SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

Filed by the Registrant /X/
Filed by a Party other than the Registrant / /

Check the appropriate box:

/ / Preliminary Proxy Statement / / Confidential, For Use of the
Commission Only
(as permitted by Rule 14a-6(e)(2))

/X/ Definitive Proxy Statement
/ / Definitive Additional Materials

/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

K2 DESIGN, INC.
(Name of Registrant as Specified in Its Character)

K2 DESIGN, INC.
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

1. Title of each class of securities to which transaction applies:

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

2. Aggregate number of securities to which transaction applies:

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

3. Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):

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

4. Proposed maximum aggregate value of transaction:

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

5. Total fee paid:

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

/ / Fee paid previously with preliminary materials:

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

/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration number, or the form or
schedule and the date of its filing.

1. Amount previously paid: ____________________________________________________

2. Form, Schedule or Registration Statement No.: ______________________________

3. Filing Party: ______________________________________________________________

4. Date Filed: ________________________________________________________________

K2 DESIGN, INC.
30 Broad Street, 16th Floor
New York, NY 10004

April 28, 2000

Dear Stockholders and Friends,

During 1999 American business made a fundamental shift and placed many
mission-critical processes onto the Internet. As a pioneer of important digital
innovations since our founding in 1993, K2 was well positioned to lead this
deepening adoption of technology for several of the world's foremost companies.

K2's goal is to be widely known as a strategic Internet services firm
that helps global, multi-divisional companies thrive in the new economy by
maximizing their Internet effectiveness. In 1999 we made notable progress toward
this goal:

o Clients. Hewlett-Packard, MCI WorldCom and Philips Lighting joined our
client roster. Our ongoing relationships with them involve building
robust digital channels to meet important business goals in such areas
as customer service, e-commerce, online account management, bill
presentment and dealer/distributor communications. While developing
these new client partnerships, we also continued working with valued
clients such as NCR and Standard & Poor's, a relationship begun in
1997.

o Recognition. K2 received widespread recognition for its expertise and
growth. In November 1999, K2 won the Gold NewMedia Invision Award - the
world's largest juried digital content competition -- in the Travel
category for the site Meet Puerto Rico. In December 1999, Deloitte &
Touche ranked K2 among the fastest growing technology companies in the
U.S.

o Strategic Alliances. K2 has had a successful track record of developing
business through channel partnerships. In 1999 K2 forged an exclusive
channel partnership with Register.com, one of the Internet's leading
domain name registrars. Under the agreement, K2 provides Web-related
strategic development and marketing services for qualified Register.com
customers.

o Seasoned Management. In 1999 K2 enriched its management team through
promotions of talented staff and recruitment of new leaders. Among the
latter were K2's Media Director, a former Media Director at a leading
Interpublic advertising agency, and K2's Executive Creative Director,
an award-winning alum of Ogilvy & Mather.

K2's point-of-view - in contrast to some others in our sector - has
been that a strategy of "build first - scale later" would position us more
effectively for long-term success. We spent the first half of 1999 refining our
positioning, articulating our proprietary process known as W3 Organizational
Modeling(TM), and building internal systems for knowledge management. These
investments will leverage our growth, allowing new team members to learn from
and apply the knowledge and experience we have accumulated in this new class of
business challenges that are unique to the Internet. As we grow, process and
systems are also essential for maintaining the high standards of client
satisfaction that are the hallmark of K2.

Financial results for 1999 reflect that investment in process and
systems. First half net revenues consisted of $468,000 in the first quarter and
$658,000 in the second. In the second half, however, our focus and process
investment began to pay off. Net revenue grew 89% in the third quarter to
$1,242,000 and another 8% in the fourth to $1,337,000. (Net revenue represents
gross revenue minus reimbursable costs billed back to clients, such as media
placement costs.)

It is our goal to sustain that kind of momentum. We believe we are in a
position to do so because of our successful relationships with clients who are
committed to maximizing the opportunities of the Internet on an ongoing basis.
With a revenue stream that is more predictable than the one-time engagements
common in past years, we have been able to focus our new business development
efforts on prospects who are "right" for our consultative approach and ongoing
development services.

K2 plans to pursue two different avenues for growth. Organic growth
will continue to be fueled by the efforts of our highly motivated employees with
their current clients, as well as our channel partnerships, public relations and
business development programs. However, the accelerated growth we wish to
achieve can only be accomplished through a combination of organic and external
growth driven by acquisitions. To that end, in April 2000, we hired Gary Brown,
a highly regarded former Wall Street executive with a 19-year track record at
UBS, the second largest international bank. Mr. Brown will lead corporate
development and mergers and acquisition efforts as Executive Vice President and
Chief Operating Officer, as well as in his capacity as a member of K2's Board of
Directors. As we pursue acquisitions, we have a high degree of confidence in our
ability to integrate new teams into the K2 culture. Our well-articulated process
and skillful management group are a strong foundation on which to build.

We thank you for your continued interest and support of K2. As we begin
this new stage in K2's pioneering history, we are confident in our ability to
build a company that can now create value at an attractive rate for our
stockholders.

Sincerely,

/s/ Lynn Fantom

President and Chief Executive Officer

K2 DESIGN, INC.
30 Broad Street, 16th Floor
New York, NY 10004

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

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held on Thursday, June 1, 2000

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

To the Stockholders of K2 DESIGN, INC.:

NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Stockholders of
K2 Design, Inc., a Delaware corporation (the "Company"), will be held at 10:30
a.m. (Eastern Standard Time) on Thursday, June 1, 2000, at the offices of Brown
Raysman Millstein Felder & Steiner LLP, 120 West 45th Street, 20th Floor, New
York, New York 10036, to consider and vote upon:

(a) Election of seven directors for a one-year term.

(b) Approval and ratification of an amendment to the Company's 1997
Stock Incentive Plan to increase the number of shares of Common
Stock available under such plan.

(c) Approval and ratification of the selection by the Board of
Directors of Arthur Andersen LLP as independent public accountants
for the Company's 2000 fiscal year.

(d) Any other business that may properly come before the meeting.

The Board of Directors has fixed the close of business on April 26,
2000 as the record date for the determination of stockholders entitled to
receive notice of and to vote at said meeting. Stock transfer books will not be
closed.

To assure representation of your shares, YOU ARE REQUESTED, WHETHER OR
NOT YOU PLAN TO BE PRESENT AT THE MEETING, TO COMPLETE, DATE, SIGN AND RETURN
THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE PREPAID ENVELOPE. If your shares
are held of record by a broker, bank, or other nominee and you wish to vote your
shares at the meeting, you must obtain and bring to the meeting a letter from
the broker, bank, or other nominee confirming your beneficial ownership of the
shares.

Attached to the enclosed Proxy Statement, as Appendix A thereto, is a
copy of the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1999, as filed with the Securities and Exchange Commission, which
includes the Company's financial statements for the fiscal year 1999.

In accordance with Delaware corporate law, the Company will make
available for examination by any stockholder entitled to vote at the Annual
Meeting, for any purpose germane to the Annual Meeting, during ordinary business
hours, for at least 10 days prior to the Annual Meeting, at the offices of the
Company located at 30 Broad Street, 16th Floor, New York, New York 10004, a
complete list of the stockholders entitled to vote at the Annual Meeting,
arranged in alphabetical order.

By Order of the Board of Directors

/s/ Seth Bressman,

Secretary

New York, New York
April 28, 2000

K2 DESIGN, INC.

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

PROXY STATEMENT

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

ANNUAL MEETING OF STOCKHOLDERS

The proxy accompanying this Proxy Statement is solicited by the Board
of Directors of K2 Design, Inc. (the "Company"). All proxies in the accompanying
form, which are properly executed and duly returned, will be voted at the Annual
Meeting of Stockholders of the Company (the "Annual Meeting") to be held on
Thursday, June 1, 2000, at 10:30 a.m. (Eastern Standard Time) at the offices of
Brown Raysman Millstein Felder & Steiner LLP, 120 West 45th Street, 20th Floor,
New York, New York 10036, for the purposes set forth in the accompanying Notice
of Annual Meeting. The Company's mailing address is 30 Broad Street, 16th Floor,
New York, New York 10004, except as otherwise noted.

This Proxy Statement and the enclosed form of proxy are first being
mailed to stockholders on or about April 28, 2000.

VOTING AND SOLICITATION OF PROXIES

Only holders of record of the Company's common stock, par value $.01
per share (the "Common Stock"), at the close of business on April 26, 2000, will
be entitled to notice of and to vote at the Annual Meeting. On that date there
were issued and outstanding 3,359,818 shares of Common Stock (not including
treasury shares). Each outstanding share of Common Stock is entitled to one vote
on all matters to come before the Annual Meeting. As of April 26, 2000, members
of management of the Company beneficially held an aggregate of 959,850 shares of
Common Stock (not including currently exercisable options to purchase shares of
Common Stock), or 28.6% of the total outstanding shares of Common Stock entitled
to vote at the Annual Meeting.

The cost of soliciting proxies will be borne by the Company and is
expected to be approximately $15,000. In addition to the use of traditional
mailings, officers, directors and regular employees of the Company may solicit
proxies personally or by telephone, electronic mail or facsimile transmission.
The Company also intends to request that brokerage houses, banks, custodians,
nominees and fiduciaries forward soliciting material to the beneficial owners of
Common Stock held of record by such persons, and will reimburse such persons for
their reasonable expenses in forwarding such material.

The holders of a majority of the total shares of Common Stock issued
and outstanding, whether present in person or represented by proxy, will
constitute a quorum for the transaction of business at the Annual Meeting. The
affirmative vote of a plurality of the total shares of Common Stock represented
in person or by proxy at the Annual Meeting is required for the election of
directors. The affirmative vote of a majority of the total shares of Common
Stock represented in person or by proxy at the Annual Meeting is required for
approval of the proposal to amend the Company's 1997 Stock Incentive Plan (the
"1997 Plan") and for approval and ratification of the appointment of independent
public accountants. Stockholders who execute proxies retain the right to revoke
them at any time by notice in writing to the Secretary of the Company, by
revocation in person at the Annual Meeting or by presenting a later dated proxy.
Unless so revoked, the shares represented by proxies will be voted at the Annual
Meeting in accordance with the directions given therein. Stockholders vote at
the Annual Meeting by casting ballots (in person or by proxy) which are
tabulated by a person who is appointed by the Board of Directors before the
Annual Meeting to serve as inspector of election at the Annual Meeting and who
has executed and verified an oath of office. Abstentions and broker "non-votes"
are included in the determination of the number of shares

present at the Annual Meeting for quorum purposes. An abstention will have the
same effect as a negative vote except with respect to the election of directors,
in which case an abstention will have no effect since directors are elected by a
plurality vote. Broker "non-votes" are not counted in the tabulations of the
votes cast on proposals presented to stockholders because shares held by a
broker are not considered to be entitled to vote on matters as to which broker
authority is withheld. A broker "non-vote" occurs when a nominee holding shares
for a beneficial owner does not vote on a particular proposal because the
nominee does not have discretionary voting power with respect to that item and
has not received instructions from the beneficial owner.

It is important that proxies be returned promptly. Therefore, whether
or not you plan to attend the Annual Meeting in person, you are urged to execute
and return your proxy in the enclosed envelope, to which no postage need be
affixed if mailed in the United States.

BENEFICIAL OWNERSHIP

The following table sets forth information, as of April 26, 2000, as to
the beneficial ownership of Common Stock (including shares which may be acquired
within sixty days pursuant to stock options) of each director of the Company,
the Chief Executive Officer of the Company, all directors and executive officers
as a group and persons known by the Company to beneficially own 5% or more of
the Common Stock. Except as set forth below, each of the listed persons has sole
voting and investment power with respect to the shares beneficially owned by
such person. The address of each person included in the table is care of the
Company, 30 Broad Street, 16th Floor, New York, New York 10004.

Shares of Common Stock
Name of Owner Beneficially Owned Percent of Class(1)
- ------------- ------------------ -------------------

Matthew G. de Ganon 971,950(2)(3) 28.8%

Douglas E. Cleek 427,531(2)(3) 12.7%

Lynn Fantom 400,000(4) 10.6%

Gary W. Brown 363,000(5) 9.8%

Seth Bressman 32,900(6) *

Steven N. Goldstein 10,000(7) *

David R. Sklaver 10,000(7) *

P. Scott Munro 10,000(7) *

All Directors and Executive 1,123,016(8) 30.9%

Officers as a group (8 persons)

- ----------------------------------
* Less than one percent.

(1) Does not give effect to (i) shares of Common Stock held in treasury, (ii)
500,000 shares of Common Stock issuable upon exercise of the Company's
Redeemable Common Stock Purchase Warrants, each of which expires on July
25, 2001 and entitles the holder thereof to purchase one share of Common
Stock at a purchase price of $7.50 per share (the "Warrants"), or (iii)
150,000 shares of Common Stock issuable upon exercise of an additional
warrant granted by the Company to Donald & Co. Securities Inc., its
representative in connection with the initial public offering of the
Company (the

"Representative Warrant") to purchase up to 100,000 units of K2 Design,
Inc. at a purchase price of $8.04 per unit, with each unit consisting of
one share of Common Stock and one Warrant. Two such Warrants enable the
holder to purchase one share of Common Stock at $7.50 per share. The
Representative Warrant is exercisable over a period of four years
commencing on July 26, 1997 and expiring on July 25, 2001.

(2) Includes 6,250 shares underlying presently exercisable stock options,
exercisable at $6.75 per share.

(3) Pursuant to a 10-year voting agreement entered into by Messrs. de Ganon,
Cleek, Bradley K. Szollose, a former officer and director of the Company,
and David J. Centner, a former officer and director of the Company,
effective July 26, 1996 (the "Voting Agreement"), the voting control over
all shares held by Mr. Szollose, Mr. Centner, Mr. Cleek and Mr. de Ganon is
vested in Mr. de Ganon. Such shares subject to the Voting Agreement must be
voted in favor of the election as directors of Messrs. de Ganon and Cleek.
In addition, the Voting Agreement grants each party thereto a right of
first refusal as to the sale of the others' Common Stock. Messrs. Szollose,
Centner, de Ganon and Cleek each disclaim beneficial ownership of those
shares with respect to which they are not record owners. Mr. de Ganon's
holdings also include an aggregate of 12,500 shares underlying presently
exercisable stock options held by Messrs. de Ganon and Cleek. Mr. Szollose
resigned from the Board of Directors in July 1999.

