October 1999 after the closing of our initial public
offering.

Our capital requirements depend on numerous factors, including the rate of
expansion of the ShopNow Network and the Business Commerce Network, the
investments we make in our technology platforms and in future technologies, the
number of acquisitions that are completed and the composition of the
consideration paid between cash, debt and stock, and the resources we devote to
expansion of our sales, marketing and branding efforts. We have also entered
into agreements with Chase Manhattan Bank and 24/7 Media that require us to make
aggregate advertising and marketing expenditures of approximately $6.0 million
in 2000, decreasing annually to $1.0 million in 2004. We believe that existing
cash balances and cash generated from operations, together with the net proceeds
from our public offerings and the future sale of marketable equity securities
will be sufficient to meet our anticipated cash needs for working capital and
capital expenditures through the next 18 months. After that time, we may be
required to raise additional financing. We cannot be sure that the assumed
levels of revenues and expenses underlying our anticipated cash needs will prove
to be accurate. The sale of additional equity or convertible debt securities
could result in additional dilution to our shareholders. We cannot be sure that
financing will be available in amounts or on terms acceptable to us, or even
available at all.

We are currently contemplating entering into a new secured credit facility with
terms and interest rates customary for transactions of this type. We expect the
maximum borrowings available under such new facility to be $15.0 million.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin (SAB) No. 101, "REVENUE RECOGNITION IN FINANCIAL
STATEMENTS," to provide guidance on the recognition, presentation and disclosure
of revenues in financial statements. We believe our revenue recognition
practices are in conformity with the guidelines prescribed in SAB No. 101.

In March 2000, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 44 (FIN 44), "Accounting for Certain Transactions Involving
Stock Compensation." FIN 44 clarifies certain issues relating to the application
of Accounting Principles Board Opinion No. 25 and related interpretations, which
are the authoritative pronouncements we use to account for our stock-based
compensation transactions. FIN 44 is effective July 1, 2000,



                                       18
<PAGE>

however certain conclusions reached in FIN 44 are applicable for transactions
consummated after either December 15, 1998 or January 12, 2000. We do not
believe that the adoption of FIN 44 will have a material effect on our financial
position or results of operations.

SEASONALITY

We believe that our advertising and merchandising revenues on the ShopNow
Network and the Business Commerce Network are subject to seasonality changes
as retail transactions and advertising sales in traditional media, such as
television and radio, generally are lower in the first and third calendar
quarters of each year. In addition, Internet usage typically declines during
the summer and certain holiday periods. If our market makes the transition
from an emerging to a more developed market, seasonal and cyclical patterns
may develop in our industry and in the usage of, and transactions on, our web
sites and those of our merchants. Seasonal and cyclical patterns in online
transactions and advertising would affect our revenues. Those patterns may
also develop on our web sites. Given the early stage of the development of
the Internet and our company, however, we cannot predict to what extent, if
at all, our operations will prove to be seasonal.

IMPACT OF THE YEAR 2000 COMPUTER PROBLEM

Prior to January 1, 2000, we devoted substantial resources in an effort to
ensure that our proprietary software, the third-party software on which we rely,
and the underlying systems and protocols did not contain errors associated with
Year 2000 date functions. Since January 1, 2000, we have not experienced any
disruption as a result of Year 2000 problems.



                                       19
<PAGE>

ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS

YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW AND THE OTHER
INFORMATION IN THIS QUARTERLY REPORT. WHILE WE HAVE ATTEMPTED TO IDENTIFY ALL
RISKS THAT ARE MATERIAL TO OUR BUSINESS, ADDITIONAL RISKS THAT WE HAVE NOT YET
IDENTIFIED OR THAT WE CURRENTLY THINK ARE IMMATERIAL MAY ALSO IMPAIR OUR
BUSINESS OPERATIONS. THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE TO
ANY OF THESE RISKS. IN ASSESSING THESE RISKS, YOU SHOULD ALSO REFER TO THE OTHER
INFORMATION IN THIS QUARTERLY REPORT, INCLUDING THE CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES AND THE RISKS DISCUSSED IN THE "RISK FACTORS"
SECTION INCLUDED IN OUR DECEMBER 31, 1999 10-K FILED ON FEBRUARY 10, 2000 WITH
THE SECURITIES AND EXCHANGE COMMISSION.

RISKS RELATED TO OUR BUSINESS

OUR RAPID GROWTH AND EVOLUTION MAY MAKE IT DIFFICULT TO EVALUATE OUR BUSINESS
AND PROSPECTS

We were incorporated in January 1994 and operated initially as a computer
services company. In 1996, we began to change the focus of our business to
conducting commerce over the Internet. In August 1998, we launched our first
online marketplace, ShopNow.com. In recent months, particularly with the launch
of the Business Commerce Network, we have increasingly focused on developing and
providing products and services to enable businesses to conduct online commerce.
The recent shifts in our business focus may make it difficult for you to
evaluate our business and prospects. You should also consider the risks,
expenses and difficulties that we may encounter as a young company in a rapidly
evolving market.

WE HAVE A HISTORY OF LOSSES AND WE EXPECT FUTURE LOSSES

We incurred net losses of $22.8 million for the three-months ended March 31,
2000 and $8.3 million for the three-months ended March 31, 1999. At March 31,
2000, we had an accumulated deficit of $128.1 million. We have historically
invested heavily in sales and marketing, technology infrastructure and research
and development and expect to continue to do so in the future. As a result, we
must generate significant revenues to achieve and maintain profitability. We
expect that our sales and marketing expenses, research and development expenses
and general and administrative expenses will continue to increase in absolute
dollars and may increase as a percentage of revenues. In addition, we may incur
substantial expenses in connection with future acquisitions.

