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

FORM 10-Q

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

For the quarter ended MARCH 31, 1998 Commission File No. 000-22513

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

Delaware 91-1646860
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1516 Second Avenue, Seattle, Washington 98101
(Address of principal executive offices, Zip Code)

Registrant's telephone number, including area code: (206) 622-2335

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

49,451,496 shares of $0.01 par value common stock outstanding as of April 30,
1998 (after adjusting for the Company's 2-for-1 stock split payable on June 1,
1998)

Page 1 of 20
Exhibit Index on Page 20

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AMAZON.COM, INC.

FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998

INDEX

PAGE
----

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements 3

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7

Item 3. Quantitative and Qualitative Disclosures About Market Risk 15

PART II - OTHER INFORMATION

Item 1. Legal Proceedings 15

Item 2. Changes in Securities and Use of Proceeds 15

Item 3. Defaults Upon Senior Securities 17

Item 4. Submission of Matters to a Vote of Security Holders 17

Item 5. Other Information 17

Item 6. Exhibits and Reports on Form 8-K 18

Signatures 19

Exhibit Index 20

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AMAZON.COM, INC.

BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

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

MARCH 31, DECEMBER 31,
1998 1997
- -----------------------------------------------------------------------------------
(unaudited)

ASSETS
Current assets:
Cash and cash equivalents ........................ $ 98,600 $ 109,810
Short-term investments ........................... 18,220 15,256
Inventories ...................................... 11,674 8,971
Prepaid expenses and other ....................... 4,399 3,298
--------- ---------
Total current assets ......................... 132,893 137,335
Fixed assets, net .................................. 9,773 9,265
Deposits ........................................... 293 166
Deferred charges ................................... 2,048 2,240
--------- ---------
Total assets ................................. $ 145,007 $ 149,006
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................. $ 34,374 $ 32,697
Accrued advertising .............................. 5,349 3,454
Other liabilities and accrued expenses ........... 8,071 6,167
Current portion of long-term debt ................ 684 1,500
--------- ---------
Total current liabilities .................... 48,478 43,818

Long-term portion of debt .......................... 76,521 76,521
Long-term portion of capital lease obligation ...... 181 181

Stockholders' equity:
Preferred stock, $0.01 par value:
Authorized shares -- 10,000,000
Issued and outstanding shares -- none ......... -- --
Common stock, $0.01 par value:
Authorized shares -- 100,000,000
Issued and outstanding shares -- 48,325,864
and 47,874,338 shares at March 31, 1998
and December 31, 1997, respectively ......... 483 479
Additional paid-in capital ....................... 63,711 63,552
Deferred compensation ............................ (1,493) (1,930)
Accumulated deficit .............................. (42,874) (33,615)
--------- ---------
Total stockholders' equity ................... 19,827 28,486
--------- ---------
Total liabilities and stockholders' equity . $ 145,007 $ 149,006
========= =========

See accompanying notes.

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AMAZON.COM, INC.

STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

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

THREE MONTHS ENDED
MARCH 31,
------------------------
1998 1997
-------- --------
- ----------------------------------------------------------------------------------------

Net sales ............................................... $ 87,375 $ 16,005
Cost of sales ........................................... 68,054 12,484
-------- --------
Gross profit ............................................ 19,321 3,521

Operating expenses:
Marketing and sales .................................. 19,503 3,906
Product development .................................. 6,729 1,575
General and administrative ........................... 1,963 1,142
-------- --------
Total operating expenses .......................... 28,195 6,623

Loss from operations .................................... (8,874) (3,102)
Interest income ......................................... 1,640 64
Interest expense ........................................ (2,025) --
-------- --------
Net loss ................................................ $ (9,259) $ (3,038)
======== ========

Pro forma basic and diluted loss per share .............. $ (0.20) $ (0.08)
======== ========

Shares used in computation of pro forma basic and diluted
loss per share ....................................... 46,622 38,804
======== ========

See accompanying notes.

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AMAZON.COM, INC.

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

(UNAUDITED)

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

THREE MONTHS ENDED
MARCH 31,
----------------------
1998 1997
--------- -------
- ----------------------------------------------------------------------------------------

OPERATING ACTIVITIES:
Net loss .................................................. $ (9,259) $(3,038)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization ......................... 1,790 420
Amortization of unearned compensation related
to stock options .................................... 185 263
Changes in operating assets and liabilities:
Inventories ......................................... (2,703) (368)
Prepaid expenses and other .......................... (1,101) (616)
Deposits ............................................ (127) (47)
Accounts payable .................................... 1,677 2,798
Accrued advertising ................................. 1,895 656
Other liabilities and accrued expenses .............. 1,088 1,135
--------- -------
Net cash provided by (used in) operating
activities....................................... (6,555) 1,203

INVESTING ACTIVITIES:
Maturities of short-term investments ..................... 4,500 --
Purchases of short-term investments ...................... (7,499) --
Purchases of fixed assets ................................ (2,071) (926)
--------- -------
Net cash used in investing activities ............. (5,070) (926)

FINANCING ACTIVITIES:
Proceeds from exercise of stock options .................. 415 437
Proceeds from sale of preferred stock .................... -- 200
--------- -------
Net cash provided by financing activities ......... 415 637

Net increase (decrease) in cash and cash equivalents ........ (11,210) 914

Cash and cash equivalents at beginning of period ............ 109,810 6,248
--------- -------
Cash and cash equivalents at end of period .................. $ 98,600 $ 7,162
========= =======

SUPPLEMENTAL CASH FLOW INFORMATION:

Common stock issued for fixed assets and accrued
product development ......................................... $ -- $ 1,500

See accompanying notes.

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AMAZON.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1 - ACCOUNTING POLICIES

Description of Business

Amazon.com, Inc. ("Amazon.com" or the "Company") was incorporated on July 5,
1994. The Company is the leading online retailer of books and offers a catalog
of approximately three million titles, easy-to-use search and browse features,
email services, personalized shopping services, secure Web-based credit card
payment and direct shipping to customers. The Company currently offers other
information-based products, such as music, and intends over time to expand its
catalog into other product categories.