(4) Reflects shares of Common Stock subject to stock options which vest as
follows: 50% on October 22, 1999 and 50% on October 22, 2000.

(5) Reflects 100,000 shares of restricted Common Stock and 263,000 shares of
Common Stock subject to stock options, all of which vest as follows: 50% on
April 14, 2001 and 50% on April 14, 2002. Mr. Brown joined the Company in
April 2000. See "Executive Compensation - Employment Contracts for
Executive Officers."

(6) Includes 32,500 shares of Common Stock subject to currently exercisable
stock options and excludes stock options to purchase 2,500 shares of Common
Stock which become exercisable on October 1, 2000.

(7) Reflects shares of Common Stock underlying stock options that are currently
exercisable.

(8) Includes 275,000 shares of Common Stock underlying presently exercisable
stock options and excludes 470,500 shares of Common Stock underlying stock
options that are not presently exercisable.

PROPOSAL 1

ELECTION OF DIRECTORS

The Company's Directors have terms expiring at the 2000 Annual Meeting,
and until their respective successors are duly elected and qualified. The
officers of the Company are appointed by the Board of Directors to hold office
until their successors are duly elected and qualified. Vacancies on the Board of
Directors are filled by the remaining directors.

Certain information regarding the nominees for election as Directors at
this year's Annual Meeting is set forth below:

Name Age Position
---- --- --------

Matthew G. de Ganon 37 Executive Chairman of the Board of Directors

Lynn Fantom 47 Chief Executive Officer, President and
Director

Douglas E. Cleek 37 Executive Vice President--Chief Creative
Officer and Director

Gary W. Brown 47 Executive Vice President, Chief Operating
Officer and Director

P. Scott Munro 43 Director

Steven N. Goldstein 60 Director

David R. Sklaver 48 Director

Matthew G. de Ganon has been the Company's Executive Chairman and a
Director since he joined the Company in July 1995 and was President of the
Company from June 1996 to November 1998. He was also the Chief Operating Officer
of the Company from July 1995 to November 1997. For the two years prior to
joining the Company, Mr. de Ganon operated a business that created CD-ROM
products and offered consulting services regarding the use of electronic
delivery to publishers of newsletters and directories. Mr. de Ganon is co-author
of the essay, "Overcoming Future Shock on the Superhighway: Suggestions for
Providers and Technocrats," published and presented in the 1994 National Online
Conference Proceedings. From August 1992 to July 1993, Mr. de Ganon was the Vice
President of New Media of SCS, a software developer. Mr. de Ganon's work focused
on UNIX based 4GL accounting software customization for corporate clients. From
May 1991 to July 1992, Mr. de Ganon was involved in casting administration for
the Motion Picture Group of Universal Studios, Inc. Prior thereto, Mr. de Ganon
was a franchised theatrical agent with the Stone Manners Agency in Los Angeles,
California from August 1987 to May 1991.

Lynn Fantom has been the Company's President and Chief Executive
Officer and a Director since November 1998. Prior to joining the Company, Ms.
Fantom was an independent consultant from September 1997 to November 1998. She
was the Chief Executive Officer of Lowe Direct (now Lowe Fox Pavlika), a direct
marketing company and subsidiary of The Lowe Group, from October 1996 to
September 1997. Ms. Fantom served in various positions for Draft Worldwide, a
marketing company, from October 1982 to October 1996, being named President in
1991 and vice chairman in 1996.

Douglas E. Cleek, who co-founded the Company in 1993, has been the
Company's Executive Vice President--Chief Creative Officer and a Director of the
Company since it was reorganized as a corporation in January 1995. From 1993
until 1995, Mr. Cleek was a general partner of the Company. For more than five
years prior thereto, Mr. Cleek was an art director for William Allen & Co. and
its successor, A.J. Bart & Sons, graphic design firms specializing in graphic
promotional materials for the hospitality industry.

Gary W. Brown, has been a Director of the Company since February 2000
and joined the Company in April 2000 as Executive Vice President and Chief
Operating Officer. Prior to that, Mr. Brown was employed from July 1980 through
June 1999 in various management capacities with UBS AG, the successor
organization to Union Bank of Switzerland, including the role of New York Branch
Manager. There he served as Division Head for Structured Finance, one of UBS's
six operating divisions in the Americas prior to the merger of UBS with Swiss
Bank Corporation in 1998. Post-merger, Mr. Brown was designated Chief Credit
Officer-Americas for UBS's investment banking division, Warburg, Dillon Read,
where he was responsible for capital commitments of the firm. Mr. Brown held
various business development and risk management positions throughout his
19-year career at UBS. He also served as President of the New York Chapter of
Robert Morris Associates, the industry's trade association, and as an ex-officio
member of RMA National Board. Since 1991, he has served on the Board of
Directors of Sefar Americas, a subsidiary of Sefar AG, a manufacturer of Swiss
synthetic fabrics. Prior to joining UBS in 1980, Mr. Brown was employed from
June 1976 through June 1980 with The Chase Manhattan Bank, having served in
various business development functions. Mr. Brown received a Bachelor of Science
degree in Business Administration from Oral Roberts University in May 1976.

P. Scott Munro has served as a Director of the Company since July,
1999. Mr. Munro has served as Chief Executive Officer, President and Secretary
of Savoir Technology Group, Inc. since July 1995. He has also served as chairman
of the board of directors of that company since January 1998 and as a director
of that company since July 1995. Mr. Munro previously held other positions
within Savoir Technology Group, Inc., acting as President of the Computer
Systems Division from January 1993 to July 1995 and as Senior Vice President,
Computer Systems Division from July 1990 to January 1993. Prior to 1990, Mr.
Munro served as a General Manager for both Future Electronics, Inc., a
distributor of electronic components, and Arrow Electronics, Inc., a distributor
of computer products.

Dr. Steven N. Goldstein has been a Director of the Company since 1996.
Mr. Goldstein has been Program Director, Inter-Agency and International
(Networking) Coordination Director of Network Services at the National Science
Foundation ("NSF") since June 1989 and is responsible for the international
networking coordination in support of the communication needs of the United
States research and education community. Dr. Goldstein has directed NSF's
International Connections Management ("ICM") project which, in the past five
years, has assisted in connecting approximately 20 countries to the Internet.
Dr. Goldstein has also collaborated with Japanese networkers in the formation of
academic Internet service in Japan. Presently, Dr. Goldstein is also the U.S.
coordinator for the G-7 Global Information Society initiative's theme, "Global
Interoperability of Broadband Networks," under which he coordinates closely with
Japan's high performance networking projects. Dr. Goldstein has a Bachelor of
Science and Master degrees in Physics from the Massachusetts Institute of
Technology and a Doctorate degree in Engineering and Public Policy from Carnegie
Mellon University. Dr. Goldstein is also a member of the Institute of Electrical
and Electronics Engineers, the Association for Computing Machinery and the
Internet Society.

David R. Sklaver has been a Director of the Company since 1999. Since
1996, Mr. Sklaver has been a General Partner, founder and CEO of Artustry
Partnership, a strategic and creative marketing company. From 1993 to 1995, Mr.
Sklaver served as President of Wells Rich Greene DDB, an advertising agency
handling Fortune 500 clients. Prior to being promoted to President, Mr. Sklaver
served as Executive Vice President, Director of Client Services of Wells Rich
Greene from 1989 to 1993. From 1986 to 1988, Mr. Sklaver was Executive Vice
President, Account Group Head, at advertising agency BBD

Needham, New York. From 1984 to 1985, Mr. Sklaver was Managing Director of DDB's
Sydney office. From 1978 to 1984, he served in Account Management at DDB New
York. Prior to 1978, Mr. Sklaver held positions at Foote, Cone & Belding
Advertising and Standard Brands, both advertising agencies.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE THEIR SHARES FOR
THE ELECTION OF THE NOMINEES FOR DIRECTOR SET FORTH ABOVE.

OTHER EXECUTIVE OFFICERS

In addition to the executive officers described under "Election of
Directors" above, the Company has the following executive officer:

Seth Bressman, age 46, joined the Company in April 1996 as Controller
and was subsequently promoted to Chief Financial Officer in August 1998. Prior
to joining the Company, Mr. Bressman was a consultant to various architectural
design and engineering firms from December 1995 to March 1996. Mr. Bressman was
the Controller for Brennan Beer Gorman Architects, an architectural design
company, from November 1994 through November 1995, Chief Financial Officer for
Emery Roth & Sons, an architectural design company, from August 1993 through
October 1994, and Controller for SCR Design Organization, an interior
design/facilities management company, from December 1985 through July 1993, all
based in New York City. Mr. Bressman also worked in public accounting for 7
years and has over 21 years of experience in accounting and finance since
receiving his MBA in Accounting in June 1977.

DIRECTORS' MEETINGS

The Board of Directors met four times during fiscal 1999. Each Director
attended at least 75% of the combined number of meetings of both the Board of
Directors and of any committees of the Board on which the Director served.

COMMITTEES OF THE BOARD OF DIRECTORS

In 1999, the Audit Committee met once. The Option Committee acted by
unanimous written consent in lieu of a meeting seven times in fiscal 1999. The
Compensation Committee met two times in fiscal 1999.

The Audit Committee consists of Messrs. Munro, Goldstein and Sklaver
who review and examine detailed reports of the Company's independent public
accountants; consult with the independent public accountants regarding internal
accounting controls, audit results and financial reporting procedures; recommend
the engagement and continuation of engagement of the Company's independent
public accountants; and meet with, and review and consider recommendations of,
the independent public accountants.

The Compensation Committee consists of Messrs. Munro and Sklaver who
review the performance of senior management and key employees whose compensation
is the subject of review and approval by the Committee; periodically review and
recommend to the Board of Directors compensation arrangements for senior
management and key employees; and periodically review the main elements of and
administer the Company's compensation and benefit programs, with the exception
of the Company's 1996 Stock Option Plan and 1997 Stock Incentive Plan (together,
the "Plans").

The Option Committee consists of Messrs. Goldstein and Sklaver, who
administer the Plans and, to the extent provided thereby, determine the persons
to whom options are granted, the exercise price thereof, the term and number of
shares covered by each option grant and the type of option to be granted. In
addition, the Option Committee exercises all discretionary power regarding the
operation of the Plans.

DIRECTOR FEES

Directors who are employees of the Company receive no additional
compensation for services as Directors. Directors not so employed receive
$25,000 in compensation annually and are entitled to be reimbursed for expenses
incurred in connection with meeting attendance. In addition, each of the
Company's non-employee Directors are granted options to acquire 5,000 shares of
Common Stock upon their election or reelection to the Board.

ADVISOR FEES

All nonemployees serving as members of the Company's Board of Advisors
receive options to purchase up to 5,000 shares of Common Stock upon their
election to the Board of Advisors. There are three members of the Board of
Advisors.

EXECUTIVE COMPENSATION

The following table sets forth the total annual compensation paid or
accrued by the Company for services in all capacities for Ms. Fantom, the Chief
Executive Officer, and those executive officers (the "Named Executives") who
served in executive capacities at the end of fiscal 1999 and had aggregate
compensation in excess of $100,000.

SUMMARY COMPENSATION TABLE

Annual Compensation (1) Long Term
----------------------- Compensation
Name and Principal Position Year Salary ($) Bonus ($) Option Awards
- --------------------------- ---- ---------- --------- -------------

Lynn Fantom, Chief Executive 1999 250,000 -- --
Officer and President(2) 1998 24,038 -- 400,000

Matthew G. de Ganon, Executive 1999 175,613 25,000 --
Chairman of the Board 1998 130,924 -- --
1997 115,623 -- --
1996 84,000 31,000 18,750

Douglas E. Cleek, Executive Vice 1999 166,794 25,000 --
President - Chief Creative Officer 1998 117,978 -- --
1997 115,623 -- --
1996 83,473 -- 18,750

Robert Burke, Former Chief 1999 735,470 -- --
Operating Officer (3) 1998 216,210 125,000

Seth Bressman, Chief Financial 1999 123,915 -- 5,000
Officer 1998 93,748 -- 25,000

- ----------

(1) The value of perquisites and other personal benefits does not exceed
10% of the officer's salary.
(2) Joined the Company in November 1998.
(3) Resigned from the Company effective as of January 4, 1999.

Employment Contracts for Executive Officers

Lynn Fantom, Matthew G. de Ganon, Douglas E. Cleek and Seth Bressman,
the current executive officers of the Company, have each executed employment
contracts. The contracts of each of Messrs. de Ganon and Cleek, which were to
expire on December 31, 1998, were renewed for an additional three year period
and provide for minimum annual salaries of $153,000 with 20% increases for each
successive year. Such contracts also include bonuses equal to 1.88% of the
Company's pre-tax profit. Messrs. de Ganon and Cleek are prohibited from
competing with the Company through December 31, 2001. The Company entered into a
two year employment contract with Lynn Fantom as Chief Executive Officer and
President providing for an annual salary of $250,000 and a bonus equal to 10% of
the Company's pre-tax profit not to exceed $75,000, provided that the Company's
pre-tax profit for fiscal 1999 is at least $250,000 and for fiscal 2000 is at
least $500,000. Ms. Fantom's contract also contains a non-compete provision for
the term of the contract plus one year and a severance provision entitling Ms.
Fantom to up to $300,000 in the event of termination without cause and, in
certain circumstances upon a change of control, an additional $300,000 payment.
There is also a provision in Ms. Fantom's stock option agreement that calls for
the immediate vesting, subject to certain limitations, of any unvested portion
of her 400,000 options, should her employment with the Company be terminated for
any reason other than for "Cause" or "Good Reason," each as defined in her
employment contract. The Company also entered into a one year employment
contract with Seth Bressman as Chief Financial Officer expiring January 31,
2000, subject to automatic renewals, providing for an annual salary of $125,000
and a bonus equal to $50,000 in the event of a Change of Control (as defined in
the contract). Mr. Bressman is also subject to a non-compete restriction for six
months beyond the termination date of his employment. Gary W. Brown joined the
Company as Executive Vice President and Chief Operating Officer on April 14,
2000. Mr. Brown signed an employment contract with the Company that expires on
March 31, 2002. This employment contract provides for an annual salary of
$225,000 and a discretionary annual bonus in the form of stock options up to a
maximum of 100,000 shares of Common Stock per year. Upon joining the Company,
Mr. Brown also received 100,000 shares of restricted stock and options to
purchase up to 263,000 shares of Common Stock. Both the restricted stock and the
stock options vest 50% on April 14, 2001 and 50% on April 14, 2002. In addition,
all of Mr. Brown's unvested shares of restricted stock and stock options vest
immediately upon the occurrence of a change of control transaction, as
contemplated in the employment contract.