OUR FUTURE REVENUES ARE UNPREDICTABLE AND WE EXPECT OUR OPERATING RESULTS TO
FLUCTUATE FROM PERIOD TO PERIOD

Our business model has only been applied to the Internet since the mid-1990's
and continues to evolve. Therefore we have limited experience in planning the
financial needs and operating expenses of our business. It is difficult for us
to accurately forecast our revenues in any given period. We may not be able to
sustain our recent revenue growth rates or obtain sufficient revenues to achieve
profitability. If our revenues in a particular period fall short of our
expectations, we will likely be unable to quickly adjust our spending in order
to compensate for that revenue shortfall.

Our operating results are likely to fluctuate substantially from period to
period as a result of a number of factors, such as:

         -    declines in the number of businesses and merchants to which we
              provide our products and services;

         -    the amount and timing of operating costs and expenditures
              relating to expansion of our operations; and

         -    the mix of products and services that we sell.



                                       20
<PAGE>

In addition, factors beyond our control may also cause our operating results to
fluctuate, such as:

         -    the announcement or introduction of new or enhanced products
              or services by our competitors; and

         -    the pricing policies of our competitors.

Period-to-period comparisons of our operating results are not a good indicator
of our future performance. It is likely that our operating results in some
quarters may not meet the expectations of stock market analysts and investors
and this could cause our stock price to decline.

OUR BUSINESS MODEL IS UNPROVEN AND CHANGING

Our business model consists of providing businesses and merchants with
e-commerce enabling solutions. We have limited experience as a company and,
additionally, the Internet, on which our business model relies, is still
unproven as a business medium. Accordingly, our business model may not be
successful, and we may need to change it. Our ability to generate sufficient
revenues to achieve profitability will depend, in large part, on our ability to
successfully market our e-commerce products and services to businesses and
merchants that may not be convinced of the need for an online presence or may be
reluctant to rely upon third parties to develop and manage their e-commerce
offerings and marketing efforts.

OUR FUTURE GROWTH WILL DEPEND ON OUR ABILITY TO MAKE AND SUCCESSFULLY INTEGRATE
ADDITIONAL ACQUISITIONS

Our success depends on our ability to continually enhance and expand our
e-commerce enabling products and services and our online marketplaces in
response to changing technologies, customer demands and competitive pressures.
Consequently, we have acquired complementary technologies or businesses in the
past, and intend to do so in the future. We have entered into a definitive
agreement to acquire Ubarter.com, subject to the approval of Ubarter.com's
shareholders. The acquisition of Ubarter.com is intended to expand our
capability to enable businesses to exchange business products and services. If
we are unable to identify suitable acquisition targets, or if we are unable to
successfully complete acquisitions and successfully integrate the acquired
businesses, technologies and personnel, our ability to increase product and
service offerings will be reduced. This could cause us to lose business to our
competitors, and our operating results could suffer.

ACQUISITIONS INVOLVE A NUMBER OF RISKS

We actively seek to identify and acquire companies with attributes complementary
to our e-commerce products and services. Since December 31, 1999, we have
acquired two companies. In addition, as described previously, we recently agreed
to acquire Ubarter.com.

Acquisitions that we make may involve numerous risks, including:

         -    diverting management's attention from other business concerns;

         -    being unable to maintain uniform standards, controls, procedures
              and policies;

         -    entering markets in which we have no direct prior experience;

         -    improperly evaluating new services and technologies or otherwise
              being unable to fully exploit the anticipated opportunity; and

         -    being unable to successfully integrate the acquired businesses,
              technologies and other assets.

If we are unable to accurately assess any newly acquired businesses or
technologies, our business could suffer. For example, in June 1998 we acquired
e-Warehouse and CyberTrust. These companies had developed payment processing
technologies that we planned to utilize as part of our e-commerce products and
services. However, we are not currently utilizing the acquired technologies, and
we have determined that the technologies have no other use



                                       21
<PAGE>

or value to us. Because we are not using the acquired technologies, we wrote off
substantially all of the $5.4 million aggregate purchase price for e-Warehouse
and CyberTrust in 1998. Future acquisitions may involve the assumption of
obligations or large one-time write-offs and amortization expenses related to
goodwill and other intangible assets. Any of the factors listed above would
adversely affect our results of operations.

In addition, in order to finance any future acquisition, we may need to raise
additional funds through public or private financings. In this event, we could
be forced to obtain equity or debt financing on terms that are not favorable to
us and that may result in dilution to our shareholders.

OUR SUCCESS DEPENDS UPON ACHIEVING ADEQUATE MARKET SHARE TO INCREASE OUR
REVENUES AND BECOME PROFITABLE

Our success depends upon achieving significant market penetration and acceptance
of our e-commerce enabling products and services. We have only recently begun to
expand our business-to-business initiatives designed to enable businesses to
maximize their e-commerce opportunities, and our online marketplaces have
achieved only limited market acceptance to date. We may not currently have
adequate market share to successfully execute our business plan. If we are
unable to reach and retain substantial numbers of businesses, merchants and
shoppers, our business model may not be sustainable.