Unaudited Interim Financial Information

The financial statements as of March 31, 1998 and 1997 have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission (the "SEC"). These statements are unaudited and, in the opinion of
management, include all adjustments (consisting of normal recurring adjustments
and accruals) necessary to present fairly the results for the periods presented.
The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
SEC rules and regulations. Operating results for the quarter ended March 31,
1998 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1998. These financial statements should be read in
conjunction with the audited financial statements and the accompanying notes
included in the Company's annual report on Form 10-K for the year ended December
31, 1997. Certain prior period balances have been reclassified to conform to the
current period presentation.

As of January 1, 1998, the Company adopted SFAS No. 130, Reporting Comprehensive
Income, which establishes standards for the reporting and display of
comprehensive income and its components. The adoption of this Statement had no
impact on the Company's net loss or stockholders' equity.

NOTE 2 - FIXED ASSETS

Fixed assets, at cost, consist of the following (in thousands):

March 31, December 31,
1998 1997
--------- ------------

Computers and equipment $ 8,416 $ 7,118
Purchased software 4,993 4,505
Leasehold improvements 1,199 914
Leased assets 362 362
------- -------
14,970 12,899
Less accumulated depreciation
and amortization 5,197 3,634
------- -------
Fixed asssets, net $ 9,773 $ 9,265
======= =======

NOTE 3 - SUBSEQUENT EVENTS

On April 27, 1998, the Company announced that its Board of Directors approved a
2-for-1 stock split of the common stock effected in the form of a dividend.
Shareholders will receive an additional share of common stock for every share
held on the

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record date of May 20, 1998. The additional shares will be payable on June 1,
1998. Accordingly, the accompanying financial statements have been restated to
reflect the stock split effected in the form of a dividend.

On April 27, 1998, the Company announced the acquisition of three Internet
companies: Bookpages Limited ("Bookpages"), Telebook, Inc. ("Telebook") and
Internet Movie Database Limited ("IMDB"). Bookpages and Telebook are online
booksellers. Bookpages has operations in the United Kingdom and Telebook has
operations primarily in Germany through its ABC Bucherdienst subsidiary. IMDB
operates a comprehensive repository for movie information on the Internet. Each
of the acquisitions will be accounted for under the purchase method of
accounting. The Company will incur charges of approximately $55 million in the
aggregate in connection with the three transactions. The consideration for the
acquisitions was comprised of cash and common stock. The Company issued an
aggregate of approximately 540,000 shares of common stock to effect the
transactions. The Company expects to amortize the intangibles resulting from the
acquisitions over approximately two years.

On May 8, 1998, the Company completed an offering of approximately $326 million
gross proceeds of 10% Senior Discount Notes due 2008 (the "Senior Discount
Notes"). The Senior Discount Notes will mature on May 1, 2008. The Senior
Discount Notes were sold at a substantial discount from their principal amount
at maturity of $530 million. There will not be any payment of interest on the
Senior Discount Notes prior to November 1, 2003. From and after May 1, 2003, the
Senior Discount Notes will bear interest, which will be payable in cash, at a
rate of 10% per annum on each May 1 and November 1, commencing November 1, 2003.
The net proceeds from the offering have and will be used to retire approximately
$75 million of existing indebtedness, and for general corporate purposes,
including working capital to fund anticipated operating losses, the expansion of
the Company's core business, investments in new business segments and markets,
including the Company's planned sales of music products and international
expansion, and capital expenditures. The Company expects, if the opportunity
arises, to use an unspecified portion of the net proceeds to acquire or invest
in complementary businesses, products and technologies. See Item 2.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

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

The following "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contains forward-looking statements based on current
expectations, estimates and projections about the Company's industry,
management's beliefs and certain assumptions made by management. All statements,
trends, analyses and other information contained in this report relative to
trends in net sales, gross margin, anticipated expense levels, liquidity and
capital resources, as well as other statements, including, but not limited to,
words such as "anticipate," "believe," "plan," "estimate," "expect," "seek" and
"intend," and other similar expressions, constitute forward-looking statements.
These forward-looking statements involve risks and uncertainties, and actual
results may differ materially from those anticipated or expressed in such
statements. Potential risks and uncertainties include, among others, those set
forth under "Overview," "Liquidity and Capital Resources," and "Additional
Factors That May Affect Future Results" included in this "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and in
the "Risk Factors" section of the Company's annual report on Form 10-K for the
year ended December 31, 1997, as filed with the SEC. Particular attention should
be paid to the cautionary statements involving the Company's limited operating
history, the unpredictability of its future revenues, the unpredictable and
evolving nature of its business model, the intensely competitive online commerce
and retail book and music industries, and the risks associated with capacity
constraints, systems development, management of growth, acquisitions, any new
products and international or domestic business expansion. Except as required by
law, the Company undertakes no obligation to update any forward-looking
statement, whether as a result of new information, future events or otherwise.
Readers, however, should carefully review the factors set forth in other reports
or documents that the Company files from time to time with the SEC.

OVERVIEW

Amazon.com is the leading online retailer of books. The Company also sells CDs,
videotapes, audiotapes and other products. All of these products are sold
through the Company's Web site. The Company was incorporated in July 1994 and

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commenced offering products for sale on its Web site in July 1995. Accordingly,
the Company has a limited operating history on which to base an evaluation of
its business and prospects. The Company's prospects must be considered in light
of the risks, expenses and difficulties frequently encountered by companies in
their early stage of development, particularly companies in new and rapidly
evolving markets such as online commerce. Such risks for the Company include,
but are not limited to, an evolving and unpredictable business model and the
management of growth. To address these risks, the Company must, among other
things, maintain and increase its customer base, implement and successfully
execute its business and marketing strategy and its expansion into new product
or geographic markets, continue to develop and upgrade its technology and
transaction-processing systems, improve its Web site, provide superior customer
service and order fulfillment, respond to competitive developments, and attract,
retain and motivate qualified personnel. There can be no assurance that the
Company will be successful in addressing such risks, and the failure to do so
could have a material adverse effect on the Company's business, prospects,
financial condition and results of operations.