Option Grants in Fiscal 1999

OPTION GRANTS IN LAST FISCAL YEAR

Number of Percent Of Total
Securities Options Granted
Underlying To Employees Exercise or
Name Options Granted In Fiscal Year Base Price ($/Sh) Expiration Date
- ---- --------------- -------------- ----------------- ---------------

Lynn Fantom -- -- -- --

Matthew G. de Ganon -- -- -- --

Douglas E. Cleek -- -- -- --

Seth Bressman(1) 5,000 4.91% $2.9375 10/01/09

- ---------------
(1) Such options vest as follows: 50% on April 1, 2000 and 50% on
October 1, 2000.

An aggregate of 25,000 stock options were granted to all executive
officers and directors as a group during the fiscal year ended December 31,
1999. Such options are exercisable at prices per share ranging from $2.50 to
$2.9375, which reflects the fair market value on the dates of grant. None of
such options were exercised during fiscal 1999.

Option Exercises and Year-End Value Table

The table set forth below shows the value of unexercised options held
on December 31, 1999 by Ms. Fantom and each of the Named Executives.

Number of Unexercised Value of Unexercised In-the-Money
Options at December 31, 1999 Options held on December 31, 1999 ($) (1)
---------------------------- -----------------------------------------

Name Exercisable Unexercisable Exercisable Unexercisable

Lynn Fantom (1) 200,000 200,000 $975,000 $975,000

Matthew G. de Ganon(1) 8,750 3,750 $-0- $9,375

Douglas E. Cleek(1) 8,750 3,750 $-0- $9,375

Seth Bressman(1) 30,000 5,000 $138,750 $17,188

- --------------
(1) Based on the closing price of the Common Stock on December 31, 1999,
which was $6.375.

Filing Requirements

The Company believes that all filing requirements under Section 16(a)
of the Securities Act of 1934, as amended, applicable to its officers, directors
and greater than 10% beneficial owners were complied with during the fiscal year
ended December 31, 1999, except that (i) Douglas E. Cleek failed to file a Form
4 in connection with one sale transaction and two acquisition transactions
during fiscal 1999, each of which was reported on a Form 5 for fiscal 1999; (ii)
Matthew G. de Ganon failed to file a Form 4 in connection with two acquisition
transactions and a number of sales transactions during fiscal 1999, each of
which was reported on a Form 5 for fiscal 1999; (iii) P. Scott Munro failed to
file a Form 4 in connection with one acquisition transaction during fiscal 1999
which was reported on a Form 5 for fiscal 1999; (iv) Steven G. Goldstein failed
to file a Form 4 in connection with one acquisition transaction during fiscal
1999 which was reported on a Form 5 for fiscal 1999; (v) David Sklaver failed to
file a Form 4 in connection with one acquisition transaction during fiscal 1999
which was reported on a Form 5 for fiscal 1999; and (vi) Seth Bressman failed to
file a Form 4 in connection with one acquisition transaction during fiscal 1999
which was reported on a Form 5 for fiscal 1999.

Certain Relationships and Related Transactions

In fiscal 1999, the Company repurchased 111,600 shares of Common Stock
on the open market for an aggregate purchase price of $267,684. The purchase
price for the shares was at the market price on the dates of purchase. In
addition, on October 28, 1999, the Company repurchased 59,567 shares from
Messrs. de Ganon, Szollose, Centner and Cleek for an aggregate cost of $164,831.
These shares were repurchased by the Company in connection with the cancellation
of an option on such shares held by a third party and the payment by the Company
of the resulting tax liability. On October 28, 1999, the closing market price
per share of the Company's Common Stock was $3.1875 per share. The purchase
price paid by the Company in connection with the repurchase of these shares
represented a 13% discount below the market price. The Company believes that the
terms of these transactions were negotiated at arms length and were on terms no
less favorable to the Company than could have been obtained from an unaffiliated
party.

PROPOSAL 2

1997 STOCK INCENTIVE PLAN PROPOSAL

The Board of Directors approved the amendment to the 1997 Plan in April
2000, subject to the approval of the stockholders, to provide (i) that the
aggregate number of shares of Common Stock subject to options or awards under
the 1997 Plan be increased from 900,000 to 1,700,000 and, accordingly, (ii) that
the number of shares reserved for the future issuance of shares of Common Stock
upon the exercise of options under the 1997 Plan be increased from 900,000
shares to 1,700,000 shares. The affirmative vote of the holders of at least a
majority of the outstanding shares of Common Stock present and entitled to vote
at the Annual Meeting is required to approve the amendment to the 1997 Plan.
Additionally, the Board of Directors deems it advisable and in the best
interests of the Company to provide for a sufficient number of shares under the
1997 Plan to induce, attract and retain talented persons to work at the Company.
In the event such proposal is not approved by the stockholders, the Company will
still be able to honor its commitments to current employees as of April 26,
2000. However, only approximately 4,000 shares remain available for grant under
the 1997 Plan.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE THEIR SHARES FOR
THE PROPOSAL TO APPROVE THE AMENDMENT TO THE 1997 PLAN.

Summary of the 1997 Plan

The following summary of the 1997 Plan is qualified in its entirety by
reference to the 1997 Plan, a copy of which is attached to the Company's public
reports or available upon request in writing directed to the President of the
Company. Attention is particularly directed to the description therein of the
material terms and conditions of the award of stock options ("Options") or
restricted shares ("Restricted Shares"), or any combination thereof
(collectively, the "Awards").

All employees (including Officers and Directors) of the Company and its
Subsidiaries or independent contractors or consultants shall be eligible to
participate in the 1997 Plan. The Option Committee may grant Awards to such
persons to purchase the number of shares as the Option Committee may determine.
Options granted under the 1997 Plan may either be Incentive Stock Options
("ISOs") pursuant to which the recipient receives certain tax benefits or
non-ISOs. The price at which shares may be purchased upon exercise of an Option
shall be fixed by the Option Committee and may be more than, less than or equal
to the fair market value of the Common Stock as of the date the Option is
granted. Subject to the provisions of the 1997 Plan with respect to death,
retirement and termination of employment, the term of each Option shall be for
such period as the Option Committee shall determine as set forth in an
applicable agreement.

The method of payment of the purchase price of an Option, and the
amount required to satisfy applicable federal, state and local withholding tax
requirements, will be determined by the Option Committee and may consist of
cash, a check, a promissory note, whole shares of Common Stock already owned by
the optionee, the withholding of shares of Common Stock issuable upon such
exercise of the Option, the delivery of a properly executed exercise notice or
irrevocable instructions to a broker to deliver promptly to the Company the
amount of sale or loan proceeds required to pay the purchase price, any
combination of the foregoing methods of payment or such other consideration and
method of payment as may be permitted for the issuance of shares under the
Delaware General Corporation Law.

At the time of any Award of Restricted Shares, the Option Committee
will designate a period of time which must elapse (the "Restriction Period") and
may impose such other restrictions, terms and

conditions that must be fulfilled before the Restricted Shares will become
vested. The Option Committee may determine that (i) Restricted Shares will be
issued at the beginning of the Restriction Period, in which case such shares
will constitute issued and outstanding shares of Common Stock for all corporate
purposes, or (ii) Restricted Shares will not be issued until the end of the
Restriction Period, in which case the holder will have none of the rights of a
stockholder with respect to the shares of Common Stock covered by such Award
until such shares shall have been issued to such holder at the end of the
Restriction Period.

If a holder's employment with the Company or a Subsidiary shall be
terminated by the Company or such Subsidiary during the Restriction Period with
respect to any Restricted Shares, or prior to the exercise of any Option, for
cause, then (i) all Options held by such holder shall immediately terminate and
(ii) such holder's rights to all Restricted Shares, retained distributions, any
unpaid dividend equivalents and any cash awards shall be forfeited immediately.

All shares available under the 1997 Plan are subject to adjustments
that may be made for a merger, recapitalization, stock dividend, stock split or
other similar change affecting the number of outstanding shares of Common Stock.
Shares of Common Stock that are subject to any Award granted under the 1997 Plan
that expires, terminates or is annulled for any reason without having been
exercised and any Award of Restricted Shares that is forfeited prior to becoming
vested will return to the pool of such shares available for grant under the 1997
Plan.

The Board of Directors may at any time amend, suspend or discontinue
the 1997 Plan; provided, however, that certain amendments may not be made by the
Board of Directors without approval of the stockholders. Amendments may not
alter an outstanding Option without the consent of the optionee.

The Option Committee may require in an applicable agreement that if the
optionee acquires any shares of Common Stock through the exercise of Options or
through the vesting of Restricted Shares granted pursuant to an Award, then
prior to selling any such shares, such holder must offer to sell such shares to
the Company at their fair market value pursuant to a right of first refusal.

The obligations of the Company with respect to Awards granted under the
1997 Plan are subject to all applicable laws.

PROPOSAL 3

RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors has selected Arthur Andersen LLP, independent
auditors, to serve as auditors of the Company for the fiscal year ending
December 31, 2000. Although stockholder ratification of the Board of Directors'
action in this respect is not required, the Board considers it desirable for
stockholders to pass upon the selection of auditors and, if the stockholders
disapprove of the selection, intends to consider the selection of other auditors
for the current fiscal year.

Representatives of Arthur Andersen LLP are expected to be present at
the Annual Meeting, will have an opportunity to make a statement if they so
desire, and will be available to respond to appropriate questions from
stockholders.

The affirmative vote of the holders of a majority of the shares of
Common Stock present in person and by proxy at the Annual Meeting and entitled
to vote thereon is necessary for the ratification of the appointment of the
auditors. Proxies received in response to this solicitation will be voted FOR
the ratification of the appointment of the auditors, unless otherwise specified
in the proxy.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF RATIFICATION OF THE
APPOINTMENT OF ARTHUR ANDERSEN LLP.

ANNUAL REPORT

A copy of the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1999, as filed with the Securities and Exchange
Commission, is included as Appendix A hereto. Additional copies are available
without charge upon written request directed to: K2 Design, Inc., 30 Broad
Street, 16th Floor, New York, New York 10004; Attention: Seth Bressman, Chief
Financial Officer.

OTHER MATTERS

Management is not aware of any matters to come before the Annual
Meeting which will require the vote of stockholders other than those matters
indicated in the Notice of Meeting and this Proxy Statement. However, if any
other matter calling for stockholder action should properly come before the
Annual Meeting or any adjournments thereof, those persons named as proxies in
the enclosed proxy form will vote thereon according to their best judgment.

ADVANCE NOTICE FOR STOCKHOLDER PROPOSALS

FOR THE 2001 ANNUAL MEETING

The Company's By-laws provide that in order for a stockholder to
nominate a candidate for election as a director at an annual meeting of
stockholders or to propose business for consideration at such meeting, notice
must be delivered to the Secretary of the Company not less than 60 days nor more
than 90 days prior to the annual meeting; provided, however, that in the event
that less than 70 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be received no later than the close of business on the 10th day following
the day on which notice of the date of the meeting was mailed or public
disclosure thereof was made, whichever occurs first. In addition, the
regulations under the Securities Exchange Act of 1934 require stockholder
proposals to be received by the Company at least 120 days prior to the mailing
of the proxy statement relating to the next annual meeting of stockholders.
Accordingly, stockholder proposals for the 2001 Annual Meeting must be received
in writing by the Company no later than December 31, 2000 in order to be
considered for inclusion in the Company's proxy materials for such meeting. Any
stockholder desiring a copy of the Company's By-laws will be furnished one
without charge upon written request to the President.

By Order of the Board of Directors

/s/ Seth Bressman

Secretary

New York, New York
April 28, 2000

Appendix A

Annual Report on Form 10-KSB

For the Fiscal Year Ended December 31, 1999

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
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: 1-11873
................................................
K2 DESIGN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
+

DELAWARE 13-3886065
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

30 BROAD STREET, 16TH FL., NEW YORK, NY 10004
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)

ISSUER'S TELEPHONE NUMBER: (212) 301-8800
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE EXCHANGE ACT:

COMMON STOCK
(TITLE OF CLASS)

REDEEMABLE COMMON STOCK PURCHASE WARRANTS
(TITLE OF CLASS)

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT:
None.

Check whether the issuer: (1) 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 __
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation SB contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. Yes __ No X
State issuer's revenues for its most recent fiscal year: $5,858,949.

As of March 15, 2000, there were outstanding 3,353,034 shares (not
including treasury shares) of Common Stock (the "Common Stock") and Redeemable
Common Stock Purchase Warrants to purchase an aggregate of 1,000,000 shares of
Common Stock (the "Warrants"). Based on the closing sales price of the Common
Stock on March 15, 2000 of $7.25 per share, the approximate aggregate market
value of Common Stock held by non-affiliates was $24,309,497.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's 2000 Definitive Proxy Statement, which
statement will be filed with the Securities and Exchange Commission not later
than 120 days after the end of the fiscal year covered by this Report, are
incorporated by reference in Part III hereof.

Certain exhibits are incorporated by reference to the Registrant's
Registration Statement on Form SB-2 and the amendments thereto, as listed in
response to Item 13(a)(2).

Transitional Small Business Disclosure Format (check one):

Yes __ No X

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

The Business section and other parts of this Report contain forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Factors Affecting
Operating Results and Market Price of Stock" commencing on page 10.

PART I

ITEM 1. DESCRIPTION OF BUSINESS

GENERAL

K2 Design, Inc. (the "Company" or "K2") is a professional services firm
specializing in business consulting, development and design related to digital
communications. Founded in 1993, the Company has expanded its core business
operations from primarily Web site design services to a wide range of
consulting, design, development and online marketing services, including
innovative technology-based design and Web simulcasting. The Company has
developed Web sites and online applications for companies, including American
Express Company, Bayer Corporation, Lexis-Nexis, MCI Worldcom Inc., NCR
Corporation, Oppenheimer Funds, Philips Lighting Company, and TD Waterhouse
Securities.

The Company has developed a proprietary methodology called W3
Organizational Modeling that is based upon the Company's experience in
organizational behavior related to the Web. The Company uses this methodology as
a guide in developing online communications strategies for its clients. Recent
projects using this methodology have included the development of Web sites to
reposition corporate brands, applications to promote e-commerce and online
account management, extranets to communicate with dealers and distributors,
intranets to support human resources and other corporate communications, online
customer service tools to decrease dependence on more costly telecommunications
services, and Web sites to develop sales leads, including a customer transaction
history.