To successfully market and sell our e-commerce enabling products and services we
must:

         -    become recognized as a leading provider of end-to-end enabling
              solutions;

         -    enhance existing products and services;

         -    add new products and services;

         -    complete projects on time;

         -    increase the number of businesses and merchants using our
              e-commerce products and services and online marketplaces; and

         -    continue to increase the attractiveness of the ShopNow marketplace
              to shoppers.

IF WE DO NOT INCREASE BRAND AWARENESS OUR SALES MAY SUFFER

Due in part to the emerging nature of the markets for e-commerce enabling
products and services and online marketplaces, together with the substantial
resources available to many of our competitors, our opportunity to achieve and
maintain a significant market share may be limited. Developing and maintaining
awareness of the ShopNow.com and b2bNow.com brand names is critical in achieving
widespread acceptance of our e-commerce enabling products and services and our
online marketplaces. We launched the ShopNow marketplace in August 1998 and we
have only recently begun to expand our business-to-business initiatives designed
to enable businesses to maximize their e-commerce opportunities. The importance
of brand recognition will increase as competition in our markets increases.
Successfully promoting and positioning our brands will depend largely on the
effectiveness of our marketing and sales efforts and our ability to develop
reliable and useful products and services at competitive prices. If our planned
marketing and sales efforts are ineffective, we may need to increase our
financial commitment to creating and maintaining brand awareness among
businesses, merchants and shoppers, which could divert financial and management
resources from other aspects of our business, or cause our operating expenses to
increase disproportionately to our revenues. This could cause our business and
operating results to suffer.

WE FACE SIGNIFICANT COMPETITION

The market for e-commerce enabling products and services and online marketplaces
is highly competitive, and we expect competition to intensify in the future.
Barriers to entry are not significant. Our failure to compete effectively could
result in the following:


                                       22
<PAGE>

         -    fewer businesses and merchants relying upon our enabling
              solutions;

         -    the obsolescence of the technology underlying our products and
              services;

         -    fewer businesses and merchants listed in our directories;

         -    a decrease in shopper traffic on our web sites; and

         -    a reduction in the prices of or profits on our products and
              services.

The number of companies providing e-commerce enabling products and services is
large and increasing at a rapid rate. We expect that additional companies which
to date have not had a substantial commercial presence on the Internet or in our
markets will offer competing products and services. Although we believe no one
company currently offers a range of e-commerce enabling solutions as
comprehensive as our suite of products and services, companies such as
InfoSpace, Go2Net, Yahoo! and Cybersource offer alternatives to one or more of
our products and services.

Many of our competitors and potential competitors have substantial competitive
advantages as compared to us, including:

         -    larger customer or user bases;

         -    the ability to offer a wider array of e-commerce products and
              solutions;

         -    greater name recognition and larger marketing budgets and
              resources;

         -    substantially greater financial, technical and other resources;

         -    the ability to offer additional content and other personalization
              features; and

         -    larger production and technical staffs.

These advantages may enable our competitors to adapt more quickly to new
technologies and customer needs, devote greater resources to the promotion or
sale of their products and services, initiate or withstand substantial price
competition, take advantage of acquisition or other opportunities more readily
or develop and expand their product and service offerings more quickly.

In addition, as the use of the Internet and online products and services
increases, larger well-established and well-financed entities may continue to
acquire, invest in or form joint ventures with providers of e-commerce enabling
solutions, and existing providers may continue to consolidate. Providers of
Internet browsers and other Internet products and services who are affiliated
with providers of web directories and information services that compete with our
products and services may more tightly integrate these affiliated offerings into
their browsers or other products or services. Any of these trends would increase
the competition we face.

IF WE FAIL TO MAINTAIN OUR STRATEGIC BUSINESS RELATIONSHIPS AND ENTER INTO NEW
RELATIONSHIPS OUR BUSINESS WILL SUFFER

An important element of our strategy involves entering into business
relationships with other companies. Our success is dependent on maintaining our
current contractual relationships and developing new strategic relationships.
These contractual relationships typically involve joint marketing, licensing or
promotional arrangements. For example, we have entered into a licensing and
co-marketing agreement with Chase Manhattan Bank, a marketing agreement with
About.com, a cross promotion agreement with 24/7 Media and a software license
agreement with HNC Software. Although these relationships are an important
factor in our strategy because they enable us to enhance our product and service
offerings, the parties with which we contract may not view their relationships
with us as significant to their own businesses. To date, we have not derived
material revenue from



                                       23
<PAGE>

these relationships, and some of these relationships impose substantial
obligations on us. It is not certain that the benefits to us will outweigh our
obligations. For example, our relationship with 24/7 Media requires us to refer
to them any business that would benefit from the advertising services offered by
24/7 Media and makes 24/7 Media the only third party authorized to sell
advertising on our web site. Several of our significant business arrangements do
not establish minimum performance requirements but instead rely on contractual
best efforts obligations of the parties with which we contract. In addition,
either party with little notice may terminate most of these relationships.
Accordingly, in order to maintain our strategic business relationships we will
need to meet our partners' specific business objectives, including incremental
revenue, brand awareness and implementation of specific e-commerce applications.
If our strategic business relationships are discontinued for any reason, or if
we are unsuccessful in entering into new relationships in the future, our
business and results of operations may be harmed.