Since inception, the Company has incurred significant losses and as of March 31,
1998, had an accumulated deficit of $42.9 million. The Company believes that its
success will depend in large part on its ability to (i) extend its brand
position, (ii) provide its customers with outstanding value and a superior
shopping experience and (iii) achieve sufficient sales volume to realize
economies of scale. Accordingly, the Company intends to continue to invest
heavily in marketing and promotion, product development and technology, and
operating infrastructure development. The Company also offers attractive pricing
programs, which have reduced its gross margins. Because the Company has
relatively low product gross margins, achieving profitability given planned
investment levels depends upon the Company's ability to generate and sustain
substantially increased revenue levels. As a result, the Company believes that
it will continue to incur substantial operating losses for the foreseeable
future and that the rate at which such losses will be incurred may increase
significantly from current levels. In addition, expenses associated with the
amortization of intangibles resulting from the Company's recent acquisitions and
interest expenses related to the Senior Discount Notes (as defined below) will
further affect the Company's net loss. Although the Company has experienced
significant revenue growth in recent periods, such growth rates are not
sustainable and will decrease in the future. In view of the rapidly evolving
nature of the Company's business and its limited operating history, the Company
believes that period-to-period comparisons of its operating results, including
the Company's gross profit and operating expenses as a percentage of net sales,
are not necessarily meaningful and should not be relied upon as an indication of
future performance.

As a result of the Company's limited operating history and the emerging nature
of the markets in which it competes, the Company is unable to accurately
forecast its revenues. The Company's current and future expense levels are based
largely on its investment plans and estimates of future revenues and are to a
large extent fixed. Sales and operating results generally depend on the volume
of, timing of and ability to fulfill orders received, which are difficult to
forecast. The Company may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. Accordingly, any significant
shortfall in revenues in relation to the Company's planned expenditures would
have an immediate adverse effect on the Company's business, prospects, financial
condition and results of operations. Further, as a strategic response to changes
in the competitive environment, the Company may from time to time make certain
pricing, service, marketing or acquisition decisions that could have a material
adverse effect on its business, prospects, financial condition and results of
operations. For example, the Company has agreed in certain of its promotional
arrangements with Internet aggregators to make significant fixed payments. There
can be no assurance that these arrangements will generate adequate revenues to
cover the associated expenditures, and any significant shortfall would have a
material adverse effect on the Company's financial condition and results of
operations.

The Company expects to experience significant fluctuations in its future
quarterly operating results due to a variety of factors, many of which are
outside the Company's control. Factors that may adversely affect the Company's
quarterly operating results include (i) the Company's ability to retain existing
customers, attract new customers at a steady rate and maintain customer
satisfaction, (ii) the Company's ability to acquire product, to maintain
appropriate inventory levels and to manage fulfillment operations, (iii) the
Company's ability to maintain gross margins in its existing business and in
future product lines and markets, (iv) the development, announcement or
introduction of new sites, services and products by the Company and its
competitors, (v) price competition or higher wholesale prices in the industry,
(vi) the level of use of the Internet and online services and increasing
consumer acceptance of the Internet and other online services for the purchase
of consumer products such as those offered by the Company, (vii) the Company's
ability to upgrade and develop its systems and infrastructure, (viii) the
Company's ability to attract new personnel in a timely and effective manner,
(ix) the level of traffic on the Company's Web site, (x) the Company's ability
to manage effectively its development of new business segments and markets, (xi)
the Company's ability to successfully manage the integration of operations and
technology of acquisitions and other business combinations, (xii) technical
difficulties, system downtime or Internet brownouts, (xiii) the amount and
timing

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of operating costs and capital expenditures relating to expansion of the
Company's business, operations and infrastructure, (xiv) the number of popular
books introduced during the period, (xv) the level of merchandise returns
experienced by the Company, (xvi) governmental regulation and taxation policies,
(xvii) disruptions in service by common carriers due to strikes or otherwise and
(xviii) general economic conditions and economic conditions specific to the
Internet, online commerce and the book industry.

The Company expects that it will experience seasonality in its business,
reflecting a combination of seasonal fluctuations in Internet usage and
traditional retail seasonality patterns. Internet usage and the rate of Internet
growth may be expected to decline during the summer. Further, sales in the
traditional retail book industry are generally significantly higher in the
fourth calendar quarter of each year.

Due to the foregoing factors, in one or more future quarters the Company's
operating results may fall below the expectations of securities analysts or
investors. In such event, the trading price of the common stock would likely be
materially adversely affected.

RESULTS OF OPERATIONS

Net Sales

Quarter Ended March 31,
-----------------------
1998 1997 % Change
------- ------- --------
(in thousands)

Net sales.............................. $87,375 $16,005 446%

Net sales are composed of the selling price of books and other merchandise sold
by the Company, net of returns, as well as outbound shipping and handling
charges. Growth in net sales reflects a significant increase in units sold due
to the growth of the Company's customer base and repeat purchases from the
Company's existing customers. This increase was partially offset by a decrease
in prices. International sales represented 21% and 28% of net sales for the
quarters ended March 31, 1998 and 1997, respectively.

Gross Profit

Quarter Ended March 31,
-----------------------
1998 1997 % Change
------- ------- --------
(in thousands)

Gross profit............................ $19,321 $ 3,521 449%

Gross margin............................ 22.1% 22.0%

Gross profit is sales less the cost of sales, which consists of the cost of
merchandise sold to customers, and outbound and inbound shipping costs. Gross
profit increased in absolute dollars, reflecting the Company's increased sales
volume. Gross margin increased slightly as improvements in product costs and
other sourcing activities were largely offset by lower prices and lower overall
shipping margins.

