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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 8-K

CURRENT REPORT

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

AUGUST 27, 1998
-------------------------------------------
Date of Report
(Date of earliest event reported)

AMAZON.COM, INC.
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(Exact Name of Registrant as Specified in Charter)

DELAWARE 000-22513 91-1646860
- ---------------------------- --------------------- -------------------
(State or Other Jurisdiction (Commission File No.) (IRS Employer
of Incorporation) Identification No.)

1516 SECOND AVENUE, SEATTLE, WASHINGTON 98101
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(Address of principal executive offices, including Zip Code)

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

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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS

On August 27, 1998, pursuant to an Agreement and Plan of Merger, dated
as of August 3, 1998 (the "PlanetAll Merger Agreement"), by and among
Amazon.com, Inc., a Delaware corporation ("Amazon.com"), Sage Enterprises, Inc.,
a Massachusetts corporation ("PlanetAll"), and Pacific Acquisition, Inc., a
Massachusetts corporation and wholly owned subsidiary of Amazon.com ("PlanetAll
Merger Sub"), Amazon.com acquired all of the outstanding capital stock of
PlanetAll and PlanetAll Merger Sub merged with and into PlanetAll, with
PlanetAll as the surviving corporation (the "PlanetAll Merger").

PlanetAll, founded in September 1996 and based in Boston,
Massachusetts, provides contact management services via the Internet, including
Web-based address book, calendar and reminder features.

Amazon.com issued approximately 800,000 shares of Amazon.com common
stock, par value $.01 per share ("Amazon.com Common Stock"), and assumed all
outstanding options in connection with the acquisition of PlanetAll, pursuant to
the formula set forth below.

Pursuant to the terms of the PlanetAll Merger Agreement, at the
effective time of the PlanetAll Merger, each issued and outstanding share of
PlanetAll common stock, par value $.01 per share (the "PlanetAll Common Stock"),
and each issued and outstanding share of PlanetAll Series A Preferred Stock, par
value $.01 per share, and Series B Preferred Stock, par value $.01 per share
(together with the PlanetAll Common Stock, the "PlanetAll Capital Stock"), other
than shares of PlanetAll Capital Stock, if any, for which dissenters' rights
have been or will be perfected in compliance with the applicable laws of the
Commonwealth of Massachusetts, was converted into the right to receive that
number of shares of Amazon.com Common Stock, determined by dividing (i) 900,000
by (ii) the total number of shares of PlanetAll Capital Stock outstanding
immediately prior to the effective time on a fully diluted basis, assuming all
outstanding options to purchase shares of PlanetAll Capital Stock were validly
exercised and issued prior to the effective time (the "PlanetAll Exchange
Ratio").

In addition, each option to purchase shares of PlanetAll Common Stock
outstanding at the effective time of the PlanetAll Merger was assumed by
Amazon.com and will be treated as an option to purchase that number of
Amazon.com Common Stock equal to the product of the PlanetAll Exchange Ratio and
the number of shares of PlanetAll Common Stock subject to such option.

The PlanetAll Merger will be accounted for under the pooling of
interests method of accounting.

Pursuant to the PlanetAll Merger Agreement, PlanetAll and its
stockholders have agreed to indemnify and hold Amazon.com and the surviving
corporation harmless for any losses that may be suffered by Amazon.com or its
affiliates arising out of or in connection with any inaccuracy in, or
misrepresentation or breach of, any representation or warranty made by PlanetAll
in the PlanetAll Merger Agreement and related agreements, or any failure by
PlanetAll to perform its obligations under the PlanetAll Merger Agreement and
related agreements. Shares representing 10% of the Amazon.com Common Stock
issued at the effective time of the PlanetAll Merger will be deposited with an
escrow agent to secure such indemnification obligations.

Pursuant to an Investor Rights Agreement, dated as of August 27, 1998
(the "PlanetAll Investor Rights Agreement"), by and between Amazon.com and the
stockholders of PlanetAll, Amazon.com has agreed to prepare and file with the
Securities and Exchange Commission (the "SEC"), within 45 days of the effective
time of the PlanetAll Merger, a Registration Statement on Form S-3 under the
Securities Act of 1933, as amended, covering the resale of the Amazon.com Common
Stock issued in the PlanetAll Merger and to use its best efforts to have the
Registration Statement declared effective by the SEC as promptly as practicable
thereafter.

The PlanetAll Merger Agreement and the PlanetAll Investor Rights
Agreement (together with the PlanetAll Merger Agreement, the "PlanetAll
Agreements"), each of which was filed as an exhibit to Amazon.com's Current
Report on Form 8-K dated August 3, 1998, are incorporated herein by reference.
The descriptions of the PlanetAll Agreements herein do not purport to be
complete and are qualified in their entirety by the provisions of the PlanetAll
Agreements.

ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS

Supplemental Consolidated Selected Financial Data,
Supplemental Consolidated Management's Discussion and Analysis
of Financial Condition and Results of Operations, Supplemental
Consolidated Financial Statements and Financial Statement
Schedules (restated to give retroactive effect to a merger
accounted for as a pooling of interests)

(i) Supplemental Consolidated Selected Financial Data

(ii) Supplemental Consolidated Management's Discussion and
Analysis of Financial Condition and Results of
Operations

(iii) Report of Ernst & Young LLP, Independent Auditors

(iv) Supplemental Consolidated Balance Sheets as of
December 31, 1997 and 1996.

(v) Supplemental Consolidated Statements of Operations
for each of the three years ended December 31, 1997,
1996 and 1995.

(vi) Supplemental Consolidated Statements of Stockholders'
Equity for each of the three years ended December 31,
1997, 1996 and 1995.

(vii) Supplemental Consolidated Statements of Cash Flows
for each of the three years ended December 31, 1997,
1996 and 1995.

(viii) Notes to Supplemental Consolidated Financial
Statements.

(ix) Schedule II - Supplemental Valuation and Qualifying
Accounts.

(x) Supplemental Consolidated Balance Sheets as of
March 31, 1998 (unaudited) and December 31, 1997.

(xi) Supplemental Consolidated Statements of Operations
for the three months ended March 31, 1998 and 1997
(unaudited).

(xii) Supplemental Consolidated Statements of Cash Flows
for the three months ended March 31, 1998 and 1997
(unaudited).

(xiii) Notes to Supplemental Consolidated Financial
Statements (unaudited).

(xiv) Supplemental Consolidated Balance Sheets as of
June 30, 1998 (unaudited) and December 31, 1997.

(xv) Supplemental Consolidated Statements of Operations
for the three and six months ended June 30, 1998 and
1997 (unaudited).

(xvi) Supplemental Consolidated Statements of Cash Flows
for the six months ended June 30, 1998 and 1997
(unaudited).

(xvii) Notes to Supplemental Consolidated Financial
Statements (unaudited).

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(a) Financial Statements of Business Acquired

No PlanetAll financial statements are required to be filed
with respect to the PlanetAll Merger pursuant to Item 7(a) of
Form 8-K.

(b) Pro Forma Financial Information

No pro forma financial information is required to be filed
with respect to the PlanetAll Merger pursuant to Item 7(b) of
Form 8-K.

2.1 Agreement and Plan of Merger dated as of August 3 1998, by and
among Amazon.com, Inc., Pacific Acquisition, Inc. and Sage
Enterprises, Inc. (incorporated by reference from Amazon.com,
Inc.'s Current Report on Form 8-K dated August 3, 1998)

23.1 Consent of Ernst & Young LLP, Independent Auditors

27.1 Restated Financial Data Schedule for the Year Ended December 31,
1997

27.2 Restated Financial Data Schedule for the Year Ended December 31,
1996

27.3 Restated Financial Data Schedule for the Six Months Ended
June 30, 1998

27.4 Restated Financial Data Schedule for the Three Months Ended
March 31, 1998

27.5 Restated Financial Data Schedule for the Nine Months Ended
September 30, 1997

27.6 Restated Financial Data Schedule for the Six Months Ended
June 30, 1997

27.7 Restated Financial Data Schedule for the Three Months Ended
March 31, 1997

99.1 Form of Investor Rights Agreement by and between Amazon.com,
Inc. and the stockholders of Sage Enterprises, Inc.
(incorporated by reference from Amazon.com, Inc.'s Current
Report on Form 8-K dated August 3, 1998)

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SUPPLEMENTAL CONSOLIDATED SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with the
supplemental consolidated financial statements and the notes thereto and the
information contained herein in "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

FOR THE
PERIOD
FROM
JULY 5, 1994
(INCEPTION)
YEARS ENDED DECEMBER 31, TO
----------------------------------------------------- DECEMBER 31,
1997 1996 1995 1994
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(IN THOUSANDS, EXCEPT PER SHARE DATA)

SUPPLEMENTAL CONSOLIDATED
STATEMENT OF OPERATIONS DATA:

Net sales ............................. $ 147,787 $ 15,746 $ 511 $ --
Cost of sales ......................... 118,969 12,287 409 --
------------- ------------- ------------- -------------
Gross profit .......................... 28,818 3,459 102 --
Operating expenses:
Marketing and sales ................. 38,964 6,090 200 --
Product development ................. 13,458 2,401 171 38
General and administrative .......... 8,991 1,411 35 14
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Total operating expenses ...... 61,413 9,902 406 52
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Loss from operations .................. (32,595) (6,443) (304) (52)
Interest income ....................... 1,901 202 1 --
Interest expense ...................... (326) (5) -- --
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Net loss .............................. $ (31,020) $ (6,246) $ (303) $ (52)
============= ============= ============= =============

Pro forma basic and
diluted loss per share (1) ............ $ (0.71) $ (0.17) $ (0.01) $ (0.00)
============= ============= ============= =============

Shares used in computation of pro forma
loss per share (1) .................. 43,447 37,090 28,788 26,382
============= ============= ============= =============

DECEMBER 31,
-------------------------------------------------------------------
1997 1996 1995 1994
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(IN THOUSANDS)

SUPPLEMENTAL CONSOLIDATED
BALANCE SHEET DATA:
Cash and cash equivalents ............ $ 110,119 $ 6,289 $ 996 $ 52
Working capital (deficiency) ......... 93,158 1,698 920 (16)
Total assets ......................... 149,844 8,434 1,084 76
Long-term debt, net of current portion 76,702 -- -- --
Stockholders' equity ................. 28,591 2,943 977 8

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(1) See Note 1 -- "Accounting Policies" of Notes to Supplemental
Consolidated Financial Statements, and Note 9 -- "Subsequent Events
(unaudited)."

