AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 20, 2000
REGISTRATION NO. 333-
====================================================================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
IDEALAB!
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------------------
NEVADA 7389 95-4569774
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)

130 W. UNION STREET
PASADENA, CA 91103
(626) 585-6900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------------------
BILL GROSS
CHIEF EXECUTIVE OFFICER AND CHAIRMAN
130 W. UNION STREET
PASADENA, CA 91103
(626) 585-6900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
--------------------------
COPIES TO:
LARRY W. SONSINI, ESQ. WILLIAM H. HINMAN, JR., ESQ.
BRIAN C. ERB, ESQ. SHEARMAN & STERLING
WILSON SONSINI GOODRICH & ROSATI 1550 EL CAMINO REAL
PROFESSIONAL CORPORATION MENLO PARK, CA 94025
650 PAGE MILL ROAD (650) 330-2200
PALO ALTO, CA 94304
(650) 493-9300
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /

--------------------------
CALCULATION OF REGISTRATION FEE
============================================= =========================================== ==========================================
TITLE OF EACH CLASS PROPOSED MAXIMUM
OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE (1) AMOUNT OF REGISTRATION FEE
- --------------------------------------------- ------------------------------------------- ------------------------------------------
Common stock, $0.001 par value per share..... $ 300,000,000 $ 79,200
============================================= =========================================== ==========================================
(1)Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the
Securities Act of 1933.
--------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

====================================================================================================================================

THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.

********************************************************************************

SUBJECT TO COMPLETION. DATED APRIL 20, 2000.

[LOGO APPEARS HERE]

Common Stock

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

This is an initial public offering of shares of common stock of idealab!.
All of the shares of common stock are being sold by idealab!.

Prior to this offering, there has been no public market for the common
stock. It is currently estimated that the initial public offering price per
share will be between $ _______ and $ ____________ . Application has been made
for quotation of the common stock on the Nasdaq National Market under the symbol
"ILAB".

SEE "RISK FACTORS" BEGINNING ON PAGE 7 TO READ ABOUT FACTORS YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF THE COMMON STOCK.

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

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

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

PER SHARE TOTAL
-------------- ------------

Initial public offering price................................................. $ $
Underwriting discount......................................................... $ $
Proceeds, before expenses, to idealab!........................................ $ $

To the extent that the underwriters sell more than _______ shares of common
stock, the underwriters have the option to purchase up to an additional _______
shares from idealab! at the initial public offering price less the underwriting
discount.

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

The underwriters expect to deliver the shares against payment in New York,
New York on ______ , 2000.

GOLDMAN, SACHS & CO.

DONALDSON, LUFKIN & JENRETTE

MERRILL LYNCH & CO.

ROBERTSON STEPHENS

THOMAS WEISEL PARTNERS LLC

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

Prospectus dated , 2000.

[Set forth on the inside front cover is a visual representation and
description of three business forces that create market opportunities for
idealab! network companies, three ways in which idealab! addresses these
opportunities through its structure and ten features of the idealab! method of
creating, building and operating companies.]

[Set forth on the inside front cover gate fold below the caption "The
idealab! network companies: Many agile private and public companies with extreme
focus and adaptability ... high reward for employees and synergy in the company
network" are the logos of several idealab! network companies along with brief
descriptions of their businesses.]

PROSPECTUS SUMMARY

YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION REGARDING US AND THE COMMON STOCK BEING SOLD IN THIS OFFERING, AND
WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE SPECIFIED, ALL INFORMATION IN
THIS PROSPECTUS: (1) DOES NOT TAKE INTO ACCOUNT THE POSSIBLE ISSUANCE OF UP TO
__________ ADDITIONAL SHARES OF OUR COMMON STOCK UPON THE EXERCISE OF THE
UNDERWRITERS' RIGHT TO PURCHASE SUCH SHARES; (2) REFLECTS THE AUTOMATIC
CONVERSION OF ALL 23,686,010 SHARES OF OUR PREFERRED STOCK OUTSTANDING AS OF
JANUARY 31, 2000 INTO 236,860,100 SHARES OF COMMON STOCK UPON THE CLOSING OF
THIS OFFERING; (3) REFLECTS OUR REINCORPORATION IN NEVADA PRIOR TO THE CLOSING
OF THIS OFFERING; AND (4) REFLECTS THE AMENDMENT OF OUR CHARTER TO PROVIDE FOR
THE AUTHORIZATION OF 10,000,000,000 SHARES OF COMMON STOCK AND 100,000,000
SHARES OF PREFERRED STOCK EFFECTIVE UPON CLOSING OF THIS OFFERING.

IDEALAB!

idealab! is a new form of enterprise that creates, builds and operates
businesses that use the power of real-time interactive communications, including
the Internet, telephony, cable and wireless, to satisfy unmet market needs. Most
of our companies are based on ideas we generate internally, although from time
to time we may consider ideas brought to us by other entrepreneurs or acquire
interests in existing Internet companies that are strategically important to our
network.

Each business in our integrated, collaborative network is established as
a separate company rather than as a division of idealab!. We believe that the
resulting balance of decentralization and centralization enables each business
to retain the adaptability and entrepreneurialism of a small company while
benefiting from the economies of scale, information sharing and other synergies
associated with inclusion in our network. Moreover, we believe that our
companies are able to compete more effectively and grow more rapidly than many
of their stand-alone competitors because we enable the entrepreneurs managing
our businesses to concentrate primarily on the rapid execution of their business
plans.

The idealab! business method consists of idea generation, selection and
analysis, company building and operational support, and strategic guidance and
direction. Our experience in creating, building and operating Internet
businesses enables us to quickly and efficiently bring innovative new companies
to market and to build our existing companies into market leaders.

o IDEA GENERATION, SELECTION AND ANALYSIS. We create network companies
by continually generating ideas for innovative business models. We
measure each idea against several criteria, including whether it
addresses an unmet market need, its potential to benefit the idealab!
network and its ability to generate increasing efficiencies as the
business grows. Before creating or acquiring a company, we perform
thorough qualitative and quantitative analyses, create prototypes and
conduct extensive consumer testing.

o COMPANY BUILDING AND OPERATIONAL SUPPORT. We provide our companies
with operational assistance from our various in-house departments and
third party service providers, access to our business relationships
both inside and outside the idealab! network and financial support. We
initially house most of our companies at our open-plan facilities,
which are designed to foster a collaborative process and a sharing of
best practices among the companies in these locations. Our managing
directors, entrepreneurs-in-residence and operational vice presidents
provide strategic guidance as well as assistance in sales, marketing
and brand management, executive recruiting, web development and
information technology, and legal, finance, accounting and human
resources to our network companies.

o STRATEGIC GUIDANCE AND DIRECTION. We actively develop the business
models, strategies, operations and management teams of all our
companies throughout their lifecycles to ensure that each company
benefits fully from our collective experiences. Our senior executives
serve on the boards of directors of our network companies and
participate in consultation and informal communications that allow us
to take an

active, hands-on role in the ongoing oversight and strategic
management of our companies. Our operating methods are designed to
promote commercial relationships among our network companies, which we
believe enhance the value of our overall network.

Our objective is to increase the value of our network by continually
creating new business ideas and acquiring existing businesses in markets
involving real-time interactive communications that complement our existing
companies. We believe that we can enhance stockholder value by engaging in
business through an integrated network of companies in which we own significant
stakes over the long term. We intend to continue establishing additional
facilities around the world where we can match our best ideas with talented
people to create new companies. In each new location we intend to duplicate the
organization of our functional teams to promote the consistent execution of the
idealab! method.

We have grown rapidly since our inception in 1996. The idealab! network
currently includes the following seven public and 28 private companies:

PUBLIC COMPANIES

Centra Software NetZero
eMachines Ticketmaster Online - CitySearch
eToys Tickets.com
GoTo.com

PRIVATE COMPANIES

CarsDirect.com jobs.com
Cooking.com MyHome.com
dotTV OpenSales.com
EntryPoint PayMyBills.com
eve.com PeopleLink
eLease PETsMART.com
eVoice Sameday.com
FirstLook.com scan.com
FreeMusic Scout
HomePage.com shopMarket
ice.com Swap.com
iExchange.com Utility.com
Intranets.com WeddingChannel.com
Jackpot.com z.com

We currently have 198 employees. In addition to our headquarters in
Pasadena, California, we maintain offices in the Silicon Valley, New York,
Boston and London.

THE OFFERING

Common stock offered................................. shares

Common stock to be outstanding shares
after the offering.................................

Use of proceeds...................................... To create, build and operate, acquire, or
increase our interests in interactive
communications businesses, and for general
corporate purposes.

Proposed Nasdaq National Market symbol............... ILAB

The table above is based on shares outstanding as of January 31, 2000.
The number of shares of common stock to be outstanding after the offering
excludes:

o 200,013,550 shares of common stock subject to outstanding options with
a weighted-average exercise price of $1.22 per share as of January 31,
2000;

o 64,085,700 shares of common stock available for issuance under our
stock option plans as of January 31, 2000;

o 21,850,350 shares underlying options granted between February 1, 2000
and March 15, 2000 at a weighted-average exercise price of $1.94;

o 2,220,081 shares of common stock issued between February 1, 2000 and
March 31, 2000; and

o 14,880,750 shares of common stock issuable upon the conversion of
Series D preferred stock issued between February 1, 2000 and
March 31, 2000.

The table above includes 107,575,000 shares of common stock subject to a
right of repurchase by us.

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

WE INTEND TO REINCORPORATE IN NEVADA AND CHANGE OUR CORPORATE NAME TO
"IDEALAB!" CONCURRENTLY WITH THIS OFFERING. WE WERE INCORPORATED IN CALIFORNIA
IN MARCH 1996 UNDER THE NAME BILL GROSS' IDEALAB!. THE TERMS "IDEALAB!", "OUR"
AND "WE", AS USED IN THIS PROSPECTUS, REFER TO IDEALAB! AND ITS WHOLLY-OWNED
SUBSIDIARY, IDEALAB! HOLDINGS, L.L.C., A DELAWARE LIMITED LIABILITY COMPANY,
EXCEPT WHERE IT IS CLEAR THAT THE TERM REFERS ONLY TO IDEALAB!. WE REFER TO THE
INTERNET COMPANIES THAT WE HAVE CREATED OR INVESTED IN AND THAT PARTICIPATE IN
OUR COLLABORATIVE NETWORK AS "OUR COMPANIES" OR "OUR NETWORK COMPANIES". WE DO
NOT ACT AS AN AGENT OR LEGAL REPRESENTATIVE FOR ANY OF THESE COMPANIES AND WE DO
NOT HAVE THE POWER OR AUTHORITY TO LEGALLY BIND ANY OF THESE COMPANIES.

SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following summary historical and pro forma consolidated financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our audited consolidated
financial statements and notes thereto included elsewhere in this prospectus.
The Pro Forma column included in the Consolidated Statement of Operations Data
for the year ended January 31, 2000, reflects the effects of certain fiscal 2000
acquisitions and dispositions as if they had occurred on February 1, 1999. The
Pro Forma per share data assumes the conversion of all series of our outstanding
convertible preferred stock on February 1, 1999 or original issue date if
later. See Note 5 of Notes to our Consolidated Financial Statements and
Unaudited Pro Forma Condensed Combined Financial Information included elsewhere
in this prospectus. The Pro Forma column included in the Consolidated Balance
Sheet Data as of January 31, 2000 reflects the automatic conversion of all
shares of our convertible preferred stock into 236,860,100 shares of common
stock upon completion of this offering. The Pro Forma, As Adjusted column
reflects the sale of shares of common stock that we are offering after deducting
underwriting discounts and commissions and estimated offering expenses. See "Use
of Proceeds" and "Capitalization."

MARCH 14,
1996 YEAR ENDED JANUARY 31,
(INCEPTION) TO ---------------------------------------------------
JANUARY 31, 1998 1999 2000 2000
1997 ACTUAL ACTUAL ACTUAL PRO FORMA
--------------- ---------- ---------- ------------ -------------
(UNAUDITED)

CONSOLIDATED STATEMENT OF OPERATIONS DATA:

Revenues.................................. $ -- $ 154 $ 805 $ 21,158 $ 134,303
Operating expenses, excluding stock-based
compensation............................ 2,275 11,330 8,387 153,194 277,316
Stock-based compensation.................. 135 233 3,910 109,150 109,299
--------------- ---------- ---------- ------------ -------------
Operating income (loss)................... (2,410) (11,409) (11,492) (241,186) (252,312)
--------------- ---------- ---------- ------------ -------------
Other income (expense), net............... 71 74 7,628 322,311 320,287
Income (loss) before income taxes,
minority interest and equity in the
income (loss) of affiliates............. (2,339) (11,335) (3,864) 81,125 67,975
Income tax benefit (expense).............. (3) 3,528 2,358 (86,245) (73,214)
Minority interest......................... 116 1,022 572 95,537 138,334
Equity in the income (loss) of
affiliates, net of tax.................. (144) (271) 51 28,067 (23,337)
--------------- ---------- ---------- ------------ -------------
Net income (loss)......................... (2,370) (7,056) (883) 118,484 109,758
Deduction for beneficial conversion
feature................................. -- -- -- (9,724) (9,724)
Repurchase of convertible preferred stock. -- -- -- (3,777) (3,777)
--------------- ---------- ---------- ------------ -------------
Net income (loss) applicable to
common shareholders..................... $ (2,370) $ (7,056) $ (883) $ 104,983 $ 96,257
=============== ========== ========== ============ =============
Net income (loss) per share applicable to
common shareholders--diluted............. $ (0.01) $ (0.02) $ -- $ 0.15 --
Shares used to calculate net income (loss)
per share applicable to common
shareholdres--diluted.................... 322,232 334,760 352,083 695,312 --
Pro Forma net income (loss) per share
applicable to common shareholders-diluted -- -- -- -- $ 0.14
Pro Forma shares used to calculate net income
(loss) per share applicable to common
shareholders--diluted.................... -- -- -- -- 697,839

AS OF JANUARY 31, 2000
---------------------------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
---------------- ---------------- ---------------
(UNAUDITED) (UNAUDITED)

CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 601,474 $ 601,474 $
Working capital............................................. 562,024 562,024
Total assets................................................ 1,674,383 1,674,383
Convertible preferred stock ................................ 892,782 -- --
Total shareholders' equity.................................. 337,784 1,230,566

RISK FACTORS

YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN
INVESTMENT DECISION. IF ANY OF THE EVENTS DESCRIBED BELOW ACTUALLY OCCURS, OUR
BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE HARMED. IN THAT
EVENT, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU COULD LOSE
ALL OR PART OF YOUR INVESTMENT.

THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS, INCLUDING
THE RISKS DESCRIBED BELOW AND ELSEWHERE IN THIS PROSPECTUS.

RISKS PARTICULAR TO US

WE HAVE A LIMITED OPERATING HISTORY, WHICH MAKES IT DIFFICULT FOR YOU TO
EVALUATE OUR PROSPECTS.

We were founded in March 1996 and have a limited operating history upon
which you may evaluate our business and prospects. An investor in our common
stock must consider the risks and difficulties frequently encountered by early
stage companies in new and rapidly evolving markets. We and our companies are in
early stages of development, and are among many that have entered the emerging
Internet market. Specific risks to our business include our:

o ability to generate and successfully commercialize new ideas and to
acquire interests in promising companies;

o dependence upon the performance of our companies, which are
individually subject both to risks common to all Internet companies
and risks particular to their businesses and related Internet
industry segments;

o need to manage our expanding operations and network of companies;

o continuing need to raise additional capital;

o dependence upon and need to hire key personnel; and

o need to increase spending to enhance the idealab! brand and the
strength of our network companies' brands on an ongoing basis.

If we fail to adequately address any of these risks, our consolidated
financial position, results of operations and cash flows may be materially and
adversely affected and our stock price may decline.

OUR BUSINESS MODEL IS UNPROVEN AND MAY NOT BE AS SUCCESSFUL AS WE ANTICIPATE.

Our strategy is based upon an unproven business model involving creating,
building and operating businesses in markets involving real-time interactive
communications. Our business model depends on our ability to continue to
generate new and successful business concepts and to successfully integrate them
into our collaborative network. As competition intensifies in the evolving
Internet market, the creation and commercialization of new business concepts may
prove more difficult, which could harm our business. In addition, because our
strategy involves the continued participation in the operation of our network
companies and in the long-term appreciation in value of these companies, we may
forego short-term gains that we could otherwise realize by selling interests in
our network companies.

FLUCTUATIONS IN THE STOCK PRICES OF OUR PUBLIC NETWORK COMPANIES COULD AFFECT
OUR STOCK PRICE.

Our network companies operate in various segments of the Internet industry.
The stock prices of Internet companies have been highly volatile, particularly
over the last year. The stock prices of eToys and GoTo.com, two publicly-traded
companies in which we have significant ownership stakes, have been highly
volatile. In May 1999, eToys completed its initial public offering and has since
traded as high as $86.00 per share and as low as $6.00 per share. In June 1999,
GoTo.com completed its initial public offering and has since traded as high as
$114.50 per share and as low as $15.00 per share. We

anticipate that the following factors, among others, will contribute to the
stock price volatility of companies in our network:

o fluctuations in their operating results, which are likely to be below
the expectations of investors and securities analysts in some future
periods as further described under "--Risks affecting our network
companies--The future operating results of the companies in our
network are unpredictable and could fluctuate from quarter to quarter,
causing their stock prices to fall";

o conditions or trends in the Internet industry and in the segments of
the Internet industry in which a significant number of our network
companies operate;

o changes in the financial estimates or investment considerations of
securities analysts regarding our network companies; and

o changes in the market valuations of any of our network companies and
other Internet companies.

The market value of our holdings in our public network companies will
change significantly in parallel with fluctuations in their stock prices, which
could cause our stock price to fall.

BECAUSE OUR ASSETS ARE CONCENTRATED IN A FEW NETWORK COMPANIES, IF THE VALUE OF
THESE COMPANIES DECREASES, OUR STOCK PRICE MAY FALL.

The market value of our interests in the public companies in our network,
including eMachines, eToys, GoTo.com, NetZero and Tickets.com, accounts for a
substantial portion of the fair market value of our assets. Although it is more
difficult to value our interests in the private companies in our network,
investors and securities analysts may also attribute significant value to these
interests, including our interest in CarsDirect.com. We believe that the fair
market value of our interests in network companies often far exceeds the value
at which they are recorded on our balance sheet. A decline in the value of one
or more of the public or significant private companies in our network would
likely cause our stock price to fall.

FLUCTUATIONS IN OUR QUARTERLY RESULTS ARE LIKELY AND COULD CAUSE OUR STOCK PRICE
TO DECLINE.

Our results have varied widely in the past, and we expect that they will
continue to vary significantly from quarter to quarter due to a number of
factors, including:

o fluctuations in the operating results of the companies in our network;

o income, loss or amortization of goodwill resulting from our
acquisition or divestiture of interests in our network companies or
from acquisitions by our network companies, which will fluctuate as a
result of the timing of any of these transactions;

o changes in our methods of accounting for interests in our network
companies, which may result from changes in our ownership percentages
of these companies;

o gain or loss resulting under applicable accounting rules from initial
public offerings, other financings, mergers or other changes in the
capitalization of any of our network companies;

o increases in taxation resulting from our disposition of network
company interests or from other extraordinary events;

o costs related to the continued geographic expansion of our facilities;

o cash charges relating to the exercise of stock options; and

o costs related to the introduction of new companies to our network.

It is likely that in some future quarter our results may be below the
expectations of securities analysts and investors and, as a result, the price of
our common stock may fall.

OUR OPERATING RESULTS MAY FLUCTUATE BECAUSE OUR REVENUES AND EXPENSES ARE LESS
CORRELATED THAN THOSE OF OTHER COMPANIES.

We generate limited revenues from our direct operating activities. Our
revenues are comprised primarily of the revenues of those of our network
companies that we consolidate into our own financial results. Our expenses will
include the expenses of those of our companies that we consolidate into our own
financial results and expenses related to the potential effect of goodwill
amortization and other charges resulting from completed and future acquisitions.
Our expenses will also include our own direct expenses, which will increase as
we build an infrastructure to implement our business model. For example, we
expect to hire additional employees, expand information technology systems and
lease or purchase more space for our corporate offices. In addition, we plan to
significantly increase our operating expenses to:

o broaden our company support capabilities;

o explore acquisition opportunities and alliances with other companies;

o open and staff additional facilities in locations; and

o facilitate business arrangements among our companies.

Because we recognize revenue, expenses and other income from our network
companies, each with a different cost structure and revenue model, and because
we also generate expenses independent of our network companies, our total
revenues, expenses and other income may be correlated to a lesser extent than
those of other companies. This may render our operating results difficult for
investors and securities analysts to interpret and could cause our stock price
to fall.

IF OUR RELATIONSHIPS WITH OUR NETWORK COMPANIES DETERIORATE, OUR VALUE MAY
DECREASE.

Our success depends substantially on the performance of our network
companies and our ability to develop and sustain close relationships with them.
If we are unable to develop and maintain good relationships with new and
successful companies in the future, or to maintain and enhance our relationships
with our existing companies, our business will be damaged and our value may
decrease. In addition, competition or disagreement with or between our network
companies and/or their personnel could make it more difficult for us to
facilitate collaboration among our companies, result in negative publicity,
cause us to become involved in costly and time-consuming litigation or impair
the value of our interests in our companies.

Moreover, our network companies could make business decisions that are
not in our best interests, which could impair the value of our network. While we
generally seek to maintain significant equity interest and participation in the
management of our network companies, we may not be able to control significant
business decisions they make. Some of these decisions may cause the dilution of
our interest and potentially our loss of control over these network companies.
Any dilution or loss of control could subject us to regulation under the
Investment Company Act of 1940.

WE MAY BE UNABLE TO EFFECTIVELY MANAGE THE GROWTH OF OUR NETWORK COMPANIES AND
OF OUR NETWORK AS A WHOLE.

In the future, continued growth of our network companies and our network
may place significantly greater strain on our resources and our ability to
manage the network. This growth subjects us to a number of risks including, but
not limited to, the following:

o the potential that the addition of new network companies may cause a
disruption in our ongoing support of our existing companies, distract
our management and other personnel and make it difficult to maintain
our standards, controls and procedures;

o potential deterioration of our ability to influence our companies'
day-to-day operations;

o the potential failure of our companies to adopt our ideas for
effectively and successfully managing their growth, which could
interfere with our strategy of increasing the value of our network;
and

o our entry into a market or acquisition of interests in a company or
companies in which we have little experience, which could strain and
distract our management and other resources.

AS THE INTERNET MARKET MATURES AND COMPETITION INCREASES, WE MAY NOT BE ABLE TO
CONTINUE TO SUCCESSFULLY GENERATE PROMISING OPPORTUNITIES, AND WE MAY NOT FIND
OPPORTUNITIES TO ACQUIRE INTERESTS IN PROMISING COMPANIES.

Due to a variety of factors outside of our control, we may be unable to
identify promising business opportunities in the future, or to acquire promising
companies that complement our business strategy. These factors include:

o competition in bringing new ideas and unique business models to the
marketplace for Internet and other interactive communications
businesses;

o market saturation as the number of new entrants into the Internet
marketplace grows, potentially to the point where new market
participants have difficulty establishing a viable commercial
presence;

o competition from other potential acquirers and partners of and
investors in interactive communications businesses;

o in specific cases, failure to agree on the terms of a potential
acquisition, such as the amount or price of our acquired interest, or
incompatibility between us and management of the company we wish to
acquire; and

o the possibility that we may lack sufficient capital to develop
promising opportunities or to acquire interests in complementary
companies.

If we cannot continue to develop new and successful interactive
communications business concepts or to acquire interests in complementary
companies, our growth strategy will be impaired.

OUR KEY PERSONNEL MAY LEAVE, WHICH COULD DISRUPT OUR OPERATIONS AND HARM OUR
BUSINESS.

Our future success depends upon the continued service of our executive
officers and other key personnel. None of our officers or key employees is bound
by an employment agreement for any specific term. If we lost the services of one
or more of our key employees, or if one or more of our executive officers or
employees decided to join a competitor or otherwise compete directly or
indirectly with us, our business could be harmed. We cannot assure you that we
will be able to successfully retain our key personnel or, in the event we were
to lose the services of any key personnel, to replace these personnel. In
particular, our success is highly dependent on the individual contributions of
Bill Gross and other memebers of our management team. If one or more members of
our management team were unable or unwilling to continue in their present
positions, our operations could be disrupted and our business could be harmed.

OUR GROWTH COULD BE IMPAIRED IF IT BECOMES MORE DIFFICULT FOR INTERNET-RELATED
COMPANIES TO RAISE CAPITAL.

Many of our network companies are in early stages of development and can
benefit from our assistance in gaining access to capital markets. We and our
network companies are dependent on the interest of investors in Internet-related
and other interactive communications companies in general and the supply of
private and public capital to these companies in particular. If the market for
the securities of Internet-related and other interactive communications
companies were to weaken for an extended period of time, or at a time when one
or more of our network companies were required to raise capital, our and our
network companies' business and financial condition could be seriously harmed.

WE MAY BE UNABLE TO OBTAIN MAXIMUM VALUE FOR OUR NETWORK COMPANY INTERESTS.

We have significant equity positions in our network companies. Although we
generally do not anticipate selling our interests in our network companies, if
we were to divest all or part of them, we might

not receive maximum value for these positions. For companies with
publicly-traded stock, we may be unable to sell our interests at then-quoted
market prices, and, for public companies with thinly-traded stock, we may have
to sell our interests gradually over time rather than in one or more large
transactions. For those companies that do not have publicly-traded stock, the
realizable value of our interests may ultimately prove to be lower than the
carrying value currently reflected in our consolidated financial statements.
Legal and other restrictions may also prevent us from disposing of interests in
network companies when we would otherwise choose to do so.

WE MAY HAVE TO TAKE ACTIONS THAT ARE DISRUPTIVE TO OUR BUSINESS STRATEGY TO
AVOID REGISTRATION UNDER THE INVESTMENT COMPANY ACT OF 1940.

Excluding government securities and cash items, substantially all of our
assets on an unconsolidated basis currently consist of equity interests in
majority-owned subsidiaries and equity interests in other companies. Our equity
interests in companies that are not majority-owned subsidiaries could be counted
as investment securities. At January 28, 2000, more than 40% of the value of our
total assets on an unconsolidated basis consist of securities issued by
companies that are not majority-owned subsidiaries. Therefore, we could be
considered an investment company unless we obtain an exemption or qualify for a
safe harbor. On January 28, 2000, we filed an application with the Securities
and Exchange Commission requesting a permanent order declaring that we are
primarily engaged in a business other than that of investing, reinvesting,
owning, holding or trading in securities. On March 28, 2000, the Commission
granted a temporary order exempting us from all provisions of the Investment
Company Act for a 120-day period that ends on July 26, 2000 while it considers
our request for a permanent order. The Commission has significant discretion in
determining whether to grant the permanent order and there can be no assurance
that the permanent order will be granted. In addition, if the permanent order is
granted, we will need to ensure that a particular percentage of our assets and
revenues are derived from companies that we control. As a result, fluctuations
in the value of, or the income and revenues attributable to us from our
ownership of, interests in companies we do not control could cause us to be
deemed an investment company.