IF WE FAIL TO EFFECTIVELY MANAGE THE RAPID GROWTH OF OUR OPERATIONS OUR BUSINESS
WILL SUFFER

Our ability to successfully offer e-commerce enabling products and services and
implement our business plan in a rapidly evolving market requires an effective
planning and management process. We are increasing the scope of our operations
domestically and internationally, and we have recently increased our headcount
substantially. From December 31, 1997 to March 31, 2000, our total number of
employees increased from less than 50 to 615. This growth has placed and will
continue to place a significant strain on our management systems, infrastructure
and resources. We will need to continue to improve our financial and managerial
controls and reporting systems and procedures, and will need to continue to
expand, train and manage our workforce worldwide. Furthermore, we expect that we
will be required to manage an increasing number of relationships with various
customers and other third parties. Any failure to expand any of the foregoing
areas efficiently and effectively could cause our business to suffer.

WE DEPEND ON OUR KEY MANAGEMENT PERSONNEL FOR SUCCESSFUL OPERATION OF OUR
BUSINESS

Our success depends on the skills, experience and performance of our senior
management and other key personnel. Our key personnel include Dwayne Walker, our
Chairman and Chief Executive Officer, Joe Arciniega, our President and Chief
Operating Officer, Alan Koslow, our Chief Financial Officer, and Dr. Ganapathy
Krishnan, our Chief Technology Officer. Only Mr. Walker has an employment
agreement with ShopNow.com. Many of our executive officers have joined us within
the past three years. If we do not quickly and efficiently integrate these new
personnel into our management and culture, our business could suffer. Our
business could also suffer if we do not retain our key personnel.

WE MUST HIRE ADDITIONAL PERSONNEL TO EXPAND OUR OPERATIONS

Our future success depends on our ability to identify, hire, train, retain and
motivate highly skilled executive, technical, managerial, sales and marketing,
business development and administrative personnel. We intend to hire a
significant number of personnel during the next year, and as of March 31, 2000
we had openings for 67 job positions. Competition for qualified personnel is
intense, particularly in the technology and Internet markets. If we fail to
successfully attract and retain a sufficient number of qualified executive,
technical, managerial, sales and marketing, business development and
administrative personnel, our ability to manage and expand our business could
suffer.

OUR ABILITY TO DEVELOP AND INTEGRATE E-COMMERCE TECHNOLOGIES IS SUBJECT TO
UNCERTAINTIES

We have limited experience delivering our e-commerce products and services and
operating online marketplaces. In order to remain competitive, we must regularly
upgrade our e-commerce products and services to incorporate current technology,
which requires us to integrate complex computer hardware and software
components. If we do not successfully integrate these components, the quality
and performance of our online offerings may be reduced. In addition, the ability
of our online marketplaces to accommodate an increasing number of businesses,
merchants and shoppers would suffer. While these technologies are generally
commercially available, we may be required to expend considerable time and money
in order to successfully integrate them into our products and services and this
may cause our business to suffer. We must also maintain an adequate testing and
technical support infrastructure to ensure the successful introduction of
products and services.


                                       24
<PAGE>

OUR COMPUTER SYSTEMS MAY BE VULNERABLE TO SYSTEM FAILURES

Our success depends on the performance, reliability and availability of the
technology supporting our e-commerce products and services and our online
marketplaces. Our revenues depend, in large part, on the number of businesses
and merchants that use our products and services and the number of shoppers that
access the ShopNow Network. This depends, in part, upon our actual and perceived
reliability and performance. Any inability to provide our products and services
or any slowdown or stoppage of our online marketplaces could cause us to lose
clients and therefore lose revenue. Substantially all of our computer and
communications hardware is located at leased and third-party facilities in
Seattle, Washington and Sterling, Virginia. Our systems and operations are
vulnerable to damage or interruption from fire, flood, power loss,
telecommunications failure, break-in, earthquake and similar events. Because we
presently do not have fully redundant systems or a formal disaster recovery
plan, a systems failure could adversely affect our business. Our computer
systems are vulnerable to computer viruses, physical or electronic break-ins and
similar disruptions, which may lead to interruptions, delays, loss of data or
inability to process online transactions for our clients. We may be required to
expend considerable time and money to correct any system failure. If we are
unable to fix a problem that arises, we may lose clients or be unable to conduct
our business at all.

OUR BUSINESS MAY BE HARMED BY DEFECTS IN OUR SOFTWARE AND SYSTEMS

We have developed custom software for our network servers and have licensed
additional software from third parties. This software may contain undetected
errors or defects. Although we have not suffered significant harm from any
errors or defects to date, we may discover significant errors or defects in the
future that we may be unable to fix in a timely or cost-effective manner.

WE WILL NEED TO EXPAND AND UPGRADE OUR SYSTEMS IN ORDER TO MAINTAIN CUSTOMER
SATISFACTION

We must expand and upgrade our technology, transaction processing systems and
network infrastructure if the number of businesses and merchants using our
e-commerce products and services and online marketplaces, or the volume of
traffic on our web sites or our clients' web sites, increases substantially. We
could experience periodic capacity constraints, which may cause unanticipated
system disruptions, slower response times and lower levels of customer service.
We may be unable to accurately project the rate or timing of increases, if any,
in the use of our products or services or our web sites or when we must expand
and upgrade our systems and infrastructure to accommodate these increases in a
timely manner. Any inability to do so could harm our business.

OUR INTERNATIONAL OPERATIONS INVOLVE RISKS

We are subject to risks specific to Internet-based companies in foreign markets.
These risks include:

         -    delays in the development of the Internet as a commerce medium in
              international markets;

         -    restrictions on the export of encryption technology; and

         -    increased risk of piracy and limits on our ability to enforce our
              intellectual property rights.