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

On August 27, 1998, pursuant to an Agreement and Plan of Merger, dated
as of August 3, 1998, by and among the Company, Sage Enterprises, Inc.
("PlanetAll"), and Pacific Acquisition, Inc. ("PlanetAll Merger Sub"), the
Company acquired all of the outstanding capital stock of PlanetAll and PlanetAll
Merger Sub merged with and into PlanetAll, with PlanetAll as the surviving
corporation. PlanetAll, founded in September 1996 and based in Boston,
Massachusetts, provides contact management services via the Internet, including
Web-based address book, calendar and reminder features. The Company issued
approximately 800,000 shares of common stock, par value $.01 per share, and
assumed all outstanding options in connection with the acquisition of PlanetAll.

This transaction was accounted for as a pooling of interests. The
supplemental consolidated financial statements and the notes thereto have been
prepared to reflect the restatement of all periods presented to include the
accounts of PlanetAll. The historical results of the pooled entities reflect
each of their actual operating cost structures and, as a result, do not
necessarily reflect the cost structure of the newly combined entity. The
historical results do not purport to be indicative of results, which may occur
in the future. These supplemental consolidated financial statements will become
the historical financial statements of the Company after financial statements
covering the date of consummation of the business combination are issued.

Set forth below is the Company's Supplemental Consolidated Management's
Discussion and Analysis of Financial Condition and Results of Operations for the
years ended December 31, 1997, 1996 and 1995 restated to give retroactive
effect to the PlanetAll Merger.

The results of operations, liquidity and capital resources of PlanetAll
is neither material as of and for the three months ended March 31, 1998 and
1997, nor as of and for the three and six months ended June 30, 1998 and 1997.

The information set forth below 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 and
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 are not guarantees of future
performance and are subject to certain risks and uncertainties that are
difficult to predict. Accordingly, actual results may differ materially from
those anticipated or expressed in such statements. Potential risks and
uncertainties include, among others, those set forth below as well as in
"Business -- Additional Factors That May Affect Future Results." 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 environments and the risks
associated with capacity constraints, systems development, management of growth
and 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 a smaller number of 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 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, 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
December 31, 1997 had an accumulated deficit of $37.5 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. 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

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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 and attract new
personnel in a timely and effective manner, (viii) the level of traffic on the
Company's Web site, (ix) technical difficulties, system downtime or Internet
brownouts, (x) the amount and timing of operating costs and capital expenditures
relating to expansion of the Company's business, operations and infrastructure,
(xi) the number of popular books introduced during the period, (xii) the level
of merchandise returns experienced by the Company, (xiii) governmental
regulation and taxation policies, (xiv) disruptions in service by common
carriers due to strikes or otherwise and (iv) 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 significantly higher in the fourth calendar
quarter of each year than in the preceding three quarters.

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

The Company has recorded aggregate deferred compensation of
approximately $3.3 million. The amount recorded represents the difference
between the grant price and the deemed fair value of the Company's common stock
for shares subject to options granted in 1997 and 1996. Deferred compensation is
amortized over the vesting period of the options, which is typically five years.
Amortization for the year ended December 31, 1997 was $1.4 million. No
amortization expense was recognized in 1996.

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SUPPLEMENTAL CONSOLIDATED RESULTS OF OPERATIONS

NET SALES

1997 % CHANGE 1996 % CHANGE 1995
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)

Net sales ..... $ 147,787 839% $ 15,746 2,981% $ 511

Net sales are primarily 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 significant 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 during 1997. International sales
represented 25%, 33% and 39% of net sales for the years ended December 31, 1997,
1996 and 1995, respectively.

GROSS PROFIT

1997 % CHANGE 1996 % CHANGE 1995
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)

Gross Profit $ 28,818 733% $ 3,459 3,291% $ 102
Gross Margin 19.5% 22.0% 20.0%

Gross profit equals sales less cost of sales, which primarily 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. The Company's gross margin decreased due to a
combination of lower prices and lower overall shipping margins, partially offset
by improvements in product cost.

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.

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MARKETING AND SALES

1997 % CHANGE 1996 % CHANGE 1995
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)

Marketing and sales ... $ 38,964 540% $ 6,090 2,945% $ 200
Percentage of net sales 26.4% 38.7% 39.1%

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 costs associated with fulfilling customer demand, increased personnel
and related expenses required to implement the Company's marketing strategy 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

1997 % CHANGE 1996 % CHANGE 1995
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)

Product development ... $ 13,458 461% $ 2,401 1,304% $ 171
Percentage of net sales 9.1% 15.2% 33.5%

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 significantly 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.

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GENERAL AND ADMINISTRATIVE

1997 % CHANGE 1996 % CHANGE 1995
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)

General and administrative $ 8,991 537% $ 1,411 3,931% $ 35
Percentage of net sales .. 6.1% 9.0% 6.8%

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, increases in
professional fees and, in 1997, costs attributable to being a public company.
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.

INTEREST INCOME AND EXPENSE

1997 % CHANGE 1996 % CHANGE 1995
------------ ------------ ------------ ------------ ----------
(IN THOUSANDS)

Interest income $ 1,901 841% $ 202 N/M $ 1
Interest expense (326) N/M (5) 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 in 1997 and 1996 primarily consists of interest and
amortization of deferred charges related to the Loan and interest on asset
acquisitions financed through loans and capital leases.

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. 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 December 31, 1997 the Company's cash and cash equivalents were $110.1
million, compared to $6.3 million at December 31, 1996.

Net cash provided by operating activities of $687,000 for the year ended
December 31, 1997 was primarily attributable to increases of $30.2 million in
accounts payable, $5.3 million in other accrued expenses and $2.9 million in
accrued advertising, plus $4.9 million in depreciation and amortization, largely
offset by a net loss of $31.0 million and increases of $8.4 million in
inventories and $3.1 million in prepaid expenses and other assets. For 1996,
cash used in operating activities was $2.0 million and resulted from a net loss
of $6.2 million and increases of $554,000 in inventories, $315,000 in prepaid
expenses and other assets and $148,000 in deposits, largely offset by increases
of $2.8 million in accounts payable, $598,000 in accrued advertising and $1.6
million in other

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liabilities and accrued expenses, plus $296,000 in depreciation and
amortization. Net cash used in investing activities was $22.9 million for the
year ended December 31, 1997 and consisted of purchases of short-term
investments of $20.5 million and purchases of fixed assets of $7.6 million,
partially offset by maturities of short-term investments of $5.2 million. For
1996, net cash used in investing activities consisted of $1.3 million for the
purchase of fixed assets. The large increases in the components of working
capital on a period-to-period basis are a direct result of the rapid growth of
the Company's revenues and related activities. Such growth has required the
Company to purchase additional fixed assets and increase purchases of products,
which resulted in corresponding increases in inventories and accounts payable.

Cash flows provided by financing activities of $126.0 million for the
year ended December 31, 1997 consisted of net proceeds of approximately $72.6
million, primarily from the Loan obtained in December 1997, $49.1 million from
the Company's May 1997 initial public offering, $3.5 million from PlanetAll's
issuance of capital stock, $509,000 from the exercise of common stock options
and $200,000 from the issuance of preferred stock. Cash flows of $8.6 million
attributable to financing activities for the year ended December 31, 1996
consisted primarily of net proceeds from the issuance of preferred stock.

On December 23, 1997, the Company borrowed $75 million pursuant to a
three-year senior secured term Loan. The purpose of the Loan is to finance
working capital, capital additions, operations, acquisitions, joint ventures and
general corporate purposes. The Loan is secured by a first priority lien on
substantially all of the Company's assets. The Company has the option to choose
from the following interest rate options: (i) a variable rate adjusted every
one, two, three or six months at the Company's option and based on the London
Interbank Offered Rate ("LIBOR") plus 3.50% per annum for the first six months
of the Loan and 4.00% thereafter, or (ii) a variable rate of interest based on
the lender's Base Rate plus 1.50% per annum for the first six months of the Loan
and 2.00% thereafter. In connection with the Loan, in January 1998 the Company
entered into certain interest rate risk management agreements. The Company is
required to make mandatory prepayments on the Loan equal to 50% of the proceeds
from any debt and/or equity offerings (other than the proceeds of certain
permitted debt) and 100% of the proceeds from certain sales of assets that are
not reinvested in replacement assets.

The Loan includes covenants restricting certain activities by the
Company, including (i) the incurrence of additional indebtedness, (ii)
consolidations, mergers and sales of assets and (iii) dividends and
distributions to stockholders. In addition, financial covenants require the
Company to, among other things, maintain a minimum cash balance, maintain
certain levels of earnings or losses before interest, taxes, depreciation and
amortization, limit its accounts payable aging and limit its capital and
acquisition expenditures. The Loan contains standard events of default,
including, among other things, a change in ownership or control. As a result,
the Loan may reduce the Company's operational flexibility and may limit its
ability to pursue market opportunities. The Company met all Loan covenants at
December 31, 1997.

In connection with the Loan, the Company issued warrants to purchase a
total of 1,500,000 shares (adjusted to give effect to the two-for-one stock
split effective June 1, 1998) of the Company's common stock. All or a portion of
the warrants will be canceled if the Company repays the Loan in full prior to
certain specified dates. If the Company does not repay the Loan prior to such
dates, and if any of the warrants are exercised, such exercise may dilute the
economic interests of the Company's stockholders. Warrants become exercisable
when they can no longer be canceled and remain exercisable for five years after
such date. The exercise price for the warrants is $26.06 per share (adjusted to
give effect to the two-for-one stock split effective June 1, 1998).