Registration as an investment company would subject us to restrictions that
are inconsistent with our fundamental business strategy of equity growth through
creating, building and operating interactive communications companies. We may
have to take actions, including buying, refraining from buying, selling or
refraining from selling securities, when we would otherwise not choose to in
order to continue to avoid registration under the Investment Company Act. For
example, we may have to ensure that we retain controlling ownership interests in
our network companies after their initial public offerings, which would require
us to expend significant amounts of capital that we might otherwise use to
create or acquire other companies.

WE MAY NEED TO RAISE ADDITIONAL CAPITAL, WHICH MIGHT NOT BE AVAILABLE OR COULD
RESULT IN DILUTION OF THE OWNERSHIP INTERESTS OF OUR STOCKHOLDERS.

We require substantial capital to fund our business and maintain control of
our network companies as they issue additional equity. In all periods, we have
experienced negative cash flow from operations and expect to experience
significant negative cash flow in the future. Because our strategy involves
holding interests in our network companies over the long term, we do not expect
to generate cash by selling these interests. Moreover, because of the provisions
of the Investment Company Act of 1940, we may not be able to sell securities of
our network companies to raise capital were we to so choose. We currently
anticipate that the net proceeds of this offering, together with our available
funds, will be sufficient to meet our anticipated needs for working capital and
capital expenditures through at least the next 12 months. However, we may need
to raise additional funds prior to the expiration of this period or at

a later date in order to create or acquire new companies or to maintain or
expand our control of existing network companies. We cannot be certain that
additional financing will be available to us on favorable terms when required,
or at all. Our ability to issue debt securities or to service any debt we do
issue may also be limited by our ability to generate cash flow. In addition, we
may raise additional funds through the issuance of securities with rights,
preferences or privileges senior to those of the rights of our common stock. If
we issue equity or securities convertible into equity, the ownership percentages
of our stockholders will be diluted.

IN MAKING STRATEGIC ACQUISITIONS, WE WILL FACE COMPETITION FROM OTHER POTENTIAL
INVESTORS IN AND ACQUIRORS OF INTERNET AND OTHER INTERACTIVE COMMUNICATIONS
COMPANIES.

Although we create most of our network companies ourselves, from time to
time we acquire interests in companies complementary to our network that were
created by other entrepreneurs. In pursuing opportunities for these
acquisitions, we face competition from other capital providers, including
publicly-traded Internet companies, venture capital companies, large
corporations and other companies providing services similar to ours. Many of
these competitors have greater financial resources than we do. This competition
may limit our opportunities to acquire interests in companies that could enhance
our network. If we cannot acquire interests in attractive companies, our growth
strategy may be inhibited or may not succeed.

WE HAVE EXPERIENCED SIGNIFICANT GROWTH IN RECENT PERIODS, AND OUR INABILITY TO
MANAGE THIS GROWTH COULD DISRUPT OUR OPERATIONS.

Our ability to identify, create, build and operate interactive
communications businesses that successfully offer products and services and
implement our business plan in a rapidly evolving market requires an effective
planning and management process. We have increased, and plan to continue
increasing, the scope of our operations domestically and internationally.
Between January 1999 and April 2000, we grew from 18 employees in one office to
198 in five offices. Integrating such a large number of new employees and
training them in the idealab! method and culture may prove difficult, and we may
not be able to do so successfully or in a timely fashion. If we do not manage
growth properly, it could materially and adversely affect our business. In
addition, our expansion efforts will be expensive, and could put a strain on our
management. The expansion of our infrastructure and our geographic expansion
will entail hiring key employees in such areas as senior management, finance,
marketing, legal, recruiting and technology development. Hiring these employees
has historically been difficult, and we cannot assure you that we will be able
to successfully attract and retain a sufficient number of qualified personnel.
This may limit our ability to open facilities in some locations.

WE MAY NOT MANAGE OUR EXPECTED GEOGRAPHIC EXPANSION SUCCESSFULLY, WHICH COULD
IMPAIR OUR GROWTH.

Part of our strategy for growth is to replicate our business method in
multiple locations by opening new idealab! facilities in those locations. We
must apply the method and culture of our Pasadena facility in each new facility
so that all of our facilities operate in a complementary fashion. We must also
hire and integrate talented people to staff each new facility. Because each new
facility will be geographically distant from Pasadena and will employ people who
have never worked at our Pasadena facility, it may be difficult and time
consuming for us to replicate the culture and operating methods of our Pasadena
facility, and this effort may cause our management to divert their attention
from other aspects of our business. If our new facilities are not as successful
as we anticipate, our growth will be impaired.

WE MAY BE UNABLE TO PROTECT OUR INTERNET DOMAIN NAMES OR OUR OTHER PROPRIETARY
RIGHTS, WHICH COULD CAUSE US TO LOSE COMPETITIVE ADVANTAGES.

The Internet domain names we use, along with those we register or acquire
for future use, are extremely important parts of our business. The acquisition
and maintenance of domain names generally is regulated by governmental agencies
and their designees. In the future, governing bodies may establish additional
top-level domains, appoint additional domain name registrars or modify the
requirements for holding domain names. As a result, we may be unable to acquire
or maintain relevant domain names in

all countries in which we conduct business. Furthermore, the relationship
between regulations governing domain names and laws protecting trademarks and
similar proprietary rights is unclear. Therefore, we may be unable to prevent
third parties from acquiring domain names that are similar to, infringe upon or
otherwise decrease the value of our trademarks and other proprietary rights.

We also regard our copyrights, trade secrets, patentable inventions and
similar intellectual property as critical to our success, and we rely on
copyright law, trade secret protection, patent law and confidentiality and/or
license agreements with our employees, companies, partners and others to protect
our proprietary rights. We have not, however, received any patents covering our
proprietary information. Moreover, the laws of some foreign countries may not
provide protection of our intellectual property rights to the same extent as
those of the United States. Despite our precautions, unauthorized third parties
might copy or reverse engineer and use information or technology that we regard
as proprietary. If our proprietary information were misappropriated, we might
have to litigate to protect it. Intellectual property litigation is expensive
and time-consuming. The outcome of any such litigation will be uncertain, and
the litigation could divert our management's attention away from running our
business.

WE WILL BE SUBJECT TO THE SIGNIFICANT INFLUENCE OF OUR CURRENT STOCKHOLDERS
AFTER THIS OFFERING, AND THEIR INTERESTS MAY NOT ALWAYS COINCIDE WITH THOSE OF
OUR OTHER STOCKHOLDERS.

Bill Gross, Karen Gross, idealab Capital Management I, L.L.C., idealab
Capital Management II, L.L.C., and entities affiliated with them will, in the
aggregate, beneficially own approximately ___________ % of our outstanding
common stock following the completion of this offering. These stockholders will
be able to significantly influence all matters requiring approval by our
stockholders, including the election of directors and the approval of mergers or
other business combination transactions. Because their interests may not always
coincide with those of our other stockholders, these stockholders may influence
or cause us to take actions with which our other stockholders disagree.

OUR ARTICLES OF INCORPORATION AND BYLAWS AND NEVADA LAW CONTAIN PROVISIONS THAT
COULD DELAY OR PREVENT A CHANGE IN OUR CONTROL AND COULD ALSO LIMIT THE MARKET
PRICE OF OUR STOCK.

Our articles of incorporation and bylaws will contain provisions that could
delay or prevent a change in our control. These provisions could limit the price
that investors might be willing to pay in the future for shares of our common
stock. Some of these provisions:

o authorize the issuance of preferred stock that can be created and
issued by the board of directors without prior stockholder approval,
commonly referred to as "blank check" preferred stock, with rights
senior to those of common stock;

o prohibit stockholder action by written consent; and

o establish advance notice requirements for submitting nominations for
election our board of directors and for proposing other matters that
can be acted upon by stockholders at a meeting.

In addition, some provisions of Nevada law make it more difficult for a
third party to acquire us. Some of these provisions:

o establish a supermajority stockholder voting requirement to approve an
acquisition by a third party of a controlling interest in us; and

o impose time restrictions and/or require additional approvals for an
acquisition of us by an interested stockholder.

THERE MAY BE CONFLICTS OF INTEREST AMONG OUR NETWORK COMPANIES, OUR OFFICERS,
DIRECTORS AND STOCKHOLDERS AND US.

Some of our officers and directors also serve as officers or directors of
or have ownership interests in one or more of our network companies. As a result
we, our executive officers and directors, their affiliates and our network
companies may face potential conflicts of interest with each other and with our
stockholders. Specifically, our officers and directors may be presented with
situations in their capacity as

officers or directors of one of our network companies that conflict with their
ownership interests in or their obligations as officers or directors of our
company or of another network company. In addition, our executive officers and
directors and their affiliates may engage in activities and have interests in
other entities on their own behalf or on behalf of other persons. We will not
have any rights in these ventures or to their income or profits, whether or not
these ventures are involved with businesses that are similar to our business or
to the businesses of our network companies, or are businesses in which we own or
will acquire interests. Other interests that may give rise to conflicts include:

o our executive officers' or directors' or their affiliates' interests
in entities that provide products or services to us for our internal
use, or to our network companies; and

o the personal interests of one of our executive officers in the venture
capital funds we currently manage, and any similar interests our
executive officers or directors may have in any venture capital funds
with which we establish relationships in the future.

In any of these or other cases in which similar conflicts arise:

o our interests may conflict with the personal financial and other
interests of our executive officers or directors in another entity; or

o our executive officers or directors may have conflicting fiduciary
duties to us and the other entity.

For specific information regarding transactions between us and parties
related to us, see "Related Party Transactions".

RISKS AFFECTING OUR NETWORK COMPANIES

THE VALUE OF OUR ASSETS DEPENDS ON THE PERFORMANCE OF THE COMPANIES IN OUR
NETWORK. THE FACTORS BELOW DESCRIBE MATERIAL RISKS AFFECTING OUR NETWORK
COMPANIES. IF ANY OF THE EVENTS DESCRIBED IN THESE FACTORS ACTUALLY OCCURS, THE
BUSINESS, FINANCIAL CONDITION AND OPERATING RESULTS OF ONE OR MORE OF OUR
NETWORK COMPANIES COULD SUFFER, WHICH WOULD LIKELY IMPAIR OUR ASSET VALUE AND
HARM OUR BUSINESS AND OPERATING RESULTS.

THE FUTURE OPERATING RESULTS OF THE COMPANIES IN OUR NETWORK ARE UNPREDICTABLE
AND COULD FLUCTUATE FROM QUARTER TO QUARTER, CAUSING THEIR STOCK PRICES TO FALL.

Fluctuations in the operating results of public companies in our network
could cause their stock prices to decline. Our network companies' operating
results have varied widely in the past, and we expect that they will continue to
vary significantly from quarter to quarter due to a number of factors,
including:

o their ability to develop large bases of users of their Web sites who
possess demographic characteristics attractive to advertisers, their
ability to generate significant e-commerce transaction revenues or
their ability to develop products and services that are attractive to
businesses and consumers using the Internet;

o the views of investors and securities analysts on the prospects of
companies in particular segments of the Internet industry,
particularly those segments in which a substantial number of our
companies operate;

o intense competition from both online and traditional providers of
similar goods and services;

o the amount and timing of expenses related to their brand-building
activities and their ability to develop brand awareness;

o changes in the growth rate of Internet usage and acceptance by
consumers of electronic commerce, including the pace of development or
a decline in growth of the e-commerce market generally;

o the effect of recent and future accounting policies on their ability
to recognize revenue;

o their ability to effectively manage their growth during the growth of
the Internet market;

o technical difficulties, system failures or Internet downtime; and

o the amount and timing of costs related to acquisitions of businesses
or technology by them.

VARIOUS IDEALAB! NETWORK COMPANIES MAY FAIL IF COMPETITORS PROVIDE SUPERIOR
INTERNET-RELATED OFFERINGS.

Competition for Internet products and services is intense. As markets for
interactive products and services and e-commerce grow, we expect that
competition will continue to intensify. Barriers to entry are generally low, and
competitors can frequently offer products and services at a relatively low cost.
Furthermore, the majority of our network companies provide products or services
directly to consumers, which is an increasingly crowded and competitive market
segment. Several companies offer solutions that compete with those offered by
one or more of our network companies. We expect that additional companies will
offer competing solutions on a stand-alone or combined basis in the future. Our
network companies' competitors may develop Internet products or services that
are superior to, or have greater market acceptance than the solutions offered by
our network companies.

Our network companies generally compete with comparable Internet companies
as well as traditional brick-and-mortar companies that offer similar products
and services offline. In addition, our network companies at times compete with
each other. The number of companies selling Internet-based business and consumer
services has recently increased substantially. Many of our network companies'
competitors have greater brand recognition and greater financial, marketing and
other resources than do our network companies. This may place our network
companies at a disadvantage in responding to their competitors' pricing
strategies, technological advances, advertising campaigns, strategic
partnerships and other initiatives. If our network companies are unable to
compete successfully against their competitors, they may fail.

ONE OF OUR NETWORK COMPANIES FROM WHICH WE DERIVE A SUBSTANTIAL PORTION OF OUR
REVENUES IS SUBJECT TO RISKS AND UNCERTAINTIES RELATED TO ITS BUSINESS.

We have derived a substantial portion of our historical revenues from
CarsDirect.com, an online resource for researching, financing and purchasing new
cars and related services, and we believe that the value of our interest in
CarsDirect.com contributes significantly to the value of our assets.
CarsDirect.com has a limited operating history and limited management experience
in the Internet-based automotive sales industry. Accordingly, CarsDirect.com
will be faced with risks and difficulties encountered by early-stage companies
in new and rapidly evolving markets. In addition, CarsDirect.com is subject to
additional risks and uncertainties, including its:

o need to develop its unproven business model;

o reliance on the Internet for commerce and the growth and acceptance of
automobile transactions over the Internet;

o ability to increase its customer base;

o ability to maintain its dealer relationships;

o need to broaden its service offerings; and

o need to manage expanding operations, including its recent
implementation of new financial and accounting systems.

In addition, all states comprehensively regulate vehicle sales, including
strict licensure requirements for brokers and dealers. Generally, these laws and
regulations were drafted prior to the emergence of online automotive buying
services and therefore are principally intended to address only traditional
vehicle sales by local vehicle brokers and vehicle dealers. Nevertheless, these
laws and regulations are broadly drafted and may be interpreted by the courts or
regulatory agencies to apply to the business activities of CarsDirect.com. If
CarsDirect.com is found to be subject to any laws and regulations in one or more
states where it is conducting business or is found not to be in compliance with
the applicable laws or

regulations in one or more such states because it has failed to obtain the
appropriate license or for any other reason:

o it could be subject to civil or criminal penalties;

o it could be required to make costly changes in the way it does
business in order to obtain a vehicle broker, dealer or other
appropriate license; and/or

o it could be prohibited from engaging in its business in that state.

Moreover, legislation addressing online vehicle sales has been introduced
in various states during the past year, and other states are considering such
laws. We cannot predict whether any of these proposed bills, or any other
potentially adverse legislation that might be initiated by state legislatures in
the future, will be enacted. If adverse state legislation is enacted in one or
more states or if unfavorable pre-emptive federal legislation is passed, it may
harm CarsDirect.com's business and could have a material adverse effect on our
consolidated financial position, results of operations or cash flows.

IF OUR NETWORK COMPANIES ARE UNABLE TO HIRE AND INTEGRATE QUALITY PERSONNEL,
THEIR GROWTH COULD BE LIMITED.

The success of our network companies depends on their employing highly
skilled management, technical and marketing personnel. Our companies will need
to continue to hire and integrate additional personnel as their businesses grow.
Shortages in the number of trained management, technical and marketing personnel
could limit their ability to increase sales of their existing products and
services and launch new product and service offerings.

THE SUCCESS OF OUR NETWORK COMPANIES DEPENDS ON THE CONTINUED GROWTH AND
ACCEPTANCE OF THE INTERNET, WHICH IS UNCERTAIN.

All of our companies rely on the Internet for the success of their
businesses. If widespread commercial use of the Internet does not continue to
develop, or if the Internet does not continue to develop as an effective medium
for commerce, advertising and information retrieval, our companies may not
succeed. A number of factors could prevent the Internet's widespread acceptance
as a commercial medium, including:

o the potential unwillingness of businesses to shift from traditional
processes to online processes;

o any delay in the development of the network infrastructure necessary
to support substantial growth in volume of e-commerce;

o the rate of development and acceptance of evolving interactive
communications technologies, including Internet telephony and wireless
devices;

o any significant outages or delays on the Internet;

o increased government regulation or taxation that adversely affects the
viability of e-commerce;

o concern and adverse publicity about the security and privacy of
e-commerce transactions that negatively affect Internet usage; and

o uncertainty regarding intellectual property ownership.

CLAIMS OF INTELLECTUAL PROPERTY INFRINGEMENT BY THIRD PARTIES AGAINST OUR
NETWORK COMPANIES COULD CAUSE THEM TO INCUR EXPENSES OR BECOME INVOLVED IN
LITIGATION.

Our network companies operate in part by making content available to users
through the Internet. This creates the potential for claims to be made against
our companies, either directly or through contractual indemnification provisions
with other companies. These claims might, for example, be made for defamation,
negligence, patent, copyright or trademark infringement, personal injury,
invasion of privacy or other legal theories based on the nature, content or
copying of these materials. Providers of Internet products and services have
been sued in the past, sometimes successfully, based on the content

available through their websites or use of trademarks or copyrighted material
owned by third parties. Some of the content provided by our network companies on
their websites is drawn from data compiled by other parties, including
governmental and commercial sources, and this data may contain errors. If any of
our network companies' website content is improperly used, if any of them supply
incorrect information or publish allegedly infringing material, they could be
subjected to liability. Moreover, any of our companies that incur this type of
liability may not have insurance to cover the claims, or their insurance may not
provide sufficient coverage. If our network companies incur substantial costs
because of this type of liability, their expenses will increase and their
profits, if any, will decrease. Moreover, these types of claims could result in
costly litigation and be time-consuming to defend, divert our network companies'
managements' attention and resources, cause delays in their release or upgrade
of services or products, and could require them to enter into royalty or
licensing agreements.

Litigation regarding intellectual property rights is common in the Internet
and software industries. We expect that Internet content, technologies and
software products may be increasingly subject to third-party infringement claims
as the number of competitors in our network companies' industry segments grow
and the functionality of products in different industry segments overlaps. We
cannot assure you that our network companies' products and services do not
infringe on the intellectual property rights of third parties. Royalty or
licensing agreements, if required, may not be available on acceptable terms, if
at all. A successful claim of infringement against any of our network companies,
and their failure or inability to license the infringed or similar technology
could adversely affect their, and thus our, business.

In addition, our network companies generally hold various domain names
relating to their brands. These domain names are frequently critical to the
success of their businesses. However, for various reasons our companies may not
be able to prevent third parties from acquiring domain names that are
confusingly similar to their websites, which could adversely affect the use of
their websites. The acquisition, registration and maintenance of domain names is
generally regulated by governmental agencies or other entities. In the future,
these authorities may modify the regulations governing use of domain names. As a
result, our network companies may be unable to acquire, maintain or renew
relevant domain names in all countries in which they conduct business.

In 1999, Congress enacted anti-cybersquatting legislation to address the
practice of domain name piracy. The legislation is designed to limit the
practice of registering an Internet address of an established trademark with the
intent to sell the Internet address to the affected company. The legislation
also includes a prohibition on the registration of a domain name that is the
name of another living person, or a name that is confusingly similar to that
name. The scope of this legislation has not been precisely defined. We, or our
network companies, may be subject to liability based on our or their use of
domain names or trademarks that allegedly infringe the rights of third parties.

OUR NETWORK COMPANIES MAY SUFFER WEBSITE OUTAGES AND OTHER TECHNICAL
DIFFICULTIES, OR BE UNABLE TO UPGRADE THEIR SYSTEMS TO MEET INCREASED DEMAND,
WHICH COULD REDUCE THEIR ATTRACTIVENESS TO USERS AND THIRD PARTY CONTENT
PROVIDERS.

Many of our network companies' businesses depend on the efficient and
uninterrupted operation of their computer and communications systems.
Interruptions could result from natural disasters as well as power loss,
telecommunications failure and similar events. Any system interruptions that
cause our companies' websites to be unavailable to Web browsers may reduce the
attractiveness of their websites to direct users and to third party content
providers including advertisers. If either direct users or third party content
providers are unwilling to use our network companies' websites, their business,
financial condition and operating results could be adversely affected.

In addition, our network companies' businesses may be disrupted if they are
unable to upgrade their systems to meet increased demand. Capacity limits on
some of our companies' technology, transaction processing systems and network
hardware and software, as well as the rate of increase in use of their websites,
may be difficult to predict, and they may not be able to expand and upgrade
their systems to meet increased use. If they are unable to appropriately upgrade
their systems and network hardware and software, their operations and processes
may be disrupted.

OUR INTERNET COMMERCE AND CONTENT COMPANIES MAY NOT BE ABLE TO ATTRACT LOYAL
USERS TO THEIR WEBSITES, WHICH WOULD IMPAIR THEIR ABILITY TO GENERATE REVENUE.

Our success depends upon the ability of our Internet commerce and content
companies to deliver compelling content, commercial opportunities or services to
their respective target users. If our network companies are unable to develop
content, commercial opportunities or services that attract loyal users, their
revenues and profitability could be impaired. Internet users can freely navigate
and instantly switch among a large number of websites. Many of these websites
offer original content. Thus, our network companies may have difficulty
distinguishing the content on their websites to attract a loyal base of users.

RISKS RELATING TO THE INDUSTRIES IN WHICH OUR NETWORK COMPANIES OPERATE

CONCERNS REGARDING THE SECURITY OF ONLINE TRANSACTIONS MAY HAVE AN ADVERSE
IMPACT ON THE MARKET FOR OUR NETWORK COMPANIES' PRODUCTS AND SERVICES.

Concerns regarding the security of transactions and confidential
information on the Internet may have an adverse impact on our business. We
believe that concern regarding the security of confidential information
transmitted over the Internet prevents many potential customers from engaging in
online transactions. As online usage becomes more widespread, our network
companies' customers may become more concerned about security.

Despite the measures some of our network companies have taken, the
infrastructure of all Internet companies is potentially vulnerable to physical
or electronic break-ins, viruses or similar problems. If a person circumvents
the security measures imposed by any of our network companies, he or she could
misappropriate their proprietary information or cause interruption in their
operations. Security breaches that result in access to confidential information
could damage our reputation as well as that of our network companies and expose
any affected company to a risk of loss or liability. Some of our network
companies may be required to make significant investments and efforts to protect
against or remedy security breaches.

OUR NETWORK COMPANIES ARE SUBJECT TO RISKS RELATED TO RAPID TECHNOLOGICAL CHANGE
THAT COULD INCREASE COST AND UNCERTAINTY.

Rapid technological changes make it difficult for Internet companies to
remain current with their technical resources in order to maintain competitive
product and service offerings. The markets in which our network companies
operate are characterized by rapid technological change, frequent new product
and service introductions and evolving industry standards. Significant
technological changes could render existing website technology or other products
and services rapidly obsolete. The Internet's growth and intense competition
exacerbate these conditions.

If we or our network companies do not successfully respond to continuing
technological developments or do not respond in a cost-effective way, our
business, financial condition and operating results will be adversely affected.
To be successful, we and our network companies must adapt to the rapidly
changing markets by continually improving the responsiveness, services and
features of our network companies' various products and services and by
developing new features to meet customer needs.

OUR NETWORK COMPANIES COULD BE REQUIRED TO COLLECT ADDITIONAL TAXES ON INTERNET
SALES, WHICH WOULD INCREASE THEIR COSTS OF DOING BUSINESS.

Our network companies do not currently collect sales or other similar taxes
for shipments of goods into states within the U.S. other than the states where
each is located, or on shipments of goods into other countries. However, one or
more additional states or countries into which our network companies' products
are sold may seek to impose sales tax collection obligations on products sold
over the Internet. If one or more of these states or countries successfully
assert that our network companies should collect sales or other taxes on the
sale of merchandise, their cost of doing business would increase and the
products they sell would become more expensive and thus less attractive to
customers.

ADDITIONAL GOVERNMENT REGULATIONS MAY INCREASE THE COSTS OF DOING BUSINESS FOR
OUR NETWORK COMPANIES AND US.

Government regulations and legal uncertainties may place financial burdens
on our business and the businesses of our network companies. Because of the
Internet's popularity and increasing use, new laws and regulations may be
adopted. These laws and regulations may cover issues such as the collection and
use of data from website visitors and related privacy issues, pricing, content,
copyrights, trademarks, online gambling, distribution and quality of goods and
services. Currently, the law governing Internet transactions remains largely
unsettled, even in areas in which there has been some legislative action. It may
take years to determine whether and how existing laws such as those governing
intellectual property, privacy, libel, sexually explicit material and taxation
apply to the Internet. The adoption or modification of laws or regulations
relating to the Internet could adversely affect our business and the business of
our network companies by increasing our and their costs and administrative
burdens. In addition, privacy-related regulation of the Internet could interfere
with the strategies of our network companies that collect and use personal
information as part of their marketing efforts or businesses.

Laws and regulations directly applicable to communications or commerce over
the Internet are becoming more prevalent. The United States Congress has
recently enacted Internet laws regarding children's privacy, copyrights,
taxation and the transmission of sexually explicit material. The European Union
has enacted its own data protection and privacy directive, which required all 15
European Union Member States to implement laws relating to the processing and
transmission of personal data. We and our network companies must comply with
these new regulations in both Europe and the United States, as well as any other
regulations adopted by other countries where we or they may do business. In
addition, the growth and development of the market for online commerce may
prompt calls for more stringent consumer protection laws, both in the United
States and abroad. Compliance with any newly adopted laws may prove difficult
for us and may negatively affect our business.

RISKS RELATING TO THIS OFFERING

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

If our stockholders sell a substantial number of our shares in the public
market during a short period of time, our stock price could decline
significantly. After this offering, a total of ____________________ shares of
our common stock will be outstanding. All the shares sold in this offering will
be freely tradable. As a result of contractual lock-up restrictions, the
remaining _________________ shares of our common stock outstanding after this
offering will become available for public sale as follows:

PERCENTAGE OF SHARES
DATE OF AVAILABILITY FOR SALE NUMBER OF SHARES OUTSTANDING AFTER OFFERING
- -------------------------------------- --------------------------------------- ------------------------------

Immediately after the date of this %
prospectus............................