The Company's principal offices are located at 30 Broad Street, New York,
New York 10004 and its telephone number is (212) 301-8800. The Company's Web
site is located at http://www.k2design.com. Information contained in, or
accessible through, the Company's Web site is not part of this report.

K2 SERVICES

K2 partners with clients to focus on how new and emerging technologies can
help them build one-to-one relationships with customers, employees and vendors.
Through the strategic and technical expertise, media knowledge, and creative
talent of its team of employees, the Company assists its clients in achieving a
favorable return-on-investment from digital channels of e-commerce, information,
customer support, advertising and entertainment. These channels include Web
sites, transmission of broadband content, intranets, extranets, online media,
and wireless appliances.

The Company currently provides its clients with a range of services,
including: qualitative and quantitative research, usability labs to test
graphical user interfaces, navigation, functionality and systems, positioning
studies for online branding, strategic planning, e-commerce planning, business
process reengineering, online media planning and buying, proprietary media
partnerships, marketing strategies, Web design, creative services for online
advertising (e.g., banners, rich media, interstitials), technical strategies,
requirements specifications and programming.

K2 STRENGTHS

Focus on Clients' Business Objectives

The Company has made understanding its clients' business challenges the
primary focus that guides its service offerings. The Company typically works
with a client's management across a variety of business units and geographies to
determine how best to utilize digital channels to realize the client's business
goals. Once a

client's business objectives are identified (e.g., increasing customer loyalty
and retention, increasing sales or accounts per customer, reducing customer
service costs or lowering employee turnover), the Company typically provides
research, consulting, strategic planning and design services to the client to
develop an innovative, technology-driven solution to the identified objectives.
The Company's services often involve in-depth consulting and collaboration with
multiple divisions within a client's corporate structure. Although some projects
are limited in scope and duration, the Company often develops an ongoing
relationship with the client as a result of the significant funding invested by
the client in the overall strategy, the multi-divisional nature of the client
and the ongoing need for further adaptation as innovations in digital
communications continue to emerge.

Technological Expertise

The Company believes the creative application of leading technologies is
crucial to the success of its business. The Company's technical programming
personnel are skilled in various computer operating systems, tools and
languages, including C/C++, Visual Basic, Relational Databases, Fortran, Unix,
Linux, Perl, PHP, Java, Real Audio and Video, Windows NT, Netscape server,
Apache server, Director, Enliven, Flash, Quicktime, Streaming Media, SMIL, XML,
and wireless (WAP), among others. These programmers are responsible for
providing complex computer programming for applications that can be integrated
into Web sites as well as periodically assessing new technologies in order to
identify and deploy, directly and through independent contractors, those that
are most promising for enhancing the Company's business and that of its clients.

Creative Expertise

The Company believes that, in addition to the creative elements required in
traditional graphic design, superior interactive development requires that the
end product is easy-to-use, contains intuitive interfaces and seamless
integrated technologies and has an engaging look and feel. Management believes
that the Company's creative staff possesses a broad spectrum of expertise to
meet clients' creative needs. In order to maintain high levels of creativity and
quality, the Company both recruits senior talent and develops entry-level staff
through mentoring relationships and external training programs.*

Media Planning and Buying

The Company has determined through testing and ongoing results monitoring
that overall media planning is critical to the success of an online advertising
program. The K2 approach involves media research, planning, negotiation of buys,
results audits, and optimization of media plans based on K2's analysis of those
results. During 1998 and 1999, some of the Company's most successful online
marketing campaigns included proprietary initiatives developed for individual
clients. The development of strategic insights in these campaigns required a
significant investment of time and resources, including creative brainstorming,
which has become one of the Company's fee-based services. To heighten
competitiveness, the Company has also invested in both strategic research and
syndicated services for media decision support, which are accounted for as a
part of overhead.

Management Skills

Competition for employees with Web-based skills is intense. In addition,
the Internet sector is widely recognized as fast-paced and fast-changing. To
address these challenges, the Company has recruited seasoned senior managers
with a track record for successfully managing in volatile situations and
high-growth industries. Further, in an effort to retain its skilled employees,
management has devoted significant time and resources to employee
communications, training and employee welfare programs.

- ------------------
* This statement is a forward-looking statement reflecting current expectations.
There can be no assurance that the Company's actual future performance will
meet the Company's current expectations. Investors are strongly encouraged to
review the section entitled "Factors Affecting Operating Results and Market
Price of Stock" commencing on page 10, for a discussion of factors that could
affect future performance.

K2 STRATEGY

Capitalize on Accomplishments and Market Opportunities

The Company believes that the proliferation of the Internet will continue
to provide substantial opportunities to the Company and that recognition of its
success, as evidenced by recent industry awards and the development of ongoing
relationships with Fortune 500 clients, will continue to enhance its marketing
efforts.* The Company's management does not, however, believe that the Company's
primary business will always be limited to the Internet.* The Company produces
digital content which may be carried over a variety of emerging technologies
such as Vertical Blanking Interval (VBI), digital satellite, wireless and
broadband devises.* Although there is no assurance that any of these
technologies will achieve acceptance in the marketplace, the Company believes
its services could be utilized over these channels as well.

Leverage Development Efforts

In the course of developing customized digital communications programs for
certain of its clients, the Company gains organizational consulting expertise
and technical know-how that can be applied in other efforts. The Company
believes that its experience has the potential to reduce future development
costs. Further, within the framework of its proprietary methodology, W3
Organizational Modeling, the Company expects that it will be able to develop
service packages that build upon this expertise, offering increased value to the
Company's clients.* The Company may evolve its business model from one based on
generation of hourly fees to one that offers both fee-based consulting and
service packages with the potential for higher margins and faster
implementation.

Deploy Leading Technologies

One of the Company's objectives is to apply both proven and emerging
technologies as they become available in order to maximize the effectiveness of
its digital planning and communications services. The Company has formed both
formal, exclusive and informal non-exclusive relationships with key technology
providers in an effort to gain access to, and influence the features of, the
Company's utilization of their technologies in areas such as domain management,
content management solutions, e-commerce and wireless applications.

Channel Marketing

The Company will continue to focus on developing strategic relationships
with Channel Sources (defined below) that seek to augment their businesses by
making the Company's services available to their own customer base. See
"Marketing--Channel Sources."

MARKETING

GENERAL

The Company markets its services directly and also seeks to form strategic
marketing relationships with third parties. Further, the Company's growing
reputation, through industry awards and relationships with Fortune 500 clients,
has recently generated increased unsolicited interest in the Company's services
among companies seeking Web services providers. At December 31, 1999, the
Company had two employees dedicated to the management of such unsolicited
inquiries and the development of new business prospects. Additionally, three of
the Company's executive officers spend a portion of their time marketing the
Company's services. The Company also seeks to attract new clients through other
methods, including referrals from existing clients. The Company

seeks to expand its relationships across business units of client companies and
deepen its existing client relationships through a consultative approach that
displays a broad range of service offerings.

Channel Sources

The Company's marketing efforts to date have focused in part on developing
strategic relationships with other companies, such as advertising agencies,
hardware and software companies and Internet service providers ("Channel
Sources") that seek to augment their businesses by making available interactive
advertising and Web site design and creative services provided by the Company
and other third parties. The Company therefore targets advertising agencies that
do not offer Web site related services, providers of other Internet services
(e.g., access, connectivity and Web site hosting), consultants and systems
integrators, and other businesses whose clients are likely to require the
services that the Company provides.

CLIENTS

K2's client relationships have ranged from Fortune 500 companies to
entrepreneurial Web related start-ups. In fiscal 1999, the Company's four
largest clients, varsitybooks.com, Inc. (approximately 21.8%), Standard & Poor's
Inc. (approximately 18.7%), MCI Worldcom Inc. (approximately 18.6%) and NCR
Corporation (approximately 17.0%), accounted for approximately 76.1% of total
revenue. In fiscal 1998, the Company's four largest clients, WavePhore, Inc.
(approximately 23.4%), Standard & Poor's Inc. (approximately 18.5%), Bell
Atlantic Corp. (approximately 6.0%) and Lexis-Nexis Group (approximately 5.8%),
accounted for approximately 53.7% of total revenue.

In the past, Web design businesses have tended to have project-oriented
engagements, with the completion of the project occurring over a 3 to 5 month
period. Although such assignments comprise an important part of K2's consulting
and creative business, our current business model, represented by W3
Organizational Modeling, involves a longer-term engagement with the client,
commencing with in-depth discovery and strategic planning that establishes a
foundation for ongoing relationships and ongoing revenue streams. K2's
consultative approach includes a dedicated effort to continue and cultivate
existing relationships with clients, many of which use online media placement as
a central part of their strategic activity. Such media activity is also
self-sustaining as long as performance benchmarks are achieved. For example,
Standard & Poor's Inc., which initially engaged the Company in 1997, accounted
for approximately 18.5% and 18.7% of revenue in 1998 and 1999, respectively, and
has continued to use K2's services in 2000. Significant media-driven client
relationships that have recently been terminated are varsitybooks.com, Inc. (in
the third quarter of 1999) and WavePhore, Inc. (in the third quarter of 1998).

TRADEMARKS

The Company has applied to the U.S. Patent and Trademark Office for several
trademarks, all of which are currently in examination and have not yet been
published for opposition. There can be no assurance that any of these trademarks
will be granted. Trademarks for which the Company has applied include K2(TM) and
K2 Design(TM).

GOVERNMENT REGULATION

The Company is 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 Web site service
companies and marketing and communications firms. However, due to the increasing
media attention focused on the Internet, it is possible that a number of laws
and regulations may be adopted with respect to the Internet, covering issues
such as user privacy, pricing and characteristics and quality of products and
services. The adoption of any such laws or regulations may decrease the growth
of the Internet, which could in turn decrease the demand for the Company's
services and products and increase the Company's cost of doing business or cause
the Company to modify its operations, or otherwise have an adverse effect on the
Company's business, operating results or financial condition. Moreover, the
applicability to the Internet of existing laws governing issues such as property
ownership, libel and personal privacy is uncertain. The Company cannot predict
the impact, if any, that future regulation or regulatory changes may have on its
business. In addition, Web site developers such as the Company face potential
liability for the actions of clients and others using their

services, including liability for infringement of intellectual property rights,
rights of publicity, defamation, libel and criminal activity under the laws of
the U.S. and foreign jurisdictions. Although the Company maintains $1 million of
errors and omissions insurance, $1 million of general liability insurance, and a
$1 million umbrella policy, any imposition of liability in excess of such policy
limits or if not covered by such policies could have a material adverse effect
on the Company.

COMPETITION

The markets for the Company's services are highly competitive and are
characterized by pressures to incorporate new technologies, accelerate
completion schedules and reduce prices. The Company expects competition for its
services to intensify in the future, especially as a result of consolidation
among service companies. The Company faces competition from a number of sources,
including potential clients that perform interactive marketing and
communications services and Web site development services in-house. Other
sources include management consulting firms, established Web services companies,
advertising agencies and integrated marketing companies with digital
communications departments, Internet-services and access providers and
information technology consulting and system integration firms who are expanding
their service offering. Many of the Company's competitors or potential
competitors have significantly greater financial, sales, marketing and other
resources than the Company. The Company's ability to retain relationships with
Channel Sources and its existing clients and generate new clients and
relationships with Channel Sources depends to a significant degree on the
quality of its services and its reputation, as compared with the quality of
services provided by, and the reputations of, the Company's competitors. The
Company also competes on the basis of creative reputation, price, reliability of
services and responsiveness. There can be no assurance that the Company will be
able to compete and its inability to do so would have a material adverse impact
on the Company's business, financial condition and operating results.

EMPLOYEES

At December 31, 1999, the Company had 40 employees, of which 38 were
full-time employees. Full-time employees include 5 in strategic planning,
executive management and business development; 7 account directors, managers and
coordinators; 3 media planning/buying personnel; 12 creative and production
personnel; and 5 programmers, in addition to 6 administrative staff.

ITEM 2. DESCRIPTION OF PROPERTY

The Company's offices occupy approximately 13,700 square feet of an office
building in New York City at an annual rent ranging, over the term of the lease,
from approximately $226,100 to $246,600 ($16.50 to $18.00 per square foot)
payable in equal monthly installments, plus the Company's allocable share of
certain real property taxes and building operating expenses in excess of fixed
levels as provided in the lease. The lease has a six-year term and expires
April 18, 2003. The Company believes that its current rental payment per square
foot is significantly below the average rental for comparable office space in
New York City. The Company's lease also grants to the Company a right of first
refusal to rent the two floors of the building that are contiguous with the
Company's offices in the event that the landlord of the building offers to rent
such space to an unaffiliated third party. In addition, the Company has the
right to extend the term of the existing lease for an additional five-year term
commencing on the day following the expiration of the initial term of the
existing lease. The Company also believes that the Company's current office
space can be reconfigured to make use of currently underutilized space.

The Company no longer leases office space at 50 Broad Street, New York, New
York. The landlord of that building has exercised its option, pursuant to the
Company's lease, to cancel and terminate the lease as of October 31, 1999.

ITEM 3. LEGAL PROCEEDINGS

The Company is not a party to any material pending legal proceedings as of
the date hereof.

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

The Company did not submit any matters to a vote of its stockholders,
through the solicitation of proxies or otherwise, during the fourth quarter of
fiscal 1999.

PART II

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

The Company's Common Stock is traded on the NASDAQ SmallCap Market
("NASDAQ") under the symbol "KTWO." The following table sets forth, for the
periods indicated, the range of high and low bid prices of the Common Stock as
reported by NASDAQ from the quarter ended March 31, 1998, through December 31,
1999. These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.

FISCAL QUARTER ENDED HIGH LOW
- ------------------------------------------------------------------------ ------------ ------------

March 31, 1998.......................................................... $ 2 1/4 $ 1 3/8
June 30, 1998........................................................... 6 1 7/8
September 30, 1998...................................................... 4 9/16 1 1/2
December 31, 1998....................................................... 5 13/16 1 1/16
March 31, 1999.......................................................... 4 5/8 2 1/4
June 30, 1999........................................................... 5 3/4 2 1/2
September 30, 1999...................................................... 3 1 7/16
December 31, 1999....................................................... 10 11/16 2 1/2

The approximate number of record holders of the Common Stock at
December 31, 1999 was 29, not including beneficial owners whose shares are held
by banks, brokers and other nominees.