WE MAY REQUIRE ADDITIONAL FUNDING TO SUCCESSFULLY OPERATE AND GROW OUR BUSINESS

Although we believe that our cash reserves and cash flows from operations will
be adequate to fund our operations for at least the next twelve months, these
resources may be inadequate. Consequently, we may require additional funds
during or after this period. Additional financing may not be available on
favorable terms or at all. If we raise additional funds by selling stock, the
percentage ownership of our then current shareholders will be reduced. If we
cannot raise adequate funds to satisfy our capital requirements, we may have to
limit our operations significantly. Our future capital requirements depend upon
many factors, including, but not limited to:


                                       25
<PAGE>

         -    the rate at which we expand our sales and marketing operations and
              our product and service offerings;

         -    the extent to which we develop and upgrade our technology and data
              network infrastructure; and

         -    the occurrence, timing, size and success of acquisitions.

WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY
RIGHTS

We regard our intellectual property rights as critical to our success, and we
rely on trademark and copyright law, trade secret protection and confidentiality
and license agreements with our employees, customers and others to protect our
proprietary rights. Despite our precautions, unauthorized third parties might
copy portions of our software or reverse engineer and use information that we
regard as proprietary. We currently have five patents pending in the United
States Patent and Trademark Office covering different aspects of our product
architecture and technology. However, we do not currently own any issued patents
and there is no assurance that any pending patent application will result in an
issued patent, or that any future patent will not be challenged, invalidated or
circumvented, or that the rights granted under any patent will provide us with a
competitive advantage. The laws of some countries do not protect proprietary
rights to the same extent as do the laws of the United States, and our means of
protecting our proprietary rights abroad may not be adequate. Any
misappropriation of our proprietary information by third parties could adversely
affect our business by enabling third parties to compete more effectively with
us.

OUR TECHNOLOGY MAY INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS

Although we have not received notice of any alleged infringement by us, we
cannot be certain that our technology does not infringe issued patents or other
intellectual property rights of others. In addition, because patent applications
in the United States are not publicly disclosed until the patent is issued,
applications may have been filed which relate to our software. We may be subject
to legal proceedings and claims from time to time in the ordinary course of our
business, including claims of alleged infringement of the trademarks and other
intellectual property rights of third parties. Intellectual property litigation
is expensive and time-consuming, and could divert our management's attention
away from running our business.

IF THE SECURITY PROVIDED BY OUR E-COMMERCE SERVICES IS BREACHED WE MAY BE LIABLE
TO OUR CLIENTS AND OUR REPUTATION COULD BE HARMED

A fundamental requirement for e-commerce is the secure transmission of
confidential information of businesses, merchants and shoppers over the
Internet. Among the e-commerce services we offer to merchants are security
features such as:

         -    secure online payment services;

         -    secure order processing services; and

         -    fraud prevention and management services.

Third parties may attempt to breach the security provided by our e-commerce
products and services or the security of our clients' internal systems. If they
are successful, they could obtain confidential information about businesses and
shoppers using our online marketplaces, including their passwords, financial
account information, credit card numbers or other personal information. We may
be liable to our clients or to shoppers for any breach in security. Even if we
are not held liable, a security breach could harm our reputation, and the mere
perception of security risks, whether or not valid, could inhibit market
acceptance of our products and services. We may be required to expend
significant capital and other resources to license additional encryption or
other technologies to protect against security breaches or to alleviate problems
caused by these breaches. In addition, our clients might decide to stop using
our e-commerce products and services if their customers experience security
breaches.


                                       26
<PAGE>

PROBLEMS RELATED TO THE YEAR 2000 ISSUE COULD ADVERSELY AFFECT OUR BUSINESS

Prior to January 1, 2000, we devoted substantial resources in an effort to
ensure that our proprietary software, the third-party software on which we rely,
and the underlying systems and protocols did not contain errors or defects
associated with Year 2000 date functions. Since January 1, 2000, we have not
experienced any disruption to our business as the result of any Year 2000
problems or otherwise. If problems do arise, they could adversely affect our
business.

RISKS RELATED TO OUR INDUSTRY

OUR SUCCESS DEPENDS ON CONTINUED INCREASES IN THE USE OF THE INTERNET AS A
COMMERCIAL MEDIUM

We depend on the growing use and acceptance of the Internet by businesses,
merchants and shoppers as a medium of commerce. Rapid growth in the use of and
interest in the Internet and online products and services is a recent
development. No one can be certain that acceptance and use of the Internet and
online products and services will continue to develop or that a sufficiently
broad base of businesses, merchants and shoppers will adopt and continue to use
the Internet and online products and services as a medium of commerce.

The Internet may fail as a commercial marketplace for a number of reasons,
including potentially inadequate development of the necessary network
infrastructure or delayed development of enabling technologies, including
security technology and performance improvements. For example, if technologies
such as software that stops advertising from appearing on a web user's computer
screen gain wide acceptance, the attractiveness of the Internet to advertisers
would be diminished, which could harm our business.

RAPID TECHNOLOGICAL CHANGE COULD NEGATIVELY AFFECT OUR BUSINESS

Rapidly changing technology, evolving industry standards, evolving customer
demands and frequent new product and service introductions characterize the
market for e-commerce products and services and online marketplaces. Our future
success will depend in significant part on our ability to improve the
performance, content and reliability of our products and services in response to
both the evolving demands of the market and competitive product and service
offerings. Our efforts in these areas may not be successful. If a large number
of our clients adopt new Internet technologies or standards, we may need to
incur substantial expenditures modifying or adapting our e-commerce products and
services to remain compatible with their systems.