90 days after the date of this
prospectus, if our stock trades at
predetermined levels..................

120 days after the date of this
prospectus, if our stock trades at
predetermined levels..................

At various times after 180 days from the
date of this offering, assuming the
availability for sale of all the shares
discussed above and subject, in some
cases, to volume limitations..........

Shares acquired upon the exercise of options can generally be publicly sold
immediately, subject to contractual restrictions that expire 180 days after this
offering. As of January 31, 2000, 6,958,000 shares of our common stock were
subject to vested stock options, 193,055,550 were subject to unvested stock
options and 64,085,700 remained available for grant under our stock plans. If a
large number of these shares are sold as they become tradable our stock price
could decline.

WE HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS, AND WE MAY NOT USE THESE
PROCEEDS IN A WAY WITH WHICH OUR STOCKHOLDERS AGREE.

The net proceeds of this offering are not allocated for specific uses other
than to generally further our business of creating, building and operating
businesses in markets involving interactive communications, and to acquire or
increase our interests in these businesses, along with other general corporate
purposes. Our management can spend most of the proceeds from this offering in
ways with which our stockholders may not agree.

OUR STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE AS A RESULT OF MARKET FACTORS.

The market price for our stock is likely to be highly volatile because the
stock market in general, and the market for Internet-related stocks in
particular, has been highly volatile. The trading prices of many technology and
Internet-related company stocks have reached historical highs within the last
year and have reflected valuations substantially above historical levels. During
the same period, the stocks of these companies have been highly volatile and
have recorded lows well below their historical highs. Our stock may not trade at
the same levels as other Internet stocks, and Internet stocks in general may not
sustain their current market prices. We anticipate the following factors, among
others, will contribute to our stock price's volatility:

o changes in the financial estimates or investment considerations of
securities analysts regarding us; and

o fluctuations in stock market prices and volumes.

These factors are beyond our control and may decrease the market price of
our stock regardless of our operating performance.

THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT ARE BASED ON OUR
CURRENT EXPECTATIONS, ESTIMATES AND PROJECTIONS BUT ARE NOT GUARANTEES OF FUTURE
PERFORMANCE AND ARE SUBJECT TO RISKS AND UNCERTAINTIES.

This prospectus contains forward-looking statements. These forward-looking
statements are not historical facts, but rather are based on current
expectations, estimates and projections about our industry, our beliefs and our
assumptions. Words such as "anticipates", "expects", "intends", "plans",
"believes", "seeks", and "estimates", and variations of these words and similar
expressions, are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to risks,
uncertainties and other factors, some of which are beyond our control and
difficult to predict and could cause actual results to differ materially from
those expressed or forecasted in the forward-looking statements. These risks and
uncertainties include those described in "Risk Factors" and elsewhere in this
prospectus. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect our management's view
only as of the date of this prospectus. Except as required by law, we undertake
no obligation to update any forward-looking statement, whether as a result of
new information, future events or otherwise.

USE OF PROCEEDS

The net proceeds to us from the sale of the _________________ shares of
common stock offered by us are estimated to be $ _____________ , or $
_____________ if the underwriters exercise their option to purchase additional
shares in full, assuming an initial public offering price of $________ per share
and after deducting underwriting discounts and commissions and estimated
offering expenses payable by us.

We expect to use the net proceeds from this offering to create, build and
operate, or to acquire and increase our interests in, businesses in markets
involving interactive communications. In addition, we intend to use a portion of
the net proceeds for general corporate purposes. Pending use of the net proceeds
for the above purposes, we intend to invest the funds in direct or guaranteed
obligations of the United States.

DIVIDEND POLICY

We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future.

CAPITALIZATION

The following table sets forth the following information:

o our actual capitalization as of January 31, 2000,

o our pro forma capitalization after giving effect to the conversion of
all 23,686,010 outstanding shares of our convertible preferred stock
into 236,860,100 shares of common stock upon the closing of this
offering, and the authorization of 10,000,000,000 shares of $0.001 par
value common stock and 100,000,000 shares of undesignated $0.001 par
value preferred stock, and

o our pro forma as adjusted capitalization giving effect to the pro
forma adjustments and the sale of _________ shares of common stock in
this offering at an assumed initial public offering price of $_______
per share, less underwriting discounts and commissions and estimated
offering expenses payable by us.

JANUARY 31, 2000
---------------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Capital lease obligations, less current portion........................... $ 30,439 $ 30,439 $
Convertible preferred stock, no par value; actual - 28,452 ----------- ----------- --------------
shares authorized, 23,686 shares issued and outstanding; pro forma and
pro forma as adjusted - none authorized, issued or outstanding......... 892,782 -- --

SHAREHOLDER'S EQUITY:
Undesignated preferred stock, actual - no par value, 9,548
shares authorized, none issued or outstanding; pro forma and
pro forma as adjusted - $0.001 par value, 100,000 shares
authorized, none issued or outstanding................................. -- --
Common stock; actual - no par value; 1,100,000 shares authorized,
551,476 shares issued and outstanding; pro forma -
$0.001 par value 10,000,000 shares authorized, 788,336 shares issued
and outstanding; pro forma as adjusted - shares
issued and outstanding................................................. 387,689 788
Additional paid-in capital................................................ -- 1,279,683
Notes receivable from shareholders........................................ (38,304) (38,304)
Deferred stock compensation............................................... (239,892) (239,892)
Accumulated other comprehensive income.................................... 144,816 144,816
Retained earnings......................................................... 83,475 83,475
----------- ----------- --------------
Total shareholders' equity................................................ 337,784 1,230,566
----------- ----------- --------------
Total capitalization...................................................... $1,261,005 $1,261,005 $
=========== =========== ==============

This table excludes the following shares:

o 200,013,550 shares of common stock subject to outstanding options with
a weighted-average exercise price of $1.22 per share as of January 31,
2000;

o 64,085,700 shares of common stock available for issuance under our
stock option plans as of January 31, 2000;

o 21,850,350 shares underlying options granted between February 1, 2000
and March 15, 2000 at a weighted-average exercise price of $1.94;

o 2,220,081 shares of common stock issued between February 1, 2000 and
March 31, 2000; and

o 14,880,750 shares of common stock issuable upon the conversion of
Series D preferred stock issued between February 1, 2000 and
March 31, 2000.

The table above includes 107,575,000 shares of common stock subject to a
right of repurchase by us as of January 31, 2000. See "Management--Stock Plans",
"Description of Capital Stock" and Notes 13 and 14 of Notes to Consolidated
Financial Statements.

DILUTION

The net tangible book value of our common stock on January 31, 2000 was
$736,258,000, or approximately $0.93 per share. Net tangible book value per
share represents the amount of our total tangible assets less total liabilities,
divided by the number of shares of capital stock outstanding, both of which are
calculated after assuming the conversion of all 23,686,010 shares of our
convertible preferred stock outstanding as of January 31, 2000 into 236,860,100
shares of common stock upon completion of this offering. Dilution in net
tangible book value per share represents the difference between the amount per
share paid by purchasers of shares of our common stock in this offering and the
net tangible book value per share of our common stock immediately afterwards.
After giving effect to our sale of shares of common stock offered by this
prospectus at an assumed initial public offering price of $ per share and after
deducting underwriting discounts and commissions and estimated offering expenses
payable by us, our net tangible book value would have been $ , or approximately
$ per share. This represents an immediate increase in net tangible book value of
$ per share to existing stockholders and an immediate dilution in net tangible
book value of $ per share to new investors.

Assumed initial public offering price per share......................... $
Net tangible book value per share as of January 31, 2000............. $0.93
Increase per share attributable to new investors.....................
As adjusted net tangible book value per share after the offering........
Dilution in net tangible book value per share to new investors.......... $

The following table sets forth, as of January 31, 2000, the differences
between the number of shares of common stock purchased from us, the total price
and average price per share paid by existing stockholders and by new investors
in this offering, before deducting expenses payable by us, using the assumed
initial public offering price of $ per share.

SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------------ ------------------------------ PRICE PER
NUMBER PERCENTAGE AMOUNT PERCENTAGE SHARE
-------------- -------------- --------------- ------------- -------------

Existing stockholders... % % $
New investors...........
-------------- -------------- --------------- -------------
Total................. 100% $ 100% $
============== ============== =============== =============

If the underwriters' option to purchase additional shares is exercised in
full, the number of shares held by new investors will be increased to ,
or approximately % of the total number of shares of our common stock
outstanding after this offering.

The tables above exclude the following shares:

- 200,013,550 shares of common stock subject to outstanding options with
a weighted-average exercise price of $1.22 per share as of January 31,
2000;

- 64,085,700 shares of common stock available for issuance under our
stock option plans as of January 31, 2000;

- 21,850,350 shares underlying options granted between February 1, 2000
and March 15, 2000 at a weighted-average exercise price of $1.94;

- 2,220,081 shares of common stock issued between February 1, 2000 and
March 31, 2000; and

- 14,880,750 shares of common stock issuable upon the conversion of
Series D preferred stock issued between February 1, 2000 and
March 31, 2000.

The tables above include 107,575,000 shares of common stock subject to a
right of repurchase by us as of January 31, 2000. See "Management--Stock Plans",
"Description of Capital Stock" and Notes 13 and 14 of Notes to Financial
Statements.

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations", and the consolidated financial statements and notes
thereto appearing elsewhere in this prospectus. The consolidated statement of
operations data set forth below for each of the fiscal years ended January 31,
1998, 1999 and 2000, and the consolidated balance sheet data at January 31, 1999
and 2000 are derived from our audited consolidated financial statements included
elsewhere in this prospectus. The consolidated statement of operations data set
forth below for the period from March 14, 1996 (inception) through January 31,
1997 and the consolidated balance sheet data at January 31, 1997 and 1998 are
derived from our unaudited consolidated financial statements not included in
this prospectus. Our historical consolidated results of operations are not
necessarily indicative of results to be expected for any future period.

FOR THE PERIOD
FROM MARCH 14,
1996
(INCEPTION)
THROUGH YEARS ENDED JANUARY 31,
JANUARY 31, ----------------------------------------------------
1997 1998 1999 2000
---------------- ----------------- --------------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

CONSOLIDATED STATEMENT OF
OPERATIONS DATA:

Revenues.................................. $ -- $ 154 $ 805 $ 21,158
---------------- ----------------- --------------- ----------------
Operating Expenses:
Cost of revenues (1)................... 303 172 82 28,380
Sales and marketing (2)................ 386 2,002 1,940 70,129
Product development (3)................ 615 3,484 1,554 10,798
General and administrative (4)......... 971 5,623 4,732 36,738
Stock-based compensation............... 135 233 3,910 109,150
Amortization of goodwill and other
intangibles.......................... -- 49 79 7,149
---------------- ----------------- --------------- ----------------
Total operating expenses.................. 2,410 11,563 12,297 262,344
---------------- ----------------- --------------- ----------------
Operating income (loss)................... (2,410) (11,409) (11,492) (241,186)
Realized gains on sales of marketable
securities............................. -- -- 2,250 201,959
Gain on stock issuance by a network
company................................ -- -- -- 22,658
Other income, net......................... 3 216 5,307 92,003
Interest income (expense), net............ 68 (142) 71 5,691
---------------- ----------------- --------------- ----------------
Income (loss) before income taxes,
minority interest and equity in the
income (loss) of affiliates............ (2,339) (11,335) (3,864) 81,125
Income tax benefit (expense).............. (3) 3,528 2,358 (86,245)
Minority interest......................... 116 1,022 572 95,537
Equity in the income (loss) of
affiliates, net of tax................. (144) (271) 51 28,067
---------------- ----------------- --------------- ----------------
Net income (loss)......................... (2,370) (7,056) (883) 118,484
Deduction for beneficial conversion
feature................................ -- -- -- (9,724)
Repurchase of convertible preferred stock. -- -- -- (3,777)
---------------- ----------------- --------------- ----------------
Net income (loss) applicable to common
shareholders........................... $ (2,370) $ (7,056) $ (883) $ 104,983
================ ================= =============== ================
Net income (loss) per share applicable to
common shareholders:
Basic................................ $ (0.01) $ (0.02) $ -- $ 0.25
Diluted.............................. $ (0.01) $ (0.02) $ -- $ 0.15
Shares used to calculate net income
(loss) per share applicable to common
shareholders:
Basic................................ 322,232 334,760 352,083 423,525
Diluted.............................. 322,232 334,760 352,083 695,312
Unaudited pro forma net income per share
applicable to common shareholders:
Basic................................ $ 0.18
Diluted.............................. $ 0.15
Shares used to calculate unaudited pro forma
net income per share applicable to common
shareholders:
Basic................................ 571,215
Diluted.............................. 695,312

AT JANUARY 31,
----------------------------------------------------------------------
1997 1998 1999 2000
---------------- ----------------- --------------- ----------------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:

Cash and cash equivalents................. $ 1,084 $ 3,826 $ 6,339 $ 601,474
Working capital........................... 329 (2,653) 1,106 562,024
Total assets.............................. 2,461 16,666 47,552 1,674,383
Convertible preferred stock............... 3,450 12,154 13,652 892,782
Total shareholders' equity................ $ 1,480 $ 9,257 $ 17,668 $ 337,784
- ------------------
(1) Excludes $0, $0 and $169 of stock based compensation charges for the
years ended January 31, 1998, 1999 and 2000, respectively.

(2) Excludes $0, $0 and $1,066 of stock based compensation charges for the
years ended January 31, 1998, 1999 and 2000, respectively.

(3) Excludes $0, $27 and $6,165 of stock based compensation charges for
the years ended January 31, 1998, 1999 and 2000, respectively.

(4) Excludes $233, $3,883 and $101,750 of stock based compensation charges
for the years ended January 31, 1998, 1999 and 2000, respectively.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS, THE ACCURACY OF WHICH
INVOLVES RISKS AND UNCERTAINTIES. WE USE WORDS SUCH AS "ANTICIPATES",
"BELIEVES", "PLANS", "EXPECTS", "FUTURE", "INTENDS" AND SIMILAR EXPRESSIONS TO
IDENTIFY FORWARD-LOOKING STATEMENTS. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS FOR MANY REASONS,
INCLUDING THE RISKS FACED BY IDEALAB! DESCRIBED IN "RISK FACTORS" AND ELSEWHERE
IN THIS PROSPECTUS.

OVERVIEW

idealab! is a new form of enterprise that creates, builds and operates
businesses that use the power of real-time interactive communications, including
the Internet, telephony, cable and wireless, to satisfy what we believe are
unmet market needs. We generate ideas for new Internet-related businesses. Each
idea is tested and modeled and, if the results of the testing suggest that the
idea will form the basis for a successful business, we form and capitalize a new
entity, recruit a management team, provide space in our open plan facilities,
and provide on-going strategic guidance, creative design, web development,
accounting, legal and administrative services to the newly formed network
company. We operate each business as a separate company rather than as a
division. In some cases, due to various circumstances, we may acquire equity
interests in companies started by others. We intend to continue establishing
additional facilities around the world where we can match our best ideas with
talented people to create new companies. In each new location we intend to
duplicate the organization of our functional teams to promote the consistent
execution of the idealab! method.

Most of our network companies that are in an early stage of development
incurred substantial losses in fiscal 1999 and fiscal 2000 and are expected to
continue to incur losses for the foreseeable future. None of our network
companies has paid cash dividends during our period of ownership and we do not
expect them to pay dividends in the foreseeable future. We have experienced
operating losses in each of fiscal 1998, 1999 and 2000 and expect to report
operating losses for the foreseeable future. We have, however, reported net
income in fiscal year 2000 and have experienced significant earnings volatility
from period to period due to one-time transactions and other events incidental
to our ownership interests in our network companies. These transactions and
events are described in more detail under "Realized gains on sales of marketable
securities", "Gain on stock issuance by a network company" and "Other income,
net" and include dispositions of, and changes to, our network company ownership
interests and dispositions of our holdings of marketable securities. We do not
know, however, whether we will report net income in any future periods.

Certain items that gave rise to net income in fiscal 2000, including
realized gains on sales of marketable securities, are unlikely to generate
significant net income in future periods because we view ourselves as long-term
holders of equity interests in our network companies, and because we intend to
avoid registration under the Investment Company Act of 1940. For a more detailed
discussion, see "Risk Factors--Risks particular to us--Fluctuations in our
quarterly results are likely and could cause our stock price to decline" and
"--We may have to take actions that are disruptive to our business strategy to
avoid registration under the Investment Company Act of 1940".

We evaluate the carrying value of our ownership interests in each of our
network companies on a continual basis for possible impairment based on progress
toward the achievement of business plan objectives and milestones, the value of
our ownership interest in each network company relative to our carrying value,
the financial condition and prospects of the network company, and other relevant
factors. The business plan objectives and milestones that we will consider
typically include, among others, those related to financial performance, such as
achievement of planned financial results and completion of capital raising
activities, and those that are not primarily financial in nature, such as the
launching of a website, the hiring of key employees, the number of people who
have registered to be part of the network company's web community and the number
of visitors to the network company's website per month. The fair value of our
ownership interests in privately held network companies will generally be
determined by reference to the prices paid by third parties for ownership
interests in the network company, to the extent

third party ownership interests exist, or on the achievement of business plan
objectives and the milestones described above. To date, we have not experienced
any significant impairment writedowns.

Because a number of our network companies are not majority-owned
subsidiaries, changes in the value of our interests in them and the
income (loss) and revenue attributable to them could require us to register as
an investment company under the Investment Company Act of 1940 unless we take
action to avoid being required to register or receive an exemption from
registration. For a more detailed discussion of some of the actions we may be
required to take and that could result in gains or losses upon the disposition
of certain ownership interests see "Risk Factors--Risks particular to us--We may
have to take actions that are disruptive to our business strategy to avoid
registration under the Investment Company Act of 1940".

The presentation and content of our consolidated financial statements are
largely a function of the presentation and content of the financial statements
of our network companies. We are responsible for the presentation and content of
our consolidated financial statements, and each of our network companies is
responsible for the presentation and content of its financial statements. To the
extent any of our network companies changes the presentation or content of its
financial statements due to changes in accounting standards or otherwise, the
presentation and content of our consolidated financial statements may also
change. The reporting periods of our network companies generally coincide with
the calendar year. We account for our ownership interests in our network
companies utilizing the quarterly and annual financial information as reported
by network companies pursuant to their fiscal year-ends. Accoringly, the
financial results of network companies included in our consolidated financial
statements generally reflect a reporting lag period of one-month. Organizations
responsible for promulgating accounting standards are currently reviewing the
classification of, and accounting for, various financial statement items by a
number of e-commerce companies. The review by these organizations could result
in new standards or additional authoritative guidance that could require changes
in the presentation and content of the financial statements of our network
companies and, therefore, of our company. We and our network companies will
adjust our accounting and classification methods if required.

MANAGEMENT FEES

We receive management fees from the general partners of certain venture
capital funds. We are a managing member of idealab! Capital Management I, L.L.C.
("ICM I"), the sole general partner of idealab! Capital Partners I-A, L.P. and
idealab! Capital Partners I-B, L.P. (the "ICM I Funds"), which was formed in
March 1998. In return for providing our services as a managing member of ICM I,
we are entitled to receive an annual management fee of $400,000, subject to a
significant decrease after March 2003.

idealab! Capital Management II, L.L.C. ("ICM II") was formed in August 1999
and serves as the general partner of three venture capital funds: idealab!
Capital Partners II-A, L.P., idealab! Capital Partners II-B, L.P. and idealab!
Capital Principals Fund, L.P. (the "ICM II Funds"). idealab! Capital Management
Services, L.L.C. was formed to provide various administrative and other services
to ICM II and the ICM II Funds. We are a managing member of ICM II and idealab!
Capital Management Services, L.L.C. In return for providing our service as a
managing member of these entities, we are entitled to receive an annual
management fee of $4.1 million, payable quarterly in advance, subject to a
significant decrease after August 2004.

EFFECT OF VARIOUS ACCOUNTING METHODS ON OUR RESULTS OF OPERATIONS

The various interests that we acquire in our network companies are
accounted for under one of three methods: consolidation method, equity method
and cost method. The applicable accounting method is determined on a case by
case basis and is generally based upon our ownership percentage of voting
securities in each network company, as well as our degree of influence over each
network company. The accounting method used to account for our ownership
interests in network companies could change in any quarter as a result of our
acquisitions or dispositions of ownership interests or third party investments
in our network companies.

CONSOLIDATION METHOD

Network companies which we effectively control are accounted for under the
consolidation method of accounting. Effective control is generally determined
based on an ownership interest of greater than 50% of the network company's
outstanding voting securities and the ability to control the network company's
Board of Directors. Under this method, a network company's results of
operations are reflected within our Consolidated Statements of Operations and
its financial position is reflected in our Consolidated Balance Sheets. All
significant intercompany accounts and transactions are eliminated. Participation
of other network company shareholders in the net assets and earnings or losses
of a consolidated network company is presented as "Minority interest" on our
Consolidated Balance Sheets and our Consolidated Statements of Operations.
Minority interest adjusts our consolidated results of operations to reflect only
our share of the earnings or losses of consolidated network companies.

At January 31, 1999 and 2000, our network companies accounted for under the
consolidation method included the following:

VOTING OWNERSHIP
JANUARY 31,
--------------------------------------
COMPANY IN NETWORK SINCE 1999 2000
-------------------------- ------------------------- ------------------ ------------------

CarsDirect.com........... October 1998 77% 66%
dotTV.................... October 1999 -- 50
EntryPoint............... July 1998 74 55
FreeMusic.com............ September 1999 -- 88
HomePage.com............. April 1999 -- 56
Jackpot.com.............. October 1999 -- 81
MyHome.com............... June 1999 -- 70
z.com.................... October 1999 -- 51

We have also created several companies that have not yet been launched or
are in very early stages of development. We have omitted these companies from
the table above because their financial results are not material to ours. In
January 2000, we sold our ownership interest in Free-PC to eMachines, Inc. in
exchange for 12,265,514 shares of eMachines, Inc. common and preferred stock and
warrants to purchase 5,256,651 shares of eMachines, Inc. common stock. Prior to
this sale we owned more than 50% of the outstanding voting securities of
Free-PC, and therefore we consolidated the results of operations of Free-PC with
our own results of operations for the period from the inception of Free-PC in
January 1999 through the date of the sale. Subsequent to the date of the sale,
our interest in eMachines has been accounted for under the cost method.

Generally, our economic and voting ownership percentages in our network
companies are approximately equal. However, at January 31, 2000, our economic
ownership of CarsDirect.com was 44%, which included 100% of the outstanding
shares of the CarsDirect.com Class B common stock. Each share of Class B common
stock entitles us to 20 votes and is voted together as a single class with the
shares of CarsDirect.com Class A common stock, each share of which entitles its
holder to one vote.

EQUITY METHOD

Network companies whose results we do not consolidate, but over whom we
exercise significant influence, are accounted for under the equity method of
accounting. Whether or not we exercise significant influence with respect to a
network company depends on an evaluation of several factors including, among
others, representation on the network company's board of directors and an
ownership interest which is generally 20% to 50% of the outstanding voting
securities of the network company.

Under the equity method of accounting, a network company's results of
operations are not reflected within our Consolidated Statements of Operations;
however, our share of the earnings or losses of the network company, which is
generally limited to the carrying value of our ownership interest in the network
company, is presented as "Equity in the income (loss) of affiliates, net of tax"
on our Statements of Operations. For those network companies accounted for
using the equity method in which our ownership interest includes preferred stock
or other securities which have priority in liquidation to other junior
securities, we determine our share of the network company's losses based on the
change in

our claim on the network company's net assets, in accordance with "Emerging
Issues Task Force Issue ("EITF") No. 99-10 "Percentage used to Determine the
Amount of Equity Method Losses".

At January 31, 1999 and 2000, our network companies accounted for under the
equity method included:

VOTING OWNERSHIP
JANUARY 31,
-----------------------------
COMPANY IN NETWORK SINCE 1999 2000
------------------------- ------------------------- -------------- --------------

eVoice................... December 1999 --% 31%
FirstLook.com............ May 1998 96 44
GoTo.com................. September 1997 28 27
iExchange.com............ February 1999 -- 44
Intranets.com............ January 1997 15 33
OpenSales.com............ February 1998 70 46
PayMyBills.com........... June 1999 -- 50
PETsMART.com............. March 1999 -- 21
Sameday.com.............. May 1999 -- 46
Swap.com................. April 1997 33 44
Utility.com.............. November 1998 44 34

We have representation on the boards of directors of each of the above
network companies. In addition to ownership of voting equity securities, we also
periodically make advances to our network companies in the form of promissory
notes or convertible notes. Advances outstanding to equity method network
companies at January 31, 2000 were $12.1 million.

The results of operations of FirstLook.com and OpenSales.com were
consolidated with our results of operations for the three month period ended
April 30, 1999. During the second quarter of fiscal 2000 our ownership interest
in each of these companies was reduced below 50% due to third party investment.
Effective May 1, 1999, we have accounted for our ownership interests in each
of these network companies using the equity method.

At January 31, 2000, we also had ownership interests in ICM I, ICM II,
idealab! Capital Principals Fund, L.L.P. and eHatchery, LLC, each of which is
accounted for using the equity method. As described above, ICM I and ICM II are
general partners in several venture capital funds which generally invest in
Internet-related businesses and have made investments in certain of our network
companies and in our convertible preferred stock. Our equity in the income or
loss of ICM I and ICM II reflects our share of the net profits or losses of ICM
I and ICM II, which includes ICM I and ICM II's proportionate share of the
unrealized appreciation or depreciation of certain investment holdings of the
ICM I Funds and the ICM II Funds. We eliminate profits and losses attributable
to the funds' investment holdings in network companies that we account for using
the consolidation or equity method. Any profits and losses on the funds'
investment holdings in these network companies are recognized when realized in
the form of a sale of the underlying shares by the funds or by us. Additionally,
we eliminate the portion of ICM I's equity in the income of the ICM I Funds
which is attributable to the appreciation or depreciation on holdings by the ICM
I Funds in our convertible preferred stock. For a more detailed discussion of
our relationship with ICM I and ICM II see "Related Party Transactions--Venture
Capital Affiliations".

COST METHOD

Our ownership interest in network companies not accounted for under the
consolidation or equity methods of accounting are accounted for under the cost
method of accounting. Under the cost method, we do not include our share of the
network company's earnings or losses in our Consolidated Statements of
Operations. Our ownership interest is included in our Consolidated Balance
Sheets at our original acquisition cost, and charges are recognized in our
Consolidated Statements of Operations if events or circumstances indicate that
an other than temporary impairment of the carrying value has occurred.