During 1999, the Company repurchased an aggregate of 171,167 shares of its
Common Stock on the open market and from four of its shareholders in a separate
transaction for a total cost of approximately $433,000. These shares are
reflected on the Company's books as treasury stock as of December 31, 1999.

The Company has not paid any dividends. The Company does not expect to pay
cash dividends on its Common Stock in the foreseeable future as any earnings are
expected to be retained to finance the Company's operations. Declaration of
dividends in the future will remain within the discretion of the Company's Board
of Directors.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following presentation of management's discussion and analysis of the
Company's financial condition and results of operations should be read in
conjunction with the Company's Consolidated Financial Statements, the
accompanying notes thereto and other financial information appearing elsewhere
in this Report. This section and other parts of this Report contain
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Factors Affecting Operating Results and Market Price of Stock"
commencing on page 10.

OVERVIEW

The Company was founded in 1993 as a general partnership and initially
operated a traditional graphic design business. The Company was hired to design
a graphical user interface in March 1994 for Sierra Magazine Online, a
proprietary online service, and in August 1994 for NetMarket Inc., the first
company to perform a secure online transaction on the Internet, at which time
the Company shifted its principal business to Web site design and creation.
After the Company's initial public offering on July 26, 1996, the Company began
to develop its business as a full-service digital communications company,
largely in anticipation of demands from its clients for additional complementary
services. The Company now provides such services as strategic consulting, design
and development of Web sites, research, and online marketing.

RESULTS OF OPERATIONS

General

Revenues are recognized on a percentage-of-completion basis. Provisions for
any estimated losses on incomplete projects are made in the period in which such
losses are determinable. A portion of the Company's revenues has been generated
on a fixed fee or cap fee basis, as well as on an hourly bill rate basis.

On June 1, 1998, the Company sold its CLIQNOW! Division to 24/7 Media, Inc.
and received both cash and common stock of 24/7 Media, Inc. At December 31,
1999, the Company owned 110,000 shares of common stock of 24/7 Media, Inc.,
valued on the Company's books at approximately $6.19 million, based on the
closing sales price of the common stock of 24/7 Media, Inc. on December 31, 1999
of $56 1/4 per share. As a result of management's decision to discontinue the
CLIQNOW! Division in May 1998 prior to the sale, the 1998 statement of
operations reflects the CLIQNOW! Division as a discontinued operation.

PERCENTAGE OF REVENUES
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1999 1998
----------------------- ------------------------

Revenues...................................................... 100.00 % 100.00 %
Operating expenses
Direct salaries and costs................................... 74.85 75.51
Selling, general and administrative expenses................ 50.75 46.87
Depreciation................................................ 6.42 5.56
------- ------
Total operating expenses................................. 132.02 127.94
------- ------
Operating loss........................................... (32.02) (27.94)
Interest and other income, net................................ 45.51 2.50
------- ------
Income (loss) before income tax provision and discontinued
operations.................................................. 13.49 (25.44)
Provision for income tax...................................... 0.69 0.61
------- ------
Income (loss) from continuing operations................. 12.80 (26.05)
Loss from discontinued operations............................. 0.00 (1.33)
Gain from sale of discontinued operations..................... 0.00 46.64
------- ------
Net income.................................................. 12.80 19.26
======= ======

Revenues

Gross revenues for the years ended December 31, 1999 and 1998 were
$5,859,000 and $6,420,000, respectively, or a decrease of $561,000 or 8.74% in
1999 as compared to 1998. Gross revenues include both fees paid to K2 for
services and pass-through media costs which are billed to K2 by media vendors
(for radio, newspaper, online media and other media placement costs) and then
reimbursed by clients. The decrease in revenues was due principally to a
decrease in media placement sales volume. Specifically, media placements totaled
$1,709,000 in 1999 and $2,596,000 in 1998, a decrease of $887,000 or 34.17%.
This reflects the evolution of the Company from an interactive agency and online
media buyer to a provider of fee-based professional services. In 1999, revenues
from continuing operations were primarily generated by professional services
rendered to clients for strategic planning, Web site development, research,
design and implementation, and media planning and buying. From 1998 to 1999
these services increased, generating net revenue of $3,009,000 for the year
ended December 31, 1999 versus $2,971,000 for the year ended December 31, 1998,
or a 1% increase. Net revenue represents gross revenue minus media cost of sales
and reimbursable expense pass-through billings. Net revenue in the first half of
1999 was lower relative to the second half of 1999, when net revenue increased
88.8% from the second to the third quarter of 1999 and 7.6% from the third to
the fourth quarter of 1999.

Direct Salaries and Costs

Direct salaries and costs include all direct labor costs and other direct
costs related to project performance, such as media costs, independent
contractors, free lance labor, travel and meeting costs, printing, reproduction,
photography, research service costs, messengers, supplies and equipment costs
and bad debt expense. As a percentage of revenues, direct salaries and costs
decreased in 1999 as compared to 1998 from 75.51% to 74.85%. In absolute
dollars, the Company's direct salaries and costs for 1999 decreased to
$4,385,000 from $4,848,000 in 1998. In 1999, direct salaries and costs consisted
primarily of $1,806,000 of direct salary costs, $1,709,000 of media costs and
$361,000 paid to free lance artists and other independent contractors. The
remainder consisted of various direct costs mentioned above. In 1998, direct
salaries and costs consisted primarily of $2,596,000 of media costs, $1,735,000
of direct salary costs and $145,000 paid to free lance artists and other
independent contractors. The remainder consisted of various direct costs
mentioned above.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include all indirect labor
costs, professional fees, occupancy costs, telecommunications costs, recruitment
costs, public relations, marketing, advertising, entertainment, office expenses,
and insurance costs, among other things. As a percentage of revenues, selling,
general and administrative expenses increased in 1999 as compared to 1998 from
46.87% to 50.75%. In absolute dollars, the Company's selling, general and
administrative expenses for 1999 decreased to $2,974,000 from $3,009,000 in
1998. In 1999, selling, general and administrative expenses consisted primarily
of labor costs of $1,476,000, $462,000 of legal and professional fees, $325,000
of occupancy costs, $129,000 of recruitment costs, $128,000 of
telecommunications costs, $125,000 of public and investor relations costs, and
$66,000 of business insurance. The remainder consisted of various selling,
general and administrative costs mentioned above. In 1998, selling, general and
administrative expenses consisted primarily of labor of $1,511,000, $599,000 of
legal and professional fees, $303,000 of occupancy costs and $136,000 of
telecommunications costs, $63,000 of business insurance and $30,000 of public
relations. The remainder consisted of various selling, general and
administrative costs mentioned above.

Depreciation

Depreciation expense was $376,000 and $357,000 for fiscal 1999 and fiscal
1998, respectively, and related primarily to depreciation of equipment and
leasehold improvements. The depreciation expense in fiscal 1999 was principally
the result of depreciation of the Company's equipment and leasehold
improvements.

Interest and Other Income

The Company's cash investments earned interest and other income net of
interest expense and other expenses of $2,667,000 for the year ended
December 31, 1999. The Company incurred interest and other income net of
interest expense and other expenses of $161,000 for the year ended December 31,
1998. The increase in interest and other income net of interest expense and
other expenses in 1999 is primarily due to the gain on the sale of shares of
common stock of 24/7 Media, Inc. (symbol: TFSM) of $2,521,000 during that year.

Income (Loss) From Continuing Operations

The Company reported income from continuing operations in 1999 of $750,000
as compared to a loss from operations in 1998 of $(1,672,000). Included in the
1999 income from continuing operations is the $2,521,000 gain on the sale of
24/7 Media, Inc. stock. Had that amount not been included, there would have been
a loss from continuing operations in 1999 of $(1,771,000).

Selected Quarterly Operating Results (Unaudited)

The following table presents unaudited quarterly financial information for
the period from January 1, 1998 to December 31, 1999. The information has been
derived from the Company's unaudited Consolidated Financial Statements. The
unaudited quarterly financial information has been prepared on the same basis as
the audited Consolidated Financial Statements and includes all adjustments,
including adjustments to remove discontinued operations from operating results
and normal recurring adjustments, that the Company considers necessary for a

fair presentation of such information when read in conjunction with the
Company's audited Consolidated Financial Statements and the accompanying notes
thereto appearing elsewhere in this Report. These results are not indicative of
results for any future period.

1998 1999
------------------------------------------------------ ------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
---------- ---------- ------------- ------------ ---------- ---------- ------------- ------------

Revenues........... $2,140,382 $1,895,232 $ 1,901,265 $ 483,088 $1,444,063 $ 822,143 $ 1,705,708 $1,887,035
---------- ---------- ----------- ------------ ---------- ---------- ----------- ----------
Operating Expenses:
Direct salaries
and costs...... 1,465,601 1,202,492 1,448,140 731,539 1,412,891 718,456 989,361 1,264,524
Selling, general
and
administrative
expenses....... 534,220 686,894 655,281 1,132,369 632,544 719,197 836,467 785,499
Depreciation..... 89,008 88,271 86,539 93,061 96,010 103,795 101,595 75,011
Total operating
expenses....... 2,088,829 1,977,657 2,189,960 1,956,969 2,141,445 1,541,448 1,927,423 2,125,034
---------- ---------- ----------- ------------ ---------- ---------- ----------- ----------
Operating income
(loss)........... $ 51,553 $ (82,425) $ (288,695) $(1,473,881) $ (697,382) $ (719,305) $ (221,715) $ (237,999)
========== ========== =========== ============ ========== ========== =========== ==========

Quarterly revenues and operating results have fluctuated and will fluctuate
as a result of a variety of factors. These factors, some of which are beyond the
Company's control, include the timing of the completion, material reduction or
cancellation of major projects, the loss of a major client or the termination of
a relationship with a Channel Source, the level of media purchased by a client
through the Company, timing of the receipt of new business, timing of the hiring
or loss of personnel, changes in the pricing strategies and business focus of
the Company or its competitors, capital expenditures, operating expenses and
other costs relating to the expansion of operations, general economic conditions
and acceptance and use of the Internet. The Company's quarterly operating
margins may also fluctuate from period to period depending on the relative mix
of lower cost full time employees versus higher cost independent contractors.
Revenues and operating results are difficult to forecast because of these
fluctuations. The Company may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall, which event may have a material
adverse effect on the Company's operations for such period.

The trading prices of the Common Stock and the Warrants are subject to
fluctuations in response to the announcement of new clients or Channel Sources,
quarterly variations in operating results, announcements of technological
innovations or new products or services by the Company or its competitors, as
well as other events or factors. In addition, the stock market has from time to
time experienced price and volume fluctuations which have particularly affected
the market price of technology-oriented and media companies, which often have
been unrelated to the operating performance of these companies. These broad
market fluctuations may adversely affect the market price of the Common Stock
and the Warrants.

LIQUIDITY AND CAPITAL RESOURCES

The Company's currents assets increased by approximately $7,582,000, or
236%, from $3,217,000 at December 31, 1998 to $10,799,000 at December 31, 1999.
This increase in current assets was principally due to the Company's
reclassification of its investment in 24/7 Media Inc. stock from investment in
restricted securities to investment in securities available for sale, at market
value, as defined by SFAS 115. The restrictions on the sale of these securities
expired in 1999. The Company intends to sell its investment in the 24/7 Media,
Inc. stock during fiscal 2000. At December 31, 1999, the 110,000 shares still
held by the Company had a market value of $6,188,000. Other changes in current
assets included an increase in accounts receivable of approximately $656,000, or
244%, from $269,000 at December 31, 1998 to $925,000 at December 31, 1999.
Unbilled revenue increased by approximately $622,000, or 1,244%, from $50,000 at
December 31, 1998 to $672,000 at December 31, 1999. The Company's current
liabilities increased by approximately $1,171,000, or 60%, from $1,961,000 at
December 31, 1998 to $3,132,000 at December 31, 1999. This increase was
principally due to the $1,902,000 deferred tax liability relating to the
reclassification of the 24/7 Media, Inc. stock, from investment in restricted
securities to investment in securities for sale, at market value, as defined by
SFAS 115. Other changes included a decrease in accounts payable of approximately
$306,000, or 39% from $783,000 at December 31, 1998 to $477,000 at December 31,
1999, and a decrease in accrued expenses of approximately $452,000, or 45%, from
$999,000 at December 31, 1998 to $547,000 at December 31, 1999.

The Company is dependent on its current assets of $10,799,000 (at
December 31, 1999), together with cash, if any, generated by operations, for
working capital in order to be competitive, to meet the increasing demands for
service, quality and pricing and for expansion of its business. While the
Company believes that its cash position together with cash expected to be
generated by operations will be sufficient to finance its operations for at
least one year, the Company may nevertheless require future substantial
alternative financing in order to satisfy its working capital needs, which may
be unavailable or prohibitively expensive since the Company's only assets
available to secure additional financing are accounts receivable and its
ownership of shares of common stock of 24/7 Media, Inc.* See "-- Factors
Affecting Operating Results and Market Price of Stock--Cash Flow Deficit; Need
for Additional Financing." Current liabilities increased by 59.8% to $3,133,000
at December 31, 1999 from $1,961,000 at December 31, 1998, due primarily to the
deferred tax liability relating to the restatement of investment securities
available for sale to market value. There were no deferred revenues at
December 31, 1999 or December 31, 1998 as a result of no pre-billings on media
campaigns.

Cash used in the Company's operating activities of $(2,935,000) for the
year ended December 31, 1999 related primarily to increases in accounts
receivable and unbilled revenue and decreases in net income, accounts payable
and other accrued expenses, partially offset by an increase in non-cash
compensation expense.

In 1999, the Company spent $142,000 on capital expenditures, consisting of
computer equipment, as well as furniture, fixtures and leasehold improvements.
The Company presently intends to make capital expenditures of approximately
$300,000 in 2000, consisting of equipment, furniture and fixtures and leasehold
improvements.

The Company's cash position was further impacted in 1999 as a result of the
repurchase of 171,000 shares of the Company's common stock on the open market as
well as from four stockholders for an aggregate price of approximately $433,000.
In addition severance payments and related costs in the amount of approximately
$600,000 were made during 1999.