The Company believes that offering its customers attractive prices is an
essential component of its business strategy. Accordingly, the Company offers
20% and 30% discounts on more than 400,000 titles, with featured titles
discounted at 40% and certain "special value" editions discounted up to 89%. The
Company may in the future expand or increase the discounts it offers to its
customers and may otherwise alter its pricing structure and policies.

The Company over time intends to expand its operations by promoting new or
complementary products or sales formats and by expanding the breadth and depth
of its product or service offerings. Gross margins attributable to new business
areas may be lower than those associated with the Company's existing business
activities. In particular, the Company has announced plans to offer music to
customers, and anticipates that music product gross margin, which is expected to
be lower than book gross margin, will affect overall gross margin
proportionately to its impact on product mix.

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Marketing and Sales

Quarter Ended March 31,
-----------------------
1998 1997 % Change
------- ------- --------
(in thousands)

Marketing and sales..................... $19,503 $ 3,906 399%

Percentage of net sales................. 22.3% 24.4%

Marketing and sales expenses consist primarily of advertising, public relations
and promotional expenditures, as well as payroll and related expenses for
personnel engaged in marketing, selling and fulfillment activities. All
fulfillment costs not included in cost of sales, including the cost of operating
and staffing distribution centers and customer service, are included in
marketing and sales. Marketing and sales expenses increased primarily due to
increases in the Company's advertising and promotional expenditures (including
expenses associated with Internet aggregator promotional relationships),
increased payroll and related costs associated with fulfilling customer demand
and increased credit card merchant fees resulting from higher sales. Such
expenses decreased as a percentage of net sales due to the significant increase
in net sales. The Company intends to continue to pursue its aggressive branding
and marketing campaign and expects its costs of fulfillment to increase based on
anticipated sales growth. Therefore, the Company expects marketing and sales
expenses to increase significantly in absolute dollars.

Product Development

Quarter Ended March 31,
-----------------------
1998 1997 % Change
------- ------- --------
(in thousands)

Product development..................... $ 6,729 $ 1,575 327%

Percentage of net sales................. 7.7% 9.8%

Product development expenses consist principally of payroll and related expenses
for development, editorial, systems and telecommunications operations personnel
and consultants, systems and telecommunications infrastructure, and costs of
acquired content. The increases in product development expenses were primarily
attributable to increased staffing and associated costs related to enhancing the
features, content and functionality of the Company's Web site and
transaction-processing systems, as well as increased investment in systems and
telecommunications infrastructure. Such expenses decreased as a percentage of
net sales due to the significant increase in net sales. To date, all product
development costs have been expensed as incurred. The Company believes that
continued investment in product development is critical to attaining its
strategic objectives and, as a result, expects product development expenses to
increase significantly in absolute dollars.

General and Administrative

Quarter Ended March 31,
-----------------------
1998 1997 % Change
------- ------- --------
(in thousands)

General and administrative............. $ 1,963 $ 1,142 72%

Percentage of net sales................ 2.2% 7.1%

General and administrative expenses consist of payroll and related expenses for
executive, accounting and administrative personnel, recruiting, professional
fees and other general corporate expenses. The increase in general and
administrative expenses was primarily due to increased salaries and related
expenses associated with the hiring of additional personnel. Such expenses
decreased as a percentage of net sales due to the significant increase in net
sales. The Company expects general and administrative expenses to increase in
absolute dollars as the Company expands its staff and incurs additional costs
related to the growth of its business.

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Interest Income and Expense

Quarter Ended March 31,
-----------------------
1998 1997 % Change
------- ------- --------
(in thousands)

Interest income...................... $ 1,640 $ 64 2,463%

Interest expense..................... (2,025) -- N/A

Interest income on cash, cash equivalents and short-term investments increased
due to higher cash, cash equivalents and short-term investment balances
resulting from the Company's financing activities. Interest expense for the
quarter ended March 31, 1998 consists of interest and amortization of deferred
charges related to the Company's three-year senior secured term loan (the
"Senior Loan") and interest on asset acquisitions financed through loans and
capital leases. The Company expects interest income and interest expense to
increase in the future as a result of the Senior Discount Notes (as defined
below).

Income Taxes

The Company has not generated any taxable income to date and therefore has not
paid any federal income taxes since inception. Utilization of the Company's net
operating loss carryforwards, which begin to expire in 2011, may be subject to
certain limitations under Section 382 of the Internal Revenue Code of 1984, as
amended. The Company has provided a full valuation allowance on the deferred tax
asset, consisting primarily of net operating loss carryforwards, because of
uncertainty regarding its realizability.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 1998 the Company's cash and cash equivalents were $98.6 million,
compared to $109.8 million at December 31, 1997.

Net cash used in operating activities of $6.6 million for the quarter ended
March 31, 1998 was primarily attributable to the net loss and increases in
inventories and prepaid expenses and other, partially offset by depreciation and
amortization, as well as increases in accrued advertising, accounts payable and
other liabilities and accrued expenses. For the quarter ended March 31, 1997,
cash provided by operating activities was $1.2 million and resulted from
increases in accounts payable and other liabilities and accrued expenses, as
well as depreciation and amortization, partially offset by the net loss and
increases in prepaid expenses and other and in inventories.

Net cash used in investing activities was $5.1 million for the quarter ended
March 31, 1998 and consisted of purchases of short-term investments and fixed
assets, partially offset by maturities of short-term investments. For the
quarter ended March 31, 1997, net cash used in investing activities consisted of
$926,000 for the purchase of fixed assets.

Net cash provided by financing activities of $415,000 for the quarter ended
March 31, 1998 resulted from net proceeds from the exercise of stock options.
Net cash provided by financing activities of $637,000 for the quarter ended
March 31, 1997 resulted from net proceeds from the exercise of stock options and
from the issuance of preferred stock.