The Company expects to use the proceeds of the Loan to support its
strategy of investing heavily in marketing and promotion, product development
and technology and operating infrastructure development and may commit to
significant fixed expenditures. The Company's ability to generate planned future
revenues, and therefore its ability to comply with the Loan covenants, may be
affected by events beyond its control. If the Company were unable to satisfy the
Loan covenants, the lending institutions would be entitled to exercise their
remedies, including the right to declare all principal and interest immediately
due and payable. If the Company were unable to make such payment, or were unable
to repay the amount owing under the Loan at the end of its term, the lending
institutions could foreclose on the Company's assets, substantially all of which
are pledged as security for the Loan.

In November 1997, the Company purchased fixed assets through a financing
agreement totaling approximately $3.0 million and having an imputed interest
rate of 7.7% and a term of three years. The debt is to be repaid in four equal
payments.

As of December 31, 1997 the Company's principal sources of liquidity
consisted of $110.1 million of cash and cash equivalents and $15.3 million of
short-term investments. As of that date, the Company's principal commitments
consisted of obligations outstanding under the 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

13
expenditures, it anticipates a substantial increase in its capital expenditures
and lease commitments consistent with anticipated growth in operations,
infrastructure and personnel. In November 1997 the Company opened a
200,000-square-foot distribution center in Delaware and expanded its Seattle
distribution center to 85,000 square feet. 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.

The Company has developed a plan to modify its information technology to
recognize the Year 2000 and has, to the extent necessary, begun converting its
critical data processing systems. Since the Company's systems and software are
relatively new, management does not expect Year 2000 issues related to its own
internal systems to be significant. The Company has initiated formal
communications with all of its significant suppliers and service providers to
determine the extent to which the Company's interface systems are vulnerable to
those third parties' failure to remediate their own Year 2000 issues. There can
be no guarantee that the systems of other companies, on which the Company
relies, will be converted timely and will not have an adverse effect on the
Company's systems. The Company currently expects the project to be complete in
1999.

The Company purchases a substantial majority of its products from two
major vendors, Ingram and B&T. Ingram is the Company's largest supplier and
accounted for 58% and 59% of the Company's inventory purchases in 1997 and 1996,
respectively. The Company has no long-term contracts or arrangements with any of
its vendors that guarantee the availability of merchandise, the continuation of
particular payment terms or the extension of credit limits. There can be no
assurance that the Company's current vendors will continue to sell merchandise
to the Company on current terms or that the Company will be able to establish
new or extend current vendor relationships to ensure acquisition of merchandise
in a timely and efficient manner and on acceptable commercial terms. If the
Company were unable to develop and maintain relationships with vendors that
would allow it to obtain sufficient quantities of merchandise on acceptable
commercial terms, such inability could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.

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 cash generated from operations is
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.

14
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors
Amazon.com, Inc.

We have audited the supplemental consolidated balance sheets of
Amazon.com, Inc., formed as a result of the consolidation of Amazon.com, Inc.
and Sage Enterprises, Inc. ("PlanetAll"), as of December 31, 1997 and 1996 and
the related supplemental consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1997. Our audits also included the supplemental consolidated financial
statement schedule listed in the Index at Item 7. These supplemental
consolidated financial statements and schedule give retroactive effect to the
merger of Amazon.com, Inc. and PlanetAll on August 27, 1998, which has been
accounted for using the pooling of interests method as described in the notes
to the supplemental consolidated financial statements. These supplemental
consolidated financial statements and schedule are the responsibility of the
management of Amazon.com, Inc. Our responsibility is to express an opinion on
these supplemental consolidated financial statements and schedule based on our
audits. We did not audit the financial statements of PlanetAll, which
statements reflect total assets constituting approximately 1% for 1997 and
approximately 2% for 1996 of the related supplemental consolidated financial
statement totals, and which reflect net loss constituting approximately 11% for
1997 and approximately 8% for 1996 of the related supplemental consolidated
financial statement totals for each of the two years in the period December 31,
1997. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to data included for
PlanetAll, is based solely on the report of the other auditors.

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 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 and the report of other auditors provide a reasonable
basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the
supplemental consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Amazon.com, Inc. at December
31, 1997 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997 after giving
retroactive effect to the merger of PlanetAll, as described in the notes to the
supplemental consolidated financial statements, in conformity with generally
accepted accounting principles. Also, in our opinion, the related supplemental
consolidated financial statement schedule, when considered in relation to the
basic supplemental consolidated financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.

ERNST & YOUNG LLP

Seattle, Washington
January 19, 1998, except for paragraphs 2 and 3
of Note 1, as to which the date is August 27, 1998

15
AMAZON.COM, INC.

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

DECEMBER 31,
---------------------------
1997 1996
---------- ----------

ASSETS
Current Assets:
Cash and cash equivalents ................................... $ 110,119 $ 6,289
Short-term investments ...................................... 15,256 --
Inventories ................................................. 8,971 571
Prepaid expenses and other .................................. 3,363 329
---------- ----------
Total current assets ................................ 137,709 7,189
Fixed assets, net ............................................. 9,726 1,097
Deposits ...................................................... 169 148
Deferred charges .............................................. 2,240 --
---------- ----------
Total assets ........................................ $ 149,844 $ 8,434
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ............................................ $ 33,027 $ 2,855
Accrued advertising ......................................... 3,454 598
Accrued product development ................................. -- 500
Other liabilities and accrued expenses ...................... 6,570 1,538
Current portion of long-term debt ........................... 1,500 --
---------- ----------
Total current liabilities ........................... 44,551 5,491

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

Stockholders' Equity:
Preferred stock, $0.01 par value:
Authorized shares -- 10,000,000
Issued and outstanding shares -- none
and 569,396 shares in 1997 and 1996, respectively ...... -- 6
Common stock, $0.01 par value:
Authorized shares -- 100,000,000
Issued and outstanding shares -- 48,302,958 and
31,806,036 shares in 1997 and 1996, respectively ....... 483 318
Additional paid-in capital .................................. 67,552 9,725
Deferred compensation ....................................... (1,930) (612)
Accumulated deficit ......................................... (37,514) (6,494)
---------- ----------
Total stockholders' equity .............................. 28,591 2,943
---------- ----------
Total liabilities and stockholders' equity .......... $ 149,844 $ 8,434
========== ==========

See accompanying notes.
16
AMAZON.COM, INC.

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

YEARS ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995
---------- ---------- ----------

Net sales ......................................................... $ 147,787 $ 15,746 $ 511
Cost of sales ..................................................... 118,969 12,287 409
---------- ---------- ----------
Gross profit ...................................................... 28,818 3,459 102

Operating expenses:
Marketing and sales ............................................. 38,964 6,090 200
Product development ............................................. 13,458 2,401 171
General and administrative ...................................... 8,991 1,411 35
---------- ---------- ----------
Total operating expenses ..................................... 61,413 9,902 406

Loss from operations .............................................. (32,595) (6,443) (304)
Interest income ................................................... 1,901 202 1
Interest expense .................................................. (326) (5) --
---------- ---------- ----------
Net loss .......................................................... $ (31,020) $ (6,246) $ (303)
========== ========== ==========
Pro forma basic and diluted loss per share ........................ $ (0.71) $ (0.17) $ (0.01)
========== ========== ==========
Shares used in computation of pro forma basic and diluted loss
per share .................................................... 43,447 37,090 28,788
========== ========== ==========

See accompanying notes.
17
AMAZON.COM, INC.

SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

PREFERRED STOCK COMMON STOCK ADVANCES
----------------------------- ---------------------------- RECEIVED FOR
SHARES AMOUNT SHARES AMOUNT COMMON STOCK
---------- ---------- ---------- ---------- ------------

Balance at December 31, 1994 ......... -- $ -- 20,400,000 $ 10 $ 50
Sale of common stock ................ -- -- 8,470,488 1,172 (50)
Reclassification of accumulated
deficit due to termination of
S Corporation status .............. -- -- -- (107) --
Advances received for common
stock ............................. -- -- -- -- 150
Exercise of common stock
options ........................... -- -- 240,000 -- --
Net loss for the year ended
December 31, 1995 ................. -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1995 ......... -- -- 29,110,488 1,075 150
Reincorporation in Delaware ......... -- -- -- (783) --
Sale of preferred stock, net of
$30 issuance costs ................ 569,396 6 -- -- --
Sale of common stock ................ -- -- 1,681,056 16 (150)
Issuance of capital stock ........... -- -- 5,578 -- --
Exercise of common stock
options ........................... -- -- 1,008,914 10 --
Unearned compensation related
to stock options .................. -- -- -- -- --
Net loss for the year ended
December 31, 1996 ................. -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 ......... 569,396 6 31,806,036 318 --
Sale of preferred stock ............. 5,000 -- -- -- --
Exercise of common stock
options ........................... -- -- 2,731,128 28 --
Public stock offering, net of
$1,117 issuance costs ............. -- -- 6,000,000 60 --
Conversion of preferred stock
into common stock ................. (574,396) (6) 6,892,752 69 --
Issuance of common stock for
fixed assets and accrued
development ....................... -- -- 450,000 4 --
Issuance of capital stock ........... -- -- 423,042 4 --
Unearned compensation related
to stock options .................. -- -- -- -- --
Amortization of unearned
compensation related to
stock options ..................... -- -- -- -- --
Net loss for the year ended
December 31, 1997 ................. -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 ......... -- $ -- 48,302,958 $ 483 $ --
========== ========== ========== ========== ==========

ADDITIONAL TOTAL
PAID-IN DEFERRED ACCUMULATED STOCKHOLDERS'
CAPITAL COMPENSATION DEFICIT EQUITY
---------- ------------- ----------- -------------