FACTORS AFFECTING OPERATING RESULTS AND MARKET PRICE OF STOCK

ABILITY TO HIRE SKILLED PERSONNEL IN A TIGHT LABOR MARKET

Qualified personnel are in great demand throughout the e-commerce and
Internet services industry. The Company's success depends in large part upon its
ability to attract, train, motivate and retain highly skilled employees. The
Company's failure to attract and retain the highly-trained technical personnel
that are integral to the Company's services and support teams may limit the rate
at which the Company is able to grow its business.

COMPETITION

The market for the Company's services is highly competitive. The Company
cannot be certain that it will maintain its competitive position against current
and potential competitors. The Company expects competition for its services to
intensify in the future. Many of the Company's potential competitors may have
significantly greater financial, marketing, sales, service, support and other
resources than the Company, thus enabling them to respond more quickly to new or
emerging technologies and to devote greater resources to the development,
promotion and sale of their services. There can be no assurance that the Company
will be able to compete and its inability to do so would have a material adverse
effect on the business, financial condition and results of operations of the
Company.

CASH FLOW DEFICIT; NEED FOR ADDITIONAL FINANCING

The Company's focus is on increasing the volume of all of its services. As
a result, the Company has hired and will continue to hire additional personnel
and has incurred and will continue to incur substantial expenses related to
administration, production, technical resources, marketing, customer support and
infrastructure in order to enhance and expand its operations. The Company had an
operating cash flow deficit of $(2,935,000) in fiscal 1999 and an operating cash
flow of $474,000 in fiscal 1998. The Company may require substantial additional
financing in order to satisfy its working capital needs, which may be
unavailable or prohibitively expensive since the Company's only assets available
to secure additional financing are accounts receivable and its ownership of
shares of common stock of 24/7 Media, Inc. Should such financing be unavailable
or prohibitively expensive when the Company requires it, the Company would not
be able to finance any expansion of its business and may not be able to satisfy
its working capital needs, either of which would have a material adverse effect
on the Company's business, operating results and financial condition.

RECENT OPERATING INCOME (LOSSES)

The Company's revenues for the years ended December 31, 1999 and 1998 were
$5,859,000 and $6,420,000, respectively, with income (loss) from continuing
operations of $750,000 and $(1,672,000), respectively, and a net income of
$750,000 in 1999 and $1,237,000 in 1998. The net income of $750,000 in fiscal
1999 included $2,521,000 in gains from the sale of 86,492 shares of the
Company's stock in 24/7 Media, Inc. There can be no assurance that the Company
will be profitable in the future or that revenue growth, if any, can be
sustained.

The prospects of the Company must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stage of development, particularly companies in new and rapidly evolving markets
and especially those in Internet and other computer related markets. There can
be no assurance that the Company will be successful in addressing these risks.

ABILITY TO MANAGE GROWTH

Although the Company has not recently experienced substantial growth in the
number of the Company's employees, if the Company increases its personnel
significantly in the near future, there will be increased (i) responsibility for
both existing and new management personnel, (ii) strain on the Company's
existing management, administrative, operational, financial and technical
resources and (iii) increased demands on its management information systems and
controls. There can be no assurance that the Company will effectively develop
and implement systems, procedures or controls adequate to support the Company's
operations or that management will be able to achieve the rapid execution
necessary to fully exploit all opportunities for the Company's services. To
manage its business and any growth, the Company must continue to implement and
improve its operational and financial systems and continue to expand, train and
manage its employees. If the Company is unable to manage its business
effectively, the Company's business, operating results and financial condition
will be materially adversely affected.

EVOLVING MARKETING STRATEGY

The Company's marketing efforts have expanded as the range of services
which the Company offers has increased. In addition to developing strategic
relationships with other companies and Channel Sources that seek to augment
their businesses by directly or indirectly offering to their clients digital
planning and communications

services provided by the Company and other third parties, the Company also
directly markets its core creative services as well as the services of its media
group.

To try to avoid any conflict with a Channel Source, the Company does not
intend to offer services to clients referred by a particular Channel Source that
could be provided to those clients by that Channel Source. Since the Company
does not expect to offer its full range of services to these clients, projects
for them may be less profitable than full-service production relationships with
other clients. Should a Channel Source favor other providers of similar
services, fail to effectively market the Company's services as a result of the
Channel Source's competitive position or otherwise, or not utilize the Company's
services to the extent anticipated by the Company, the Company may also be
adversely affected. The inability to recruit, manage or retain additional
Channel Sources, or their inability to market the Company's services effectively
or provide timely and cost-effective customer support and service, could
materially adversely affect the Company's business, operating results and
financial condition.

PROJECT-ORIENTED CLIENTS; CONCENTRATION OF REVENUES; CHANGES IN CLIENT DEMANDS

Since many of the Company's clients engage the Company on a single project
basis, clients from whom the Company generated substantial revenue in one period
have not necessarily been a substantial source of revenue in a subsequent
period. Additionally, costs are significantly higher with respect to single
projects as compared to servicing a client on a multiple project or continuous
basis. For example, during 1999, varsitybooks.com, Inc. and Standard & Poor's
Inc. accounted for approximately 21.8% and 18.7%, respectively, of revenues.
Also in 1999, varsitybooks.com, Inc. and one other large client terminated their
relationships with the Company; however, Standard & Poor's Inc. continues to be
an active and significant client of the Company. Due to the Company's limited
operating history and the developing nature of the Internet, the Company
generally cannot be sure whether its relationships with clients will be on a
project basis or on a longer term relationship basis. To the extent the Company
does not generate repeat or ongoing business from its clients, it will incur the
higher sales and marketing expenses associated with attracting new clients as
compared to those in attracting additional business from existing clients.

In addition, clients utilizing the services of a digital strategy and
communications firm such as the Company may choose to terminate that
relationship for a variety of reasons, some of which may be beyond the Company's
control, such as changes in the management structure of the client,
consolidation of service providers, changes in the service needs of the client,
and changes in the client's need for geographical representation. There can be
no assurance that the Company will be able to replace, on a timely basis or at
all, clients who have ceased to work with the Company for such reasons. The loss
of clients due to these reasons could have a material adverse effect on the
business, financial condition and results of operations of the Company.

RISK OF SYSTEM FAILURES

The Company's success largely depends on the uninterrupted operation of its
computer and communications hardware systems. The Company's systems and
operations are vulnerable to damage or interruption from fire, flood, power
loss, telecommunications failure, break-ins, earthquake and similar events. The
Company presently has very limited redundant systems. The Company does not have
a formal disaster recovery plan and carries limited business interruption
insurance to compensate for any losses that may occur. The Company's servers are
also vulnerable to computer viruses, physical or electronic break-ins, and
similar disruptions, which could materially and adversely affect the Company.

UNCERTAIN ADOPTION OF INTERNET AS A MEDIUM OF COMMERCE AND COMMUNICATIONS;
DEPENDENCE ON INTERNET

Demand and market acceptance for recently introduced services and products
like those offered by the Company are subject to a high level of uncertainty.
The use of the Internet in marketing and advertising and otherwise, particularly
by those individuals and enterprises that have historically relied upon
traditional means of marketing and advertising, generally requires the
acceptance of a new way of conducting business and exchanging information.
Enterprises that have already invested substantial resources in other means of
conducting business and exchanging information may be particularly reluctant or
slow to adopt a new strategy that may make their existing resources and
infrastructure less useful. There can be no assurance that the market for the
Company's services will develop and if it fails to develop, develops more slowly
than expected or

becomes saturated with competitors, or if the Company's services do not achieve
market acceptance, the Company's business, operating results and financial
condition will be materially adversely affected.

The Company's ability to derive revenues will also depend upon a robust
industry and the infrastructure for providing Internet access and carrying
Internet traffic. The Internet may not be accepted as a viable commercial
marketplace for a number of reasons, including potentially inadequate
development of the necessary network infrastructure or delayed development of
enabling technologies and performance improvements. To the extent that the
Internet continues to experience significant growth in the number of users, the
frequency of use or bandwidth requirements, there can be no assurance that the
infrastructure for the Internet will be able to support such demands. Concerns
about inadequate Internet infrastructure, security, reliability, accessibility,
privacy and the availability of cost-effective, high-speed service also may
inhibit growth in Internet usage. If the infrastructure necessary to support the
Internet's commercial viability is not developed, or if the Internet does not
become and remain a viable marketplace, the Company's business, operating
results and financial condition would be materially and adversely affected.

RISK OF CHANGING TECHNOLOGY

The services the Company offers, and the services and products the Company
expects to offer in the future, are impacted by rapidly changing technology,
evolving industry standards, emerging competition and frequent new service,
software and other product introductions. There can be no assurance that the
Company can successfully identify new business opportunities and develop and
bring new services or products to market in a timely and cost-effective manner,
or that services, products or technologies developed by others will not render
the Company's services or products noncompetitive or obsolete. In addition,
there can be no assurance that services, products or enhancements introduced by
the Company will achieve or sustain market acceptance or be able to effectively
address compatibility, inoperability or other issues raised by technological
changes or new industry standards. The Company's pursuit of technological
advances may also require the Company to seek assistance from third parties.

INTELLECTUAL PROPERTY RIGHTS; RISK OF INFRINGEMENT; POSSIBLE LITIGATION

The Company believes that its success in its core business of interactive
advertising is not dependent upon patents, copyrights or trademarks and the
Company does not currently have any registered patents, copyrights or
trademarks, although applications for various trademarks have been made.
Consequently, the Company relies principally on a combination of common-law and
statutory law to protect its proprietary information and know-how. The Company
also utilizes technology owned by third parties. There can be no assurance that
licenses for any technology developed by third parties that might be required
for the Company's services would be available on reasonable terms, if at all.
See "Business--Trademarks."

Although the Company does not believe that its services infringe the
proprietary rights of any third parties, there can be no assurance that third
parties will not assert claims based on these services against the Company in
the future or that any of those claims would not be successful. In addition,
many of the Company's competitors rely upon trade secret law. Litigation may be
necessary in the future to enforce the Company's intellectual property rights
and to protect its proprietary information, to determine the validity and scope
of the proprietary rights of others, or to defend against claims of infringement
or invalidity. Litigation of this nature, whether or not successful, could
result in substantial costs and diversions of resources, either of which could
have a material adverse effect on the Company's business, financial condition
and operating results. Furthermore, parties making claims against the Company
could secure a judgment awarding substantial damages, as well as injunctive or
other equitable relief which could directly or indirectly prohibit the Company
from providing certain services and products. A judgment of this nature could
have a material adverse effect on the Company's business, financial condition
and results of operations.

CONFLICTS OF INTEREST; RESTRICTIONS

The Company has been precluded and may be precluded in the future from
pursuing opportunities that require it to provide services to direct competitors
of existing clients or Channel Sources. In addition, the Company risks
alienating or straining relationships with clients and Channel Sources each time
the Company agrees to provide services to even indirect competitors of existing
clients or Channel Sources. Conflicts of interest may jeopardize the stability
of revenues generated from existing clients and Channel Sources and

preclude access to business prospects, either of which could have a material
adverse effect on the Company's business, financial condition and operating
results.

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Item 13(a)(1) in Part IV.

ITEM 8. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not Applicable.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT

The information required for this item is incorporated by reference to the
Company's 2000 Definitive Proxy Statement which the Company will file with the
Securities and Exchange Commission no later than 120 days subsequent to
December 31, 1999.

ITEM 10. EXECUTIVE COMPENSATION

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PART IV

ITEM 13. EXHIBIT LIST AND REPORTS ON FORM 8-K

PAGE
----

(a) Documents filed as part of this report:
1. Financial Statements and Schedule
Report of Independent Public Accountants................................................................... F-1
Consolidated Balance Sheet--December 31, 1999.............................................................. F-2
Consolidated Statements of Income--For the years ended December 31, 1999 and 1998.......................... F-3
Consolidated Statements of Comprehensive Income--For the years ended December 31, 1999 and 1998............ F-4
Consolidated Statements of Changes in Stockholders' Equity--For the years ended December 31, 1999 and
1998..................................................................................................... F-5
Consolidated Statements of Cash Flows--For the years ended December 31, 1999 and 1998...................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
Schedule II--Valuation and Qualifying Accounts............................................................. F-14

2. Exhibits

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------------------------------

.1 3 -- Certificate of Incorporation of the Company*
3.1(a) -- Amendment to Certificate of Incorporation of the Company*
3.2 -- By-laws of the Company*
3.2(b) -- Amendment to By-laws of the Company*
4.1 -- Common Stock Certificate*
4.2 -- Warrant Certificate*
4.4 -- Warrant Agreement by and between Continental Stock Transfer & Trust Company and the Company*
4.5 -- Voting Agreement among Messrs. Centner, de Ganon, Cleek and Szollose*
10.1 -- 1996 Stock Incentive Plan and Rules Relating thereto*
10.2 -- 1997 Stock Option Plan**
10.3 -- Consulting Agreement with Harvey Berlent*
10.4 -- Employment Agreement with Matthew G. de Ganon*
10.5 -- Employment Agreement with Douglas E. Cleek*
10.6 -- Agreement of Lease--55 Broad Street, New York, New York*
10.7 -- Employment Agreement with Lynn Fantom dated October 22, 1998***
10.8 -- Extension of Employment Agreement with Matthew G. de Ganon dated November 2, 1998***
10.9 -- Extension of Employment Agreement with Douglas E. Cleek dated January 15, 1999***
10.10 -- Employment Agreement with Seth Bressman dated February 11, 1999***
10.11 -- Lease Termination Agreement--Baltimore, Maryland***
21.1 -- Subsidiary List*
23.1 -- Consent of Arthur Andersen, Independent Accountants to the Company

EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------------------------------

27.1 -- Financial Data Schedule (EDGAR filing only)

- ------------------
* Incorporated by reference from the Registrant's Registration Statement on
Form SB-2, No. 333-4319.

** Incorporated by reference from the Registrant's Form 10-KSB for its fiscal
year ended 12/31/96.

*** Incorporated by reference from the Registrant's Form 10-KSB for its fiscal
year ended 12/31/98.

(b) The Company did not file any Current Reports on Form 8-K during the last
quarter of the period covered by this Report.

SIGNATURES

IN ACCORDANCE WITH SECTION 13 OR 15(D) OF THE EXCHANGE ACT, THE REGISTRANT
CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED.

K2 DESIGN, INC.