As of March 31, 1998, the Company's principal sources of liquidity consisted of
$98.6 million of cash and cash equivalents and $18.2 million of short-term
investments. As of that date, the Company's principal commitments consisted of
obligations outstanding under its Senior Loan, obligations in connection with
the acquisition of fixed assets, operating leases and commitments for
advertising and promotional arrangements. Although the Company has no material
commitments for capital expenditures, it anticipates a substantial increase in
its capital expenditures and lease commitments consistent with anticipated
growth in operations, infrastructure and personnel. The Company may establish
one or more additional distribution centers within the next 12 months, which
would require it to commit to lease obligations, stock inventories, purchase
fixed assets and install leasehold improvements. In addition, the Company has
announced plans to continue to increase its merchandise inventory in order to
provide better availability to customers and achieve purchasing efficiencies.

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On April 27, 1998, the Company announced the acquisition of three Internet
companies: Bookpages Limited ("Bookpages"), Telebook, Inc. ("Telebook") and
Internet Movie Database Limited ("IMDB"). Bookpages and Telebook are online
booksellers. Bookpages has operations in the United Kingdom, and Telebook has
operations primarily in Germany through its ABC Bucherdienst subsidiary. IMDB
operates a comprehensive repository for movie information on the Internet. Each
of the acquisitions will be accounted for under the purchase method of
accounting. The Company will incur charges of approximately $55 million in the
aggregate in connection with the three transactions. The consideration for the
acquisitions was comprised of cash and common stock. The Company issued an
aggregate of approximately 540,000 shares of common stock to effect the
transactions. The Company expects to amortize the intangibles resulting from the
acquisitions over approximately two years.

On May 8, 1998, the Company completed an offering of approximately $326 million
gross proceeds of 10% Senior Discount Notes due 2008 ("Senior Discount Notes").
The Senior Discount Notes will mature on May 1, 2008. The Senior Discount Notes
were sold at a substantial discount from their principal amount at maturity of
$530 million. There will not be any payment of interest on the Senior Discount
Notes prior to November 1, 2003. From and after May 1, 2003, the Senior Discount
Notes will bear interest, which will be payable in cash, at a rate of 10% per
annum on each May 1 and November 1, commencing November 1, 2003.

The Senior Discount Notes are redeemable, at the option of the Company, in
whole or in part, at any time on or after May 1, 2003, at the redemption
prices set forth in the Indenture for the Senior Discount Notes (the
"Indenture"), plus accrued interest, if any, to the date of redemption. At any
time prior to May 1, 2001, the Company also may redeem up to 35% of the
aggregate principal amount at maturity of the Senior Discount Notes with the
proceeds of one or more sales of Capital Stock (as defined in the Indenture)
(other than Disqualified Stock (as defined in the Indenture)), at 110 % of
their Accreted Value (as defined in the Indenture) on the redemption date, plus
accrued and unpaid interest, if any, to the date of redemption; provided that
after any such redemption at least 65% of the aggregate principal amount at
maturity of Senior Discount Notes originally issued remains outstanding. In
addition, at any time prior to May 1, 2003, the Company may redeem all, but not
less than all, of the Senior Discount Notes at a redemption price equal to the
sum of (i) the Accreted Value (as defined in the Indenture) on the redemption
date, plus (ii) accrued and unpaid interest, if any, to the redemption date,
plus (iii) the Applicable Premium (as defined in the Indenture).

Upon a Change of Control (as defined in the Indenture), the Company will be
required to make an offer to purchase the Senior Discount Notes at a purchase
price equal to 101% of their Accreted Value on the date of purchase, plus
accrued interest, if any. There can be no assurance that the Company will have
sufficient funds available at the time of any Change of Control to make any
required debt repayment (including repurchases of the Senior Discount Notes).

The Senior Discount Notes are and will be senior unsecured indebtedness of the
Company ranking pari passu with the Company's existing and future
unsubordinated, unsecured indebtedness and senior in right of payment to all
subordinated indebtedness of the Company. The Senior Discount Notes are and will
be effectively subordinated to all secured indebtedness and to all existing and
future liabilities of the Company's subsidiaries, including trade payables. As
of December 31, 1997, as adjusted for the offering of the Senior Discount Notes
and application of the net proceeds therefrom, the Company would have had $3.2
million of indebtedness outstanding (other than the Senior Discount Notes), all
of which would have been secured indebtedness.

The Indenture contains certain covenants that, among other things, limit the
ability of the Company and its Restricted Subsidiaries (as defined in the
Indenture) to incur indebtedness, pay dividends, prepay subordinated
indebtedness, repurchase capital stock, make investments, create liens, engage
in transactions with stockholders and affiliates, sell assets and engage in
mergers and consolidations. However, these limitations are subject to a number
of important qualifications and exceptions.

The net proceeds from the offering of the Senior Discount Notes have and will be
used to retire approximately $75 million of existing indebtedness and for
general corporate purposes, including working capital to fund anticipated
operating losses, the expansion of the Company's core business, investments in
new business segments and markets, including the Company's planned sales of
music products and international expansion, and capital expenditures. The
Company expects, if the opportunity arises, to use an unspecified portion of the
net proceeds to acquire or invest in complementary businesses, products and
technologies.

On December 23, 1997, the Company borrowed $75 million pursuant to the Senior
Loan. The Company has repaid the Senior Loan in full with a portion of the net
proceeds of the Senior Discount Notes. In connection with the Senior Loan, the

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Company issued warrants to purchase a total of 750,000 shares of the Company's
common stock. All of the warrants were canceled when the Company repaid the
Senior Loan.