Balance at December 31, 1994 ......... $ -- $ -- $ (52) $ 8
Sale of common stock ................ -- -- -- 1,122
Reclassification of accumulated
deficit due to termination of
S Corporation status .............. -- -- 107 --
Advances received for common
stock ............................. -- -- -- 150
Exercise of common stock
options ........................... -- -- -- --
Net loss for the year ended
December 31, 1995 ................. -- -- (303) (303)
---------- ---------- ---------- ----------
Balance at December 31, 1995 ......... -- -- (248) 977
Reincorporation in Delaware ......... 783 -- -- --
Sale of preferred stock, net of
$30 issuance costs ................ 7,964 -- -- 7,970
Sale of common stock ................ 170 -- -- 36
Issuance of capital stock ........... 11 -- -- 11
Exercise of common stock
options ........................... 185 -- -- 195
Unearned compensation related
to stock options .................. 612 (612) -- --
Net loss for the year ended
December 31, 1996 ................. -- -- (6,246) (6,246)
---------- ---------- ---------- ----------
Balance at December 31, 1996 ......... 9,725 (612) (6,494) 2,943
Sale of preferred stock ............. 200 -- -- 200
Exercise of common stock
options ........................... 481 -- -- 509
Public stock offering, net of
$1,117 issuance costs ............. 49,043 -- -- 49,103
Conversion of preferred stock
into common stock ................. (63) -- -- --
Issuance of common stock for
fixed assets and accrued
development ....................... 1,496 -- -- 1,500
Issuance of capital stock ........... 3,998 -- -- 4,002
Unearned compensation related
to stock options .................. 2,741 (2,741) -- --
Amortization of unearned
compensation related to
stock options ..................... (69) 1,423 -- 1,354
Net loss for the year ended
December 31, 1997 ................. -- -- (31,020) (31,020)
---------- ---------- ---------- ----------
Balance at December 31, 1997 ......... $ 67,552 $ (1,930) $ (37,514) $ 28,591
========== ========== ========== ==========

See accompanying notes.
18
AMAZON.COM, INC.

SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

YEARS ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
---------- -------- --------

OPERATING ACTIVITIES
Net loss ........................................................... $ (31,020) $ (6,246) $ (303)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization .................................... 3,506 296 19
Amortization of unearned compensation related to stock options ... 1,354 -- --
Changes in operating assets and liabilities:
Inventories ................................................... (8,400) (554) (17)
Prepaid expenses and other .................................... (3,034) (315) (14)
Deposits ...................................................... (21) (148) --
Accounts payable .............................................. 30,172 2,756 99
Accrued advertising ........................................... 2,856 598 --
Other liabilities and accrued expenses ........................ 5,274 1,603 (16)
---------- -------- --------
Net cash provided by (used in) operating activities .......... 687 (2,010) (232)

INVESTING ACTIVITIES
Maturities of short-term investments ............................... 5,198 -- --
Purchases of short-term investments ................................ (20,454) -- --
Purchases of fixed assets .......................................... (7,603) (1,335) (52)
---------- -------- --------
Net cash used in investing activities ....................... (22,859) (1,335) (52)

FINANCING ACTIVITIES
Proceeds from initial public offering .............................. 49,103 -- --
Proceeds from exercise of stock options and sale of common stock ... 509 231 1,272
Proceeds from issuance of capital stock ............................ 3,546 437 --
Proceeds from sale of preferred stock .............................. 200 7,970 --
Proceeds from (repayment of) notes payable and long-term debt ...... 74,953 -- (44)
Financing costs .................................................... (2,309) -- --
---------- -------- --------
Net cash provided by financing activities .................... 126,002 8,638 1,228
---------- -------- --------
Net increase in cash ............................................... 103,830 5,293 944
Cash and cash equivalents at beginning of period ................... 6,289 996 52
---------- -------- --------
Cash and cash equivalents at end of period ......................... $ 110,119 $ 6,289 $ 996
========== ======== ========

SUPPLEMENTAL CASH FLOW INFORMATION
Common stock issued for fixed assets and accrued product development $ 1,500 $ -- $ --
Fixed assets acquired under capital lease .......................... $ 442 $ -- $ --
Fixed assets acquired under financing agreement .................... $ 3,021 $ -- $ --
Interest paid ...................................................... $ 39 $ -- $ --

See accompanying notes.
19
AMAZON.COM, INC.

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ACCOUNTING POLICIES

Description of Business

Amazon.com, Inc. ("Amazon.com" or the "Company") was incorporated on
July 5, 1994. The Company is an online retailer of books and other
information-based products on the Company's Web site and offers more than 2.5
million titles.

Pooling of Interests

On August 27, 1998, pursuant to an Agreement and Plan of Merger, dated as
of August 3, 1998, by and among the Company, Sage Enterprises, Inc.
("PlanetAll"), and Pacific Acquisition, Inc. ("PlanetAll Merger Sub"), the
Company acquired all of the outstanding capital stock of PlanetAll and PlanetAll
Merger Sub merged with and into PlanetAll, with PlanetAll as the surviving
corporation. PlanetAll, founded in September 1996 and based in Boston,
Massachusetts, provides contact management services via the Internet, including
Web-based address book, calendar and reminder features. The Company issued
approximately 800,000 shares of common stock, par value $.01 per share, and
assumed all outstanding options in connection with the acquisition of PlanetAll.

This transaction was accounted for as a pooling of interests. These
supplemental consolidated financial statements have been prepared to reflect the
restatement of all periods presented to include the accounts of PlanetAll. The
historical results of the pooled entities reflect each of their actual operating
cost structures and, as a result, do not necessarily reflect the cost structure
of the newly combined entity. The historical results do not purport to be
indicative of results, which may occur in the future. These supplemental
consolidated financial statements will become the historical financial
statements of the Company after financial statements covering the date of
consummation of the business combination are issued.

Use of Estimates

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

Cash and Cash Equivalents

The Company invests certain of its excess cash in debt instruments of the
U.S. government and its agencies, foreign governments and high-quality corporate
issuers. The Company considers all highly liquid instruments with an original
maturity of three months or less to be cash equivalents. Cash and cash
equivalents are carried at cost, which approximates market.

Short-term Investments

At December 31, 1997, short-term investments consist primarily of
high-quality corporate notes, and were classified as held-to-maturity and
carried at cost, which approximates market. The average maturity of short-term
investments at December 31, 1997 was 139 days with a weighted-average yield of
5.7%. Unrealized holding gains and losses at December 31, 1997 were not
significant. At December 31, 1996, the Company did not hold any short-term
investments.

Deferred Charges

On December 23, 1997, the Company borrowed $75 million pursuant to a
three-year senior secured term credit agreement (the "Loan"). At December 31,
1997, deferred charges consisted of fees associated with the Loan. The fees will
be amortized over the life of the Loan using the straight-line method. During
1997 the Company recognized $64,000 in deferred charge amortization.

20
Inventories

Inventories are valued at the lower of average cost or market.

The Company purchases a substantial majority of its products from two
major vendors, Ingram Book Group ("Ingram") and Baker & Taylor, Inc. ("B&T").
Ingram is the Company's largest supplier and accounted for 58% and 59% of the
Company's inventory purchases in 1997 and 1996, respectively. The Company has no
long-term contracts or arrangements with any of its vendors that guarantee the
availability of merchandise, the continuation of particular payment terms or the
extension of credit limits. There can be no assurance that the Company's current
vendors will continue to sell merchandise to the Company on current terms or
that the Company will be able to establish new or extend current vendor
relationships to ensure acquisition of merchandise in a timely and efficient
manner and on acceptable commercial terms. If the Company were unable to develop
and maintain relationships with vendors that would allow it to obtain sufficient
quantities of merchandise on acceptable commercial terms, such inability could
have a material adverse effect on the Company's business, prospects, financial
condition and results of operations.

Fixed Assets

Fixed assets are recorded at cost less accumulated depreciation.
Depreciation of fixed assets is provided using primarily the straight-line
method over the estimated useful lives of two to five years.

Income Taxes

The Company recognizes deferred tax assets and liabilities based on
differences between the financial reporting and tax bases of assets and
liabilities using the enacted tax rates and laws that are expected to be in
effect when the differences are expected to be recovered. 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.

Revenue Recognition

The Company recognizes revenue from product sales, net of any discounts,
when the products are shipped to customers. Outbound shipping and handling
charges are included in net sales. Revenue from gift certificates is recognized
upon product shipment following redemption. The Company provides an allowance
for sales returns, which have been insignificant, based on historical
experience. International sales were $36.2 million, $5.1 million and $198,000
for the years ended December 31, 1997, 1996 and 1995, representing 25%, 33% and
39% of sales, respectively. No foreign country or geographical area accounted
for more than 10% of revenue in any of the periods presented.

Advertising Costs

The cost of advertising is expensed as incurred. For the years ended
December 31, 1997, 1996 and 1995, the Company incurred advertising expense of
$21.2 million, $3.4 million and $30,000, respectively.

Product Development

Stock Compensation

The Company has elected to apply the disclosure-only provisions of
Statement of Financial Accounting Standard ("SFAS") No. 123, Accounting for
Stock-Based Compensation. Accordingly, the Company accounts for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. Compensation cost for stock options is measured as the
excess, if any, of the fair value of the Company's common stock at the date of
grant over the stock option exercise price.

Concentrations of Credit Risk

The Company is subject to concentrations of credit risk from its holdings
of cash, cash equivalents and short-term investments. The Company's credit risk
is managed by investing its cash in high-quality money market instruments and
securities of the U.S. government and its agencies, foreign governments and
high-quality corporate issuers. In addition, the Company's accounts receivable
are

21
not significant and are due from domestic banks. The Company believes it had no
unusual concentrations of credit risk at December 31, 1997.

Net Loss Per Share

In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, Earnings per Share. SFAS No. 128 replaced the previously reported
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. Basic earnings per share is computed using the
weighted-average number of common shares outstanding during the period. Diluted
earnings per share is computed using the weighted-average number of common and
common stock equivalent shares outstanding during the period. Common equivalent
shares are excluded from the computation if their effect is antidilutive. Net
loss per share amounts for all periods have been restated to conform to SFAS No.
128 requirements.