Dated: March 26, 2000

By: ______/s/ MATTHEW G. DE GANON_____
Matthew G. de Ganon,
Chairman

POWER OF ATTORNEY

EACH OF THE UNDERSIGNED HEREBY APPOINTS MATTHEW G. DE GANON AS HIS
ATTORNEY-IN-FACT TO SIGN HIS OR HER NAME, IN ANY AND ALL CAPACITIES, TO ANY
AMENDMENTS TO THIS FORM 10-KSB AND ANY OTHER DOCUMENTS FILED IN CONNECTION
THEREWITH TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.

IN ACCORDANCE WITH THE EXCHANGE ACT, THIS REPORT HAS BEEN SIGNED BELOW BY
THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON
THE DATES INDICATED.

SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------

/s/ MATTHEW G. DE GANON Chairman of the Board March 26, 2000
- ------------------------------------------
Matthew G. de Ganon

/s/ LYNN FANTOM Chief Executive Officer, President and March 26, 2000
- ------------------------------------------ Director
Lynn Fantom

/s/ SETH BRESSMAN Chief Financial Officer (Principal March 26, 2000
- ------------------------------------------ Financial and Accounting Officer)
Seth Bressman

/s/ DOUGLAS E. CLEEK Executive Vice President and Director March 26, 2000
- ------------------------------------------
Douglas E. Cleek

/s/ P. SCOTT MUNRO Director March 26, 2000
- ------------------------------------------
P. Scott Munro

/s/ STEVEN N. GOLDSTEIN Director March 26, 2000
- ------------------------------------------
Steven N. Goldstein

/s/ DAVID R. SKLAVER Director March 26, 2000
- ------------------------------------------
David R. Sklaver

/s/ GARY W. BROWN Director March 26, 2000
- ------------------------------------------
Gary W. Brown

K2 DESIGN, INC.
AND SUBSIDIARY

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE
----

FINANCIAL STATEMENTS OF K2 DESIGN, INC. AND SUBSIDIARY
Report of Independent Public Accountants................................................................. F-1
Consolidated Balance Sheet--December 31, 1999............................................................ F-2
Consolidated Statements of Income--For the years
ended December 31, 1999 and 1998...................................................................... F-3
Consolidated Statements of Comprehensive Income--For the years
ended December 31, 1999 and 1998...................................................................... F-4
Consolidated Statements of Changes in Stockholders'
Equity--For the years ended December 31, 1999 and 1998................................................ F-5
Consolidated Statements of Cash Flows--For the years
ended December 31, 1999 and 1998...................................................................... F-6
Notes to Consolidated Financial Statements............................................................... F-7
Schedule II--Valuation and Qualifying Accounts........................................................... F-14

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To K2 Design, Inc:

We have audited the accompanying consolidated balance sheet of K2 Design, Inc.
(a Delaware corporation) and its subsidiary (a New York corporation) as of
December 31, 1999, and the related consolidated statements of income,
comprehensive income, changes in stockholders' equity and cash flows for the
years ended December 31, 1999 and 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of K2 Design, Inc. and its
subsidiary as of December 31, 1999, and the results of their operations and
their cash flows for the years ended December 31, 1999 and 1998, in conformity
with generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

ARTHUR ANDERSEN LLP

February 22, 2000
New York, New York

F-1

K2 DESIGN, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999

ASSETS

Current Assets:
Cash & cash equivalents...................................................... $ 2,936,918
Accounts receivable, net of allowance for doubtful accounts
of $100,000............................................................... 925,564
Unbilled Revenue............................................................. 672,590
Prepaid expenses and other current assets.................................... 75,995
Investment in securities available for sale, at market value................. 6,187,500
-----------
Total current assets........................................................... 10,798,567
Fixed Assets, net.............................................................. 588,054
Restricted Cash................................................................ 150,711
Other Assets................................................................... 4,132
-----------
Total assets.............................................................. $11,541,464
===========

LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of capital lease obligations................................. $ 28,712
Accounts payable............................................................. 477,147
Accrued compensation & payroll taxes......................................... 113,922
Accrued expenses............................................................. 547,268
Customer advances............................................................ 63,333
Deferred taxes--current...................................................... 1,902,130
-----------
Total current liabilities...................................................... 3,132,512
Long-term Capital Lease Obligations............................................ 41,256
-----------
Total liabilities.............................................................. 3,173,768
Stockholders' Equity:
Preferred stock, $0.01 par value, 1,000,000 shares authorized;
0 shares issued and outstanding........................................... --
Common Stock, $0.01 par value 9,000,000 shares authorized;
3,750,582 shares issued and 3,333,165 shares outstanding.................. 37,505
Treasury Stock, 417,417 shares at cost....................................... (819,296)
Additional paid-in capital................................................... 6,908,220
Accumulated other comprehensive income....................................... 2,853,196
Accumulated deficit.......................................................... (611,929)
-----------
Total stockholders' equity..................................................... 8,367,696
-----------
Total liabilities & stockholders' equity.................................. $11,541,464
===========

The accompanying notes are an integral part of this consolidated balance sheet.

F-2

K2 DESIGN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

1999 1998
----------- -----------

Revenues............................................................................ $ 5,858,949 $ 6,419,967
Direct salaries and costs........................................................... 4,385,232 4,847,772
Selling, general and administrative expenses........................................ 2,973,707 3,008,764
Depreciation........................................................................ 376,411 356,879
Loss from continuing operations before interest & other income, net,
income taxes and discontinued operations, net..................................... (1,876,401) (1,793,448)
Gain on sale of securities, interest and other income, net.......................... 2,666,600 160,777
Provision for income taxes.......................................................... 40,542 39,143
Income (loss) from continuing operations............................................ 749,657 (1,671,814)
Loss from discontinued operations................................................... -- (85,309)
Gain on sale from discontinued operations, net of income taxes...................... -- 2,994,204
----------- -----------
Net income.......................................................................... $ 749,657 $ 1,237,081
=========== ===========
Income (loss) per share from continuing operations--Basic........................... $ 0.22 $ (0.47)
----------- -----------
Diluted............................................................................. $ 0.21 $ (0.47)
----------- -----------
Loss per share from discontinued operations--Basic.................................. $ --$ (0.02)
----------- -----------
Diluted............................................................................. $ -- $ (0.02)
----------- -----------
Income per share from gain on sale of discontinued operations--Basic................ $ -- $ 0.84
----------- -----------
Diluted............................................................................. $ -- $ 0.84
----------- -----------
Net income per share--Basic......................................................... $ 0.22 $ 0.35
=========== ===========
Diluted............................................................................. $ 0.21 $ 0.35
=========== ===========
Weighted average basic common shares outstanding.................................... 3,442,946 3,553,861
=========== ===========
Weighted average diluted common shares outstanding.................................. 3,643,837 3,553,861
=========== ===========

F-3

K2 DESIGN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

1999 1998
----------- -----------

Net Income.......................................................................... $ 749,657 $ 1,237,081
Unrealized gains on investment securities,
net of deferred taxes of $1,902,130............................................... $ 2,853,196 --
----------- -----------
Comprehensive Income................................................................ $ 3,602,853 $ 1,237,081
=========== ===========

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

F-4

K2 DESIGN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

ACCUMULATED
NUMBER OF ADDITIONAL OTHER TREASURY
COMMON PAR PAID-IN COMPREHENSIVE ACCUMULATED STOCK
SHARES VALUE CAPITAL INCOME DEFICIT AMOUNT TOTAL
--------- -------- ---------- ------------- ----------- --------- ----------

Balance, January 1, 1998......... 3,680,671 $ 36,807 $6,348,940 $ -- $(2,598,667) $ -- $3,787,080
Repurchase of Treasury Stock... -- -- -- -- -- (386,781) (386,781)
Net Income..................... -- -- -- -- 1,237,081 -- 1,237,081
Compensation expense........... 12,146 121 80,023 -- -- -- 80,144
--------- -------- ---------- ----------- ----------- --------- ----------
Balance, December 31, 1998....... 3,692,817 36,928 6,428,963 -- (1,361,586) (386,781) 4,717,524
Repurchase of Treasury Stock... -- -- -- -- (432,515) (432,515)
Net Income..................... -- -- -- -- 749,657 -- 749,657
Compensation expense and
cashless exercise of stock
options...................... 52,965 529 470,905 -- -- -- 471,434
Proceeds from stock options
exercised.................... 4,800 48 8,352 -- -- -- 8,400
Change in fair value of
securities available for
sale......................... -- -- -- 2,853,196 -- -- 2,853,196
--------- -------- ---------- ----------- ----------- --------- ----------
Balance, December 31, 1999....... 3,750,582 $ 37,505 $6,908,220 $ 2,853,196 $ (611,929) $(819,296) $8,367,696
========= ======== ========== =========== =========== ========= ==========

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

F-5

K2 DESIGN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

1999 1998
----------- -----------

Cash flows from operating activities:
Net Income........................................................................ $ 749,657 $ 1,237,081
Gain from sale of securities...................................................... (2,521,083) --
Net gain from sale of discontinued operation...................................... -- (2,994,204)
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Non-cash compensation expense................................................ 471,434 80,144
Depreciation................................................................. 376,411 356,879
Changes in operating assets and liabilities:
Accounts receivable, net..................................................... (656,391) 3,163,980
Prepaid expenses and other current assets.................................... (8,149) 37,893
Unbilled revenue............................................................. (622,138) 265,869
Other assets................................................................. 5,040 901
Accounts payable............................................................. (306,069) (1,127,163)
Accrued compensation and payroll taxes....................................... 17,280 (64,107)
Other accrued expenses....................................................... (452,628) 138,396
Deferred revenue and customer advances....................................... 12,045 (621,871)
----------- -----------
Net cash (used in) provided by operating activities................................. (2,934,591) 473,798
----------- -----------
Cash flows from investing activities:
Proceeds from sale of discontinued operation...................................... -- 782,459
Gross proceeds from sale of investment securities................................. 3,647,209 --
Purchase of equipment............................................................. (141,933) (209,914)
----------- -----------
Net cash provided by investing activities........................................... 3,505,276 572,545
----------- -----------
Cash flows from financing activities:
Principal payments on capital lease obligations................................... (39,280) (72,922)
Options exercised for cash........................................................ 8,400 --
Purchase of common stock for treasury............................................. (432,515) (386,781)
----------- -----------
Net cash used in financing activities............................................... (463,395) (459,703)
----------- -----------
Net increase in cash and cash equivalents........................................... 107,290 586,640
Cash and cash equivalents, beginning of year........................................ 2,829,628 2,242,988
----------- -----------
Cash and cash equivalents, end of year.............................................. $ 2,936,918 $ 2,829,628
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest....................................................................... $ 12,156 $ 28,575
Income taxes................................................................... $ 54,343 $ 25,609
Non-cash investing activities:
Assets acquired under capital lease obligations................................ $ 77,146 $ --
Investment in restricted securities, at cost................................... $ -- $ 2,558,300

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

F-6

K2 DESIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1999 AND 1998

1. ORGANIZATION AND BUSINESS

K2 Design, Inc. ("K2" or the "Company") commenced operations on March 1,
1993 as a partnership. In January 1995 the Partnership contributed its capital
into a newly formed corporation and elected S Corporation status.

Effective January 1, 1996, the Company was reorganized as a Delaware
Holding C corporation having a wholly owned operating subsidiary incorporated in
New York. The reorganized corporation is authorized to issue 9,000,000 shares of
common stock, par value $.01 per share, and 1,000,000 shares of Preferred Stock,
par value $.01 per share.

K2 is a professional services firm specializing in business consulting,
development and design related to digital communications.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates in the Preparation of Financial Statements

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

Revenue Recognition

Revenues are recognized on the percentage of completion method based upon
the ratio of costs incurred to total estimated costs incurred and anticipated
profits earned on projects in progress in excess of amounts billed. Customer
advances represent amounts billed in excess of costs incurred and estimated
profit earned. Such billings generally occur at the beginning of contract
periods, and are in accordance with contract provisions. Provisions for any
estimated losses on uncompleted contracts are made in the period in which such
losses are determinable. A portion of the Company's revenues has been generated
on a fixed fee for service basis.

Cash and Cash Equivalents

The Company considers all short term investments having a maturity of three
months or less to be cash equivalents.

Investment in Securities Available for Sale

Investments in Securities Available for Sale are primarily equity
securities. In accordance with Statement of Financial Accounting Standards
No. 115 "Investment Securities" (SFAS No. 115), these securities are reflected
at their fair market value as of December 31, 1999 with a corresponding credit
reflected in accumulated other comprehensive income, net of deferred taxes.

Fixed Assets

Fixed assets are carried at cost and depreciated using the straight-line
method over their estimated useful lives. Leasehold improvements are amortized
over the shorter of their estimated useful lives or the term of the underlying
lease.

F-7

K2 DESIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1999 AND 1998

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Estimated useful lives by class of assets are as follows:

Computers and equipment........................................................ 3 years
Furniture and fixtures......................................................... 5 years
Leasehold improvements......................................................... Life of lease

Accrued Expenses

Accrued expenses are comprised of the following as of December 31, 1999:

Accrued Media Planning and Ad Servicing........................................... $ 288,990
Accrued Expenses--other........................................................... 258,278
----------
$ 547,268
==========

Fair Value of Financial Instruments

The carrying amounts of the Company's cash and cash equivalents, accounts
receivable, and accounts payable approximate fair market value based upon the
relatively short-term nature of these financial instruments. The investment
securities available for sale are reflected at fair market value.

Concentration of Revenue

Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of trade accounts receivable.
The Company performs ongoing credit evaluations of its clients' financial
condition and generally requires no collateral from its clients. Sales to the
Company's two largest clients constituted approximately 21.8% and 18.7% of
revenue for the year ended December 31, 1999. The Company had accounts
receivable from these clients amounting to $471,634 at December 31, 1999. Sales
to the Company's two largest clients for the year ended December 31, 1998
constituted approximately 23.4% and 18.5% of revenue.

Income Taxes

The Company provides Federal, State and City income tax in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). Under SFAS 109, 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. 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.

Comprehensive Income

The Company has adopted the disclosure requirements prescribed by Statement
of Financial Accounting Standards No. 130, "Comprehensive Income." This
statement requires disclosure of the major components of comprehensive income.
The change in the fair value of the investment securities available for sale is
the only component of comprehensive income for the Company.