WE RELY ON THE INTERNET INFRASTRUCTURE PROVIDED BY OTHERS TO OPERATE OUR
BUSINESS

Our success depends in large part on other companies maintaining the Internet
infrastructure. In particular, we rely on other companies to maintain a reliable
network backbone that provides adequate speed, data capacity and security and to
develop products that enable reliable Internet access and service. If the
Internet continues to experience significant growth in the number of users,
frequency of use and amount of data transmitted, the Internet infrastructure of
thousands of computers communicating via telephone lines, coaxial cable and
other telecommunications systems may be unable to support the demands placed on
it, and the Internet's performance or reliability may suffer as a result of this
continued growth. If the performance or reliability of the Internet suffers,
Internet users could have difficulty obtaining access to the Internet. In
addition, data transmitted over the Internet, including information and graphics
contained on web pages, could reach Internet users much more slowly. This could
result in frustration of Internet users, which could decrease online traffic and
cause advertisers to reduce their Internet expenditures.

FUTURE GOVERNMENTAL REGULATION AND PRIVACY CONCERNS COULD ADVERSELY AFFECT OUR
BUSINESS

We are not currently subject to direct regulation by any government agency,
other than regulations applicable to businesses generally, and there are
currently few laws or regulations directly applicable to access to or commerce
on the Internet. However, due to the increasing popularity and use of the
Internet, a number of legislative and regulatory proposals are under
consideration by federal, state, local and foreign governmental organizations,
and it is possible that a number of laws or regulations may be adopted with
respect to the Internet relating to issues such as user privacy, taxation,
infringement, pricing, quality of products and services and intellectual
property ownership. The adoption of any laws or regulations that have the effect
of imposing additional costs, liabilities or restrictions



                                       27
<PAGE>

relating to the use of the Internet by businesses or consumers could decrease
the growth in the use of the Internet, which could in turn decrease the demand
for our products and services, decrease traffic on our online marketplaces,
increase our cost of doing business, or otherwise have a material adverse effect
on our business. Moreover, the applicability to the Internet of existing laws
governing issues such as property ownership, copyright, trademark, trade secret,
obscenity, libel and personal privacy is uncertain and developing. Any new
legislation or regulation, or application or interpretation of existing laws,
could have a material adverse effect on our business.

The Federal Communications Commission is currently reviewing its regulatory
positions on the privacy protection given to data transmissions over
telecommunications networks and could seek to impose some form of
telecommunications carrier regulation on telecommunications functions of
information services. State public utility commissions generally have declined
to regulate information services, although the public service commissions of
some states continue to review potential regulation of such services. Future
regulation or regulatory changes regarding data privacy could have an adverse
effect on our business by requiring us to incur substantial additional expenses
in order to comply with this type of regulation.

A number of proposals have been made at the federal, state and local level that
would impose additional taxes on the sale of goods and services over the
Internet and certain states have taken measures to tax Internet-related
activities. Foreign countries also may tax Internet transactions. The taxation
of Internet-related activities could have the effect of imposing additional
costs on companies, such as ShopNow.com, that conduct business over the
Internet. This, in turn, could lead to increased prices for products and
services, which could result in decreased demand for our solutions.

WE COULD FACE LIABILITY FOR MATERIAL TRANSMITTED OVER THE INTERNET BY OTHERS

Because material may be downloaded from web sites hosted by us and subsequently
distributed to others, there is a potential that claims will be made against us
for negligence, copyright or trademark infringement or other theories based on
the nature and content of this material. Negligence and product liability claims
also potentially may be made against us due to our role in facilitating the
purchase of some products, for example firearms. Although we carry general
liability insurance, our insurance may not cover claims of these types, or may
not be adequate to indemnify us against this type of liability. Any imposition
of liability, and in particular liability that is not covered by our insurance
or is in excess of our insurance coverage, could have a material adverse effect
on our reputation and our operating results, or could result in the imposition
of criminal penalties on us.

WE DO NOT CURRENTLY COLLECT SALES TAX FROM ALL TRANSACTIONS

We do not currently collect sales or other similar taxes on products sold by us
and delivered into states other than Washington, California, Georgia, Arizona,
Kansas, New York, Tennessee and Kentucky. However, one or more states or foreign
countries may seek to impose sales tax collection obligations on out-of-state or
foreign companies engaging in e-commerce. In addition, any new operation in
states outside the states for which we currently collect sales tax could subject
shipments into these states to state or foreign sales taxes. A successful
assertion by one or more states or any foreign country that we should collect
sales or other similar taxes on the sale of merchandise or services could result
in liability for penalties as well as substantially higher expenses incurred by
our business.

RISKS RELATED TO AN INVESTMENT IN OUR STOCK

PROVISIONS OF OUR CHARTER DOCUMENTS AND WASHINGTON LAW COULD DISCOURAGE OUR
ACQUISITION BY A THIRD PARTY

Specific provisions of our articles of incorporation and bylaws and Washington
law could make it more difficult for a third party to acquire us, even if doing
so would be beneficial to our shareholders.

Our articles of incorporation and bylaws establish a classified board of
directors, eliminate the ability of shareholders to call special meetings,
eliminate cumulative voting for directors and establish procedures for advance
notification of shareholder proposals. The presence of a classified board and
the elimination of cumulative voting may make it more difficult for an acquirer
to replace our board of directors. Further, the elimination of cumulative voting
substantially reduces the ability of minority shareholders to obtain
representation on the board of directors.