Our ownership interests in network companies accounted for under the cost
method that have readily determinable fair values based on quoted market prices
and that are not restricted as to sale for a period of one year beyond the
balance sheet date are accounted for in accordance with Statement of

Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities".

At January 31, 1999 and 2000, our network companies accounted for under the
cost method included:

VOTING OWNERSHIP
JANUARY 31,
---------------------------------------
COMPANY IN NETWORK SINCE 1999 2000
---------------------------- ------------------- ------------------- -------------------

Centra Software............ June 1996 less than 1% 1ess than 1%
Cooking.com................ April 1998 28 6
eMachines.................. January 2000 -- 10
eToys.com.................. June 1997 21 12
eve.com.................... October 1998 33 17
jobs.com................... July 1999 -- 2
NetZero.................... March 1999 -- 5
PeopleLink................. May 1996 16 11
Ticketmaster
Online-CitySearch....... June 1996 1 1
Tickets.com................ January 1997 37 5
WeddingChannel.com......... March 1997 14 7

As of January 31, 2000, we owned voting stock in all companies accounted
for under the cost method. In addition to our investments in voting equity
securities, we also periodically make advances to our network companies in the
form of promissory notes. Advances outstanding to cost method network companies
at January 31, 2000 were $611,000.

As of January 31, 2000, we also had an investment in Dynafund, L.P., which
makes investments in Internet companies, accounted for using the cost method.

FISCAL 2000 COMPARED TO FISCAL 1999

During fiscal 2000, our operating loss was primarily affected by the growth
of our operations, primarily reflecting an increase in headcount, management
fees earned for providing management services to ICM I and ICM II, and by the
operating results of the following network companies which represented the
substantial majority of our revenues and expenses for the year:

o CarsDirect.com -- CarsDirect.com was formed in October 1998 and began
offering vehicles directly to online consumers in December 1998 and
officially launched its enhanced site in May 1999. More than half of
the transactions completed by CarsDirect.com through December 31, 1999
occurred during the three months ended December 31, 1999. During
fiscal 2000, CarsDirect.com acquired AutoData Marketing Systems, a
company which is primarily focused on licensing decision-making
support tools and content to the automotive and related industries in
North America, and Potamkin Auto Center, Ltd., that is engaged in the
sale and lease of new and used automobiles and light trucks at
traditional storefront locations.

o Free-PC -- Free-PC was formed in January 1999 and in June 1999 began
providing consumers with free computers while offering online
advertisers a means to reach those consumers. We sold our interest in
Free-PC to eMachines in January, 2000. The results of Free-PC's
operations are consolidated with our results of operations for the
period from inception through the sale.

o EntryPoint -- We created EntryPoint in July 1998. In May 1999
EntryPoint acquired PointCast Inc., an existing business that had
launched its Internet news and information service in February 1996.
EntryPoint primarily generates revenues from the sale of advertising
on its free toolbar that delivers timely personalized news and
information to the desktop.

o HomePage.com -- HomePage.com commenced operations in May 1999 and is a
leading provider of outsourced homepage solutions to corporate
clients including: AOL's ICQ, About.com, Qwest, Discovery.com,
PETsMART.com and other e-businesses.

Several other network companies accounted for using the consolidation method of
accounting were created during the third and fourth quarter of fiscal 2000
and had limited operations during fiscal 2000. A significant portion of the
costs of such network companies was attributable to sales and marketing and
general and administrative costs incurred primarily to develop organizational
infrastructure and fund early stage promotional and advertising costs.

During fiscal 1999, our operating loss was primarily attributable to the
growth of our operations and the creation and growth of EntryPoint. Other
majority-owned network companies were in the early stages of their business
cycle and therefore were incurring significant promotional and advertising costs
and therefore were generating operating losses.

REVENUES

Revenues are primarily comprised of trade revenues generated by our
consolidated network companies and management fees for serving as a managing
member of ICM I and ICM II. Our consolidated network companies generally derive
revenue from the sale of tangible products and the sale of advertising on the
respective network companies' websites or services.

CarsDirect.com recognizes as revenues the price its customer pays it for a
vehicle following the delivery of the vehicle to the customer, provided that
collection of the resulting receivable is probable. CarsDirect.com believes that
presentation, as its revenues, of the price its customer pays for a vehicle
appropriately reflects the risks, and rewards, of its business model. In
addition, CarsDirect.com believes such presentation appropriately reflects the
substance of the transaction and its legal rights and obligations. Upon receipt
of a customer order, CarsDirect.com enters into a legally enforceable commitment
to acquire a specific vehicle from a new car dealer to fulfill that customer
order. Such commitment obligates CarsDirect.com to pay the dealer for the
specific car regardless of whether the customer pays CarsDirect.com. The
customer has the right to cancel an order anytime prior to accepting delivery of
the specific car. CarsDirect.com sets the price of the vehicle to the customer,
and the price is not based on a formula related to the price CarsDirect.com pays
for the vehicle. Customers conduct their business directly with CarsDirect.com
and have no influence over which supplier CarsDirect.com uses. CarsDirect.com's
cost and payment terms are fixed, and are independent of the price and terms
customers pay it for vehicles. Prior to delivery of the vehicle to the customer,
CarsDirect.com bears the inventory risk for the vehicles it commits to acquire;
CarDirect.com has the sole legal right to direct the disposition of the vehicles
it commits to acquire; CarsDirect.com has an insurable interest as beneficial
owner in the vehicles it commits to acquire; and CarsDirect.com is responsible
for taxes that may be assessed on a vehicle it commits to acquire.
CarsDirect.com bears the risk of return of the vehicle if a customer defaults on
the sale or if the customer returns the vehicle in accordance with applicable
law. CarsDirect.com does not have the right to return the vehicle to its
supplier in those instances and CarsDirect.com establishes a reserve for
estimated customer returns. Upon delivery of the vehicle to the customer,
CarsDirect.com bears credit and other risks related to the customer's payment
obligation.

In transactions with its customers that do not include the foregoing
characteristics, CarsDirect.com recognizes as net revenues the difference
between the amount its customer pays and the cost of the vehicle.

In fiscal 2000, our total revenues were $21.2 million, consisting of $18.7
million of trade revenue and $2.5 million of management fees from ICM I and ICM
II. CarsDirect.com revenues were $15.2 million during fiscal 2000, consisting of
gross revenues from vehicle transactions of $17.9 million, net revenues from
vehicle transactions of $(4.3) million and other revenues of $1.6 million.
During the period from the inception of CarsDirect.com to December 31, 1999,
CarsDirect.com primarily recorded transactions with online vehicle customers on
a net basis. Accordingly, CarsDirect.com's reported revenues do not reflect the
total value of its vehicle transactions. Revenues generated in fiscal 2000 by
EntryPoint ($2.1 million) and Free-PC ($1.2 million) were generally derived from
the sale of advertising including the sale of banner advertisements, referral of
users to other websites and a start page agreement. The increase in

management fees during fiscal 2000 was attributable to management fees earned
from ICM II which was formed in August 1999.

During fiscal 1999, our revenues of $805,000 were primarily comprised of
management fees of $346,000 from ICM I, which was formed in March 1998, and
$134,000 of advertising revenues generated by Guide.com, a consolidated network
company which provided an online guide to restaurants and other Internet
content. Guide.com was merged into Free-PC in March 1999.

OPERATING EXPENSES

COST OF REVENUES. Our cost of revenues consist primarily of the cost of
revenues of our consolidated network companies. Our cost of revenues for fiscal
2000 was $28.4 million comprised primarily of the cost of revenue of
CarsDirect.com ($17.5 million), EntryPoint ($5.2 million) and Free-PC ($3.3
million). Cost of revenues for CarsDirect.com consists primarily of obligations
to franchise dealers for vehicles and other direct costs related to licensing
arrangements. Cost of revenues for EntryPoint primarily includes costs
associated with the operation of the EntryPoint network, which consists of
payroll and related expenses and expenses for facilities and equipment, content
costs and costs associated with the production of advertisements. Free-PC's cost
of revenues consists primarily of Internet service provider costs to support
Free-PC's users.

SALES AND MARKETING. Sales and marketing expenses consist primarily of
advertising and marketing costs, promotional costs and the compensation and
benefits paid to personnel engaged in marketing, customer service and sales
functions, in each case incurred by our consolidated network companies, and to a
lesser extent, incurred by us.

Our sales and marketing expenses were $70.1 million during fiscal 2000, the
majority of which were sales and marketing expenses of CarsDirect.com ($33.4
million), Free-PC ($20.1 million), EntryPoint ($4.0 million) and HomePage.com
($4.1 million). These companies made significant investments in sales and
marketing costs in order to build positive brand awareness, build user base,
attract and retain new customers and to build the operating infrastructure to
support their anticipated growth. Also included in sales and marketing expenses
were customer acquisition costs incurred by Free-PC commencing in June 1999.
Free-PC's business model included distributing free personal computers and free
Internet access to its users. As a result, during fiscal year 2000, $18.1
million was recorded by Free-PC as sales and marketing expenses representing the
cost of the computers distributed to users. We sold our interest in Free-PC in
January 2000. Therefore such costs will not recur.

Several of our other consolidated network companies incurred advertising
costs primarily for online advertising to build brand awareness, the majority of
which was incurred during the holiday season. As existing network companies
continue to introduce new products and expand sales, we expect to incur
significant promotional expenses, as well as expenses related to the hiring of
additional sales and marketing personnel and increased advertising expenses. We
anticipate that these costs will continue to increase substantially in future
periods.

Sales and marketing expenses were $1.9 million during fiscal 1999,
primarily attributable to EntryPoint ($1.1 million) and the sales and marketing
costs of several newer consolidated network companies in the start-up phase.

PRODUCT DEVELOPMENT. Product development expenses are comprised primarily
of payroll and related expenses incurred by our network companies to develop new
or improved technologies designed to improve the performance and reliability of
their websites and services.

During fiscal 2000, product development expenses of $10.8 million were
incurred primarily by EntryPoint ($3.9 million), CarsDirect.com ($2.1 million)
and Free-PC ($2.1 million). EntryPoint's product development expenses were
primarily related to the integration of PointCast's network information service
with the various technologies in development at EntryPoint. Product development
expenses incurred by CarsDirect.com relate primarily to contracted services for
early stage website development, content and the automation of transaction and
fulfillment processing. We anticipate that our network companies will
continue to devote substantial resources to product development and that these
expenses may substantially increase in future periods.

Fiscal 1999 product development expenses of $1.6 million were primarily
attributable to the payroll and overhead costs associated with our employees who
are engaged in product development activities not performed for any particular
network company.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of payroll and related expenses for executive, finance, legal,
business development and administrative personnel; facilities; professional
services, including legal, accounting and consulting; travel and other general
corporate expenses, in each case incurred by our network companies and, to a
lesser extent, incurred by us. General and administrative costs were $36.7
million in fiscal 2000 and were primarily incurred by CarsDirect.com ($22.8
million), Free-PC ($3.5 million), EntryPoint ($2.4 million) and HomePage.com
($1.3 million). These network companies required significant general and
administrative expenditures to develop their management and operational
infrastructure. During fiscal 2000, we incurred $8.5 million in general and
administrative expenses, reflecting the growth of our operations. We anticipate
that our consolidated general and administrative expenses will continue to
increase significantly as we expand our operations and create new network
companies and as existing network companies continue to grow and expand their
administrative staffs and infrastructures.

General and administrative expenses were $4.7 million during fiscal 1999
and were primarily incurred by us, and included settlement and legal costs
associated with certain disputes.

STOCK-BASED COMPENSATION. In fiscal 2000, stock-based compensation
expenses were $109.2 million, compared to $3.9 million in fiscal 1999
representing the amortization of deferred stock compensation. This increase was
primarily due to significant grants of stock options and sales of restricted
common stock during fiscal 2000 at prices less than the deemed fair value of our
common stock for accounting purposes.

Certain sales to employees of common stock that is subject to repurchase
and grants of stock options to employees have been considered compensatory for
financial accounting purposes. We recorded an aggregate of $259.5 million of
deferred stock-based compensation in fiscal 2000 in connection with sales and
grants to employees. This deferred compensation represents the difference
between the deemed fair value of our common stock for accounting purposes and
the sales price of the common stock that is subject to repurchase or the
exercise price of the stock options, both determined on the date of the sale or
the grant. Deferred stock compensation is being amortized over the applicable
vesting periods of the common stock that is subject to repurchase or stock
options, generally four years. Stock-based compensation expense was $49.1
million during fiscal 2000 in connection with these sales and grants. We
anticipate significant stock-based compensation expenses in future periods as
the deferred compensation is amortized over the vesting periods. Annual
amortization of deferred stock compensation for options granted and common stock
sold to employees that is subject to repurchase, as of January 31, 2000, is
currently estimated to be $125.4 million in fiscal 2001, $51.8 million in fiscal
2002, $26.3 million in fiscal 2003 and $6.9 million in fiscal 2004.

We also recorded deferred stock compensation of $63.9 million during
fiscal 2000 in connection with stock options granted to non-employees. The
determination of the fair value of such options was made using the Black-Scholes
option pricing model and the deemed fair value of our common stock for
accounting purposes. Deferred stock compensation for such option grants is being
amortized over the applicable vesting periods and is adjusted each reporting
period based on the deemed fair value of our common stock. Stock-based
compensation expenses were $40.8 million during fiscal 2000 in connection with
these stock option grants to non employees. We anticipate significant
stock-based compensation charges related to stock option grants to non-employees
in future periods as the deferred compensation is amortized over the vesting
periods. We may also be subject to significant increases or decreases in the
level of stock-based compensation based on changes in the fair value of our
common stock.

Stock-based compensation for fiscal 2000 also includes stock-based
compensation expenses of network companies, comprised primarily of
CarsDirect.com ($14.3 million). Certain of the stock option grants made by
CarsDirect.com provide for accelerated vesting in the event of an initial public
offering of CarsDirect.com or a change of control of CarsDirect.com.

We are subject to employer payroll taxes on employee exercises of
non-qualified stock options. Assuming the fair market value of our common stock
were equal to an assumed initial public offering

price of $ ____________ at the time all outstanding vested non-qualified stock
options were exercised, employer payroll taxes on unrealized gains related to
these options would be approximately $ million. These taxes would be recorded as
a charge to operations in the period such options are exercised based on actual
gains realized by employees. Net proceeds that we would receive upon the
exercise of such options would approximate $ ____________ million. We may
receive tax deductions for gains realized by employees on the exercise of such
stock options. Our quarterly results of operations and cash flows could vary
significantly depending on the actual period in which these stock options are
exercised.

AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill
and other intangibles increased to $7.1 million in fiscal 2000 from $79,000 in
fiscal 1999. Goodwill includes the excess of the purchase price of ownership
interests in consolidated network companies over our proportionate share of the
underlying net assets of network companies which are accounted for using the
consolidation method and goodwill resulting from purchase business combinations.
During fiscal 2000, we recorded $85.0 million of goodwill and $3.0 million of
amortization expense related to purchase business combinations, primarily
CarsDirect.com's acquisitions of AutoData Marketing Systems and Potamkin Auto
Center, Ltd., and increased ownership interest in Potamkin Auto Center, Ltd and
CD1Financial.com and EntryPoint's acquisition of PointCast. We also recorded
$29.4 million of goodwill and $1.8 million of amortization expense related to
the excess of the purchase price of ownership interests in consolidated network
companies over our proportionate share of the underlying net assets. We
currently expect goodwill amortization to be $35.3 million in fiscal 2001
without giving effect to additional purchase business combinations or
acquisitions of ownership interests.

OTHER INCOME

REALIZED GAINS ON SALES OF MARKETABLE SECURITIES. Realized gains on sales
of marketable securities increased to $202.0 million for fiscal 2000 from $2.3
million for fiscal 1999. During fiscal 2000, we sold 3,815,000 shares of eToys
common stock realizing a gain of $193.0 million. We also sold our remaining
ownership interest in Shopping.com as a result of a tender offer and realized a
gain of $9.0 million. During fiscal 1999, we sold 251,000 common shares of
Shopping.com and 118,000 common shares of Ticketmaster Online-CitySearch, Inc.
resulting in realized gains of $2.3 million. Since our inception in March 1996,
we have sold interests in six companies. It is not part of our business strategy
to generate income by selling interests in our network companies. We do not
expect to realize significant gains on sales of marketable securities in future
periods.

GAIN ON STOCK ISSUANCE BY A NETWORK COMPANY. Gain on stock issuance by a
network company was $22.7 million for fiscal 2000 representing the net increase
in our proportionate share of the dollar amount of GoTo.com's equity resulting
from stock issued by GoTo.com in connection with its initial public offering.
There was no gain on stock issuance by a network company during fiscal 1999. In
fiscal 2000 GoTo.com raised approximately $94.8 million of net proceeds by
issuing 6.9 million shares at $15.00 per share. As a result of the GoTo.com
initial public offering, our percentage interest in the outstanding voting
securities of GoTo.com was reduced from 25% to 20%. We recorded a provision for
$9.2 million of deferred income taxes as a result of the gain. We believe there
is a substantial likelihood that transactions, in which a network company we
account for under the consolidation or equity method of accounting issues shares
of its common stock to the public, will occur in the future, and we expect to
record gains or losses related to such transactions.

OTHER INCOME, NET. Other income, net increased to $92.0 million for fiscal
2000 compared to $5.3 million for fiscal 1999 primarily as a result of our sale
of Free-PC to eMachines in fiscal 2000. Other income, net consists of income
related to transactions and other events that affect our ownership interests in
network companies but are incidental to our operations in general. Other income,
net may include, among other items, gains or losses on the sales of all or a
portion of our ownership interests and impairment charges related to our
ownership interests in network companies. During fiscal 2000, we sold our
interest in Free-PC in exchange for common and convertible preferred securities
of eMachines and warrants to purchase eMachines common stock. The fair market
value of the eMachines shares and warrants was used in determining a gain of
$90.8 million.

Other income, net of $5.3 million for fiscal 1999 resulted primarily from
the deconsolidation of Intranets.com.and GoTo.com.

INTEREST INCOME. Interest income increased to $8.4 million for fiscal
2000 from $120,000 for fiscal 1999, reflecting an increase in average cash and
cash equivalent balances.

INTEREST EXPENSE. Interest expense increased to $2.7 million for fiscal
2000 from $49,000 for fiscal 1999, primarily due to an increase in average
borrowings during fiscal 2000. Fiscal 2000 interest expense includes interest on
debt and capital leases incurred by EntryPoint ($396,000) and dotTV ($414,000).

INCOME TAXES

Our income tax expense was $86.2 million in fiscal 2000. Our effective
tax rate differs from the federal statuatory tax rate primarily as result of the
provision for state taxes, the effects of nondeductible stock-based compensation
charges, outside basis differences attributable to network companies which are
not consolidated for tax purposes, and net operating losses attributable to
consolidated network companies which have been written-off or which have not
been benefited. Our income tax benefit was $2.4 million in fiscal 1999,
reflecting an effective tax rate of 61%. Our effective tax rate in fiscal 1999
differs from the federal statuatory tax rate for the same reasons stated above
and due to adjustments to valuation allowance necessary to reflect deferred tax
items.

MINORITY INTEREST

Minority interest reflects minority shareholders' proportionate interest
in the earnings or losses of the network companies that we consolidate. Minority
interest increased to $95.5 million for fiscal 2000 from $572,000 for fiscal
1999, primarily reflecting minority shareholders interest in the losses of
CarsDirect.com ($46.6 million), Free-PC ($27.6 million), EntryPoint ($11.6
million), HomePage.com ($6.8 million) and MyHome.com ($1.8 million), all of
which experienced losses during fiscal 2000 due to the continued investment by
these companies in the development of their products and services.

EQUITY IN THE INCOME (LOSS) OF AFFILIATES, NET OF TAX

Equity in the income (loss) of affiliates, net of tax results from our
significant minority ownership interest in network companies and investment
funds that are accounted for under the equity method. Under the equity method of
accounting, our proportionate share of each affiliate's income or loss and the
amortization of the excess of our investment over our proportionate share of
each network company's net assets is included in equity in the income (loss) of
affiliates. Equity in the income of affiliates, net of tax for fiscal 2000 of
$28.1 million was primarily comprised of our proportionate share of the net
income of ICM I ($41.2 million), offset by our proportional share of the losses
of PETsMART.com ($4.2 million), GoTo.com ($2.4 million), PayMyBills.com ($1.6
million) and Sameday.com ($1.4 million) and includes the amortization of
goodwill related to our interests in these companies.

As the general partner of two venture capital funds, ICM I's net income
includes equity in the income of the ICM I Funds, the results of which include
unrealized appreciation or depreciation in the fair value of certain equity
securities held by the ICM I Funds. ICM I's net income is primarily the result
of the unrealized appreciation of the equity securities held by the ICP funds,
several of which completed initial public offerings during fiscal 2000.

We expect that network companies accounted for under the equity method
will continue to invest in the development of their products and services and to
recognize operating losses, which will result in future charges recorded by us
to reflect our proportionate share of such losses. Additionally, we recorded
$347.7 million during fiscal 2000 of goodwill representing the excess of the
purchase price of our ownership interests over our proportionate share of the
net assets of equity method network companies. We currently expect goodwill
amortization to be approximately $71.6 million in fiscal 2001 without giving
effect to additional acquisitions of significant minority interests in network
companies which are accounted for using the equity method which may occur
subsequent to January 31, 2000.

Equity in income (loss) of affiliates, net of tax of $51,000 for fiscal
1999 was primarily comprised of our proportionate share in the net income of ICM
I ($314,000), offset by the losses of GoTo.com ($59,000), cooking.com ($62,000)
and eve.com ($44,000).

FISCAL 1999 COMPARED TO FISCAL 1998

Results of operations during fiscal 1999 were primarily attributable to
our core operations, management fees earned from providing management services
to ICM I which began operations in March 1998, the results of EntryPoint, which
began operations in August of 1998, and several other consolidated network
companies which were in the start-up phase. Our results of operations were also
impacted by the deconsolidation of Intranets.com which for the period prior to
deconsolidation was a licensor of software to end-users and resellers which was
accounted for using the consolidation method during periods prior to fiscal
1999. During the first quarter of fiscal 1999, Intranets.com issued convertible
preferred stock and, as a result, our ownership interest in the outstanding
voting securities of Intranets.com was reduced from 59% to 19%. On February 1,
1998, we began accounting for our ownership interest in Intranets.com using the
cost method of accounting. Our consolidated operating results for fiscal 1998
include net revenue of $70,000 and operating losses of $5.3 million from
Intranets.com.

Revenues

Consolidated revenues increased to $805,000 for fiscal 1999 from $154,000
for fiscal 1998. The increase was primarily attributable to management fees of
$346,000 earned from ICM I, which commenced operations in March 1998, and
$134,000 of revenue from Guide.com, a consolidated network company which
generated advertising revenue from its online guide to restaurants and other
various Internet content. Fiscal 1998 revenues were primarily generated by
Intranets.com.

Operating Expenses

COST OF REVENUES. Cost of revenues decreased to $82,000 for fiscal 1999
from $172,000 for fiscal 1998 as a result of the deconsolidation of
Intranets.com.

SALES AND MARKETING. Fiscal 1999 sales and marketing expenses of $1.9
million primarily related to the early stage promotional and advertising costs
of $1.1 million associated with the launch of EntryPoint. Fiscal 1998 expenses
of $2.0 million included $832,000 of sales and marketing expenses of
Intranets.com with no comparable amount in fiscal 1999 due to the
deconsolidation discussed above. Sales and marketing expenses of our internal
staff, which relate primarily to public relations and promotional efforts,
decreased to $282,000 for fiscal 1999 from $393,000 for fiscal 1998 due to a
reduction in advertising expenditures.

PRODUCT DEVELOPMENT. Fiscal 1999 product development expenses of $1.6
million were primarily attributable to the payroll and overhead costs associated
with our employees who are engaged in product development activities not
performed for any particular network company. Product development expenses for
fiscal 1998 of $3.5 million were primarily comprised of $2.1 million in costs
associated with the development of Intranets.com packaged intranet software
products. No comparable costs for Intranets.com are reflected in our fiscal 1999
results of operations due to the deconsolidation of Intranets.com.

GENERAL AND ADMINISTRATIVE. Fiscal 1999 of $4.7 million general and
administrative expenses were primarily comprised of $2.1 million in payroll and
other overhead costs incurred at the corporate level and includes $915,000
related to the settlement of certain employment related lawsuits. Fiscal 1998
expenses of $5.6 million primarily consisted of general and administrative
expenses of Intranets.com of $2.4 million and $1.9 million of expenses incurred
by us.

STOCK-BASED COMPENSATION. Stock-based compensation was $3.9 million
during fiscal 1999 compared to $233,000 for 1998 representing the amortization
of deferred stock compensation for stock options granted to employees and
non-employees. The increase was primarily attributable to additional grants of
stock options and an increase in the deemed fair value of our common stock for
accounting purposes.

AMORTIZATION OF GOODWILL AND INTANGIBLES. Amortization expense increased
to $79,000 for fiscal 1999 from $49,000 for fiscal 1998. The increase related to
amortization resulting from our acquisitions of domain names during fiscal 1999.

OTHER INCOME

REALIZED GAINS ON SALES OF MARKETABLE SECURITIES. During fiscal 1999, we
sold 251,000 common shares of Shopping.com and 118,000 common shares of
Ticketmaster Online-CitySearch, Inc. resulting in realized gains of $2.3
million. Since our inception in March 1996, we have sold interests in six
companies. It is not part of our business strategy to generate income by selling
interests in our network companies. We do not expect to realize significant
gains on marketable securities in future periods.

OTHER INCOME, NET. During fiscal 1999, we recorded a gain in connection
with the deconsolidation of Intranets.com in the amount of $5.3 million
representing our share of the losses of Intranets.com recorded during the period
that Intranets.com was accounted for using the consolidation method, in excess
of our ownership interest in Intranets.com.

During fiscal 1999, our percentage ownership of the outstanding voting
securities of GoTo.com, a consolidated network company, was diluted from 80% to
45% as a result of the issuance of 8,312,000 shares of convertible preferred
stock by GoTo.com. As a result, we began accounting for our ownership interest
in GoTo.com using the equity method of accounting rather than the consolidation
method. We recorded a gain of $243,000 representing our share of the losses of
GoTo.com recorded during the period that GoTo.com was accounted for using the
consolidation method, in excess of our ownership interest in GoTo.com.

During fiscal 1998, our percentage ownership of the outstanding voting
securities of eToys, a consolidated network company, was diluted from 61% to 37%
as a result of the issuance of 6,318,000 shares of preferred stock by eToys. As
a result, we began accounting for our ownership interest eToys using the equity
method of accounting rather than the consolidation method. We recorded a gain of
$124,000 which represents our share of the losses in excess of our ownership
interest in eToys, recorded during the period that eToys was consolidated.