The Company believes that current cash and cash equivalent balances and
short-term investments will be sufficient to meet its anticipated cash needs for
at least 12 months. However, any projections of future cash needs and cash flows
are subject to substantial uncertainty. If current cash and cash equivalents,
the net proceeds of the offering of the Senior Discount Notes (see Item 1.
"Financial Statements" - Note 3 - Subsequent Events) and cash generated from
operations are insufficient to satisfy the Company's liquidity requirements, the
Company may seek to sell additional equity or debt securities or to obtain a
line of credit. The sale of additional equity or convertible debt securities
could result in additional dilution to the Company's stockholders. There can be
no assurance that financing will be available in amounts or on terms acceptable
to the Company, if at all. In addition, the Company will, from time to time,
consider the acquisition of or investment in complementary businesses, products
and technologies, which might increase the Company's liquidity requirements or
cause the Company to issue additional equity or debt securities.

ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS

In addition to the factors discussed in the "Overview" section of this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's annual report on Form 10-K for the year ended
December 31, 1997, as filed with the SEC, including among others, the Company's
limited operating history, the unpredictability of its future revenues and the
unpredictable and evolving nature of its business model, the following
additional factors may affect the Company's future results.

The online commerce market, particularly over the Web, is new, rapidly evolving
and intensely competitive. In addition, the retail book and music industries are
intensely competitive. The Company's current or potential competitors include
(i) various online booksellers and vendors of other products such as CDs and
videotapes, including entrants into narrow specialty niches, (ii) a number of
indirect competitors that specialize in online commerce or derive a substantial
portion of their revenues from online commerce, through which retailers other
than the Company may offer products and (iii) publishers, distributors and
retail vendors of books, music and other products, including Barnes & Noble,
Inc., Bertelsmann AG and other large specialty booksellers and integrated media
corporations, many of which possess significant brand awareness, sales volume
and customer bases. The Company believes that the principal competitive factors
in its market are brand recognition, selection, personalized services,
convenience, price, accessibility, customer service, quality of search tools,
quality of editorial and other site content, and reliability and speed of
fulfillment. Many of the Company's competitors have longer operating histories,
larger customer bases, greater brand recognition and significantly greater
financial, marketing and other resources than the Company. Certain of the
Company's competitors may be able to secure merchandise from vendors on more
favorable terms, devote greater resources to marketing and promotional
campaigns, adopt more aggressive pricing or inventory availability policies and
devote substantially more resources to Web site and systems development than the
Company. Increased competition may result in reduced operating margins, loss of
market share and a diminished brand franchise. There can be no assurance that
the Company will be able to compete successfully against current and future
competitors.

The Company expects that competition in the online commerce market will
intensify in the future. For example, as various market segments obtain large,
loyal customer bases, participants in those segments may seek to leverage their
market power to the detriment of participants in other market segments. In
addition, new technologies and the expansion of existing technologies may
increase the competitive pressures on online retailers, including the Company.
For example, "shopping agent" technologies will permit customers to quickly
compare the Company's prices with those of its competitors. Competitive
pressures created by any one of the Company's competitors, or by the Company's
competitors collectively, could have a material adverse effect on the Company's
business, prospects, financial condition and results of operations.

The Company's revenues depend on the number of visitors who shop on its Web site
and the volume of orders it fulfills. Any system interruptions that result in
the unavailability of the Company's Web site or reduced order fulfillment
performance would reduce the volume of goods sold and the attractiveness of the
Company's product and service offerings. The Company has experienced periodic
system interruptions, which it believes will continue to occur from time to
time. The Company uses an internally developed system for its Web site, search
engine and substantially all aspects of transaction processing, including order
management, cash and credit card processing, purchasing, inventory management
and shipping. The Company will be required to add additional software and
hardware and further develop and upgrade its existing technology,
transaction-processing systems and network infrastructure to accommodate
increased traffic on its Web site and increased

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sales volume through its transaction-processing systems. Any inability to do so
may cause unanticipated system disruptions, slower response times, degradation
in levels of customer service, impaired quality and speed of order fulfillment,
or delays in reporting accurate financial information. There can be no assurance
that the Company will be able to accurately project the rate or timing of
increases, if any, in the use of its Web site or in a timely manner to
effectively upgrade and expand its transaction-processing systems or to
integrate smoothly any newly developed or purchased modules with its existing
systems. Any inability to do so could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.

Substantially all of the Company's computer and communications hardware is
located at a single leased facility in Seattle, Washington. 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 does not currently have redundant systems or a formal
disaster recovery plan and does not carry sufficient business interruption
insurance to compensate it for losses that may occur. Despite the implementation
of network security measures by the Company, its servers are vulnerable to
computer viruses, physical or electronic break-ins and similar disruptions,
which could lead to interruptions, delays, loss of critical data or the
inability to accept and fulfill customer orders. The occurrence of any of the
foregoing events could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations.

The Company has rapidly and significantly expanded its operations and
anticipates that further expansion will be required to address potential growth
in its customer base, to expand its product and service offerings and its
international operations, and to pursue other market opportunities. The
expansion of the Company's operations and employee base has placed, and is
expected to continue to place, a significant strain on the Company's management,
operational and financial resources. To manage the expected growth of its
operations and personnel, the Company will be required to improve existing and
implement new transaction-processing, operational and financial systems,
procedures and controls, as well as to expand, train and manage its growing
employee base. There can be no assurance that the Company's current and planned
personnel, systems, procedures and controls will be adequate to support the
Company's future operations, that management will be able to hire, train,
retain, motivate and manage required personnel or that Company management will
be able to successfully identify, manage and exploit existing and potential
market opportunities. If the Company is unable to manage growth effectively,
such inability could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations.