Pro forma loss per share is based on the weighted average number of
common and common equivalent shares outstanding during each period. To calculate
pro forma loss per share, all outstanding shares of convertible preferred stock
are assumed to have been converted to common stock for all periods presented.

New Accounting Pronouncements

In June 1997, FASB issued SFAS No. 130, Reporting Comprehensive Income,
which establishes standards for reporting comprehensive income and its
components, and SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information, which establishes standards for reporting information about
operating segments. As of January 1, 1998, the Company adopted these statements.
The adoption of these statements had no material impact on the Company's net
loss or stockholders' equity.

Reclassifications

Certain prior-year balances have been reclassified to conform to the
current-year presentation.

NOTE 2 - FIXED ASSETS

Fixed assets, at cost, consist of the following:

DECEMBER 31,
--------------------
1997 1996
-------- ------
(IN THOUSANDS)

Computers and equipment ........................ $ 7,562 $1,140
Purchased software ............................. 4,560 146
Leasehold improvements ......................... 926 131
Leased assets .................................. 442 --
-------- ------
13,490 1,417
Less accumulated depreciation and
Amortization ................................. 3,764 320
-------- ------
Fixed assets, net ..................... $ 9,726 $1,097
======== ======

NOTE 3 - DEBT

Financing Arrangements

22
required to make mandatory prepayments on the Loan equal to 50% of the proceeds
from any debt and/or equity offerings (other than the proceeds of certain
permitted debt) and 100% of the proceeds from certain sales of assets that are
not reinvested in replacement assets.

In connection with the Loan, the Company issued warrants to purchase a
total of 1,500,000 shares of the Company's common stock. All or a portion of the
warrants will be canceled if the Company repays the Loan in full according to
the following schedule: all warrants if repayment occurs within 12 months;
warrants to purchase 1,350,000 shares if repayment occurs within 15 months;
warrants to purchase 1,125,000 shares if repayment occurs within 18 months;
warrants to purchase 900,000 shares if repayment occurs within 24 months;
warrants to purchase 450,000 shares if repayment occurs within 30 months; and no
warrants if repayment occurs after 30 months. Warrants become exercisable when
they can no longer be canceled and remain exercisable for five years after such
date. The exercise price for the warrants is $26.06 per share.

Financing Agreement for Purchase of Fixed Assets

In November 1997, the Company purchased fixed assets through a financing
agreement with a vendor having an imputed interest rate of 7.7% and a term of
three years. The debt is to be repaid in four equal payments.

Future minimum debt payments at December 31, 1997 are as follows:

YEAR ENDING DECEMBER 31,
------------------------
(IN THOUSANDS)

1998......................... $ 1,500
1999......................... 761
2000......................... 75,760
-------
Total debt.......................... 78,021
Less current portion................ 1,500
-------
Long-term debt...................... $76,521
=======

23
NOTE 4 - COMMITMENTS

The Company currently leases office and distribution center facilities
and fixed assets under non-cancelable operating and capital leases. Rental
expense under operating lease agreements for 1997, 1996 and 1995 was $2.1
million, $270,000 and $12,000, respectively. The Company has also entered into
certain advertising agreements.

Future minimum commitments as of December 31, 1997 are as follows:

YEAR ENDING DECEMBER 31, OPERATING
----------------------- CAPITAL LEASES AND
(IN THOUSANDS) LEASE ADVERTISING
------- -----------

1998................................ $ 193 $ 14,045
1999................................ 145 15,520
2000................................ 60 13,172
2001................................ -- 1,407
2002................................ -- 1,176
Thereafter.......................... -- 23
------ --------
Total minimum lease payments.... $ 398 $ 45,343
========
Less imputed interest.......................... 63
------
Present value of net minimum lease payments 335
Less current portion.......... 154
------
Long-term capital lease obligation............. $ 181
======

NOTE 5 - STOCKHOLDERS' EQUITY

Reincorporation and Authorized Capital

On May 28, 1996, the Company reincorporated in the state of Delaware with
authorized capital of 5,000,000 shares of $0.01 par value preferred stock and
25,000,000 shares of $0.01 par value common stock. The accompanying financial
statements have been restated to reflect the reincorporation. On April 18, 1997,
the Company increased its authorized common stock to 100,000,000 shares and
increased its authorized preferred stock to 10,000,000 shares.

Preferred Stock

In June 1996, the Company issued 569,396 shares of Series A convertible
preferred stock at a price of $14.05 per share. In January and February 1997,
the Company sold an additional 5,000 shares of Series A preferred stock at $40
per share. While outstanding, the preferred stock was convertible into common
stock at the option of the holder, at any time, at a rate of six shares of
common stock for one share of preferred stock. As of the closing of the initial
public offering, all of the preferred stock outstanding was converted into an
aggregate of 6,892,752 shares of common stock.

Common Stock

On November 23, 1996, the Company effected a four-for-one common stock
split. On April 18, 1997, the Company effected a three-for-two common stock
split. The accompanying financial statements have been restated to reflect these
stock splits.

Initial Public Offering

On May 15, 1997, the Company completed an initial public offering of
6,000,000 shares of its common stock. Net proceeds to the Company aggregated
$49.1 million.

Stock Options

The Company's stock option plans consist of the 1997 Stock Option Plan,
the 1997 Amended Stock Option Plan (the "PlanetAll Plan") and the 1994 Stock
Option Plan (collectively, the "Plans"). Shares reserved under the Plans consist
of 12,000,000 shares in the 1997 plan, approximately 100,000 shares in the
PlanetAll Plan, and 9,600,000 shares in the 1994 plan. Any shares of common
stock available for issuance under the 1994 Stock Option Plan that are not
issued under that plan may be added to the aggregate number of shares available
for issuance under the 1997 Stock Option Plan.

Generally, options are granted by the Company's Board of Directors at an
exercise price of not less than the fair market value of the Company's common
stock at the date of grant. Each outstanding option granted prior to December
20, 1996 has a term of five years from the date of vesting. Each outstanding
option granted on or subsequent to December 20, 1996 has a term of ten years
from the date of grant. Subject to IRS limitations, options granted under the
Plans generally become exercisable immediately. Options generally vest at the
rate of 20% after year one, 20% after year two and 5% at the end of each quarter
for years three through five. Shares issued upon exercise of options that are
unvested are subject to repurchase by the Company upon termination of employment
or services. At December 31, 1997, 1,619,842 shares of common stock were subject
to repurchase.

During 1995, the Company granted a total of 720,000 nonqualified stock
options outside of the Plans under separate agreements with three individuals.
Under the terms of these agreements, the option prices range from $0.167 to
$0.334 and vest at the rate of 40% on the date of grant, 30% after two years and
30% after four years. Unexercised options expire five years after the date of
grant. At December 31, 1997, options for 312,000 shares of common stock were
exercisable and options for 192,000 shares had been exercised.

The following table summarizes the Company's stock option activity:

WEIGHTED
NUMBER AVERAGE
OF EXERCISE
SHARES PRICE
---------- --------

Balance, December 31, 1994 ................. 2,353,632 $ 0.001
Options granted .......................... 1,484,928 0.172
Options canceled ......................... (60,000) 0.086
Options exercised ........................ (240,000) 0.001
----------
Balance December 31, 1995 .................. 3,538,560 0.071
Options granted:
At fair market value .................. 2,091,745 0.172
At less than fair market value ........ 3,108,300 0.398
Options canceled ......................... (1,057,444) 0.139
Options exercised ........................ (1,008,914) 0.194
----------
Balance December 31, 1996 .................. 6,672,247 0.225
Options granted:
At fair market value .................. 3,263,650 11.501
At less than fair market value ........ 2,756,700 1.420
Options canceled ......................... (850,691) 1.617
Options exercised ........................ (2,731,128) 0.190
----------
Balance December 31, 1997 .................. 9,110,778 4.507
==========

At December 31, 1997, 9,327,252 shares of common stock were available for
future grant under the Plans.

The following table summarizes information about options outstanding and
exercisable at December 31, 1997:

OPTIONS OUTSTANDING
--------------------------------------------
WEIGHTED- OPTIONS EXERCISABLE
AVERAGE ---------------------------
REMAINING WEIGHTED- WEIGHTED-
RANGE OF OPTIONS CONTRACTUAL AVERAGE OPTIONS AVERAGE
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ----------- -------------- ----------- --------------

$ 0.001 -- $ 0.166 344,211 6.3 years $ 0.087 341,643 $ 0.086
0.167 -- 0.500 3,067,169 6.5 years 0.302 2,763,983 0.299
0.501 -- 1.333 1,941,216 9.1 years 1.116 1,146,216 1.087
1.334 -- 2.333 640,400 9.2 years 2.208 567,148 2.222
2.334 -- 6.000 1,651,056 9.3 years 6.051 1,025,100 5.926
6.001 -- 12.656 569,826 9.6 years 11.005 468,726 10.992
12.657 -- 27.625 746,400 9.8 years 21.275 472,182 20.760
27.626 -- 31.282 150,500 9.9 years 29.039 73,546 29.003
--------- ---------
$ 0.001 -- $31.282 9,110,778 8.2 years $ 4.505 6,858,544 $ 3.867
========= ==========

The Company follows the intrinsic value method in accounting for its
stock options. Had compensation cost been recognized based on the fair value at
the date of grant for options granted in 1997, 1996 and 1995, the pro forma
amounts of the Company's net loss and net loss per share for the years ended
December 31, 1997, 1996 and 1995 would have been as follows:

FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
--------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Net loss - as reported $ (31,020) $ (6,246) $ (303)
Net loss - pro forma (35,983) (6,278) (304)
Pro forma basic and diluted loss per common
share - as reported $ (0.71) $ (0.17) $ (0.01)
Pro forma basic and diluted loss per common
share - pro forma (0.83) (0.17) (0.01)

The fair value of substantially all of the option grants was estimated
using the Black-Scholes option-pricing model. For the year ended December 31,
1997, the weighted-average value was generally estimated using an expected life
of three years, no dividends, risk-free interest rates ranging from 5.70% to
6.93% and a volatility of .50. For 1996 and 1995 the value was generally
estimated using risk-free interest rates of 5.16% to 7.60%, an expected option
life of three years and no expected dividends. As the Company was privately held
in 1996 and 1995, expected volatility was not applicable. The weighted-average
fair value of options granted during the years 1997, 1996 and 1995 was $6.20,
$0.04 and $0.03, respectively, for options granted at fair market value. The
weighted-average fair value of options granted at less than fair market value
during 1997 and 1996 was $1.66 and $0.27, respectively.