                                       28
<PAGE>

Our board of directors has the authority to issue up to 5,000,000 shares of
preferred stock and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by our shareholders. The issuance of preferred stock could have the
effect of delaying, deferring or preventing a change of control of ShopNow.com
and may adversely affect the market price of the common stock and the voting and
other rights of the holders of common stock.

Washington law imposes restrictions on some transactions between a corporation
and significant shareholders. Chapter 23B.19 of the Washington Business
Corporation Act prohibits a target corporation, with some exceptions, from
engaging in particular significant business transactions with an acquiring
person, which is defined as a person or group of persons that beneficially owns
10% or more of the voting securities of the target corporation, for a period of
five years after the acquisition, unless the transaction or acquisition of
shares is approved by a majority of the members of the target corporation's
board of directors prior to the acquisition. Prohibited transactions include,
among other things:

         -    a merger or consolidation with, disposition of assets to, or
              issuance or  redemption of stock to or from the acquiring person;

         -    termination of 5% or more of the employees of the target
              corporation; or

         -    allowing the acquiring person to receive any disproportionate
              benefit as a shareholder.

A corporation may not opt out of this statute. This provision may have the
effect of delaying, deterring or preventing a change in control of ShopNow.com.

The foregoing provisions of our charter documents and Washington law could have
the effect of making it more difficult or more expensive for a third party to
acquire, or could discourage a third party from attempting to acquire, control
of ShopNow.com. These provisions may therefore have the effect of limiting the
price that investors might be willing to pay in the future for our common stock.

OUR STOCK PRICE MAY BE VOLATILE

The stock market in general, and the stock prices of Internet-related companies
in particular, have recently experienced extreme volatility, which has often
been unrelated to the operating performance of any particular company or
companies. Our stock price could be subject to wide fluctuations in response to
factors such as the following:

         -    actual or anticipated variations in quarterly results of
              operations;

         -    the addition or loss of merchants and shopper traffic;

         -    announcements of technological innovations, new products or
              services by us or our competitors;

         -    changes in financial estimates or recommendations by securities
              analysts;

         -    conditions or trends in the Internet, e-commerce and marketing
              industries;

         -    changes in the market valuations of other Internet or online
              service or software companies;

         -    our announcements of significant acquisitions, strategic
              relationships, joint ventures or capital commitments;

         -    additions or departures of key personnel;

         -    sales of our common stock;

         -    general market conditions; and



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<PAGE>

         -    other events or factors, many of which are beyond our control.

These broad market and industry factors may materially and adversely affect our
stock price, regardless of our operating performance. The trading prices of the
stocks of many technology companies are at or near historical highs and reflect
price to earnings ratios substantially above historical levels. These trading
prices and price-to-earnings ratios may not be sustained.

In the past, securities class action litigation has often been brought against
companies following periods of volatility in their stock prices. We may in the
future be the target of similar litigation. Securities litigation could result
in substantial costs and divert our management's time and resources, which could
cause our business to suffer.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We currently have instruments sensitive to market risk relating to exposure
to changing interest rates and market prices. We do not enter into financial
instruments for trading or speculative purposes and do not currently utilize
derivative financial instruments. Our operations are conducted primarily in
the United States and as such are not subject to material foreign currency
exchange rate risk.

The fair value of our investment portfolio or related income would not be
significantly impacted by either a 100 basis point increase or decrease in
interest rates due mainly to the short-term nature of the major portion of our
investment portfolio. All of the potential changes noted above are based on
sensitivity analyses performed on our investment portfolio balances as of March
31, 2000.


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PART II. OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

None.

ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS

Between January 1, 2000 and March 31, 2000, we issued and sold unregistered
securities as set forth below:

-    On January 13, 2000, pursuant to a Share Sale and Purchase Agreement among
     ShopNow.com Inc., 3037952 Nova Scotia Company, and the shareholders of
     Pronet Enterprises Ltd. (Pronet), we purchased all of the equity securities
     of Pronet for approximately $3.2 million in cash, the assumption of
     approximately $2.2 million in liabilities, the issuance of 162,508 shares
     of common stock at $17.60 per share and the issuance of options to purchase
     351,666 shares of common stock to two principals of Pronet.

-    On January 5, 2000, pursuant to a licensing and reseller agreement, we
     issued warrants to purchase 50,000 shares of common stock to Inktomi
     Corporation at an exercise price of $17.00 per share.

-    On January 18, 2000, pursuant to an Agreement and Plan of Merger among
     ShopNow.com Inc., SN Acquisition, Inc., AXC Corporation and certain
     shareholders of AXC, we acquired all of the equity securities of AXC for
     approximately $2.2 million in cash, the assumption of approximately $4.1
     million in liabilities, the issuance of 540,296 shares of common stock at
     $17.60 per share and the issuance of options to purchase 72,089 shares of
     common stock to certain owners and employees of AXC.

No underwriters were engaged in connection with these issuances and sales. These
securities were issued in transactions exempt from registration under the
Securities Act of 1933 in reliance upon Section 4(2) of the Securities Act and
Regulation D promulgated thereunder. Between January 1, 2000 and March 31, 2000,
we issued 482,150 shares of common stock in conjunction with the exercise of
options granted under our stock option plans. The options granted under the
stock option plan were issued to our officers, employees and consultants at
exercise prices ranging from $0.00 to $16.75. In connection with our
acquisition of AXC Corporation, we issued options to purchase 4,161 shares of
common stock to three employees of AXC at exercise prices ranging from $3.60
to $10.28, which options were granted outside of our stock option plans. No
other options were granted outside of our stock option plans. These
securities were issued in transactions exempt from registration under the
Securities Act of 1933 in reliance upon Rule 701 promulgated under the
Securities Act of 1933. Where Rule 701 was not available, the securities were
issued in transactions exempt from registration under the Securities Act of
1933 in reliance upon Section 4(2) of the Securities Act of 1933.