F-8

K2 DESIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1999 AND 1998

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Net Income per Share of Common Stock

Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
establishes new standards for computing and presenting earnings per share (EPS).
The standard requires the presentation of basic EPS and diluted EPS. Basic EPS
is calculated by dividing income available to common shareholders by the
weighted average number of shares of common stock outstanding during the period.
Diluted EPS is calculated by dividing income available to common shareholders by
the weighted average number of common shares outstanding adjusted to reflect
potentially dilutive securities. Outstanding stock options of 200,891 and
810,200 as of December 31, 1999 and 1998, respectively, have been included in
the above calculations for the year ended December 31, 1999 and excluded for the
year ended December 31, 1998 as they are antidilutive for that year.

The following table reconciles the number of weighted average shares
outstanding for basic and diluted earnings per share:

1999 1998
--------- ---------

Weighted average shares outstanding--basic................................... 3,442,946 3,446,861
Incremental shares from assumed conversions of options....................... 200,891 --
--------- ---------
3,643,837 3,446,861
========= =========

Stock-Based Compensation

Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation" (SFAS 123), establishes financial accounting and reporting
standards for stock-based employee compensation plans. SFAS 123 encourages
entities to adopt a fair value based method of accounting for stock compensation
plans. However, SFAS 123 also permits entities to continue to measure
compensation costs under pre-existing accounting pronouncements with the
requirement that pro forma disclosures of net income and earnings per share be
included in the notes to the financial statements. The Company has elected to
adopt the disclosure requirements of SFAS 123 (see Note 7).

New Accounting Pronouncements

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Reporting on Segments") (SFAS 131).
SFAS 131 requires companies to disclose certain information related to the
various segments in which it operates. The Company believes that it operates in
one segment.

On January 1, 1999, the Company adopted Statement of Position ("SOP")
No. 98-1, "Accounting for Costs of Computer Software Developed or Obtained for
Internal Use," issued by the American Institute of Certified Public Accountants
("AICPA"). SP 98-1 provides guidance on accounting for the costs of computer
software developed or obtained for internal use software, dividing the
development into three stages: (1) the preliminary project stage, during which
conceptual formulation and evaluation of alternatives takes place, (2) the
application development stage, during which design, coding, installation and
testing takes place and (3) the operations stage during which training and
maintenance takes place. Costs incurred the application development stage are
capitalized; all other costs are expensed as incurred. The adoption of this
statement did not have a material effect on the consolidated financial
statements.

On January 1, 1999, the Company adopted SOP No. 98-5, "Reporting on the
Costs of Start-Up Activities" issued by the AICPA. SOP 98-5 requires that
certain start-up expenditures and organization costs previously capitalized must
now be expensed. The adoption of this statement did not have a material effect
on the financial statements.

F-9

K2 DESIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1999 AND 1998

3. FIXED ASSETS

Fixed assets, at cost, including capital leases (see Note 4), summarized by
major categories at December 31, 1999, consist of the following:

Computers and equipment......................................................... $ 703,766
Furniture and fixtures.......................................................... 298,047
Leasehold improvements.......................................................... 322,397
------------
Subtotal........................................................................ 1,324,210
Less: Accumulated depreciation.................................................. (736,156)
------------
Fixed assets, net............................................................... $ 588,054
============

4. CAPITAL LEASE OBLIGATIONS

The Company is a lessee in non-cancelable leasing agreements for certain
computers and equipment. Included in fixed assets is $65,769 of computers and
equipment held under capital leases.

Future minimum lease payments for fixed assets under capital lease at
December 31, 1999 are as follows:

2000............................................................................ $ 32,828
2001............................................................................ 32,829
2002............................................................................ 14,048
Total minimum lease payments.................................................... 79,705
Less--Imputed interest.......................................................... (9,737)
------------
Total capital lease obligation.................................................. 69,968
Less: current portion........................................................... (28,712)
------------
Total long term portion of capital lease obligations............................ $ 41,256
============

5. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases certain office space and automobiles for varying
periods. At December 31, 1999, approximate future minimum rental commitments
under all non-cancelable operating leases are as follows:

FISCAL YEAR:
- ----------------------------------------------------------------------------------

2000.............................................................................. $ 268,822
2001.............................................................................. $ 268,822
2002.............................................................................. $ 267,829
2003.............................................................................. $ 76,017

Rent expense under the above leases amounted to $244,622 in 1999 and
$225,893 in 1998.

Employment Contracts

The Company has employment contracts with each of its executives. Two
contracts provide for minimum annual salaries of $183,600 in 2000 and $220,320
in 2001, the year of expiration. Both contracts also include bonuses equal to
1.88% of the Company's pre-tax profit. The Company also entered into a two-year
employment contract with an executive officer, expiring on December 31, 2000.
That contract provides for an annual salary of $250,000 and a bonus equal to 10%
of the Company's pre-tax profit not to exceed $75,000, provided that the
Company's pre-tax profits for fiscal 2000 are at least $500,000. The Company
also entered into a one year

F-10

K2 DESIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1999 AND 1998

5. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
employment contract with an executive officer expiring January 31, 2000, subject
to automatic renewals, providing for an annual salary of $125,000 and a bonus
equal to $50,000 in the event of a Change of Control Event (as defined in the
contract).

6. INCOME TAXES

As described in Note 1, the Company previously elected "S" corporation
status under the provisions of the Internal Revenue Code.

The provision for income taxes on the net income (loss) for the years ended
December 31, 1999 and 1998 differs from the amount computed by applying the
Federal statutory rate due to the following:

1999 1998
------ ------

Statutory Federal income tax rate.................................................... 34.0% 34.0%
State and local taxes, net........................................................... 5.1 4.8
Valuation Allowance (utilization of NOL)............................................. (34.0) (31.4)
------ ------
Effective Tax Rate................................................................... 5.1% 7.4%
====== ======

7. STOCK OPTION PLAN

The Company has two stock plans, the 1996 Stock Option Plan (the "1996
Plan"), and the 1997 Stock Incentive Plan (the "1997 Plan", and together with
the 1996 Plan, the "Plans"). Pursuant to the Plans, designated employees,
including officers and directors of the Company and certain outside consultants,
will be entitled to receive nonqualified stock options and qualified stock
incentive compensation. The number of options available under the 1997 Plan were
increased by an additional 400,000 options, as the result of an approval and
ratification of an amendment voted on and approved at the 1999 annual meeting of
stockholders. As of December 31, 1999, there were 299,050 shares of common stock
available for grant under the Plans.

The 1996 Plan expires on January 1, 2006 and the 1997 Plan expires on June
12, 2007. Under the terms of the Plans, the minimum exercise price of options
granted cannot be less than 100% of the fair market value of the common stock of
the Company on the option grant date. Options granted under the Plan generally
expire ten years after the option grant date. For incentive stock options
granted to such persons who would be deemed to have in excess of a 10% ownership
interest in the Company, the option price shall not be less than 110% of such
fair market value for all options granted, and the options expire five years
after the option grant date.

A summary of the Plans at December 31, 1999 and 1998 is presented in the
table below:

WEIGHTED AVERAGE
SHARES EXERCISE PRICE
-------- ----------------

Outstanding at January 1, 1998............................................ 464,950 $ 2.10
Granted................................................................... 474,500 1.54
Exercised................................................................. (56,750) .71
Forfeited................................................................. (72,500) 1.75
-------- ------
Outstanding at December 31, 1998.......................................... 810,200 1.83
Granted................................................................... 104,000 2.83
Exercised................................................................. (126,500) 1.89
Forfeited................................................................. (145,000) 2.29
-------- ------
Outstanding at December 31, 1999.......................................... 642,700 $ 1.87
-------- ------
Shares exercisable at December 31, 1999................................... 365,325 $ 1.88
======== ======

F-11

K2 DESIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1999 AND 1998

7. STOCK OPTION PLAN--(CONTINUED)
The Company accounts for the Plans under APB 25, under which no
compensation cost is recognized for stock options granted with an exercise price
at or above the prevailing market price on the date of the grant. Had
compensation cost for the Plans been determined consistent with the fair value
approach required by SFAS 123, the Company's net income and net income per
common share would have been the following pro forma amounts:

1999 1998
-------- ----------

Net income:
As reported................................................................. $749,657 $1,237,081
======== ==========
Pro forma................................................................... $420,652 $ 885,766
======== ==========
Net income per common share:
As reported--Basic........................................................ $ 0.22 $ 0.35
======== ==========
--Diluted...................................................... $ 0.21 $ 0.35
======== ==========
Pro forma--Basic.......................................................... $ 0.12 $ 0.25
======== ==========
--Diluted....................................................... $ 0.12 $ 0.25
======== ==========

The fair value of each option granted is estimated on the date of the grant
using the Black-Scholes option pricing model with the following assumptions:
risk-free interest rates of 5.5% and 5.2% in 1999 and 1998, respectively; no
expected dividend yields for options granted; expected lives of 4 and 5 years in
1999 and 1998, respectively; and expected stock price volatility of 101% and
120% in 1999 and 1998, respectively. The weighted average fair value of options
granted during 1999 and 1998 was $2.29 and $1.22, respectively.

The effects of applying SFAS 123 in this pro forma disclosure may not be
indicative of future amounts because stock option grants are anticipated in
future years.

8. INVESTMENT IN SECURITIES

In May 1998, the Company discontinued the CLIQNOW! Division. Accordingly,
this business has been reflected as a discontinued operation for the years ended
December 31, 1998 and 1997. On June 1, 1998, the Company sold its CLIQNOW!
Division to 24/7 Media, Inc. ("TFSM") for gross proceeds of $4 million,
consisting of $1 million of cash and $3 million of TFSM Convertible Redeemable
Preferred Stock. The sale resulted in a net gain of approximately $2,994,000. On
August 13, 1998, TFSM's registration statement for its initial public offering
was declared effective by the Securities and Exchange Commission. As a result,
the Convertible Redeemable Preferred Stock of TFSM automatically converted on
that date into shares of common stock of TFSM, of which the Company retained
196,492 shares. These shares were carried at a cost of $2,558,300 (approximately
$13.02 per share) on the Company's consolidated balance sheet at December 31,
1998. During the quarter ended September 30, 1999, the shares of TFSM stock
became freely tradable. In the fourth quarter of 1999, the Company reclassified
the 110,000 shares still held by the Company as "investment in securities
available for sale," under the "cash and cash equivalents" section of the
balance sheet, as a result of the Company's ability and intent to sell such
shares in the near future. In accordance with SFAS No.115, the shares are stated
at fair market value on the December 31, 1999 consolidated balance sheet. The
offset to this increase is reflected as "other comprehensive income" in the
stockholders' equity section of the balance sheet, net of related deferred
taxes.

F-12

K2 DESIGN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1999 AND 1998

8. INVESTMENT IN SECURITIES--(CONTINUED)
The following disclosures are presented in accordance with SFAS No. 115:

Equity Securities:
Aggregate fair value............................................................ $ 6,187,500
============
Gross unrealized holding gain................................................... $ 4,755,326
============
Proceeds from sales of equity securities........................................ $ 3,647,209
============
Gross realized gains on sales of securities..................................... $ 2,521,083
============

The gain on the sale of the securities was determined on an average cost
basis. During 1999, the Company sold 86,492 shares of their investment in TFSM.
The sale resulted in a gain of $2,521,083 which is reflected in interest and
other income in the 1999 income statement.

F-13

SCHEDULE II
K2 DESIGN, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998

Allowance for doubtful accounts, January 1, 1998................................. $ 213,204

Less: Decrease to allowance for doubtful accounts................................ (188,204)
Allowance for doubtful accounts, December 31, 1998............................... $ 25,000
Add: Increase to allowance for doubtful accounts................................. 75,000
---------
Allowance for doubtful accounts, December 31, 1999............................... $ 100,000
=========

F-14

K2 DESIGN, INC. PROXY
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
JUNE 1, 2000
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS

The undersigned stockholder of K2 Design, Inc. (the "Company") hereby
appoints each of Matthew G. de Ganon and Seth Bressman, attorneys and proxies,
each with full power of substitution, to represent the undersigned and vote all
shares of the Common Stock of the Company which the undersigned is entitled to
vote, with all powers the undersigned would possess if personally present, at
the Annual Meeting of Stockholders (the "Meeting") of the Company to be held at
the offices of Brown Raysman Millstein Felder & Steiner LLP, 120 West 45th
Street, 20th Floor, New York, New York 10036 at 10:30 a.m., on June 1, 2000, and
at any adjournments thereof, with respect to the proposals hereinafter set forth
and upon such other matters as may properly come before the Meeting and any
adjournments thereof.

This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder.

UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF
ALL NOMINEES AS DIRECTORS OF THE COMPANY, "FOR" THE RATIFICATION OF THE
AMENDMENT TO THE 1997 STOCK INCENTIVE PLAN, "FOR" THE RATIFICATION OF ARTHUR
ANDERSEN LLP AS AUDITORS OF THE COMPANY AND IN THE DISCRETION OF THE PROXIES
WITH RESPECT TO ALL OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING AND
ANY ADJOURNMENTS THEREOF. THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF THE
ACCOMPANYING NOTICE OF ANNUAL MEETING AND PROXY STATEMENT.

(CONTINUED, AND TO BE SIGNED ON OTHER SIDE)

PLEASE MARK BOXES /X/ IN BLUE OR BLACK INK.
1. ELECTION OF DIRECTORS

/ / FOR all nominees listed below (except as marked to the / / WITHHOLD AUTHORITY to vote for all nominees
contrary below) listed below

NOMINEES: Matthew G. de Ganon, Lynn Fantom, Douglas E. Cleek, P. Scott Munro,
Steven N. Goldstein, David R. Sklaver and Gary W. Brown.

INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.
- --------------------------------------------------------------------------------

2. RATIFICATION OF THE AMENDMENTS TO THE 1997 STOCK INCENTIVE PLAN.

/ / FOR / / AGAINST / / ABSTAIN

3. RATIFICATION OF THE SELECTION OF ARTHUR ANDERSEN LLP AS AUDITORS OF THE
COMPANY FOR THE YEAR ENDING DECEMBER 31, 2000.

/ / FOR / / AGAINST / / ABSTAIN

4. IN THEIR DISCRETION, ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE
THE MEETING AND ANY ADJOURNMENTS THEREOF.

Date: _______________, 2000

---------------------------
Signature of Stockholder(s)

---------------------------
Name of Stockholder(s)

NOTE: When shares are held
by joint tenants, both
should sign. When signing
as attorney, executor,
administrator, trustee,
custodian, guardian or
corporate officer, please
give your full title as
such. If a corporation,
please sign full corporate
name by authorized officer.
If a partnership, please
sign in partnership name by
authorized person.

PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.