INTEREST INCOME. Interest income increased to $120,000 for fiscal 1999
from $36,000 for fiscal 1998 primarily reflecting increased income associated
with higher average corporate cash and cash equivalent balances in fiscal 1999
as compared to the prior year.

INTEREST EXPENSE. Interest expense decreased to $49,000 for fiscal 1999
from $178,000 for fiscal 1998. Fiscal 1998 interest expense included $151,000 of
interest on convertible notes payable and demand notes payable of Intranets.com.
No comparable costs for Intranets.com are reflected in our fiscal 1999 results
of operations due to the deconsolidation of Intranets.com.

INCOME TAXES

Our income tax benefit was $2.4 million in fiscal 1999 as compared to $3.5
million in fiscal 1998. We established a valuation allowance for deferred tax
assets attributable to net operating losses generated in fiscal 1998 due
primarily to our limited operating history. During fiscal 1999, we reduced the
valuation allowance to reflect net deferred tax items and operating results.

MINORITY INTEREST

Minority interest decreased to $572,000 for fiscal 1999 from $1.0 million
for fiscal 1998. Minority interest for fiscal 1999 was primarily comprised of
minority shareholders interest in the losses of EntryPoint and Guide.com.
Minority interest for fiscal 1998 was comprised of minority shareholders
interest in the losses of several network companies including Intranets.com,
EntertainNet and Tickets.com.

EQUITY IN THE INCOME (LOSS) OF AFFILIATES, NET OF TAX

Equity in the income (loss) of affiliates, net of tax for fiscal 1999 of
$51,000 was primarily comprised of equity in the income of ICM I of $314,000,
which had equity in the income of the ICP Funds due to unrealized appreciation
on certain of the ICP Funds investment holdings, offset by equity in the losses
of GoTo.com ($59,000), Cooking.com ($62,000), eve.com ($44,000) and other
network companies in the early stages of development. Equity in losses of
affiliates, net of tax of $271,000 for fiscal 1998 was

primarily comprised of equity in the losses of Shopping.com and the
WeddingChannel.com, both of which were in the early stages of development.

LIQUIDITY AND CAPITAL RESOURCES

We have funded our operations with a combination of proceeds from equity
issuances, proceeds from the sales of ownership interests in network companies
and borrowings under credit facilities.

As of January 31, 2000, we had cash and cash equivalents of approximately
$601.5 million consisting almost entirely of funds raised in private placements
of securities. This amount represented an increase of $595.2 million from $6.3
million as of January 31, 1999. As of January 31, 2000, we have committed
capital of $21.0 million to our affiliated venture capital funds. In addition,
our obligations under our office leases in New York and Boston are
collateralized by letters of credit totaling $4.4 million issued by Wells Fargo
Bank, N.A. We have entered into an agreement to purchase for $4.1 million, the
property currently under lease in Pasadena, which houses our corporate facility.
There were no material capital asset purchase commitments as of January 31,
2000.

Cash used in investing activities primarily reflects the acquisition of
ownership interests in and advances to new or existing network companies, offset
in fiscal 2000 by the proceeds of $202.7 million from the sales of a portion of
our marketable securities. During fiscal 2000, we used $204.4 million to acquire
interests in new or existing network companies, excluding cash used by our
consolidated network companies to acquire businesses. We expect this amount to
increase significantly in fiscal 2001.

From February 1, 2000 through March 31, 2000, we have paid a total of
approximately $51.7 and have committed to pay a total of an additional $150
million to acquire interests in new and existing network companies. The amount
and timing of our expenditures to acquire interests in network companies may
vary significantly due to factors, such as each company's development of its
business plans and objectives and its progress toward achievement of its
performance goals, as well as additional funding available to it from
third-party sources.

We believe the proceeds from this offering and our available cash will
enable us to acquire interests in and establish a significant number of new
network companies during the 12-month period following this offering. However,
during this period, we may seek additional capital in the private or public
equity or debt markets to enable us to further expand our acquisitions of
ownership interests and to create, build and operate network companies. On a
longer-term basis, we expect to periodically access the capital markets to
obtain the funds we need to support our operations and the continued growth and
operations of our network companies. If additional funds are raised through the
issuance of equity securities, or if our equity securities are issued to acquire
new network companies, our existing shareholders may experience significant
dilution. For the foreseeable future, we expect to incur increasing losses, we
do not expect to receive cash distributions from our network companies and we do
not plan to sell our network company interests. Moreover, because of the
provisions of the Investment Company Act of 1940, we may not be able to sell
securities of our network companies to raise capital were we to so choose. Our
long-term capital requirements will depend in large part on the number of
network companies that we create and in which we acquire interests, the amounts
we pay for interests and the timing of these payments. Management's plans and
the related capital requirements will depend on various factors, such as
developments in our markets and the availability of acquisition and
entrepreneurial opportunities. We may not be able to obtain financing when we
need it on acceptable terms, or at all. If we require, but are unable to obtain,
additional financing in the future on acceptable terms, our ability to execute
our business strategy, respond to changing business or economic conditions,
withstand adverse operating results and compete effectively will be impaired.

SELF TENDER OFFER

In August 1999, we offered to repurchase shares of our stock from all of
our shareholders, at a price per share of $1.50. We repurchased 10.4 million
shares of our common stock, including convertible preferred stock on an
as-converted basis, from our shareholders, for an aggregate of approximately
$15.6 million. The repurchase gave these shareholders the opportunity to obtain
liquidity for their shares, which would otherwise not have been available unless
and until our common stock became publicly traded and

their shares were no longer subject to any applicable lock-up agreements
restricting their sale. None of our officers or directors tendered shares into
the offer.

RECENT ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133), establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging. In July
1999, Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
Financial Accounting Standards Board Statement No. 133" (SFAS No. 137), was
issued. SFAS No. 137 deferred the effective date of SFAS No. 133 from fiscal
years beginning after June 15, 1999 to fiscal years beginning after June 15,
2000. Because we do not currently hold any derivative instruments and do not
engage in hedging activities, the impact of adoption of SFAS No. 133 is not
currently expected to have a material impact on our financial position, results
of operations or cash flows.

In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"), which provides additional guidance related to applying generally
accepted accounting principles in financial statements. In March 2000, the SEC
issued Staff Accounting Bulleting 101A, which requires implementation of SAB 101
no later than June 30, 2000. The adoption of SAB 101 is not expected to have a
significant impact on our financial position, results of operations or cash
flow.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not hold any derivative instruments and do not engage in hedging
activities. Also, we do not hold any variable interest rate debt or lines of
credit and thus have minimal exposure to interest rate fluctuations.

We are exposed to equity price risks on the equity securities of our
publicly traded network companies. Our public holdings at January 31, 2000
include equity positions in companies in the Internet industry sector, including
eToys, GoTo.com, Ticketmaster Online-CitySearch, NetZero and Tickets.com. All
of these companies have experienced significant historical volatility in their
stock prices. We typically do not attempt to reduce or eliminate our market
exposure on these securities. A 20% adverse change in equity prices, based on a
sensitivity analysis of our public holdings as of January 31, 2000, would result
in an approximate $288 million decrease in the fair value of our interests in
publicly traded network companies. A significant portion of the value of the
potential decrease in equity securities, or $244 million, consisted of our
holdings in GoTo.com and eToys.

The carrying values of financial instruments, including cash and cash
equivalents, accounts receivable and accounts payable, approximate fair value
because of the short maturity of these instruments.

We have historically had very low exposure to changes in foreign currency
exchange rates, and as such, have not used derivative financial instruments to
manage foreign currency fluctuation risk. As we expand globally, the risk of
foreign currency exchange rate fluctuation may dramatically increase. Therefore,
in the future, we may consider utilizing derivative instruments to mitigate such
risks.

BUSINESS

THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS RELATING TO THIRD-PARTY
ESTIMATES OF THE GROWTH OF THE INTERNET, INTERNET ADVERTISING AND ONLINE
COMMERCE MARKETS AND SPENDING. PROSPECTIVE INVESTORS SHOULD NOT PLACE UNDUE
RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH APPLY ONLY AS OF THE DATE OF
THIS PROSPECTUS.

IDEALAB! OVERVIEW

idealab! is a new form of enterprise that creates, builds and operates
companies that use the power of real-time interactive communications to satisfy
often previously unidentified market needs. Our unique organizational structure
is designed to enable each company in our network to achieve focus and strength
in its market as an independent entity, but also allows it to benefit from our
network of companies and the strengths of the centralized services we provide.
We believe that this structure creates a balance of centralization and
decentralization that enables each network company to execute its business plan
with greater speed and focus. Most of our companies are based on ideas we
generate internally, although from time to time we may consider ideas brought to
us by other entrepreneurs or acquire interests in existing Internet companies
that are strategically important to our network.

We provide our network companies with strategic expertise, operational
assistance from our various in-house departments and third-party service
providers, access to our business relationships both inside and outside the
idealab! network and financial support. By providing these services, we enable
the entrepreneurs managing the idealab! businesses to concentrate primarily on
the rapid execution of their business plans. In addition, our operating methods
are designed to promote commercial relationships and the exchange of information
and best practices among our network companies. We plan to continue using our
collective knowledge and resources to create new business ideas and to actively
develop the business models, strategies, operations and management teams of all
our network companies.

We initially house most of our companies in one of our open-plan
facilities, currently located in Pasadena, Silicon Valley, New York, Boston and
London. These facilities are designed to foster a collaborative process among
the companies housed in each location. The idealab! network currently includes
seven public companies and 28 private companies, including interactive
communications infrastructure and services companies such as GoTo.com,
HomePage.com and PayMyBills.com, and Internet commerce and content companies
such as CarsDirect.com, eToys and FirstLook.com.

INDUSTRY OVERVIEW

GROWTH AND COMMERCIALIZATION OF THE INTERNET AND INTERACTIVE COMMUNICATIONS

The Internet has emerged as a global medium, enabling millions of people
worldwide to share information, communicate and conduct business electronically.
International Data Corporation estimates that the number of Internet users will
grow from approximately 256 million worldwide at the end of 2000 to
approximately 502 million by the end of 2003. As a result of this dramatic
increase in the number of Internet users, the dollar volume of commerce
conducted over the Internet is expected to continue growing, as is the need for
infrastructure and services to effectively serve this growing population of
Internet users. Forrester Research estimates that the total value of goods and
services purchased on the Internet by businesses and consumers will increase
from approximately $406 billion in 2000 to approximately $2.7 trillion in 2004,
and International Data Corporation estimates that Internet business
infrastructure spending will increase from approximately $190 billion in 1999 to
$917 billion in 2003. At the same time, the proliferation of other real-
time interactive communications technologies such as Internet telephony, cable
and wireless devices has created new opportunities to satisfy unmet market
needs.

OPPORTUNITIES FOR EMERGING INTERNET AND INTERACTIVE COMMUNICATIONS COMPANIES

The Internet's growth into a mass medium has created tremendous
opportunities for new companies that can take advantage of the efficiencies it
provides in order to meet market demands. Online and traditional businesses can
use real-time interactive communications to obtain accurate,

real-time information, create more efficient markets and add a dynamic and
collaborative dimension to their relationships with customers, suppliers and
trading partners. Individuals are also increasingly using the Internet to
streamline various household functions and to reduce their costs for consumer
goods and other expenditures. We believe that there are significant
opportunities for companies that can empower businesses and consumers to realize
the efficiencies made possible by the Internet.

CHALLENGES FACING EMERGING INTERNET AND INTERACTIVE COMMUNICATIONS COMPANIES

Emerging companies face many challenges in their pursuit of success. For
the reasons described below, we believe that many of these challenges are
greatly intensified for Internet-related businesses:

DEVELOPING A SUCCESSFUL BUSINESS MODEL. Companies must develop business
models that capitalize on the Internet's unique and rapidly evolving
capabilities to provide solutions demanded by consumers and businesses.
This requires the relevant Internet experience and strategic vision to
evaluate the viability of a given business model, the flexibility to
adapt business models to address emerging opportunities and the ability
to quickly establish relationships with potential suppliers, customers
and strategic partners.

BUILDING CORPORATE INFRASTRUCTURE. To support rapid growth and achieve a
competitive advantage, emerging Internet companies must quickly develop
systems and procedures in a wide range of functional areas, including
sales and marketing, operations, information technology, accounting,
legal, business development, executive recruiting and human resources.
This typically requires key personnel to assume responsibility for many
of these functional areas simultaneously until sufficient expertise can
be brought in-house or suitable service providers identified.

FINDING GREAT PEOPLE. Internet companies require management and technical
personnel with expertise in each functional area, a deep understanding of
the opportunities presented by the Internet, the ability to manage rapid
growth and the flexibility to adapt to the changing Internet marketplace.
Competition for people with the skills required in the Internet
marketplace is intense, and the best employees demand compensation
commensurate with their skills.

ADAPTING TO RAPIDLY CHANGING MARKETS. Intense competition, low barriers
to entry and the continual creation of new technologies and business
models characterized the evolution of the Internet. Individual companies
must navigate these risks on their own, often committing to business
models or technology platforms without adequate information, or without
the strategic relationships that would enable them to rapidly adapt their
businesses to changing market conditions.

THE IDEALAB! METHOD

idealab! is a new form of enterprise designed to focus exclusively on
market growth in the Internet industry and other interactive communications
markets. We operate each business in our network as a separate company rather
than as a division of idealab!. As a result, each business retains the
adaptability and entrepreneurialism of a small company while benefiting from the
economies of scale, information sharing and other synergies associated with
inclusion in our network. In addition, each network company has its own pool of
equity to provide a compelling incentive to recruit and retain top talent.

We believe that we provide our companies with all of the necessary
resources to meet the challenges faced by emerging Internet companies in their
formation, development and growth. Our experience in creating, building and
operating businesses enables us to quickly and efficiently bring innovative new
companies to market and to build our existing companies into market leaders. The
idealab! method consists of:

- idea generation, selection and analysis;

- company building and operational support; and

- strategic guidance and direction.

IDEA GENERATION

We create most of our ideas for companies internally through frequent
brainstorming sessions. For several reasons, including the following, we believe
that we are in a unique position to create superior ideas internally:

- the creativity of our idea team;

- our people have accumulated operating experience throughout their
careers by helping to develop ideas into mature companies;

- the vibrant environment in our open-plan facilities, which encourages
our people to discuss ideas and share lessons learned;

- our idea selection process, which both filters and improves ideas by
refining the business model of each network company; and

- our continuous process of prototyping and developing new business
concepts.

Examples of companies created through our idea generation process include
CarsDirect.com, FirstLook.com and GoTo.com.

We also gather ideas externally from individuals and teams that come to
us with passion and industry experience in a particular field. We believe we are
in a strong position to attract high-quality external ideas because of the
entrepreneur-friendly environment we have created. Furthermore, we believe that
the mentoring and services that we provide are very attractive to people and
teams with passion for creating, building and operating world-class companies.
Our services and infrastructure provide an environment that can substantially
improve a company's time-to-market and potential for success. In considering
Internet business ideas brought to us by others and evaluating investments in
and acquisitions of Internet companies, we apply the same strict criteria we
would apply to our own ideas, and we consider whether we could add value to the
development of the business by redefining its business model to create
previously unexploited growth opportunities. Examples of companies we have
started in collaboration with others include PayMyBills.com and eLease.com.

IDEA SELECTION AND ANALYSIS

We apply a number of criteria in choosing whether to create or acquire a
business. We apply these criteria during our idea selection process, where each
idea is analyzed and weighed against other ideas for prioritization in advance
of company building. Our analysis includes an evaluation of the following
criteria:

- Does the business address a large, previously unidentified market
need, or does it have a significantly better solution for an already
identified market need?

- Does the business satisfy the need in a unique way, with a business
model that we believe is superior to the other solutions?

- Is the business model scalable, with increasing operating
efficiencies as the business grows?

- Are there sufficient barriers to entry, and can the business grow
fast enough to benefit from a first-mover advantage?

- Will the business's customers have an incentive to refer new
customers to the business's offerings?

- Does the business have a sustainable competitive advantage, such as
network effects that make the business' offering increasingly
valuable as more customers use it?

- Can the business provide an attractive value proposition to
potential strategic partners?

If an idea or business ranks highly with respect to these criteria, we evaluate
whether the business would contribute to the overall strength of the idealab!
network. One example of a single idealab! company that has created a variety of
synergies in our network is OpenSales. OpenSales has provided software and

related consulting and customization services to a variety of network companies,
including FirstLook.com, MyHome.com and Sameday.com.

In some cases, we use our internal prototyping staff to test ideas in
real-world scenarios. We use the feedback from this testing to evaluate and
refine the ideas. For example, when EntryPoint was preparing to launch its
electronic payment service, our prototyping group was able to create and test
the effectiveness of various branding strategies through the simultaneous launch
of different banner ad campaigns. Based on the click-through rates achieved by
each campaign, we decided to launch EntryPoint's service with a focus on user
convenience rather than security, discounts or merchant acceptance.

COMPANY BUILDING AND OPERATIONAL SUPPORT

At all stages of a network company's growth, our internal management team
continually communicates the best practices we have learned by providing
management mentoring, market intelligence and operational support. While our
company building and operational support process is broadly supported by our
entire organization, it is primarily driven by the Presidents of the five
idealab! facilities, who are also members of our Executive Committee. The
Presidents are closely supported in this effort by our Managing Directors, our
Entrepreneurs-in-Residence and our operational Vice Presidents in the finance,
legal, development, marketing, design, public relations, recruiting and
operations areas. The Managing Directors serve as management mentors and
occasionally as interim senior executives of our network companies. The
Entrepreneurs-in-Residence serve as founding executives and management leaders
of network companies in early stages of development. The Vice Presidents each
run service organizations that assist our network companies in the areas of
their respective disciplines.

Our organizational goal is to achieve an optimal balance between
centralization and decentralization. We believe that synergy among our companies
is achieved at many levels. As the corporate network hub, we are able to observe
and encourage relationships between our companies. We enable our entrepreneurs
to concentrate primarily on the rapid execution of their business plans by
providing them with operational support and access to idealab!'s collective
resources. We believe that the support we provide to our companies reduces the
rate at which they consume capital, slowing the need for additional dilutive
investments. We supply operational support to our companies in several areas,
including:

SHARED IDEALAB! FACILITIES. Our facilities in Pasadena, Silicon Valley,
New York, Boston and London are designed to foster an open, collaborative
process among all the companies in each facility. The proximity of the companies
encourages the formal and informal sharing of knowledge and best practices and
allows us to provide our network services conveniently and effectively.

SHARING OF RESOURCES AND BEST PRACTICES AMONG NETWORK COMPANIES. Our
network provides an environment for informal and formal collaboration among our
companies. Early stage companies in particular benefit from the collective
experience of the professionals at idealab! and the other companies who have
addressed issues similar to those facing them. The CEOs and other department
heads of our network companies gather regularly to share knowledge and discuss
issues of common interest. Personnel from various functional areas, including
marketing, sales, human resources, and technology, also meet regularly to
exchange ideas and leverage their combined experience. All our network companies
have access to our intranet, which contains valuable information about web
development and management information systems, accounting and human resources
procedures and network-wide marketing and business development arrangements. Our
companies also collaborate formally with one another. Several of our network
companies advertise on and distribute their products and services through other
network company websites.

SALES, MARKETING AND BRAND MANAGEMENT. We believe that the marketing
expertise and assistance we offer our network companies enables them to
establish their brands and draw traffic to their websites more quickly than many
stand-alone competitors. We provide guidance to our companies' sales, marketing,
product positioning and advertising efforts through regular meetings attended by
the appropriate staff from each of our network companies. We employ a marketing
staff to coordinate marketing resources for all our companies. We also provide
our network companies with a centralized

clearinghouse for marketing-related information, access to market research,
advertising services, public relations functions, including promotion of our
companies as members of the idealab! network, and logo design and related
branding services.

EXECUTIVE RECRUITING. As an idea advances beyond the prototype stage, we
recruit a team to launch and develop the project. Our internal recruiting
department and referral system identify and place talent in each new network
company. Because highly skilled people are a significant factor in each
company's success, we believe that our recruiting function provides us a
strategic advantage in launching new companies and enhancing the success of our
existing network companies. After developing a new business idea and
capitalizing a new idealab! company, we typically reserve a significant portion
of the company's equity for distribution to the entrepreneurs and other
employees.

We employ experienced recruiters who coordinate the hiring needs of our
companies and act as a central resource for employment. In calendar 1999, our
recruiters placed more than 200 employees in our network. We also draw qualified
candidates from a range of other sources, including the extensive contacts of
our management team and candidates referred from our other network companies. In
addition, we sometimes hire executives at idealab! who, after being mentored in
the idealab! method and culture, then take positions in our network companies.
For example, Jeffrey Brewer served as a member of idealab!'s
entrepreneur-in-residence program and subsequently became the Chief Executive
Officer of GoTo.com. We believe that this flow of experienced executives allows
us to operate our network companies with consistent vision and culture and
promotes communication across our network.

WEB DEVELOPMENT AND INFORMATION TECHNOLOGY. We maintain a large, highly
experienced technology team of professionals dedicated to helping our companies
with all facets of their initial and continuing web development process and
information systems strategies. Many of our network companies share software
tools initially developed by the idealab! technology team, freely exchanging
improvements with other network companies. We also offer our companies access to
common information technology systems that enable them to cost-effectively
manage their electronic mail hosting, website hosting and other functions. Due
in part to the web-related resources we offer to newly formed idealab!
companies, we believe that our companies are often able to substantially reduce
the costs associated with launching their websites and substantially shorten
their times to launch.

LEGAL, FINANCE, ACCOUNTING AND HUMAN RESOURCES. We employ more than 25
seasoned legal, finance and accounting professionals who provide guidance to our
companies in areas such as intellectual property protection, contracts, domain
name negotiations, licensing, deal structuring and negotiating, corporate
finance, accounting, treasury functions and financial reporting. We also provide
significant administrative and human resources assistance to our companies,
including advice and support on tax preparation, payroll, benefits, hiring,
human resource compliance, orientation and termination. We host seminars on
topics such as recent accounting pronouncements affecting Internet companies,
trademark and domain name protection, employment law issues and stock option
administration for all the relevant employees of our companies. In addition, as
a result of the economies of scale provided by the idealab! network, we enable
our network companies to obtain favorable rates on insurance, health benefits
and other services. We also enable our companies to gain access to resources and
discounted rates with professional service providers including accounting firms,
law firms and public relations agencies.

FINANCIAL SUPPORT. We help our companies raise capital from third parties
by introducing them to appropriate investors. Through our affiliated venture
capital funds and the relationships our management team maintains with a broad
range of current and potential investors, we are able to match providers of
capital with appropriate business opportunities in our network. We also provide
direct financial support in the form of early-stage investments and
participation in later financing rounds.

STRATEGIC GUIDANCE AND DIRECTION

At inception and throughout their lifecycles, we provide our network
companies with the collective knowledge and expertise of our senior management
and the combined power of our network. We believe that the strategic guidance
and direction we provide to our companies enhances their ability to formulate
viable business models, manage rapid growth and adapt quickly to the changing
marketplace.

We supply strategic guidance and direction to companies in the following
areas:

BUSINESS MODEL ANALYSIS AND STRATEGY. We provide strategic direction and
market intelligence to our network companies concerning topics such as market
positioning and competitive trends. We do this at several levels within our
organization. Our senior executives participate in frequent formal and informal
communications with executives at the companies. When a large competitor of
Intranets.com launched a product that competed directly with Intranets.com's
previous product, we organized a series of meetings with senior executives of
Intranets.com to reposition the company. Our involvement was instrumental in the
relaunch of Intranets.com's website within 60 days. Similarly, Tim Gray, the
former chief executive officer of WeddingChannel.com and now a Managing Director
of idealab!, recently stepped in as acting chief executive officer of MyHome.com
in order to adapt the company's business model in light of customer feedback and
competitive conditions.

We also provide experienced consulting through our
entrepreneurs-in-residence and other experienced idealab! professionals. For
example, prior to joining CarsDirect.com as chief operating officer, Christine
Bucklin, one of our former entrepreneurs-in-residence, worked closely with the
company to improve sales efficiencies, evaluate and negotiate alliances and
identify management priorities. We also employ experienced financial analysts
who are available to help particular companies model their businesses and
identify the key drivers of their financial results. In addition, our internal
prototyping staff is available to help later-stage businesses evaluate
alternative business solutions by testing new ideas in real-world scenarios.
Network companies can use the data generated by these tests to evaluate the
viability of innovative approaches.

ACTIVE INVOLVEMENT WITH NETWORK COMPANIES' OPERATIONS. Our senior
executives serve on the boards of a substantial majority of the companies in our
network, and in many cases more than one of our executives serves on a company's
board. Through board representation and ongoing consultation with our network
companies, we take an active role in the ongoing oversight and strategic
management of our network companies. For example, Bob Kavner, one of our Vice
Chairmen, served as chairman of the board of GoTo.com until January 2000. Mr.
Kavner continues to serve on GoTo.com's board of directors, and participates in
regular one-on-one meetings with GoTo.com's chief executive officer to discuss
strategic and operational issues facing the company.

COLLABORATION AMONG NETWORK COMPANIES. We strongly encourage cooperation
and collaboration among our network companies and the sharing of information
through both formal and informal communications. Because we operate companies
that address different market needs, our companies frequently look to other
companies within the network to provide necessary goods or services. For
example, Jackpot.com operates an online slot machine where users can win
advertiser-related prizes in exchange for viewing advertising. Jackpot.com
negotiated favorable rates with several idealab! companies for placement on the
slot machine in connection with its launch, lending credibility to the launch
and providing the network companies with a cost-effective tool for customer
acquisition.

BUSINESS DEVELOPMENT. idealab!'s environment and culture promote the
sharing of knowledge, relationships and business opportunities among our network
companies. Several of our executives were involved in Internet business
development roles before joining idealab!. We assist our companies in
evaluating, structuring and negotiating joint ventures, strategic alliances,
joint marketing agreements, acquisitions and other transactions. For example,
Lawrence Gross, one of our Vice Chairmen, assisted EntryPoint in its acquisition
of PointCast by negotiating the transaction with EntryPoint's chief executive
officer and managing the integration of the companies. Business development
staff from all of our companies share information via network-wide electronic
mail lists and through periodic meetings hosted by idealab!.