On September 28, 1999, our registration statement on Form S-1, file number
333-80981, became effective. The offering date was September 28, 1999. All
shares offered in the final prospectus (filed with the Securities and Exchange
Commission on September 29, 1999) were sold, thus terminating our offering. The
managing underwriters were Dain Rauscher Wessels, U.S. Bancorp Piper Jaffray,
SoundView Technology Group and Wit Capital Corporation. The offering consisted
of 7,250,000 shares of ShopNow.com Inc. common stock issued in September 1999
and an additional 1,087,500 shares of common stock subject to the underwriter's
over-allotment option, which was exercised on October 28, 1999. The aggregate
price of the shares offered and sold was $100.1 million. Proceeds to us, after
accounting for $7.0 million in underwriting discounts and commissions and $1.9
million in other expenses, were $91.1 million.

On February 14, 2000, our registration statement on Form S-1, file number
333-95085, for our second public offering became effective. All shares offered
in the final prospectus (filed with the Securities and Exchange Commission on
February 16, 2000) were sold, thus terminating our offering. The managing
underwriters were J.P. Morgan Securities Inc., CIBC World Markets Corp.,
PaineWebber Incorporated and U.S. Bancorp Piper Jaffray. The offering consisted
of 7,913,607 shares of common stock at $14.50 per share. The aggregate price of
the shares offered and sold was $114.7 million. Proceeds to us, after accounting
for approximately $6.0 million in underwriting discounts and commissions and
$700,000 in other expenses, were $108.0 million.

We have used approximately $9.7 million of the net offering proceeds from our
initial public offering to repay indebtedness, approximately $41.1 million
for working capital paid directly or indirectly to third

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parties, approximately $10.4 million for the purchase or installation of
software and equipment, approximately $11.3 million in connection with the
acquisitions of SpeedyClick, Corp., Cortix, Inc., WebCentric, Inc., Pronet
Enterprises, Ltd. and AXC Corporation, approximately $17.0 million for the
purchase of equity securities of various e-commerce companies and
approximately $1.6 million for the net purchase of temporary investments
consisting of cash, cash equivalents and short-term, interest-bearing,
investment-grade securities. We have not used any of the net offering
proceeds from our initial public offering for the construction of plant,
building or facilities or purchases of real estate. The use of proceeds from
our initial public offering does not represent a material change in the use
of proceeds described in the registration statement relating to such offering.

None of the net offering proceeds from our initial public offering were paid,
and none of the offering expenses for this offering related to payments,
directly or indirectly, to directors, officers or general partners of
ShopNow.com or their associates, persons owning 10% or more of any class of
our securities, or affiliates of ShopNow.com

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY SHAREHOLDERS

None.

ITEM 5: OTHER INFORMATION

On April 11, 2000, we acquired Freemerchant.com, Inc. (Freemerchant), a
Delaware corporation, pursuant to an Agreement and Plan of Merger dated as of
April 10, 2000, by and among ShopNow.com, Freemerchant, Venice Acquisition,
Inc., a Delaware corporation and wholly owned subsidiary of ShopNow.com, and
Serge Wilson, the principal stockholder of Freemerchant. By the terms of the
Merger Agreement, Venice Acquisition, Inc. merged with and into Freemerchant.
A total of 2,573,723 unregistered shares of our common stock were issued in
the merger to the stockholders of Freemerchant, and we issued replacement
options to purchase an aggregate of 293,596 shares of ShopNow.com common
stock for the options to purchase Freemerchant common stock that were
outstanding prior to the merger. In addition, we paid the stockholders of
Freemerchant approximately $2.0 million in cash. We will account for the
transaction as a purchase transaction. Freemerchant, a privately held company
established in 1998 and based in Emeryville California, provides a suite of
web site development and hosting services at no charge to merchants.
Freemerchant's electronic commerce platform will be integrated into our
Business Commerce Network.

We issued our shares of common stock to the stockholders of Freemerchant
pursuant to the exemptions from the registration requirements of the Securities
Act of 1933 provided by Section 4(2) and Regulation D of the Securities Act.


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ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

     10.1  Amended and Restated 1999 Nonofficer Employee Stock Option Plan.

     27.1  Financial Data Schedule.

(b)  Reports on Form 8-K

     On January 7, 2000, we filed a Form 8-K/A, amending that certain
     Current Report on Form 8-K dated December 17, 1999, to provide the
     financial statements of WebCentric required by Item 7(a) of Form 8-K and
     the pro forma audited financial information required by Item 7(b) of Form
     8-K, which information was excluded from the original filing in reliance
     upon Item 7(a)(4) of Form 8-K.



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                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                         SHOPNOW.COM INC.



Date:  May 12, 2000
                                         By: /s/ DWAYNE M. WALKER
                                            --------------------------------
                                            Dwayne M. Walker
                                            Chief Executive Officer

                                         By: /s/ ALAN D. KOSLOW
                                            --------------------------------
                                            Alan D. Koslow
                                            Chief Financial Officer




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