Deferred Compensation

The Company recorded aggregate deferred compensation of approximately
$2.7 million and $612,000 in 1997 and 1996, respectively. The amounts recorded
represent the difference between the grant price and the deemed fair value of
the Company's common stock for shares subject to options granted in 1997 and
1996. The amortization of deferred compensation will be charged to operations
over the vesting period of the options, which is typically five years. Total
amortization recognized in 1997 was approximately $1.4 million. No amortization
was recognized in 1996.

Common Stock Reserved

At December 31, 1997, common stock reserved for future issuance was as
follows:

Stock options.......................................... 18,438,030
Common stock warrants.................................. 1,500,000
---------
Total .............................................. 19,938,030
==========

NOTE 6 - INCOME TAXES

The Company did not provide an income tax benefit for any of the periods
presented because it has experienced operating losses since inception. At
December 31, 1997, the Company had net operating loss carryforwards of
approximately $33.6 million. Utilization of net operating loss carryforwards may
be subject to certain limitations under Section 382 of the Internal Revenue
Code. The carryforwards begin to expire in 2011.

Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets are as follows:

DECEMBER 31,
----------------------
1997 1996
-------- -------
Deferred tax assets: (IN THOUSANDS)

Net operating loss carryforwards .................... $ 9,496 $ 1,855
Reserves ............................................ 1,395 --
Compensation expense ................................ 460 --
Other ............................................... 527 --
-------- -------
Total deferred tax assets ................... 11,878 1,855
Valuation allowance for deferred tax assets .......... (11,878) (1,855)
-------- -------
Net deferred tax assets .............................. $ -- $ --
======== =======

NOTE 7 - EMPLOYEE BENEFIT PLAN

The Company has a 401(k) savings plan covering substantially all of its
employees. Eligible employees may contribute through payroll deductions. The
Company matches employees' contributions at the discretion of the Company's
Board of Directors. To date, the Company has not matched employee contributions
to the 401(k) savings plan.

NOTE 8 - QUARTERLY RESULTS (UNAUDITED)

The following tables contain selected unaudited supplemental consolidated
statements of operations and stock price data for each quarter of 1997 and 1996.
The Company believes that the following information reflects all normal
recurring adjustments necessary for a fair presentation of the information for
the periods presented. The operating results for any quarter are not necessarily
indicative of results for any future period.

1997
------------------------------------------------------
4th 3rd 2nd 1st
Quarter Quarter Quarter Quarter
--------- --------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Net sales ................................ $ 66,040 $ 37,887 $ 27,855 $ 16,005
Gross profit ............................. 12,913 7,170 5,214 3,521
Net loss ................................. (10,808) (9,647) (7,345) (3,220)
Pro forma basic and diluted loss per
share .............................. (0.23) (0.21) (0.17) (0.08)
Shares used in computation
of pro forma basic and diluted loss
per share .............................. 46,471 45,865 42,640 38,810
Stock sales prices per share:
High ............................... $ 32.75 $ 28.88 $ 15.00 N/A
Low ................................ $ 21.13 $ 9.07 $ 7.88 N/A

1996
------------------------------------------------------
4th 3rd 2nd 1st
Quarter Quarter Quarter Quarter
--------- --------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Net sales ................................ $ 8,468 $ 4,173 $ 2,230 $ 875
Gross profit ............................. 1,891 911 477 180
Net loss ................................. (2,747) (2,401) (767) (331)
Pro forma basic and diluted loss per
share ................................. (0.07) (0.06) (0.02) (0.01)
Shares used in computation
of pro forma basic and diluted
loss per share ..................... 38,176 38,084 36,678 35,424
Stock sales prices per share:
High ............................... N/A N/A N/A N/A
Low ................................ N/A N/A N/A N/A

NOTE 9 - SUBSEQUENT EVENTS (UNAUDITED)

In January 1998, PlanetAll issued 55,785 shares of capital stock for
proceeds of approximately $1.0 million. In April 1998, PlanetAll issued 298,719
shares of capital stock for proceeds of approximately $7.4 million.

In April 1998, the Company acquired 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 was
accounted for under the purchase method of accounting. The aggregate purchase
price of the three acquisitions, plus related charges, was approximately $55
million. The consideration for the acquisitions was comprised of cash and common
stock. The Company issued an aggregate of approximately 1.1 million shares of
common stock to effect the transactions. The excess of the purchase price over
the fair value of net assets acquired was allocated to goodwill and other
purchased intangibles and will be amortized over two years.

On May 8, 1998, the Company completed the offering of approximately $326
million gross proceeds of the Senior Discount Notes due May 1, 2008. The Senior
Discount Notes were sold at a substantial discount from their principal amount
at maturity of $530 million. Prior to November 1, 2003, no cash interest
payments are required; instead, interest will accrete during this period to the
$530 million aggregate principal amount at maturity. From and after May 1, 2003,
the Senior Discount Notes will bear interest at a rate of 10% per annum payable
in cash on each May 1 and November 1.

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 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 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 would
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 would 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 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
effectively subordinated to all secured indebtedness and to all existing and
future liabilities of the Company's subsidiaries.

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.

A portion of the net proceeds from the offering of the Senior Discount
Notes has been used to retire the Loan. The Company expects to use the remaining
net proceeds 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 sale
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 June 1, 1998, the Company effected a two-for-one stock split in the
form of a stock dividend to stockholders of record on May 20, 1998. Accordingly,
the accompanying consolidated financial statements have been restated to reflect
the split.

On June 3, 1998, the Company increased the number of authorized shares of
common stock, par value $0.01 per share, from 100 million shares to 300 million
shares.

On August 12, 1998, pursuant to an Agreement and Plan of Merger dated as
of August 3, 1998, by and among the Company, Junglee Corp ("Junglee") and AJ
Acquisition, Inc. ("Junglee Merger Sub"), the Company acquired all of the
outstanding capital stock of Junglee and Junglee Merger Sub merged with and into
Junglee, with Junglee as the surviving corporation (the "Junglee Merger").
Junglee, founded in June 1996 and based in Sunnyvale, California, has developed
World Wide Web-based virtual database technology to help consumers find products
on the Internet. The Company issued approximately 1,600,000 shares of common
stock, par value $.01 per share, and assumed all outstanding options in
connection with the acquisition of Junglee. The Junglee Merger will be accounted
for under the purchase method of accounting.
28
AMAZON.COM, INC.

SCHEDULE II - SUPPLEMENTAL VALUATION AND QUALIFYING ACCOUNTS

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Charged/ Collection
(Credited) of
Balance at to Costs Accounts Accounts Balance at
Beginning and Previously Written End of
Year Ended of Period Expenses Written Off Off Period
- ---------- --------- -------- ----------- -------- ----------

(in thousands)

December 31, 1997 $20 $203 $-- $(154) $69
=== ==== ==== ===== ===

December 31, 1996 -- 30 -- (10) 20
=== ==== ==== ===== ===

December 31, 1995 -- -- -- -- --
=== ==== ==== ===== ===

INVENTORY VALUATION ALLOWANCE

Charged/
(Credited)
Balance at to Costs Inventory Balance at
Beginning and Disposed or End of
Year Ended of Period Expenses Written Off Period
- ---------- --------- -------- ----------- ------
(in thousands)

December 31, 1997 $-- $800 $-- $800
=== ==== === ====

December 31, 1996 -- -- -- --
=== ==== === ====

December 31, 1995 -- -- -- --
=== ==== === ====

AMAZON.COM, INC.

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

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

Current assets:
Cash and cash equivalents ....................................... $ 99,101 $ 110,119
Short-term investments .......................................... 18,220 15,256
Inventories ..................................................... 11,674 8,971
Prepaid expenses and other ...................................... 4,486 3,363
--------- ---------
Total current assets .................................... 133,481 137,709
Fixed assets, net ................................................. 10,275 9,726
Deposits .......................................................... 296 169
Deferred charges .................................................. 2,048 2,240
--------- ---------
Total assets ............................................ $ 146,100 $ 149,844
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................ $ 34,609 $ 33,027
Accrued advertising ............................................. 5,349 3,454
Other liabilities and accrued expenses .......................... 8,934 6,570
Current portion of long-term debt ............................... 684 1,500
--------- ---------
Total current liabilities ............................... 49,576 44,551

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 -- 48,810,268 and 48,302,958
shares at March 31, 1998 and December 31, 1997, respectively 488 483
Additional paid-in capital ...................................... 68,710 67,552
Deferred compensation ........................................... (1,493) (1,930)
Accumulated deficit ............................................. (47,883) (37,514)
--------- ---------
Total stockholders' equity ................................. 19,822 28,591
--------- ---------
Total liabilities and stockholders' equity ...... $ 146,100 $ 149,844
========= =========

See accompanying notes.

AMAZON.COM, INC.

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

(UNAUDITED)

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

Net sales ............................................... $ 87,395 $ 16,005
Cost of sales ........................................... 68,062 12,484
-------- --------
Gross profit ............................................ 19,333 3,521

Operating expenses:
Marketing and sales .............................. 19,503 3,906
Product development .............................. 7,230 1,628
General and administrative ....................... 2,585 1,271
-------- --------
Total operating expenses ................... 29,318 6,805

Loss from operations .................................... (9,985) (3,284)
Interest income ......................................... 1,645 64
Interest expense ........................................ (2,029) --
-------- --------
Net loss ................................................ $(10,369) $ (3,220)
======== ========

Pro forma basic and diluted loss per share .............. $ (0.22) $ (0.08)
======== ========

Shares used in computation of pro forma basic and diluted
loss per share ................................... 47,106 38,810
======== ========

See accompanying notes.