STRATEGY

Our objective is to enhance the value of the idealab! network by
continually creating new business ideas and actively developing the strategies,
operations and management teams of our network companies throughout their
lifecycles. Key elements of our strategy to achieve this objective include:

CONTINUE TO CREATE AND ACQUIRE NEW IDEALAB! COMPANIES. We intend to
continue creating and building new Internet businesses and evaluating potential
strategic acquisitions to increase the overall

value of the idealab! network. Before any new business idea becomes an idealab!
network company, or before we pursue any strategic acquisition, our internal
strategy teams must first demonstrate that the idea or business has the
potential to become a market leader. Any strategic acquisition or new business
idea must add value to the idealab! network. In addition to creating and
acquiring Internet businesses, we intend to pursue opportunities in other
growing markets that involve real-time interactive communications.

ENHANCE EXISTING NETWORK VALUE. As the idealab! network grows and
matures, we intend to expand the breadth and effectiveness of our existing
network efficiencies and increase cooperation and intra-network commercial
arrangements. As the Internet matures and competition among Internet companies
increases, we anticipate that our shared resources and intra-network
collaboration will offer our network companies even more compelling advantages
over companies operating independently.

MAINTAIN LONG-TERM INTERESTS IN OUR NETWORK COMPANIES. We believe that we
can enhance stockholder value by engaging in business through an integrated
network of companies in which we own significant stakes over the long term. We
intend to generate revenues and income primarily from the operation of our
network companies. On a limited number of occasions, we have sold interests in
our companies when we no longer had the ability to significantly influence their
operations, and we may be faced with circumstances in the future that make it
appropriate to sell part or all of our interest in a particular company.

CAPITALIZE ON THE STRENGTH OF OUR MANAGEMENT TEAM. idealab! has an
integrated management team with diverse experience and skills as its core
strength. Our management team includes people who have created, built, operated
and advised companies across a broad range of sizes and industries. We recruit
and motivate our team by providing a challenging, intense, collaborative,
rewarding and open atmosphere. The continual creation of new companies and
evolution of existing companies in our network provides ongoing challenge. The
pace of change provides intensity. At every level, we promote sharing of
knowledge across our network. Our shared incentives, physical architecture and
philosophy foster an open atmosphere that we believe is attractive to talented
people.

Our management team is composed of six senior executive officers, nine
corporate and regional officers, 18 managing directors, 14 operational vice
presidents and six entrepreneurs-in-residence, as described under "Management".
We intend to continue to expand our management team by attracting top talent,
and to capitalize on its diverse strengths to create, build and operate
companies that enhance the value of our network.

ESTABLISH IDEALAB! FACILITIES IN STRATEGIC LOCATIONS. We intend to
replicate our business method in multiple locations. We will consider opening
idealab! facilities in areas where we can attract people with creative,
technical and business talent to create and work with our network companies. In
new idealab! facilities, we intend to create an open floor plan environment
similar to that of idealab! Pasadena in order to promote a similar collaborative
environment. We also intend to staff these idealab! facilities with key people
from idealab! Pasadena to ensure the propagation of our method and culture. We
have opened facilities in Silicon Valley, New York, Boston and London to take
advantage of opportunities in these locations.

EXPAND BRAND AWARENESS. We believe that our method, including our
collective knowledge and resources, significantly differentiates our companies
from their competitors. To ensure longer-term success, we must continue to
invest in branding the idealab! method, our network companies and the value of
our overall network. We believe that the idealab! brand currently enjoys
significant public recognition. We intend to enhance public awareness of our
brand by increasing our existing marketing efforts and continuing to develop
successful network companies.

THE IDEALAB! NETWORK

Our network companies' products and services generally fall into two
categories: Internet commerce and content and interactive communications
infrastructure and services. The following table summarizes, as of January 31,
2000, our network of companies and our ownership of each. Our ownership
percentages are calculated based on the outstanding common stock of each network
company, treating preferred stock and other convertible securities on an
as-converted basis, but excluding the effect of options and warrants.

OUR IDEALAB!
OWNERSHIP COMPANY
CATEGORY AND NAME DESCRIPTION OF BUSINESS PERCENTAGE SINCE
-----------------------------------------------------------------------------------------------------------------

INTERNET COMMERCE AND CONTENT

CarsDirect.com.......................... Resource for researching, financing 44% 1998
WWW.CARSDIRECT.COM and purchasing new cars and related
services.

Cooking.com............................. Resource and retailer for cooking 6% 1998
WWW.COOKING.COM enthusiasts.

eToys................................... Superstore for children's toys, books, 12% 1997
WWW.ETOYS.COM music and games.

eve.com................................. Retailer for prestige beauty and 17% 1998
WWW.EVE.COM personal care products.

FirstLook.com........................... Resource that provides video and 44% 1998
WWW.FIRSTLOOK.COM music distributors with highly
targeted audiences.

FreeMusic.com........................... Resource for music enthusiasts and 88% 1999
WWW.FREEMUSIC.COM recording artists incorporating music
and related content distribution and
advertising.

iExchange.com........................... A marketplace for trading 44% 1999
WWW.IEXCHANGE.COM financial opinions.

Jackpot.com............................. Online slot machine exchanging 81% 1999
WWW.JACKPOT.COM prizes for viewed advertising.

jobs.com................................ Resource for recruitment and 2% 1999
WWW.JOBS.COM employment opportunities.

MyHome.com.............................. Superstore for furniture and fixtures. 70% 1999
WWW.MYHOME.COM

PETsMART.com............................ Superstore for pet supplies. 21% 1999
WWW.PETSMART.COM

Swap.com................................ An online merchandise trading site for 44% 1997
WWW.SWAP.COM people under eighteen.

Ticketmaster Online-CitySearch.......... Guide to local content and services 1% 1996
WWW.TICKETMASTER.COM including live event ticketing, local
WWW.CITYSEARCH.COM auctions and online personals.

Tickets.com............................. Retailer of event and travel tickets. 5% 1997
WWW.TICKETS.COM

Utility.com............................. Service that provides small business 34% 1998
WWW.UTILITY.COM and residential customers with the
opportunity to reduce their electricity
bills.

WeddingChannel.com...................... Resource for wedding content and 7% 1997
WWW.WEDDINGCHANNEL.COM bridal registry services.

z.com ................................ Online original programming entertainment 51% 1999
company.
WWW.Z.COM

INTERACTIVE COMMUNICATIONS INFRASTRUCTURE AND SERVICES

Centra Software......................... Provides live collaboration less than 1996
WWW.CENTRA.COM solutions for businesses. 1%

dotTV ................................ Provides Internet domain name 50% 1999
WWW.DOT.TV registration services; exclusive
registry and registrar for second
level domain names with the ".tv"
top-level domain.

eMachines............................... Personal computer manufacturer 10% 2000
WWW.EMACHINES.COM offering embedded Internet
advertising.

EntryPoint.............................. Offers free tool-bar that delivers timely 55% 1998
WWW.ENTRYPOINT.COM personalized information to the
desktop.

eVoice ................................ Provider of Internet-enhanced 31% 1999
WWW.EVOICE.COM telecommunications solutions for
businesses and consumers.

GoTo.com................................ Operates an online marketplace that 27% 1997
WWW.GOTO.COM introduces consumers and businesses
to advertisers.

HomePage.com............................ Delivers home page solutions to 56% 1999
WWW.HOMEPAGE.COM ebusinesses and consumers.

Intranets.com........................... Offers free, secure intranet sites to 33% 1997
WWW.INTRANETS.COM small businesses for private
communication, scheduling,
collaboration and purchasing.

NetZero Offers free full-service Internet 5% 1999
WWW.NETZERO.COM access while delivering high-value,
always-on advertising content.

OpenSales............................... Provides open-source e-commerce 46% 1998
WWW.OPENSALES.COM software with proprietary
enhancements.

PayMyBills.com.......................... Enables consumers to manage 50% 1999
WWW.PAYMYBILLS.COM and pay bills, collect auction payments
and send money via email.

PeopleLink.............................. Provides outsourced community 11% 1996
WWW.PEOPLELINK.COM services, such as instant messaging,
chat, message boards and mailing
lists, for large websites.

Sameday.com............................. Connects consumers with same-day 46% 1999
WWW.SAMEDAY.COM delivery purchasing options and
provides fulfillment and delivery
services for Internet retailers and their
customers.

Because we own super-voting stock in CarsDirect.com, we controlled 66% of
the voting power of CarsDirect.com as of January 31, 2000 although our
percentage ownership was 44% as of that date. We also own minority interests in
several other Internet companies, including Dynafund, eCall, eHatchery, The
Learning Network, NetShepherd and Smart Games, and we have formed several
additional network companies that are in very early stages of development.

Set forth below are brief descriptions of selected idealab! interactive
communications infrastructure and services and Internet commerce and content
companies that exemplify the idealab! method of creating, building and operating
network companies.

INTERNET COMMERCE AND CONTENT COMPANIES

CARSDIRECT.COM. CarsDirect.com provides many of the products and services
traditionally involved in the acquisition of a new car, including research,
financing, vehicle purchase and, in certain markets, delivery. CarsDirect.com is
an online resource that addresses the automobile purchasing process from start
to finish, so that a car buyer can research and configure all desired automobile
options, receive a competitive up-front price, submit a purchase request online
and in certain markets, have the selected vehicle delivered to any location.

After a time-consuming and frustrating attempt to buy a new automobile at
a dealership, Bill Gross generated the idea for CarsDirect.com. Mr. Gross'
fundamental concept for CarsDirect.com was to be a trusted advisor and
intermediary for the automobile purchaser and to ensure that every step of the
process was conducted in a manner that involved the lowest level of anxiety and
the greatest degree of enjoyment. We launched CarsDirect.com in October 1998.
CarsDirect.com began offering vehicles directly to online consumers in December
1998 and has been ranked the number one online car buying site by Gomez Advisors
for three consecutive quarters. Lawrence Gross, one of our Vice Chairmen, served
as CarsDirect.com's acting chief operating officer for several months until that
position was filled by Christine Bucklin. We have also been closely involved in
the raising of more than $336 million in capital for CarsDirect.com and helped
to recruit the company's new chief executive officer. Howard Morgan, one of our
Vice Chairmen and the chairman of the board of directors of CarsDirect.com,
played a significant role in its acquisition of an all-makes showroom based in
the New York City area.

ETOYS. eToys is a leading online superstore focused exclusively on
products for children and babies, including toys, video games, software, videos,
music, clothes and baby-related products. By combining an expertise in products
for children and babies, a commitment to excellent customer service and the
benefits of Internet retailing, eToys is able to deliver a unique shopping
experience to consumers. eToys offers an extensive selection of
competitively-priced children's products, with over 100,000 items representing
more than 750 brands. eToys' website features detailed product information,
helpful shopping services and innovative merchandising delivered through
easy-to-use web pages. In addition,

eToys offers customers the convenience and flexibility of shopping 24 hours a
day, seven days a week, with reliable product delivery and a focus on customer
service.

eToys was created and launched at the idealab! Pasadena facility in 1997.
Several of eToys' early employees were employees of idealab! who were focusing
on creating, building and operating the company in its early stages. eToys was
one of the first retail concepts that we launched and has served as a model for
how other online retailers can successfully compete against larger, more
recognized bricks-and-mortar retailers. In May 1999, eToys completed an initial
public offering. Our percentage interest in eToys decreased over the course of
1999 and our representation on the eToys board ended late in 1998. However,
these particular aspects of our relationship with eToys are not typical of our
application of the idealab! method.

FIRSTLOOK.COM. FirstLook.com provides consumers with a convenient
destination for discovering and previewing new music and other entertainment
products, while providing advertisers--e-tailers, record labels and home video
distributors--with an efficient, performance-based way to reach consumers.
FirstLook.com has created a new business model involving its Preview Marketing
Network. In addition to being able to browse and sample music and movies at the
FirstLook.com website, consumers can do the same at FirstLook.com affiliate
sites where FirstLook's proprietary "charts" are featured. FirstLook.com has a
patent application pending for its unique business processes. The FirstLook.com
website went "live" in September 1999, with available previews of over 800 new
songs from CDs released by both major and independent record labels. In March
2000, FirstLook.com began previewing home video products, including movies and
television programming in the DVD and VHS formats. In its first six months of
activity, FirstLook.com enrolled more than 200,000 members and enrolled more
than 40 individual advertisers.

FirstLook.com was conceived in March 1999 when Bill Gross and Rand
Bleimeister, FirstLook.com's founder and chief executive officer, decided to
create a digital marketplace around music and other entertainment products. The
idealab! organization has assisted FirstLook.com with recruiting services. We
also assisted FirstLook.com with its site design through our in-house design
management team. Through our marketing department, we have facilitated
considerable cost savings for FirstLook.com in purchasing goods and services. In
addition, FirstLook.com achieves cost savings by purchasing online advertising
through idealab!-negotiated reduced "block" pricing.

INTERACTIVE COMMUNICATIONS INFRASTRUCTURE AND SERVICES COMPANIES

GOTO.COM. GoTo.com operates an online marketplace that introduces
consumers and businesses who search the Internet for advertisers who provide
those products, services and information. Advertisers participating in its
marketplace include retail merchants, wholesale and service businesses and
manufacturers. GoTo.com facilitates these introductions through its search
service, which enables advertisers to bid in an ongoing auction for priority
placement in its search results. Advertisers pay GoTo.com for each
click-through, so advertisers bid only on keywords relevant to the products,
services or information that they offer. Because each advertiser chooses the bid
amount and advertisement placement that is optimal for its business, GoTo.com
believes its marketplace provides advertisers with a cost-effective way to
target consumers. Consumers access the GoTo.com search service both at its
website and through its affiliates, a network of websites that have integrated
the GoTo.com search service into their sites or that direct consumer traffic to
GoTo.com's site. With the acquisitions of a comparison shopping engine and a
comprehensive auction service, we believe GoTo.com now operates a comprehensive
and relevant way for consumers to find products and services and advertisers to
economically reach targeted self qualified leads.

Frustrated with the slow, cumbersome, inaccurate search returns generated
by other search engines, we devised a way to allow users to obtain relevant
search returns quickly and easily by allowing content providers and advertisers
to bid for keywords in their relevant categories. This model also created a
dynamic, continuous bidding system by which businesses could monitor and
increase their bids for keywords to maintain prominent positions. We created and
launched GoTo.com during 1998 and placed Jeffrey Brewer, a former idealab!
executive, as GoTo.com's chief executive officer. In addition, we developed the
original GoTo.com search technology, launched an innovative branding campaign
and

aggressively promoted GoTo.com on the websites of our other network companies.
In June 1999, GoTo.com completed an initial public offering.

HOMEPAGE.COM. HomePage.com is a leading application service provider, or
ASP, of personalized web page solutions for ebusinesses. HomePage.com's flexible
and proprietary "Powered by HomePage.com" system uses a combination of FreeBSD
and Linux operating systems to create a high-performance, easy-to-use and
reliable personal publishing experience. HomePage's corporate clients include
About.com, ArtistDirect.com, Discovery Channel Online, AOL.com's ICQ and
PETsMART.com.

We initially created HomePage.com in April 1999 to satisfy an unmet
market demand stemming from the growing numbers of Internet neophytes who wanted
a personal presence on the web but did not know how to build a homepage. A few
months into HomePage's operation, working closely with idealab!'s senior
management, HomePage refocused its business strategy to emphasize the provision
of outsourced home page services to client businesses seeking to build customer
retention, traffic and loyalty. HomePage.com now works closely with corporate
clients to customize a home page offering for their users. HomePage.com
continues to provide direct person home page client services, but such activity
largely serves as a test bed for further development of HomePage's utilities and
services. Bill Gross acted as the initial chief executive officer of
HomePage.com, and all of the early technology development and marketing efforts
were conducted by idealab! prior to the recruitment of professionals into
HomePage.com.

PAYMYBILLS.COM. PayMyBills.com is a leading online personal bill
management service that enables consumers to automate bill paying processes by
providing them with secure viewing and payment of all of their bills.
PayMyBills.com is a complete solution, offering consumers a simple, fast and
paperless experience.

We were first introduced to PayMyBills.com through one of our Vice
Chairmen, Howard Morgan. We helped PayMyBills.com formulate their business plan
and provided initial capital to form the company. We relocated the company's two
initial employees from Philadelphia to our Pasadena facility, where we provided
them with the administrative, legal, financial and accounting support we provide
all companies within our facilities. We also provided extensive strategic
guidance and worked to build the company's operating model and help management
drive down customer acquisition costs using our marketing techniques. We
launched PayMyBills.com in July 1999. Due to our combined efforts, within three
months the company was actively serving customers nationwide and had paid more
than $3.7 million in active bill balances.

VENTURE CAPITAL AFFILIATIONS

In addition to our Internet-related network companies, we are affiliated
with five venture funds that invest primarily in Internet companies, including
some companies in the idealab! network. The venture funds are: idealab! Capital
Partners I-A, L.P., idealab! Capital Partners I-B, L.P., idealab! Principals
Fund, L.P., idealab! Capital Partners II-A, L.P., and idealab! Capital Partners
II-B, L.P. We have a 50% voting interest in idealab! Capital Management I,
L.L.C. and idealab! Capital Management II, L.L.C., the companies that manage
these venture funds. An independent professional venture capital fund manager
holds the other 50% voting interest in the two management companies.

The five affiliated venture funds, which are housed in our Pasadena
headquarters, provide a potential funding source for companies in the idealab!
network. In addition, even if we elect not to acquire an interest in a company,
we can often establish a relationship with it by referring it to our affiliated
venture funds as a candidate for investment.

COMPETITION FACING US

We face competition from service and capital providers including
publicly-traded Internet companies, venture capital companies, large
corporations and Internet holding companies. Many of these competitors have
greater financial resources and brand name recognition than we do. Although we
believe our method and our brand differentiate us from our competitors,
competition from these companies may limit our opportunity to hire quality
entrepreneurs and other personnel to launch and

support companies, or to acquire interests in attractive companies brought
to our attention by others. If we are unable to hire quality entrepreneurs and
other personnel to launch and work at our companies, or to acquire interests in
attractive companies, we may not be able to meet our objective of expanding the
idealab! network.

COMPETITION FACING OUR NETWORK COMPANIES

Competition for Internet products, services and personnel is intense. As
the markets for Internet infrastructure, services, commerce and content grow, we
expect that competition will intensify. Barriers to entry are generally low, and
competitors may be able to offer products and services at a relatively low cost.

In addition, our network companies compete with other Internet companies,
including our other network companies, to attract and retain talented employees
with relevant experience, and some of them also compete to attract and retain a
critical mass of buyers and sellers. Several companies offer solutions that
compete with those offered by one or more or our network companies, and we
expect that additional companies will offer competing solutions on a stand-alone
or combined basis in the future. Although we intend to launch and acquire new
businesses that are complementary to the companies in our network, on occasion
competition among our companies has arisen as a result of business combinations
or other developments. For a more detailed discussion of the competition facing
our companies, see "Risk Factors--Risks facing our network companies--Various
idealab! companies may fail if competitors provide superior Internet-related
offerings".

INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS AND LICENSES

We have developed various software applications for use within our network.
Our trademarks, patent applications and Internet domain names are an extremely
important part of our business. Likewise, the trademarks, patentable inventions
and domain names used by our network companies are important parts of their
businesses. From time to time, we also register or acquire domain names that we
believe may be useful to us or our network companies in the future. Risks
regarding our intellectual property rights and those of our network companies
are described in more detail under "Risk Factors--Risks facing our network
companies--Claims of intellectual property infringement by third parties against
our network companies could cause them to incur expenses or become involved in
litigation".

GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES

There are currently few laws or regulations directed specifically at
Internet businesses. However, because of the Internet's popularity and
increasing use, new laws and regulations may be adopted. These laws and
regulations may cover issues such as the collection and use of data from website
visitors and related privacy issues, pricing, content, copyrights, trademarks,
online gambling, distribution, taxation and the quality of goods and services.
The enactment of any additional laws or regulations may impede the growth of the
Internet and Internet businesses, which could decrease the revenue of our
network companies and place additional financial burdens on them.

Laws and regulations directly applicable to electronic commerce and
Internet communications are becoming more prevalent. For example, Congress
recently enacted laws regarding online copyright infringement and the protection
of information collected online from children. Although these laws may not have
a direct adverse effect on our business or those of our network companies, they
add to the legal and regulatory burden faced by Internet commerce and content
companies. Other specific areas of legislative activity are:

o TAXES. Congress enacted a three-year moratorium, ending on October 21,
2001, on the application of "discriminatory" or "special" taxes by the
states on Internet access or on products and services delivered over
the Internet. Congress further declared that there will be no federal
taxes on electronic commence until the end of the moratorium. However,
this moratorium does not prevent states from taxing activities or
goods and services that the states would otherwise have the power to
tax. Furthermore, the moratorium does not apply to certain state taxes
that were in place before the moratorium was enacted.

o ONLINE PRIVACY. Both Congress and the Federal Trade Commission are
considering regulating the extent to which companies should be able to
use and disclose information they obtain online from consumers. If any
regulations are enacted, Internet companies may find some marketing
activities restricted. Also, the European Union has directed its
member nations to enact much more stringent privacy protection laws
than are generally found in the United States and has threatened to
prohibit the export of some personal data to United States companies
if similar measures are not adopted. Such a prohibition could limit
the growth of foreign markets for United States Internet companies.
The Department of Commerce is negotiating with the Federal Trade
Commission to provide exemptions from the European Union regulations,
but the outcome of these negotiations is uncertain.

o REGULATION OF COMMUNICATIONS FACILITIES. To some extent, the rapid
growth of the Internet in the United States has been due to the
relative lack of government intervention in the marketplace for
Internet access, which may not continue in the future. For example,
several telecommunications carriers are seeking to have
telecommunications over the Internet regulated by the Federal
Communications Commission in the same manner as other
telecommunications services. Additionally, local telephone carriers
have petitioned the Federal Communications Commission to regulate
Internet service providers in a manner similar to long distance
telephone carriers and to impose access fees on these providers. Some
Internet service providers are seeking to have broadband Internet
access over cable systems regulated in much the same manner as
telephone services, which could slow the deployment of broadband
Internet access services. Because of these proceedings or others, new
laws or regulations could be enacted which could burden Internet
infrastructure and services companies and slow the rapid expansion of
the Internet and its availability to new users.

o INVESTMENT COMPANY ACT OF 1940. The Investment Company Act of 1940
provides a set of regulations for companies engaged primarily in the
business of investing, reinvesting, owning, holding or trading in
securities. A company may become subject to regulation under the
Investment Company Act if it owns "investment securities" with a value
exceeding 40% of the value of its total assets. Although we are in the
business of creating, building and operating new Internet companies,
we could become subject to regulation under the Investment Company Act
if enough of our interests in network companies are considered
investment securities under the Investment Company Act. Regulations
applicable to investment companies are inconsistent with our
fundamental business strategy of promoting collaboration among our
network companies. In order to avoid these regulations, we may have to
take actions that we would not otherwise choose to take. For a more
detailed discussion of some of the actions we might have to take, see
"Risk Factors--Risks Particular to Us--We may have to take actions
that are disruptive to our business strategy to avoid registration
under the Investment Company Act of 1940".

o CYBERSQUATTING. In 1999, Congress enacted anti-cybersquatting
legislation to address the practice of domain name piracy. The
legislation is designed to limit the practice of registering an
Internet address of an established trademark with the hopes of selling
the Internet address to the affected company. The legislation also
includes a prohibition on the registration of a domain name that is
the name of another living person, or a name that is confusingly
similar to that name. The scope of this legislation has not been
precisely defined. We, or our network companies, may be subject to
liability based on our or their use of domain names or trademarks that
allegedly infringe the rights of third parties.

o OTHER REGULATIONS. The growth of the Internet and electronic commerce
may lead to the enactment of more stringent consumer protection laws.
The Federal Trade Commission may use its existing jurisdiction to
police electronic commerce activities, and it is possible that the
Federal Trade Commission will seek authority from Congress to regulate
certain online activities. The Federal Trade Commission has already
issued for public comment proposed regulations governing the
collection of information online from children.

Generally applicable laws may affect us and our network companies. The
exact applicability of many of these laws to Internet infrastructure and
services companies and Internet commerce and content companies, however, is
uncertain.

EMPLOYEES

As of March 31, 2000, we had 198 full-time employees. Our future success
depends, in part, on our and our network companies' continuing ability to
attract, train and retain highly qualified management, technical and marketing
personnel. Competition for such personnel is intense, and there can be no
assurance that we or our network companies will be able to recruit and retain
sufficient numbers of qualified personnel. None of our employees is represented
by a labor union. We have not experienced any work stoppages and we consider our
relations with our employees to be good.

EXECUTIVE OFFICES AND WEBSITE

Our principal executive office is located at 130 W. Union Street, Pasadena,
California, 91103, and our telephone number is (626) 585-6900. We maintain a
website at www.idealab.com. The information on our website is not part of this
prospectus.

LEGAL PROCEEDINGS

The former Chief Operating Officer of CarsDirect.com filed a complaint on
September 30, 1999 in Los Angeles County Superior Court, naming CarsDirect.com,
CD1Financial, a subsidiary of CarsDirect.com, Bank One and us as defendants. The
complaint alleged a single cause of action for breach of contract against
CD1Financial, and claims for intentional and negligent interference with
contract against us, CarsDirect.com, and Bank One. The plaintiff, Gregory
Brogger, claimed in the suit that CD1Financial, at the urging of the other
defendants, breached a purported employment agreement with CD1Financial by
terminating him without cause. As a result, Mr. Brogger claimed he is entitled
to a 5.75% ownership interest in CD1Financial, an amount he estimated to be
worth $33 million. In addition, he sought general and compensatory damages,
punitive damages and his costs of suit. Following the filing of the complaint,
we and the other defendants agreed to mediate and arbitrate Mr. Brogger's
claims. Mr. Brogger dismissed his action on January 14, 2000 without prejudice.
The parties have unsuccessfully mediated the case, and they are now proceeding
to a binding arbitration of Mr. Brogger's claims in June 2000. We have denied
that we are liable to Mr. Brogger in any amount, and we intend to vigorously
defend against Mr. Brogger's allegations.

On October 22, 1999, Trilogy Software and Carorder.com filed an action in
the United States District Court for the Western District of Texas asserting
claims against CarsDirect.com and AutoData Marketing Systems Incorporated, a
subsidiary of CarsDirect.com. In the complaint, Trilogy alleges that
CarsDirect.com and AutoData have infringed Trilogy's U.S. patent entitled
"Method and Apparatus for Maintaining and Configuring Systems," and that such
infringement is wilful. Trilogy and Carorder.com also allege that CarsDirect.com
and AutoData tortiously interfered with a license agreement between Trilogy and
Intellichoice relating to automobile industry data. Trilogy seeks, among other
things, triple damages in an unspecified amount, preliminary and permanent
injunctive relief and attorneys' fees and costs. CarsDirect.com and AutoData
have filed an answer to the complaint denying the material allegations and
asserting defenses including, among others, that the Trilogy patent is invalid,
unenforceable and not infringed. CarsDirect.com intends to vigorously defend
itself against the allegations.