The Company over time intends to expand its operations by promoting new or
complementary products or sales formats and by expanding the breadth and depth
of its product or service offerings. Expansion of the Company's operations in
this manner would require significant additional expenses and development,
operations and editorial resources and would strain the Company's management,
financial and operational resources. Furthermore, the Company may not benefit
from the first-mover advantage that it experienced in the online book market,
and gross margins attributable to new business areas may be lower than those
associated with the Company's existing business activities. There can be no
assurance that the Company will be able to expand its operations in a
cost-effective or timely manner. Furthermore, any new business launched by the
Company that is not favorably received by consumers could damage the Company's
reputation or the Amazon.com brand. The lack of market acceptance of such
efforts or the Company's inability to generate satisfactory revenues from such
expanded services or products to offset their cost could have a material adverse
effect on the Company's business, prospects, financial condition and results of
operations.

The Company expects to expand its presence in foreign markets and has recently
acquired two international online booksellers to accelerate this expansion. To
date, the Company has only limited experience in sourcing, marketing and
distributing products on an international basis and in developing localized
versions of its Web site and other systems. The Company expects to incur
significant costs in establishing international facilities and operations, in
promoting its brand internationally, in developing localized versions of its Web
site and other systems and in sourcing, marketing and distributing products in
foreign markets. There can be no assurance that the Company's international
efforts will be successful. If the revenues resulting from international
activities are inadequate to offset the expense of establishing and maintaining
foreign operations, such inadequacy could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations. In
addition, there are certain risks inherent in doing business on an international
level, such as unexpected changes in regulatory requirements, export and import
restrictions, tariffs and other trade barriers, difficulties in staffing and
managing foreign operations, longer payment cycles, political instability,
fluctuations in currency exchange rates, seasonal reductions in business
activity in other parts of the world and potentially adverse tax consequences,
any of which could adversely effect the success of the Company's international
operations. Furthermore, it is possible that governments in certain foreign
jurisdictions may have or enact legislation with respect to the Internet or
other online services

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in such areas as content, network security, encryption or distribution that may
effect the Company's ability to conduct business abroad. There can be no
assurance that one or more of such factors would not have a material adverse
effect on the Company's future international operations and, consequently, on
the Company's business, prospects, financial condition and results of
operations.

The Company may choose to expand its operations or market presence by entering
into business combinations, investments, joint ventures or other strategic
alliances with third parties, such as the Company's recent acquisition of three
Internet companies. Any such transaction would be accompanied by risks commonly
encountered in such transactions, which could include, among others, the
difficulty of assimilating the operations, technology and personnel of the
combined companies, the potential disruption of the Company's ongoing business,
the inability to retain key technical and managerial personnel, the inability of
management to maximize the financial and strategic position of the Company
through the successful integration of acquired businesses, additional expenses
associated with amortization of acquired intangible assets, the maintenance of
uniform standards, controls and policies and the impairment of relationships
with existing employees and customers. There can be no assurance that the
Company would be successful in overcoming these risks or any other problems
encountered in connection with such business combinations, investments, joint
ventures or other strategic alliances, or that such transactions would not have
a material adverse effect on the Company's business, prospects, financial
condition and results of operations.

The Company has significant indebtedness outstanding, principally the Senior
Discount Notes (see Item 1. "Financial Stetements" - Note 3 - Subsequent Events
and " - Liquidity and Capital Resources"), capitalized lease obligations and
other equipment financing. The Company may incur substantial additional
indebtedness in the future. The level of the Company's indebtedness, among other
things, could (i) make it difficult for the Company to make payments on the
Senior Discount Notes, (ii) make it difficult for the Company to obtain any
necessary financing in the future for working capital, capital expenditures,
debt service requirements or other purposes, (iii) limit the Company's
flexibility in planning for, or reacting to changes in, its business, and (iv)
make it more vulnerable in the event of a downturn in its business. There can be
no assurance that the Company will be able to improve its earnings before fixed
charges or that the Company will be able to meet its debt service obligations,
including its obligations under the Senior Discount Notes. In the event the
Company's cash flow is inadequate to meet its obligations, the Company could
face substantial liquidity problems. If the Company is unable to generate
sufficient cash flow or otherwise obtain funds necessary to make required
payments, or if the Company otherwise fails to comply with the various covenants
in its indebtedness, it would be in default under the terms thereof, which would
permit the holders of such indebtedness to accelerate the maturity of such
indebtedness and could cause defaults under other indebtedness of the Company.
Any such default could have a material adverse effect on the Company's business,
prospects, financial condition and results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

None

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, the Company is subject to legal proceedings and claims in the
ordinary course of business, including claims of alleged infringement of
trademarks and other intellectual property rights. The Company currently is not
aware of any legal proceedings or claims that it believes will have,
individually or in the aggregate, a material adverse effect on the its business,
prospects, financial condition and results of operations.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Sale of Senior Discount Notes

On May 8, 1998, the Company sold $530 million aggregate principal amount at
maturity (approximately $326 million aggregate initial Accreted Value (as
defined in the Indenture referred to below)) of 10% Senior Discount Notes due
2008 (the "Senior Discount Notes"). The Senior Discount Notes mature on May 1,
2008. The Senior Discount Notes were sold at a

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substantial discount from their principal amount at maturity. There will not be
any payment of interest on the Senior Discount Notes prior to November 1, 2003.
From and after May 1, 2003, the Senior Discount Notes will bear interest, which
will be payable in cash, at a rate of 10% per annum on each May 1 and November
1, commencing November 1, 2003.

The Senior Discount Notes will be redeemable, at the option of the Company, in
whole or in part, on or after May 1, 2003 and prior to maturity, at the
redemption prices (expressed in percentages of principal amount at maturity) set
forth below, plus accrued interest, if any, to the date of redemption, if
redeemed during the 12-month period commencing May 1 of the years set forth
below:

YEAR REDEMPTION PRICE

2003 105.000%
2004 103.333
2005 101.667
2006 and thereafter 100.000

At any time prior to May 1, 2001, the Company also may redeem up to 35% of the
aggregate principal amount at maturity of the Senior Discount Notes with the
proceeds of one or more sales of Capital Stock (as defined in the Indenture)
(other than Disqualified Stock (as defined in the Indenture)), at 110% of their
Accreted Value on the redemption date, plus accrued and unpaid interest, if any,
to the date of redemption; provided that after any such redemption at least 65%
of the aggregate principal amount at maturity of Senior Discount Notes
originally issued remains outstanding. In addition, at any time prior to May 1,
2003, the Company may redeem all, but not less than all, of the Senior Discount
Notes at a redemption price equal to the sum of (i) the Accreted Value on the
redemption date, plus (ii) accrued and unpaid interest, if any, to the
redemption date, plus (iii) the Applicable Premium (as defined in the
Indenture).