AMAZON.COM, INC.

SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

(UNAUDITED)

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

OPERATING ACTIVITIES
Net loss ................................................................... $ (10,369) $ (3,220)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization ....................................... 1,841 421
Amortization of unearned compensation related to stock options ...... 185 263
Changes in operating assets and liabilities:
Inventories .................................................. (2,703) (368)
Prepaid expenses and other ................................... (1,122) (612)
Deposits ..................................................... (127) (47)
Accounts payable ............................................. 1,582 2,829
Accrued advertising .......................................... 1,895 656
Other liabilities and accrued expenses ....................... 1,547 1,005
--------- ---------
Net cash provided by (used in) operating activities ....... (7,271) 927

INVESTING ACTIVITIES
Maturities of short-term investments ....................................... 4,500 --
Purchases of short-term investments ........................................ (7,499) --
Purchases of fixed assets .................................................. (2,163) (929)
--------- ---------
Net cash used in investing activities ..................... (5,162) (929)

FINANCING ACTIVITIES
Proceeds from exercise of stock options .................................... 415 437
Proceeds from issuance of capital stock .................................... 1,000 206
Proceeds from sale of preferred stock ...................................... -- 200
--------- ---------
Net cash provided by financing activities ................. 1,415 843
--------- ---------
Net increase (decrease) in cash and cash equivalents ....................... (11,018) 841
Cash and cash equivalents at beginning of period ........................... 110,119 6,289
--------- ---------
Cash and cash equivalents at end of period ................................. $ 99,101 $ 7,130
========= =========

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

See accompanying notes.

AMAZON.COM, INC.

NOTES TO SUPPLEMENTAL CONSOLIDATED 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.

Pooling of Interests

On August 27, 1998, pursuant to an Agreement and Plan of Merger,
dated as of August 3, 1998, by and among the Company, Sage Enterprises, Inc.
("PlanetAll"), and Pacific Acquisition, Inc. ("PlanetAll Merger Sub"), the
Company acquired all of the outstanding capital stock of PlanetAll and PlanetAll
Merger Sub merged with and into PlanetAll, with PlanetAll as the surviving
corporation. PlanetAll, founded in September 1996 and based in Boston,
Massachusetts, provides contact management services via the Internet, including
Web-based address book, calendar and reminder features. The Company issued
approximately 800,000 shares of common stock, par value $.01 per share, and
assumed all outstanding options in connection with the acquisition of PlanetAll.

This transaction was accounted for as a pooling of interests.
These supplemental consolidated financial statements have been prepared to
reflect the restatement of all periods presented to include the accounts of
PlanetAll. The historical results of the pooled entities reflect each of their
actual operating cost structures and, as a result, do not necessarily reflect
the cost structure of the newly combined entity. The historical results do not
purport to be indicative of results, which may occur in the future. These
supplemental consolidated financial statements will become the historical
financial statements of the Company after financial statements covering the date
of consummation of the business combination are issued.

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 and the supplemental consolidated financial
statements and accompanying notes included in the Current Report on Form 8-K
dated September 11, 1998. Certain prior period balances have been reclassified
to conform to the current period presentation.

As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income, which
establishes standards for the reporting and display of comprehensive income and
its components, and SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information. The adoption of these Statements had no material 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 ......... $ 8,738 $ 7,562
Purchased software .............. 5,315 4,560
Leasehold improvements .......... 1,199 926
Leased assets ................... 362 442
------- -------
15,614 13,490
Less accumulated depreciation and
amortization ............ 5,339 3,764
------- -------
Fixed assets, net . $10,275 $ 9,726
======= =======

NOTE 3 - STOCKHOLDERS' EQUITY

In January 1998, PlanetAll issued 55,785 shares of capital stock
for proceeds of approximately $1.0 million.

NOTE 4 - SUBSEQUENT EVENTS

In April 1998, PlanetAll issued 298,719 shares of capital stock
for proceeds of approximately $7.0 million.

In April 1998, the Company acquired 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 was accounted for under the purchase method of accounting. The
aggregate purchase price of the three acquisitions, plus related charges, was
approximately $55 million. The consideration for the acquisitions was comprised
of cash and common stock. The Company issued an aggregate of approximately 1.1
million shares of common stock to effect the transactions. The excess of the
purchase price over the fair value of net assets acquired was allocated to
goodwill and other purchased intangibles and will be amortized over two years.

On May 8, 1998, the Company completed the offering of
approximately $326 million gross proceeds of the Senior Discount Notes due May
1, 2008. The Senior Discount Notes were sold at a substantial discount from
their principal amount at maturity of $530 million. Prior to November 1, 2003,
no cash interest payments are required; instead, interest will accrete during
this period to the $530 million aggregate principal amount at maturity. From and
after May 1, 2003, the Senior Discount Notes will bear interest at a rate of 10%
per annum payable in cash on each May 1 and November 1.

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 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 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 would 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 would 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 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.

A portion of the net proceeds from the offering of the Senior
Discount Notes has been used to retire approximately $75 million of existing
indebtedness. The Company expects to use the remaining net proceeds 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 sale 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 June 1, 1998, the Company effected a two-for-one stock split in
the form of a stock dividend to stockholders of record on May 20, 1998.
Accordingly, the accompanying consolidated financial statements have been
restated to reflect the split.

On June 3, 1998, the Company increased the number of authorized
shares of common stock, par value $0.01 per share, from 100 million shares to
300 million shares.

On August 12, 1998, pursuant to an Agreement and Plan of Merger
dated as of August 3, 1998, by and among the Company, Junglee Corp ("Junglee")
and AJ Acquisition, Inc. ("Junglee Merger Sub"), the Company acquired all of the
outstanding capital stock of Junglee and Junglee Merger Sub merged with and into
Junglee, with Junglee as the surviving corporation (the "Junglee Merger").
Junglee, founded in June 1996 and based in Sunnyvale, California, has developed
World Wide Web-based virtual database technology to help consumers find products
on the Internet. The Company issued approximately 1,600,000 shares of common
stock, par value $.01 per share, and assumed all outstanding options in
connection with the acquisition of Junglee. The Junglee Merger will be accounted
for under the purchase method of accounting.

AMAZON.COM, INC.

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

JUNE 30, DECEMBER 31,
1998 1997
--------- ---------
(unaudited)
ASSETS

Current assets:
Cash ............................................................ $ 7,462 $ 1,876
Marketable securities ........................................... 337,396 123,499
Inventories ..................................................... 17,035 8,971
Prepaid expenses and other ...................................... 12,722 3,363
--------- ---------
Total current assets .................................... 374,615 137,709
Fixed assets, net ................................................. 15,587 9,726
Deposits and other ................................................ 286 169
Goodwill and other purchased intangibles, net ..................... 52,398 --
Deferred charges .................................................. 7,622 2,240
--------- ---------
Total assets ............................................ $ 450,508 $ 149,844
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................ $ 47,818 $ 33,027
Accrued advertising ............................................. 9,971 3,454
Other liabilities and accrued expenses .......................... 14,197 6,570
Current portion of long-term debt ............................... 684 1,500
--------- ---------
Total current liabilities ............................... 72,670 44,551

Long-term portion of debt ......................................... 332,225 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 -- 300,000,000
Issued and outstanding shares -- 50,452,722 and 48,302,958
shares, respectively ...................................... 505 483
Additional paid-in capital ...................................... 116,725 67,552
Deferred compensation ........................................... (1,301) (1,930)
Other gains (losses) ............................................ (35) --
Accumulated deficit ............................................. (70,462) (37,514)
--------- ---------
Total stockholders' equity .............................. 45,432 28,591
--------- ---------
Total liabilities and stockholders' equity .. $ 450,508 $ 149,844
========= =========

See accompanying notes.

AMAZON.COM, INC.

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

(UNAUDITED)

QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1998 1997 1998 1997
--------- --------- --------- ---------

Net sales ..................................................... $ 116,010 $ 27,855 $ 203,405 $ 43,860
Cost of sales ................................................. 89,794 22,641 157,856 35,125
--------- --------- --------- ---------
Gross profit .................................................. 26,216 5,214 45,549 8,735

Operating expenses:
Marketing and sales .................................... 26,452 7,773 45,955 11,679
Product development .................................... 8,598 2,915 15,828 4,543
General and administrative ............................. 4,153 2,196 6,738 3,467
Amortization of goodwill and other purchased
intangibles ...................................... 5,413 -- 5,413 --
--------- --------- --------- ---------
Total operating expenses ......................... 44,616 12,884 73,934 19,689

Loss from operations .......................................... (18,400) (7,670) (28,385) (10,954)
Interest income ............................................... 3,390 366 5,036 430
Interest expense .............................................. (7,569) (40) (9,599) (40)
--------- --------- --------- ---------
Net interest income (expense) .................... (4,179) 326 (4,563) 390
Net loss ...................................................... $ (22,579) $ (7,344) $ (32,948) $ (10,564)
========= ========= ========= =========

Basic and diluted loss per share .............................. $ (0.46) $ (0.17) $ (0.69) $ (0.26)
========= ========= ========= =========

Shares used in computation of basic and diluted
loss per share ......................................... 48,759 42,640 47,934 40,725
========= ========= ========= =========

See accompanying notes.

AMAZON.COM, INC.

SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

(UNAUDITED)

SIX MONTHS ENDED
JUNE 30,
--------------------------
1998 1997
--------- ---------

OPERATING ACTIVITIES
Net loss ................................................................... $ (32,948) $ (10,564)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization ....................................... 8,903 1,032
Amortization of unearned compensation related to stock options ...... 630 625
Noncash interest expense ............................................ 7,085 --
Changes in operating assets and liabilities:
Inventories .................................................. (8,047) (1,081)
Prepaid expenses and other ................................... (8,199) (997)
Deposits and other ........................................... (93) (182)
Accounts payable ............................................. 13,572 7,540
Accrued advertising .......................................... 6,517 2,574
Other liabilities and accrued expenses ....................... 6,209 2,599
--------- ---------
Net cash provided by (used in) operating activities (6,371) 1,546

INVESTING ACTIVITIES
Maturities of marketable securities ........................................ 55,136 969
Purchases of marketable securities ......................................... (269,068) (45,875)
Purchases of fixed assets .................................................. (8,956) (2,383)
Acquisition of businesses .................................................. (14,993) --
--------- ---------
Net cash used in investing activities ............. (237,881) (47,289)

FINANCING ACTIVITIES
Proceeds from initial public offering ...................................... -- 49,103
Proceeds from issuance of capital stock .................................... 7,893 1,830
Proceeds from exercise of stock options .................................... 1,022 474
Proceeds from sale of preferred stock ...................................... -- 200
Proceeds from debt ......................................................... 325,987 --
Repayment of debt .......................................................... (77,246) (7)
Financing costs related to debt issuance ................................... (7,783) (22)
--------- ---------
Net cash provided by financing activities ......... 249,873 51,578
Effect of exchange rate changes ............................................ (35) --
--------- ---------
Net increase in cash ....................................................... 5,586 5,835
Cash at beginning of period ................................................ 1,876 865
--------- ---------
Cash at end of period ...................................................... $ 7,462 $ 6,700
========= =========

SUPPLEMENTAL CASH FLOW INFORMATION
Common stock issued for fixed assets and accrued product development ....... $ -- $ 1,500
Fixed assets acquired under capital lease .................................. $ -- $ 362
Common stock issued in connection with acquisitions ........................ $ 39,812 $ --

See accompanying notes.

AMAZON.COM, INC.

NOTES TO SUPPLEMENTAL CONSOLIDATED 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 music
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.

Pooling of Interests

On August 27, 1998, pursuant to an Agreement and Plan of Merger,
dated as of August 3, 1998, by and among the Company, Sage Enterprises, Inc.
("PlanetAll"), and Pacific Acquisition, Inc. ("PlanetAll Merger Sub"), the
Company acquired all of the outstanding capital stock of PlanetAll and PlanetAll
Merger Sub merged with and into PlanetAll, with PlanetAll as the surviving
corporation. PlanetAll, founded in September 1996 and based in Boston,
Massachusetts, provides contact management services via the Internet, including
Web-based address book, calendar and reminder features. The Company issued
approximately 800,000 shares of common stock, par value $.01 per share, and
assumed all outstanding options in connection with the acquisition of PlanetAll.

This transaction was accounted for as a pooling of interests.
These supplemental consolidated financial statements have been prepared to
reflect the restatement of all periods presented to include the accounts of
PlanetAll. The historical results of the pooled entities reflect each of their
actual operating cost structures and, as a result, do not necessarily reflect
the cost structure of the newly combined entity. The historical results do not
purport to be indicative of results, which may occur in the future. These
supplemental consolidated financial statements will become the historical
financial statements of the Company after financial statements covering the date
of consummation of the business combination are issued.

Unaudited Interim Financial Information

The financial statements as of June 30, 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 June 30, 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 and the supplemental consolidated financial
statements and accompanying notes included in the Current Report on Form 8-K
dated September 11, 1998. Certain prior period balances have been reclassified
to conform to the current period presentation.

Principles of Consolidation

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

Marketable Securities

The Company's marketable securities consist primarily of
high-quality short to intermediate term fixed income securities and money market
mutual funds and are classified as available-for-sale and are reported at fair
value. Unrealized gains and losses are reported, net of taxes, as a component of
stockholders' equity within other gains (losses). Unrealized losses are charged
against income when a decline in fair value is determined to be other than
temporary. Realized and unrealized gains and losses were immaterial for all
periods presented. The specific identification method is used to determine the
cost of securities sold. The Company classifies all

investments of cash as marketable securities, including highly liquid
investments with maturities of three months or less, and reflects the related
cash flows as investing cash flows. As a result of the classification of highly
liquid investments within marketable securities, a significant portion of the
Company's gross marketable securities purchases and maturities disclosed as
investing cash flows is related to highly liquid investments.

Deferred Charges

On May 8, 1998, the Company issued approximately $326 million
gross proceeds of 10% Senior Discount Notes due 2008 (the "Senior Discount
Notes"). At June 30, 1998, deferred charges consisted of fees associated with
the issuance of the Senior Discount Notes. The fees are being amortized into
interest expense over the life of the Senior Discount Notes.

Goodwill and Other Purchased Intangibles

Goodwill and other purchased intangibles is stated net of total
accumulated amortization of $5.4 million at June 30, 1998. Goodwill is being
amortized over a two-year period.

Foreign Currency

Exchange gains and losses arising from transactions denominated in
a currency other than the functional currency of the entity involved are
included in other gains (losses). To date the Company has entered into no
foreign currency exchange contracts or other such derivative instruments.

New Accounting Pronouncements

NOTE 2 - BUSINESS ACQUISITIONS

In April 1998, the Company acquired 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 was accounted for under the purchase method of accounting. The
aggregate purchase price of the three acquisitions, plus related charges, was
approximately $55 million. The consideration for the acquisitions was comprised
of cash and common stock. The Company issued an aggregate of approximately 1.1
million shares of common stock to effect the transactions. The excess of the
purchase price over the fair value of net assets acquired is included in
goodwill and other purchased intangibles in the accompanying consolidated
balance sheets and is being amortized over two years. The results of operations
of the acquired companies are included in the Company's consolidated financial
results beginning on the date of acquisition.

The following table presents unaudited consolidated pro forma
financial information for the six months ended June 30, 1998 and 1997, as though
the acquisitions made in 1998 had occurred on January 1 of each year:

For the Six For the Six
Months Ended Months Ended
June 30, 1998 June 30, 1997
------------- -------------

Net sales ...................... $ 206,853 $ 47,016
Net loss ....................... (43,189) (25,082)
Basic and diluted loss per share (0.89) (0.60)

Net loss in the above table includes amortization of goodwill and
other purchased intangibles of $14.7 million and $14.3 million for the six
months ended June 30, 1998 and 1997, respectively. The unaudited pro forma
financial information is presented for information purposes only and is not
necessarily indicative of the operating results that would have occurred had the
acquisitions taken

place on the basis assumed above. In addition, the pro forma results are not
intended to be a projection of future results and do not reflect any synergies
that might have been achieved from the combined operations.

NOTE 3 - DEBT

On May 8, 1998, the Company completed the offering of
approximately $326 million gross proceeds of the Senior Discount Notes due May
1, 2008. The Senior Discount Notes were sold at a substantial discount from
their principal amount at maturity of $530 million. Prior to November 1, 2003,
no cash interest payments are required; instead, interest will accrete during
this period to the $530 million aggregate principal amount at maturity. From and
after May 1, 2003, the Senior Discount Notes will bear interest at a rate of 10%
per annum payable in cash on each May 1 and November 1.

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 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 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 would 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 would 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 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.

NOTE 4 - STOCKHOLDERS' EQUITY

In January 1998, PlanetAll issued 55,785 shares of capital stock
for proceeds of approximately $1.0 million. In April 1998, PlanetAll issued
298,719 shares of capital stock for proceeds of approximately $7.4 million.

On June 1, 1998, the Company effected a two-for-one stock split in
the form of a stock dividend to stockholders of record on May 20, 1998.
Accordingly, the accompanying consolidated financial statements have been
restated to reflect the split.

On June 3, 1998, the Company increased the number of authorized
shares of common stock, par value $0.01 per share, from 100 million shares to
300 million shares.

NOTE 5 - SUBSEQUENT EVENTS

On August 12, 1998, pursuant to an Agreement and Plan of Merger
dated as of August 3, 1998, by and among the Company, Junglee Corp ("Junglee")
and AJ Acquisition, Inc. ("Junglee Merger Sub"), the Company acquired all of the
outstanding capital stock of Junglee and Junglee Merger Sub merged with and into
Junglee, with Junglee as the surviving corporation (the "Junglee Merger").
Junglee, founded in June 1996 and based in Sunnyvale, California, has developed
World Wide Web-based virtual database technology to help consumers find products
on the Internet. The Company issued approximately 1,600,000 shares of common
stock, par value $.01 per share, and assumed all outstanding options in
connection with the acquisition of Junglee. The Junglee Merger will be accounted
for under the purchase method of accounting.

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 hereunto duly authorized.

AMAZON.COM, INC.
(Registrant)

Dated: September 11, 1998 By: /s/ Joy D. Covey
------------------------------------------
Joy D. Covey
Chief Financial Officer, Vice President of
Finance and Administration and Secretary

EXHIBIT INDEX

Exhibit Number Description
- -------------- -----------

2.1 Agreement and Plan of Merger dated as of August 3 1998, by and among
Amazon.com, Inc., Pacific Acquisition, Inc. and Sage Enterprises, Inc.
(incorporated by reference from Amazon.com, Inc.'s Current Report on Form 8-K
dated August 3, 1998)

23.1 Consent of Ernst & Young LLP, Independent Auditors

27.1 Restated Financial Data Schedule for the Year Ended December 31, 1997

27.2 Restated Financial Data Schedule for the Year Ended December 31, 1996

27.3 Restated Financial Data Schedule for the Six Months Ended June 30, 1998

27.4 Restated Financial Data Schedule for the Three Months Ended March 31, 1998

27.5 Restated Financial Data Schedule for the Nine Months Ended September 30, 1997

27.6 Restated Financial Data Schedule for the Six Months Ended June 30, 1997

27.7 Restated Financial Data Schedule for the Three Months Ended March 31, 1997

99.1 Form of Investor Rights Agreement by and between Amazon.com, Inc. and the
stockholders of Sage Enterprises, Inc. (incorporated by reference from
Amazon.com, Inc.'s Current Report on Form 8-K dated August 3, 1998)