FACILITIES

We lease approximately 161,000 square feet of space in Pasadena,
California, approximately 22,000 square feet of space in Silicon Valley,
California, approximately 50,000 square feet of space in New York City,
approximately 22,000 square feet of space in Boston and the surrounding area and
approximately 5,000 square feet of space in London. We believe that our
facilities are currently adequate, but may be inadequate to sustain our
anticipated growth and that of the idealab! network companies housed in our
facilities through the 2002 fiscal year. We believe that we will be able to
obtain adequate space to support our anticipated operating needs on commercially
reasonable terms.

MANAGEMENT

IDEALAB! MANAGEMENT TEAM

idealab!'s management team is comprised of people with diverse experience
and skills who have created, built, operated and advised companies across a
broad range of sizes and industries. We recruit and motivate our management team
by providing a challenging, intense, collaborative, rewarding and open
atmosphere. Our shared incentives, physical architecture and philosophy foster
an open atmosphere that we believe is attractive to talented people. The
following table sets forth information with respect to our officers, directors
and key employees as of April 7, 2000. Executives listed as Managing Directors
include both Managing Directors and Associate Managing Directors.

NAME AGE POSITION/LOCATION
- ----------------------------------------- ----- ---------------------------------------------------------------
SENIOR EXECUTIVE OFFICERS AND DIRECTORS

Bill Gross............................... 41 Chief Executive Officer and Chairman of the Board of Directors
Marcia Goodstein......................... 35 President, Chief Operating Officer, President, idealab!
Pasadena and Director

Lawrence Gross........................... 38 Vice Chairman, President, idealab! Europe and Director
Bruce Johnston........................... 40 President, idealab! Boston
Robert Kavner............................ 56 Vice Chairman, President, idealab! Silicon Valley and Director
Howard Morgan............................ 54 Vice Chairman, President, idealab! New York and Director
Benjamin M. Rosen........................ 66 Director
John F. Welch, Jr. ...................... 64 Director

CORPORATE AND REGIONAL OFFICERS

Tom Hughes............................... 49 Chief Design Officer
David Ishaq.............................. 41 Chief Operating Officer, idealab! Europe
Douglas McPherson........................ 38 Vice President, Secretary and General Counsel
Bradley Ramberg.......................... 36 Vice President and Chief Financial Officer
Hugh Shytle.............................. 37 Chief Operating Officer, idealab! Boston
Brian Steel.............................. 40 Chief Operating Officer, idealab! Silicon Valley
Stephanie Streeter....................... 42 Chief Operating Officer, idealab! Pasadena
Jim Winget............................... 44 Chief Technology Officer
Andy Zimmerman........................... 45 Chief Operating Officer, idealab! New York

MANAGING DIRECTORS

Jonathan Axelrad......................... 37 idealab! Silicon Valley
David Bohigian........................... 30 idealab! New York
David Cohen.............................. 38 idealab! Pasadena
Craig Frances............................ 33 idealab! Pasadena
Tim Gray................................. 32 idealab! Pasadena
David Hernand............................ 33 idealab! Pasadena
Joel Hyatt............................... 43 idealab! Silicon Valley
Paul Jen................................. 33 idealab! Pasadena
Edward Lambert........................... 39 idealab! Pasadena
Josh Leibowitz........................... 29 idealab! New York
Belden Menkus............................ 44 idealab! Europe
Lars Perkins............................. 40 idealab! Boston
Gregg Rotenberg.......................... 33 idealab! Pasadena
Heath Schiesser.......................... 32 idealab! Pasadena
Thomas Shull............................. 48 idealab! Pasadena
Andrew Stern............................. 28 idealab! New York
Bill Trenchard........................... 25 idealab! Silicon Valley
Caroline Whitfield....................... 35 idealab! Europe

NAME AGE POSITION/LOCATION
- ----------------------------------------- ----- ---------------------------------------------------------------

VICE PRESIDENTS

Scott Banister........................... 24 Vice President Ideas
Teresa Bridwell.......................... 32 Vice President Corporate Communications
Kristen Ding............................. 31 Vice President Design
Jeremy Eskenazi.......................... 37 Vice President Talent Acquisition
Joseph Essas............................. 28 Vice President Company Development
Rich Fagen............................... 42 Vice President Administrative Services
John Fessenden........................... 29 Senior Vice President Technology
Jon Gonzales............................. 34 General Counsel, Operating Companies and Vice President Legal
Gary Horwitz............................. 39 Vice President Real Estate
Julie Mazman............................. 36 Vice President Marketing
Greg Murphy.............................. 29 Vice President Company Development
Lizette Perez............................ 34 Vice President Legal
Rick Powell.............................. 32 Vice President Administration
Reed Sturtevant.......................... 43 Vice President Technology

ENTREPRENEURS-IN-RESIDENCE

Mark Kingdon............................. 37 idealab! New York
Christina Ohly........................... 31 idealab! Boston
John Rigos............................... 32 idealab! New York
Andrew Skarupa........................... 34 idealab! Pasadena
Nalini Sri-Kumar......................... 42 idealab! Pasadena
Scott Weiss.............................. 34 idealab! Silicon Valley

SENIOR EXECUTIVE OFFICERS AND DIRECTORS

BILL GROSS founded idealab! in March 1996 and has served as our Chairman
of the Board and Chief Executive Officer and as a director since that time. Mr.
Gross served as our President from March 1996 to March 2000. Since March 1998,
he has served as a managing director of idealab! Capital Management I, LLC.
Prior to idealab! he started a number of companies. In high school, Mr. Gross
started Solar Devices, a firm which sold plans and kits for solar energy
products. In college at the California Institute of Technology, he patented a
new loudspeaker design and formed GNP Loudspeakers Inc. After graduating from
California Institute of Technology, Mr. Gross and his brother Lawrence started
GNP Development Inc., which made a natural language product for Lotus 1-2-3
called HAL. In 1995, Lotus Development Corporation acquired GNP. From February
1986 to March 1991, he was a software entrepreneur at Lotus Development. In
1991, Mr. Gross started Knowledge Adventure, an educational software publisher
that was eventually sold to Havas. Mr. Gross serves on the boards of directors
of approximately 20 of our public and private network companies, including
GoTo.com, NetZero and Ticketmaster Online-CitySearch. He is also a member of the
board of trustees of the California Institute of Technology. Mr. Gross received
his B.S. in Mechanical Engineering from the California Institute of Technology.

MARCIA GOODSTEIN founded idealab! with Bill Gross in March 1996 and has
been our Chief Operating Officer since May 1998, a director since May 1999 and
our President and the President, idealab! Pasadena since March 2000. Prior to
joining idealab!, Ms. Goodstein worked in business development and marketing
from July 1994 to June 1995 for Enfish Corporation, a software development
company. From February 1991 to July 1994, she worked for Gemstar Development
Corporation, where she was responsible for media licensing for North America and
licensing, marketing and distribution in South America. Prior to that, Ms.
Goodstein worked from July 1986 to February 1991 at a California Institute of
Technology research facility. She is a graduate of Pomona College.

LAWRENCE GROSS has served as President, idealab! Europe since March 2000,
and as one of our Vice Chairmen and as a director since April 1999. Prior to
joining idealab!, Mr. Gross was the president &

chief executive officer of Knowledge Adventure, a company he founded with his
brother Bill Gross in 1991. Following the acquisition of Knowledge Adventure,
Mr. Gross served as senior vice president of Cendant Software and president of
Davidson & Associates from 1997 to 1999. He worked as a software engineer and
development manager at the Lotus Development Company from 1986 to 1991. Mr.
Gross holds a B.S. in computer science from the California Institute of
Technology and is a graduate of the Executive Program for Growing Companies at
the Stanford Graduate School of Business.

BRUCE JOHNSTON has served as President, idealab! Boston since March 2000,
and served as one of our Managing Directors from September 1999 to March 2000.
Prior to joining idealab!, Mr. Johnston worked for TA Associates, a leading
late-stage, technology-oriented private equity firm, where he served as a vice
president from July 1992 to January 1996 and as a principal from January 1996
through August 1999. From June 1988 to June 1992, Mr. Johnston worked at Lotus
where he was most recently a general manager. He received his B.S. in Electrical
Engineering from Duke University and received an M.B.A. in Finance and Marketing
from Pennsylvania State University.

ROBERT KAVNER has served as President, idealab! Silicon Valley since
March 2000 and as one of our Vice Chairmen and a director since January 1999.
From September 1996 to December 1998, he served as president and chief executive
officer of On Command Corporation, a public company with $240 million in annual
sales. From September 1995 to August 1996, Mr. Kavner provided consulting
services in new media markets. From June 1994 to September 1995, Mr. Kavner
served as an advisor to Creative Artists Agency. From May 1984 to May 1994, he
served as an Executive Vice President of AT&T, where he acted as Chief Executive
Officer of Multimedia Products and Services. Mr. Kavner currently serves on the
board of directors of the following public companies: Fleet Financial Group,
Ticketmaster Online-CitySearch, GoTo.com and Jupiter Communications. Mr. Kavner
received his B.B.A. in Business Management from Adelphi University and attended
the Advanced Management Program at Dartmouth University.

HOWARD MORGAN, PH.D. has served as President, idealab! New York since
March 2000 and as a director since February 1999. He served as one of our Vice
Chairmen on a consulting basis from January 1997 to March 2000, and has
continued this role as an employee since March 2000. Since 1989, Dr. Morgan has
served as President of Arca Group, Inc., a consulting and investment management
firm specializing in the areas of computers and communications technologies. Dr.
Morgan was a professor of decision sciences at the Wharton School of the
University of Pennsylvania and a professor of computer science at the Moore
School of the University of Pennsylvania from 1972 through 1986. He serves as a
director for a number of public companies, including Cylink Corporation,
Franklin Electronic Publishers, Inc., Infonautics Corporation, Inc.,
MyPoints.com, Segue Software Corporation, Tickets.com and Unitronix Corporation.
Dr. Morgan received his Ph.D. in operations research from Cornell University and
his B.S. in Physics from the City University of New York.

BENJAMIN M. ROSEN has served as a Director of idealab! since April 2000.
Mr. Rosen co-founded Compaq Computer Corporation in 1982, and has served as
Chairman of the Board and in executive capacities at Compaq since 1983. Mr.
Rosen also serves as Vice Chairman of the Board of Trustees of California
Institute of Technology, and on several other public company and nonprofit
organization boards.

JOHN F. WELCH, JR. has served as a director of idealab! since March 2000.
Since 1981, Mr. Welch has served as the chairman and chief executive officer of
General Electric Company. From 1960 to 1981, he held various positions at
General Electric. Mr. Welch received his B.S. degree in chemical engineering
from the University of Massachusetts and his M.S. and Ph.D. degrees in chemical
engineering from the University of Illinois.

CORPORATE AND REGIONAL OFFICERS

TOM HUGHES founded idealab! with Bill Gross in March 1996 and has served
as our Chief Design Officer since that time, and as a director until March 2000.
Prior to joining idealab!, Mr. Hughes was retained by IBM from September 1992 to
March 1996 as a design consultant. From October 1985 to August 1992, he served
as director of creative development for Lotus. From December 1982 to October
1985, Mr. Hughes served as worldwide creative director for business products,
including Macintosh, creating the award-winning and internationally acclaimed
identity for Macintosh and the graphical and

type elements which the Apple corporate identity later adopted and still
employs. Mr. Hughes was senior art director at Polaroid from April 1978 to
December 1982 and served as art director at The Boston Herald newspaper from
April 1977 to April 1978. He attended University of Massachusetts, The Museum
School at Boston, and Northeastern University, where he studied English,
Painting and Architecture.

DAVID ISHAQ has served as Chief Operating Officer idealab! Europe since
March 2000 and served as Managing Director with specific responsibility for
European expansion from July 1999 through February 2000. Prior to joining
idealab!, Mr. Ishaq was a partner at the private equity fund Knowledge Universe
from 1997 to 1999. From 1993 to 1996, Mr. Ishaq served variously as chief
operating officer and chief financial officer of Capella Films, Inc., a feature
film development, production, sales and distribution company. Mr. Ishaq was
involved in an advisory capacity with a wide range of companies in the media,
real estate and retail industries from 1989 to 1993. In 1984, he was a principal
in the leveraged buyout of Sabre International, Gillette's surgical instruments
division, which he co-led until its sale in 1988. Mr. Ishaq holds an L.L.B.
degree from the London School of Economics and a M.B.A. from Harvard Business
School.

DOUGLAS MCPHERSON has served as our Vice President and General Counsel
since May 1999 and as our Secretary since March 2000. Prior to joining idealab!,
he served as chief legal officer and vice president, business development for
Ticketmaster Online-CitySearch and its predecessor company, CitySearch, from
July 1996 until June 1999. From November 1992 to July 1996, Mr. McPherson was
with the law firm of Heller Ehrman White & McAuliffe. From September 1991 to
September 1992, he served as a law clerk for a federal district judge. Mr.
McPherson holds a B.A. from the University of North Carolina at Chapel Hill, an
M.A. from the University of California, Berkeley and a J.D. from Stanford Law
School.

BRADLEY RAMBERG has served as our Vice President and Chief Financial
Officer since April 1999. Prior to joining idealab!, Mr. Ramberg served as chief
financial officer and vice president of finance and administration for
Ticketmaster Online-CitySearch and its predecessor company, CitySearch from
April 1996 to May 1999. From January 1994 to April 1996, he was vice president
of finance and operations for the Fresh Gourmet Company, a joint venture between
CPC International, Inc. and Prepco. Mr. Ramberg holds an A.B. from Brown
University and an M.B.A. from Harvard Business School.

HUGH SHYTLE has served as Chief Operating Officer, idealab! Boston since
February 2000. Prior to joining idealab!, Mr. Shytle served as a general partner
at Tribeca Partners, a private equity investment company where he worked from
May 1999 to February 2000. From January 1993 to May 1999, Mr. Shytle was a
managing director at SG Cowen Securities where, as a research analyst, he
covered technology services companies. From May 1989 to January 1993, he served
as chief operating officer of Restrac, an enterprise software company. Mr.
Shytle holds a B.S. in Computer Science from Virginia Polytechnic Institute and
an S.M. in Management from the Sloan School of Management at the Massachusetts
Institute of Technology.

BRIAN STEEL has served as Chief Operating Officer, idealab! Silicon
Valley since August 1999. Prior to joining idealab!, Mr. Steel was with On
Command Corporation, serving as president and chief operating officer from
December 1998 to August 1999, as chief operating officer and chief financial
officer from September 1996 to December 1998, and as a director for all three
years of his tenure. From January 1993 to August 1996, Mr. Steel was with
Pacific Telesis Group and several affiliated companies, most recently TELE-TV as
its executive vice president and chief financial officer. From June 1986 to
December 1992, Mr. Steel worked for Shearson Lehman Brothers, where he
co-managed the real estate merchant banking group. Mr. Steel received his B.A.
in economics from Duke University.

STEPHANIE STREETER has served as Chief Operating Officer, idealab!
Pasadena since January 2000. Prior to joining idealab!, Ms. Streeter worked for
Avery Dennison beginning in June 1985. Most recently, she served as vice
president office products worldwide from June 1996 to January 2000 and as vice
president/general manager from 1991 to 1996. She served as director of marketing
from 1990 to 1991 and worked in business and product management from 1985 to
1990. From 1983 to 1985, Ms. Streeter served as a product manager for Decision
Data Computer Corporation. From 1980 to 1983, she worked for Xerox. Ms. Streeter
received her B.A. in Political Science from Stanford University.

JIM WINGET has served as our Chief Technology Officer since August 1999.
Prior to joining idealab!, he worked for Silicon Graphics Inc. from October 1986
to August 1999, serving most recently as

vice president and chief scientist in corporate research and development. From
May 1985 to October 1986, Dr. Winget was a consultant in the division of
radiation oncology and a research assistant professor in biomedical engineering
at Duke University. From June 1983 to October 1986, he was a consultant at
Sutherland, Sproull, and Associates, Inc. Dr. Winget received his B.S. in
Engineering from the University of Cincinnati, and his M.S. and Ph.D., both in
Applied Mechanics, from the California Institute of Technology.

ANDY ZIMMERMAN has served as Chief Operating Officer, idealab! New York
since February 2000. Prior to joining idealab!, Mr. Zimmerman served as the
global leader of eBusiness consulting services for PricewaterhouseCoopers and as
a member of the global consulting executive committee from July 1998 to January
2000. From July 1998 to June 1999, Mr. Zimmerman was the Americas leader and a
managing partner for information, communications and entertainment practice for
PricewaterhouseCoopers, and from January 1995 to July 1998 served as the global
leader for the telecommunications and media consulting practice at
PricewaterhouseCoopers. He received his B.A. from Haverford College and his M.S.
from New York University's Stern Business School.

MANAGING DIRECTORS

JONATHAN AXELRAD has served as a Managing Director for idealab! Silicon
Valley since January 2000. Prior to joining idealab!, Mr. Axelrad worked at the
law firm Wilson Sonsini Goodrich & Rosati, which he joined as an associate in
June 1990. He was admitted as a member in January 1995 and served in that role
through January 2000. Mr. Axelrad was named co-chair of the firm's
venture/investment fund group in September 1999. He received his B.A. from
Wesleyan University and his J.D. from Yale Law School.

DAVID BOHIGIAN has served as a Managing Director for idealab! New York
since January 2000. Prior to joining idealab!, Mr. Bohigian was a managing
director of the Washington, D.C.-based Internet incubator, VenCatalyst, where he
worked from August 1999 to December 1999. From October 1995 to June 1999, Mr.
Bohigian served as a director of Jefferson Partners, L.L.C., a Washington,
D.C.-based venture capital firm where he helped found Global Network Architects,
now Consortio. Mr. Bohigian received his B.A. from Washington & Lee University
and his J.D. from Washington University.

DAVID COHEN has served as a Managing Director for idealab! Pasadena since
January 2000. Prior to joining idealab!, Mr. Cohen was president of Camelot Fund
from February 1999 through December 1999. From March 1981 through December 1998,
he worked for Pacific Holding Co., serving most recently as chief investment
officer. During this time, he also served as senior vice president in charge of
acquisitions and investments for Dole Food Company. From August 1986 to October
1989, Mr. Cohen was an associate at the investment banking firm of Lazard Freres
and Co. He holds a B.S. in electrical engineering from Boston University and a
M.Phil. from Cambridge University.

CRAIG FRANCES has served as a Managing Director for idealab! Pasadena
since January 2000. Prior to joining idealab!, Dr. Frances was co-founder and
vice president health partnerships of yourPharmacy.com from August 1998 to
October 1999. In July 1997, he co-founded Expert Consensus Guidelines, LLC, a
company that surveys expert physicians across the country about "best practices"
to create diagnostic and therapeutic algorithms, where he worked through
December 1999. From July 1996 to June 1997, Dr. Frances was the chief medical
resident at University of California, San Francisco where he designed and
implemented hospital administration programs. From July 1995 to June 1996, he
created a series of books, the Saint-Frances Guides, with Williams & Wilkins.
Dr. Frances received his B.A. from Cornell University and his M.D. from Cornell
Medical School.

TIM GRAY has served as a Managing Director for idealab! Pasadena since
December 1999. Prior to joining idealab!, Mr. Gray co-founded WeddingChannel.com
and served as its chief executive officer from October 1996 to October 1999.
From December 1995 to October 1996, Mr. Gray practiced law with the Los Angeles
law firm of Riordan & McKinzie. Mr. Gray received his B.A. in Political Science
from the University of California at Irvine and his J.D. from the Georgetown
University Law Center.

DAVID HERNAND has served as a Managing Director for idealab! Pasadena
since April 2000. Prior to joining idealab!, Mr. Hernand was with the law firm
of Latham and Watkins from October 1994 to April 2000. Mr. Hernand was a Partner
in Latham's corporate department specializing in mergers and acquisitions and
corporate securities transactions, and served as Co-Chair of the firm's Venture
&

Technology Group. Mr. Hernand holds a B.A. from the University of California
at Los Angeles and a J.D. from Georgetown University Law Center.

JOEL HYATT has served as a Managing Director for idealab! Silicon Valley
since January 2000. Mr. Hyatt has been a lecturer in entrepreneurship at
Stanford University's Graduate School of Business since September 1998. He is
the founder and former chairman of Hyatt Legal Plans and served as its chief
executive officer from June 1990 to April 1997. From November 1977 to August
1997, Mr. Hyatt was a senior partner of Hyatt Legal Services, a company which he
co-founded. He received his A.B. from Dartmouth College and his J.D. from Yale
Law School.

PAUL JEN has served as a Managing Director for idealab! Pasadena since
January 2000. He has served as vice president of Meridian Ventures, a provider
of advice and interim senior management to leading companies including Barney's
New York, Federated Department Stores and LVMH, since September 1991. Mr. Jen
holds a B.A. from the University of California at Berkeley and an M.B.A. from
Columbia University.

EDWARD LAMBERT has served as a Managing Director for idealab! Pasadena
since January 2000. He has served as chief financial officer of Meridian
Ventures, a provider of advice and interim senior management to leading
companies including Barney's New York, Federated Department Stores and LVMH,
since September 1991. Mr. Lambert holds a B.S. from the California Institute of
Technology and an M.B.A. from Harvard Business School.

JOSH LEIBOWITZ has served as a Managing Director for idealab! New York
since December 1999. Prior to joining idealab!, Mr. Leibowitz worked for
McKinsey & Co. from October 1997 to December 1999 where he was a member of the
New York e-commerce and e-marketing leadership team. Mr. Leibowitz received his
A.B. in Economics from the University of Chicago and holds an M.B.A. from
Harvard Business School.

BELDEN MENKUS has served as a Managing Director for idealab! Europe since
February 2000. Prior to joining idealab!, Mr. Menkus founded Aim Bridge in
December 1998, where he served as managing director through February 2000. The
company delivered "launch pad services," helping large corporations launch
innovative new Internet concepts. From June 1997 to September 1998, Mr. Menkus
served as vice president, business development Europe for Nextera, an
international professional services firm. From September 1991 to February 1997,
he worked for CSC Index, a Business Reengineering consulting firm in its US,
London and Japan offices, most recently as a vice president. From September 1984
to March 1991, Mr. Menkus worked for McKinsey & Company in the U.S. and London,
where he focused on strategy development and implementation. Mr. Menkus holds a
A.B. from Brown University and an M.S.M. from the Sloan School of Management at
the Massachusetts Institute of Technology.

LARS PERKINS has served as a Managing Director of idealab! since December
1999. Prior to joining idealab!, Mr. Perkins co-founded Webhire in 1982 with
$200,000 of seed capital, served as its chief executive officer from 1986 to
1998, and has served as its chairman since 1986. Webhire completed an initial
public offering in 1996.

GREGG ROTENBERG has served as a Managing Director for idealab!, Pasadena
since January 2000. Prior to joining idealab!, Mr. Rotenberg founded
yourPharmacy.com and served as its president from March 1998 to October 1999.
From July 1996 to March 1998, he was managing director of ESI VisionCare, Inc. .
From November 1991 to May 1994, Mr. Rotenberg created and managed a virtual
reality division of Edison Brothers Stores, a Fortune 500 company. Mr. Rotenberg
received his B.S. from the Wharton School of the University of Pennsylvania and
his M.M. from the Northwestern University's J. L. Kellogg Graduate School of
Management.

HEATH SCHIESSER has served as a Managing Director for idealab! Pasadena
since January 2000. Prior to joining idealab!, Mr. Schiesser worked as vice
president of business development and co-founder of yourPharmacy.com from August
1998 to October 1999. From August 1993 to August 1998, he was with McKinsey &
Co. as an engagement manager. Mr. Schiesser worked for Alamo Group, a
manufacturing concern, from June 1989 to July 1991 as assistant to the
president. He received his B.A. from Trinity University and his M.B.A. from
Harvard Business School.

THOMAS SHULL has served as a Managing Director for idealab! Pasadena
since January 2000. He has served as chief executive officer of Meridian
Ventures, a provider of advice and interim senior management to leading
companies including Barney's New York, Federated Department Stores and LVMH,
since December 1990. Mr. Shull holds a B.S. from the United States Military
Academy and an M.B.A. from Harvard Business School.

ANDREW STERN has served as a Managing Director for idealab! New York
since January 2000. Prior to joining idealab!, he was a managing director and
principal of VenCatalyst, the Washington, D.C.-based Internet incubator, where
he worked from August 1999 to December 1999. From February 1999 to July 1999,
Mr. Stern was vice president of marketing for AppNet, Inc., a global provider of
e-commerce solutions. In February 1997, Mr. Stern founded LOGEX International,
LLC, an e-commerce solutions provider where he served as president until April
1998 when the company was acquired by AppNet. From January 1996 to February
1997, Mr. Stern served as vice president of operations and member of the senior
management committee for The Olympus Group and held various positions with
Burson-Marsteller and The Advisory Board Company. From January 1995 until
January 1996, he acted as a regional manager for the Advisory Board Company. Mr.
Stern received his B.A. in Political Science from Vanderbilt University.

BILL TRENCHARD has served as a Managing Director for idealab! Silicon
Valley since October 1999. Prior to joining idealab!, Mr. Trenchard was a lead
program manager at Microsoft from April 1999 to October 1999. He served as CEO
of Jump Networks, Inc. from February 1998 until its acquisition in April 1999 by
Microsoft. From January 1996 to February 1998, Mr. Trenchard was president of
The Gateways Group, LLC, an Internet consulting firm. He served as president of
Gateways.com, an Internet local destination site from January 1995 to January
1996. Mr. Trenchard received his B.A. from Cornell University.

CAROLINE WHITFIELD has served as a Managing Director for idealab! Europe
since February 2000. Prior to joining idealab!, Ms. Whitfield was chief
executive officer of London-based Internet incubator silliconwharf.com from June
1999 to February 2000. From January 1997 to May 1999, she served as european
business head of Hasbro, Inc. launching a combination of U.S.-sourced and
locally based opportunities. From January 1992 to December 1996, Ms. Whitfield
worked in South America, the Netherlands and the U.K. in global marketing for
Unilever PLC. She spent several years in international strategy consulting in
the U.K. France and U.S. first for Braxton Associates from June 1986 to August
1988, and then for the International Strategy Group of PricewaterhouseCoopers
from September 1988 to December 1990. Ms. Whitfield holds an M.A. in Law from
Christ Church, Oxford University and an M.B.A. from INSEAD, France.