The Senior Discount Notes were issued pursuant to an Indenture dated as of
May 8, 1998 between the Company and the Bank of New York, as trustee. The
Indenture for the Senior Discount Notes contains certain covenants that, among
other things, limit the ability of the Company and its Restricted Subsidiaries
(as defined in the Indenture) to incur indebtedness, pay dividends, prepay
subordinated indebtedness, repurchase capital stock, make investments, create
liens, engage in transactions with stockholders and affiliates, sell assets and
engage in mergers and consolidations. These limitations are, however, subject
to a number of important qualifications and exceptions.

Recent Sales of Unregistered Equity Securities

The Company issued 540,066 shares of its common stock (the "Common Stock") in
connection with the acquisition of the following companies: Bookpages on April
17, 1998; Telebook on April 24, 1998; and IMDB on April 24, 1998. The form of
the transactions for Bookpages and IMDB was an exchange of the Company's Common
Stock plus, in the case of IMDB, cash for the entire issued share capital of the
acquired businesses. For Telebook, the form of the transaction was a merger,
whereby Telebook was merged into a wholly-owned subsidiary of the Company in
exchange for shares of the Company's Common Stock. No underwriters were used and
the recipients of the Company's Common Stock were the shareholders of the
acquired companies.

Twenty-one of the former shareholders of the acquired companies are non-U.S.
residents who collectively received 351,324 shares of the Company's Common
Stock. The shares were not registered under the Securities Act of 1933, as
amended (the "Securities Act") pursuant to the safe harbor contained in
Regulation S thereunder. The shares issued to non-U.S. residents were sold in
offshore transactions in accordance with the offering restrictions of Regulation
S and no directed selling efforts were made in the United States.

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17

Five of the former shareholders of the acquired companies are U.S. residents who
collectively received 188,742 shares of the Company's Common Stock. The shares
were not registered under the Securities Act pursuant to the exemption set forth
in Section 4(2) thereof. All U.S. residents who received shares of the Company's
Common Stock made certain representations to the Company as to investment
intent, possessed a sufficient level of financial sophistication and received or
had access to information about the Company. The shares issued in the
transactions are subject to restrictions on transfer absent registration under
the Securities Act, and no offers to sell the securities were made by any form
of general solicitation or general advertisement.

Use of Proceeds

The Company's registration statement (No. 333-23795) under the Securities Act
for its initial public offering (the "Registration Statement") became effective
on May 14, 1997. Offering proceeds, net of aggregate expenses of approximately
$4.9 million, were $49.1 million. The Company has used approximately $16.1
million of the net offering proceeds for working capital paid directly or
indirectly to third parties, approximately $9.3 million for the purchase or
installation of machinery and equipment and approximately $23.7 million for the
purchase of temporary investments consisting of cash, cash equivalents and
short-term investments. The Company has not used any of the net offering
proceeds for construction of plant, building or facilities, purchases of real
estate, acquisition of other businesses, or repayment of indebtedness. None of
the net offering proceeds were paid directly or indirectly to directors,
officers or general partners of the Company or their associates, persons owning
10% or more of any class of the Company's securities, or affiliates of the
Company.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

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

None

ITEM 5. OTHER INFORMATION

None

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

3.1 Restated Bylaws of Amazon.com, Inc.

4.1 Indenture, dated as of May 8, 1998, between Amazon.com, Inc. and
the Bank of New York, as Trustee.

4.2 Form of 10% Senior Discount Note Due 2008.

4.3 Registration Rights Agreement entered into on May 8, 1998,
between Amazon.com, Inc. and Morgan Stanley & Co. Incorporated

10.1 Lease Agreement, dated March 20, 1998, as amended on April 21,
1998, by and between Amazon.com, Inc. and Pacific NW Title
Building, Inc.

10.2 Lease Agreement, dated April 17, 1998, by and between
Amazon.com, Inc. and 1100 Second Avenue Limited Partnership.

27.1 Financial Data Schedule for the quarter ended March 31, 1998.

27.2 Financial Data Schedule, restated to show the effect of the
stock split, for the years ended December 31, 1996 and 1997,
and for the quarters ended March 31, 1997, June 30, 1997, and
September 30, 1997.

(b) Reports on Form 8-K

None

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SIGNATURES

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

AMAZON.COM, INC.
(REGISTRANT)
DATED: May 15, 1998

By: /s/ Joy D. Covey
-----------------
Joy D. Covey
Chief Financial Officer,
Vice President of Finance and Administration
and Secretary

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EXHIBIT INDEX

Exhibit Number Title
- -------------- -------------------------------------------------------------

3.1 Restated Bylaws of Amazon.com, Inc.

4.1 Indenture, dated as of May 8, 1998, between Amazon.com, Inc. and
the Bank of New York, as Trustee.

4.2 Form of 10% Senior Discount Note Due 2008.

4.3 Registration Rights Agreement entered into on May 8, 1998,
between Amazon.com, Inc. and Morgan Stanley & Co. Incorporated

10.1 Lease Agreement, dated March 20, 1998, as amended on April 21,
1998, by and between Amazon.com, Inc. and Pacific NW Title
Building, Inc.

10.2 Lease Agreement, dated April 17, 1998, by and between
Amazon.com, Inc. and 1100 Second Avenue Limited Partnership.

27.1 Financial Data Schedule for the quarter ended March 31, 1998.

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