VICE PRESIDENTS

SCOTT BANISTER has served as our Vice President Ideas since August 1999.
Prior to joining idealab!, Mr. Banister was a full-time Internet startup advisor
and investor following the acquisition of LinkExchange by Microsoft in November
1998. From February 1995 to December 1998, Mr. Banister served as vice president
of technology for Submit It!/ListBot, a company he founded in February 1995. In
June 1998, the company was acquired by LinkExchange, which was subsequently
acquired by Microsoft in November 1998. In July 1997, Mr. Banister co-founded
Impulse Buy Network, which was acquired by Inktomi in April 1999. He studied
Computer Science at the University of Illinois, Urbana-Champaign before leaving
to pursue his passion for Internet ideas and business models.

TERESA BRIDWELL has served as our Vice President Corporate Communications
since March 2000, joining us in November 1999 as Director of Corporate
Communications. Prior to joining us, Ms. Bridwell was vice president of
corporate communications for MetaCreations Corporation from May 1996 through
November 1999. From December 1993 through May 1996, she was manager of marketing
communications for State Street Global Advisors in Boston. Ms. Bridwell began
her public relations career in New York in 1992 with Connors Communications, a
public relations agency specializing in high technologies. From September 1990
through September 1992, she was an editor for Glamour and Omni magazines. Ms.
Bridwell received her B.S. in journalism from the University of Kansas.

KRISTEN DING has been with idealab! since February 1998, serving as a
designer, then as creative director of Free-PC and most recently, as our Vice
President Design. Prior to joining idealab!, she served as vice president of
design of CitySearch from October 1995 to December 1997. From December 1994 to
October 1995, Ms. Ding served as senior art director of AND Interactive
Communications. She received her B.A. in Psychology and Design from Stanford
University and her B.F.A. in Graphic Design and Packaging from Art Center
College of Design.

JEREMY ESKENAZI has served as our Vice President Talent Acquisition since
April 2000. Prior to joining idealab!, he served as director of strategic growth
and talent acquisition for Amazon.com Holdings, Inc. from September 1999 to
February 2000. From July 1994 to September 1999, Mr. Eskenazi worked for
Universal Studios, Inc., serving most recently as corporate director for
workforce planning and strategic staffing beginning in June 1997. From July 1994
to June 1997, as director of professional staffing, he developed and implemented
global executive staffing strategies for Universal Studios' diverse entities.
Mr. Eskenazi holds a B.S. from California State Polytechnic University, Pomona.

JOSEPH ESSAS has served as our Vice President Company Development for
idealab! Pasadena since November 1999. Prior to joining idealab!, Mr. Essas
served as vice president of web development and technology for Tickets.com from
January 1998 to November 1999. From May 1995 to January 1998, Mr. Essas served
as director of Web Technology for Interwise Inc., a developer of Web-based
distance learning software and services. Mr. Essas served as a developer and
project manager on tank simulation projects for the Israeli Defense Force from
August 1991 to April 1995. He attended Jerusalem College of Technology.

RICH FAGEN has served as our Vice President Administrative Services since
November 1999. Prior to joining idealab!, Mr. Fagen worked for the California
Institute of Technology from November 1984 through October 1999, serving as
director of information technology services from April 1990 through October
1999. From June 1979 to November 1984, Mr. Fagen worked at the Jet Propulsion
Laboratory where he served in various capacities including member of the
technical staff and manager of user services. He holds a B.A. in Economics from
the University of California, Los Angeles.

JOHN FESSENDEN has been with idealab! since January 1997, serving as our
Senior Vice President Technology since January 1999 and as Director of
Technology from January 1997 to January 1999. Prior to joining idealab!, Mr.
Fessenden worked as a developer from January 1995 to January 1997 at Underground
Networks, which was acquired by Boxtop Entertainment during his tenure.

JON GONZALES has served as our General Counsel, Operating Companies and
Vice President Legal for idealab! Pasadena since May 1999. From September 1996
until May 1999, he was with the law firm of Wilson Sonsini Goodrich & Rosati.
From December 1995 until August 1996, Mr. Gonzales was with the law firm of
Testa Hurwitz & Thibeault, LLP. From June 1992 until December 1995, he was with
the law firm of Bingham Dana LLP. Mr. Gonzales is a Certified Public Accountant
and holds a B.B.A. in accounting and an M.P.A. (Taxation) from the University of
Texas at Austin, and a J.D. from Stanford Law School.

GARY HORWITZ has served as our Vice President Real Estate since March
2000. Prior to joining idealab!, Mr. Horwitz worked for Mattel, Inc. from
February 1989 through March 2000. As vice president of real estate from May 1999
to March 2000, Mr. Horwitz was responsible for the management of Mattel's global
real estate portfolio. From June 1996 through April 1999, he served as managing
director of real estate at Mattel, and from February 1993 through May 1996, he
was Mattel's director of real estate. From January 1991 through January 1993,
Mr. Horwitz was assistant general counsel and from February 1989 to December
1990, he was senior attorney for Mattel. From September 1987 to January 1989,
Mr. Horwitz was an attorney with the law firm of Weissburg & Aronson. He holds a
B.A. from the University of California, Los Angeles and a J.D. from the
University of Southern California.

JULIE MAZMAN has served as our Vice President Marketing since March 2000.
Prior to joining us, she was vice president of strategy at eCompanies LLC from
September 1999 to January 2000. From August 1991 through November 1997 and from
September 1998 through March 1999, Ms. Mazman worked for the Sara Lee
Corporation, most recently as a brand strategist for its Champion Authentic
Athletic Approval division in Italy. From January 1998 to August 1998, she
worked for the Eastpak Corporation as the director of consumer marketing. She
received her B.A. in Economics from Dartmouth

College and her M.M. in Finance and Marketing from Northwestern University's
J.L. Kellogg School of Management.

GREG MURPHY joined idealab! as an Entrepreneur-in-Residence in December
1999 and has served as our Vice President Company Development for idealab!
Silicon Valley since March 2000. Prior to joining us, Mr. Murphy worked for On
Command Corporation from October 1993 to December 1999, serving most recently as
vice president of regional operations. From November 1997 to December 1998 he
served as vice president of product management, and from February 1995 to
October 1997, he held director roles in video programming and operations. Mr.
Murphy started his career with On Command as assistant to the chairman. Mr.
Murphy received his B.A. from Amherst College and his M.A. from Stanford
University.

LIZETTE PEREZ has served as our Vice President Legal for idealab! Boston
since March 2000. Prior to joining idealab!, Ms. Perez served as general counsel
of JuniorNet Corporation from September 1999 to March 2000. From September 1993
until September 1999, she was an associate in the corporate department and then
a partner-elect at the law firm Goodwin, Procter & Hoar, LLP. Ms. Perez holds a
B.A. in Political Science from the University of Rochester and a J.D. from
Boston University School of Law.

RICK POWELL has served as our Vice President Administration for idealab!
New York since January 2000. Prior to joining idealab!, he was a managing
director and principal of VenCatalyst, the Washington, D.C.-based Internet
incubator, where he worked from August 1999 to December 1999. From January 1992
to August 1999, Mr. Powell worked for Burson-Marsteller, a communications
consulting firm where he was appointed to the role of chief knowledge officer
worldwide in June 1998. Mr. Powell received his B.A. in Political Science and a
B.B.A. in Business/Finance from Southern Methodist University.

REED STURTEVANT has served as our Vice President Technology for idealab!
Boston since March 2000. Prior to joining idealab!, Mr. Sturtevant was chief
technology officer and co-founder of Radio Active Media Partners, Inc. from June
1999 to February 2000. From September 1995 to May 1999, he was chief technology
officer of Radnet, Inc. a company he also co-founded. Mr. Sturtevant worked for
Lotus Development Corporation from April 1986 to September 1995, serving most
recently as director of product management for InterNotes. From June 1992 to
October 1994, he was a consulting engineer and from May 1986 to June 1992, he
worked in the graphics products group at Lotus. Mr. Sturtevant began his career
as a software engineer, working at the Strategic Planning Institute from
September 1978 to June 1981, and then as an architect for Graphic
Communications, Inc. from July 1981 to April 1986. He attended the Massachusetts
Institute of Technology.

ENTREPRENEURS-IN-RESIDENCE

MARK KINGDON has served as an Entrepreneur-in-Residence for idealab! New
York since April 2000. Prior to joining idealab!, Mr. Kingdon was a partner at
PricewaterhouseCoopers, where he worked since September 1988. During his time at
PricewaterhouseCoopers, Mr. Kingdon served as retail consulting leader for the
Americas beginning in September 1996 and then as global e-business leader
responsible for strategy and planning, marketing, public relations, knowledge
management and communications from May 1999 to March 2000. Mr. Kingdon was also
a member of the ten person global executive team in PricewaterhouseCoopers' $5
billion management consulting services division. He holds a B.A. in Economics
from the University Of California, Los Angeles and a M.B.A. from the Wharton
School at the University of Pennsylvania.

CHRISTINA OHLY has served as an Entrepreneur-in-Residence for idealab!
Boston since February 2000. Prior to joining idealab!, she was vice president,
creative development for Oxygen Media from October 1998 to February 2000. From
September 1995 to October 1998, Ms. Ohly served as vice president creative
director, advertising and sponsored content for iVillage. She holds a B.A. from
Williams College.

JOHN RIGOS has served as an Entrepreneur-in-Residence for idealab! New
York since March 2000. Prior to joining idealab!, Mr. Rigos was founder,
president and chief executive officer of Cductive.com from June 1997 to February
2000. From January 1991 to November 1995, he served as vice president of

Jesup & Lamont Capital Partners. From June 1989 to December 1990, he was a
financial analyst with Prudential Bache Capital Funding. Mr. Rigos holds a B.A.
in Economics from the University of Pennsylvania and an M.B.A. from INSEAD,
France.

ANDREW SKARUPA has served as an Entrepreneur-in-Residence for idealab!
Pasadena since April 2000. Prior to this position, from April 1999 to March
2000, Mr. Skarupa served as vice president of finance for Free-PC, an idealab!
network company that was acquired by eMachines in January 2000. From November
1998 to March 1999, he served as vice president of finance for us. From November
1992 to October 1998, Mr. Skarupa worked for MiniMed, Inc., first as controller
and then as general manager and director of pharmacy. Mr. Skarupa is a Certified
Public Accountant and holds a B.S. in Mathematics/Applied Science from the
University of California at Los Angeles and an M.B.A. from UCLA's Anderson
School of Business.

NALINI SRI-KUMAR has served as an Entrepreneur-in-Residence for idealab!
since March 2000. Prior to joining idealab!, she was a partner from March 1997
to March 2000 at Siena Partners. From September 1982 to March 1997, Ms.
Sri-Kamur worked for McKinsey & Co., where she served as a partner from June
1988 to March 1997. At McKinsey, she focused on new product/business development
and business turnaround. Ms. Sri-Kamur received her B.A. in Economics from
Barnard College and her M.B.A. from Columbia University.

SCOTT WEISS has served as an Entrepreneur-in-Residence for idealab!
Silicon Valley since March 2000. Prior to joining idealab!, from April 1999 to
January 2000, Mr. Weiss served as chief executive officer of Projectgreen.com,
an e-commerce company in the fresh produce marketplace. From October 1996 to
September 1999, Mr. Weiss served as director of business development for
Hotmail/Microsoft. From August 1995 to July 1996, he was a consultant for
McKinsey & Co., where he focused on high technology engagements. From August
1983 to May 1988, Mr. Weiss served as manager of finance and business
development for Electronic Data Systems. He holds a B.S.B.A. in Finance from the
University of Florida and an M.B.A. from Harvard Business School.

Bill Gross and Lawrence Gross are brothers. No other family relationships
exist among our directors and executive officers.

BOARD OF DIRECTORS

Our bylaws provide for a board of directors consisting of between four
and seven members. We currently have seven directors, and we intend to expand
the size of our board and add one non-employee director within 90 days
following this offering. Executive officers are appointed by the board of
directors on an annual basis and serve until their successors have been duly
elected and qualified.

BOARD COMMITTEES

We intend to establish an audit committee and a compensation committee of
our board of directors within 90 days following the offering.

The audit committee will review our internal accounting procedures and
consult with and review the services provided by our independent accountants.
Our audit committee will be composed of at least three directors who are not our
employees.

The compensation committee will review and recommend to our board of
directors the compensation and benefits of our executive officers and other
employees. A majority of our compensation committee will be directors who are
not our employees.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Until the establishment of the compensation committee, our board of
directors as a whole will continue to perform the functions to be delegated to
the compensation committee. During fiscal 2000, the following members of our
executive officers served in interim positions in other companies: Lawrence
Gross served as acting chief operating officer of CarsDirect.com, acting chief
executive officer of Entrypoint and MyHome.com and acting President of Swap.com;
and Robert Kavner served as acting chief executive officer of Entrypoint. No
other executive officer of idealab! serves as a member of the

board of directors or compensation committee of any entity that has one or more
executive officers serving as a member of our board of directors.

DIRECTOR COMPENSATION

Directors currently do not receive any cash compensation from us for
their service as members of our board of directors. We granted John F. Welch,
Jr. an option to purchase 1,000,000 shares of our common stock at an exercise
price of $1.87 per share in March 2000 in connection with his election as a
director. We granted Benjamin M. Rosen an option to purchase 1,000,000 shares of
our common stock at an exercise price of $5.10 per share in April 2000 in
connection with his election as a director.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The table below summarizes for fiscal 2000 the compensation earned for
services rendered to us in all capacities by our Chief Executive Officer and our
three other executive officers whose total compensation exceeded $100,000 in
fiscal 2000. These officers are referred to in this prospectus as the "named
executive officers". No individual who would otherwise have been includable in
such table on the basis of total compensation earned during fiscal 2000 has
resigned or otherwise terminated his or her employment during fiscal 2000.

LONG-TERM
COMPENSATION
AWARDS
----------------
ANNUAL COMPENSATION SECURITIES
-------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITIONS SALARY BONUS OPTIONS COMPENSATION(3)
- ------------------------------------------------- ------------- ----------- ---------------- -----------------

Bill Gross
Chief Executive Officer and Chairman of the
Board of Directors.......................... $ 250,000 $ -- 150,000,000 $ 94,280
Marcia Goodstein
President, Chief Operating Officer and
President, idealab! Pasadena(1)............. 189,867 -- 5,850,000 93,355
Lawrence Gross(2)
Vice Chairman and President, idealab! Europe.. 208,333 -- -- 21,086
Robert Kavner
Vice Chairman and President, idealab! Silicon
Valley...................................... 250,000 -- 2,100,000 35,550

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

(1) Ms. Goodstein's annual salary became $250,000 effective in August 1999.

(2) Mr. Gross began his employment with us in April 1999, and his annual salary
is $250,000.

(3) Represents our incremental costs associated with the named executive
officers' personal usage of aircraft leased by us.

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth certain information with respect to stock
options granted to each of the Named Executive Officers in fiscal 2000,
including the potential realizable value over the ten-year term of the options,
based on assumed rates of stock appreciation of 5% and 10% over the exercise
price, compounded annually. These assumed rates of appreciation comply with the
rules of the Securities and Exchange Commission and do not represent our
estimates of our future stock price. Actual gains, if any, on stock option
exercises will depend on the future performance of our common stock. All options
were granted under our 1999 Executive Stock Plan. All options are exercisable
pursuant to vesting schedules with a maximum vesting term of four years. Vesting
of options is generally contingent upon the optionee's continued employment with
us.

POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF
SECURITIES GRANTED TO EXERCISE STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES PRICE FOR OPTION TERM
OPTIONS IN PER EXPIRATION ---------------------------------
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
- ----------------------------- ---------------- ------------ ----------- ----------- ---------------- ----------------

Bill Gross................... 150,000,000 69.3% $ 1.275 7/29/09 $ 120,276,097 $ 304,803,245
Marcia Goodstein............. 5,850,000 2.7 1.275 7/29/09 4,690,768 11,887,327
Lawrence Gross............... -- -- -- -- -- --
Robert Kavner................ 2,100,000 1.0 1.275 7/29/09 1,683,865 4,267,245

AGGREGATE OPTION EXERCISES DURING THE LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES

The following table sets forth information with respect to exercisable and
unexercisable options held as of January 31, 2000 by the Named Executive
Officers. The amounts under "Value of Unexercised In-the-Money Options at
January 31, 2000" were calculated by determining the difference between $2.20
per share, the fair market value of our common stock as of January 31, 2000 as
determined by our board of directors, and the per share exercise price.

NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED ON VALUE OPTIONS AT IN-THE-MONEY OPTIONS AT
EXERCISE REALIZED JANUARY 31, 2000 JANUARY 31, 2000
------------- -------------- ----------------------------- --------------------------------
EXERCISABLE(1) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------ --------------- --------------- ----------------

Bill Gross............... -- $ -- 150,000,000 -- $ 138,750,000 $ --
Marcia Goodstein ........ -- -- 5,850,000 -- 5,411,250 --
Lawrence Gross........... -- -- -- -- -- --
Robert Kavner............ -- -- 2,100,000 -- 1,942,500 --

- -------------------------
(1) Includes options that are unvested but which may be exercised early. Any
shares issued upon such exercise would be subject to our right of
repurchase at the original purchase price to the extent that the shares
remained unvested at the time of exercise.

RESTRICTED STOCK PURCHASES

In fiscal 2000, Bill Gross and Lawrence Gross purchased 20,000,000 and
22,100,000 shares of our common stock for $0.035 per share, in each case subject
to our right to repurchase the shares upon the termination of the executive's
employment with us. Our right to repurchase the shares lapses, with respect to
Bill Gross as to 20% of the underlying shares on the date of purchase and as to
an additional 20% on each succeeding anniversary of the date of purchase, and
with respect to Lawrence Gross, as to 20% on the date of purchase and as to an
additional 5% on the last day of each fiscal quarter thereafter. Bill Gross and
Lawrence Gross paid the purchase price for these shares by delivering to us full
recourse notes in the principal amounts of $700,000 and $773,500, respectively.
Each of these notes bears interest at 7% per annum compounded semi-annually and
is secured by the purchased shares. Each note has a term of four years, but is
due immediately upon payment of dividends to the executive in an amount greater
than the principal and interest then owed. In addition, in fiscal 2000, two
corporate and regional officers and one vice president purchased an aggregate of
11,500,000 shares of common stock subject to similar rights of repurchase at a
weighted average price of $0.035 per share.

EMPLOYMENT ARRANGEMENTS

All of our executive officers are "at-will" employees, and their employment
may be terminated at any time at the discretion of our board of directors. We
have entered into severance agreements with Robert Kavner, Howard Morgan and
Lawrence Gross. These agreements provide that in the event their employment with
us is terminated without cause, these officers will be entitled to accelerated
vesting under their respective option agreements and/or restricted stock
purchase agreements such that, to the extent their options have not then vested
and/or their restricted stock then remains subject to our repurchase right as to
a total of 10 million shares, their options and/or restricted stock will become
immediately vested as to an aggregate of 10 million shares immediately upon such
termination.

LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION

Our articles of incorporation and bylaws provide that our directors,
officers and other employees may be indemnified to the fullest extent authorized
by Nevada law. We believe that these provisions will assist us in attracting or
retaining qualified individuals to serve as directors or officers.

The Nevada Revised Statutes, or the NRS, empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, including an
action by or in the right of the corporation, by reason of the fact that he or
she is or was a director, officer, employee or agent of the corporation. We can
indemnify against expenses reasonably incurred by such person in connection with
such action, suit or proceeding if he or she acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to our best interests. In
the case of an action by or in the right of our company, no indemnification may
be made in respect of any claim as to which such person is found by a court to
be liable to us or for amounts paid in settlement to us, except to the extent
that the court determines that such person is fairly and reasonably entitled to
indemnity for such expenses.

The NRS further provides that, to the extent a director or officer of a
corporation has been successful on the merits or otherwise in the defense of any
action, suit or proceeding, he or she shall be indemnified against expenses
reasonably incurred by him or her in his or her defense.

Indemnification provided for under Nevada law is not exclusive of any other
rights to which the indemnified party may be entitled and the scope of
indemnification continues as to directors, officers, employees or agents who
have ceased to hold such positions. Finally, Nevada law empowers us to purchase
and maintain insurance or make other financial arrangements on behalf of a
director, officer, employee or agent against any liability asserted against or
incurred by him or her in any such capacity whether or not we would have the
authority to indemnify him or her against such liabilities and expenses. Our
bylaws authorize us to purchase and maintain insurance or make other financial
arrangements on behalf of our directors, officers, employees and agents.

We have entered into agreements with our directors and executive officers
pursuant to which we have agreed, among other things, to indemnify them against
liabilities they incur by reason of their status as our directors and executive
officers to the fullest extent permitted under Nevada law.

STOCK PLANS

1996 STOCK PLAN

Our 1996 Stock Plan provides for the granting to employees of incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and for the granting to employees, directors and
consultants of nonstatutory stock options and stock purchase rights ("SPRs").
The amended and restated 1996 Stock Plan was approved by our board of directors
and stockholders in April 1999. Unless terminated sooner, the 1996 Stock Plan
will terminate automatically in 2006. A total of 150,000,000 shares of common
stock were reserved for issuance under the 1996 Stock Plan. As of January 31,
2000, options to purchase 13,643,400 shares were outstanding under the 1996
Stock Plan with a weighted exercise price of $0.245.

Rights granted under the 1996 Stock Plan are generally not transferable by
a participant other than by will or the laws of descent and distribution. The
1996 Stock Plan provides that, in the event of our merger with or into another
corporation or a sale of substantially all of our assets, each outstanding
option may be assumed or substituted for by the successor corporation. If the
successor corporation does not assume or substitute for the outstanding options,
each option will become fully vested and exercisable, for a period of fifteen
(15) days, after which the option will terminate. Our board of directors has the
authority to amend or terminate the 1996 Stock Plan, except that no such action
may adversely affect any outstanding rights to purchase stock under the 1996
Stock Plan.

1999 EMPLOYEE STOCK PLAN

Our 1999 Employee Stock Plan was adopted by our board of directors and
stockholders in July 1999. The 1999 Employee Stock Plan's purpose and material
terms are substantially identical to the 1996 Stock Plan with the exception that
the 1999 Employee Stock Plan allows for nonstatutory option grants at exercise
prices equal to at least 85% of the fair market value of the common stock as
determined in good faith by our board of directors. The 1999 Employee Stock Plan
was adopted by our board of directors and stockholders in July 1999 and is
intended to replace the 1996 Stock Plan for options granted to employees after
June 1999. A total of 90,000,000 shares of common stock were reserved for
issuance under the 1999 Employee Stock Plan. In addition, the number of shares
authorized for issuance under the 1999 Employee Stock Plan will increase
annually on the first day of each fiscal year, beginning with our fiscal year
2001, by an amount equal to the lesser of ____ % of the outstanding shares of
our common stock on the last day of the immediately preceding fiscal year, or
______ shares. As of January 31, 2000, options to purchase 24,751,150 shares
were outstanding under the 1999 Employee Stock Plan with a weighted average
exercise price of $1.402.

The 1999 Employee Stock Plan may be administered by the Board of Directors
or a committee of the Board, which committee shall, in the case of options
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Code, consist of two or more "outside directors" within
the meaning of Section 162(m) of the Code. The Administrator has the power to
determine the terms of the options granted, including the exercise price, the
number of shares subject to each option, the exercisability thereof and the form
of consideration payable upon such exercise. The 1999 Employee Stock Plan will
terminate in 2009. The Board has the authority to amend, suspend or terminate
the 1999 Employee Stock Plan, provided that no such action may affect any share
of common stock previously issued and sold or any option previously granted
under the 1999 Employee Stock Plan.

Options granted under the 1999 Employee Stock Plan generally must be
exercised by three months after the optionee's separation from us or, if the
optionee's separation occurs without cause prior to our initial public offering,
within the earlier of twelve months after separation or the effective date of
the registration statement for our initial public offering, but in no event
later than the expiration of the option's ten-year term. The exercise price of
all incentive stock options granted under the 1999 Employee Stock Plan must be
at least equal to the fair market value of our common stock on the date of
grant. The exercise price of nonstatutory stock options granted under the 1999
Employee Stock Plan is determined by the administrator, but with respect to
nonstatutory stock options intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the exercise
price must at least be equal to the fair market value of the common stock on the
date of grant. For any participant who owns stock with more than 10% of the
voting power of all classes of our outstanding capital stock, the exercise price
of any incentive stock option granted must be at least 110% of the fair market
value of our common stock on the date of grant, and the term of any incentive
stock option must not exceed five years. The terms of all other options granted
under the 1999 Employee Stock Plan may not exceed ten years.

1999 EXECUTIVE STOCK PLAN

Our 1999 Executive Stock Plan was adopted by our board of directors and
stockholders in July 1999. The 1999 Executive Plan is substantially identical in
its material terms to the 1996 Plan and the 1999 Employee Plan, with the
exception that the 1999 Executive Plan allows for nonstatutory option grants,
including grants to 5% or greater holders at exercise prices equal to at least
85% of the fair

market value of the underlying common stock as determined in good faith by the
Board of Directors. The 1999 Executive Plan was adopted by our board of
directors and stockholders in July 1999. The 1999 Executive Plan was adopted to
provide a separate vehicle for certain executive bonus/compensatory grants
issued after June 1999. A total of 175,000,000 shares of common stock were
reserved for issuance under the 1999 Executive Plan. As of January 31, 2000,
options to purchase 161,619,000 shares were outstanding under the 1999 Executive
Plan with a weighted average exercise price of $1.275.

EMPLOYEE STOCK PURCHASE PLAN

Concurrently with this offering, we intend to adopt an employee stock
purchase plan that provides eligible employees the opportunity to purchase
shares of our common stock at a discount through payroll deductions.

RELATED PARTY TRANSACTIONS

INVESTMENTS IN IDEALAB! AND NETWORK COMPANIES

The following table summarizes the material terms of private placement
transactions since the beginning of fiscal 2000 other than stock option
exercises, in which our directors, executive officers and major stockholders and
related persons purchased shares of our stock or the stock of our majority-owned
subsidiaries for more than $60,000. In each preferred stock transaction, the
director, executive officer, major stockholder or related person purchased stock
at the same price and on the same terms as independent third-party investors
purchasing stock at the same time. Preferred stock is shown on an as-converted
basis in the table below.

NUMBER OF AGGREGATE
ISSUER CLASS OF STOCK SHARES PURCHASE PRICE
--------------------------- ------------------------- --------------- ----------------

BILL GROSS

idealab! Common (1) 20,000,000 $ 700,000
Series C Preferred 40,000,000 12,000,000
Series D Preferred 3,000,000 30,000,000
Homepage.com Series B Preferred 125,000 250,000
MyHome.com Series B Preferred 125,000 187,500
MyLife.com Series B Preferred 125,000 125,000
PayMyBills.com Series B Preferred 125,000 187,500
Sameday.com Series A Preferred 125,000 187,500

LAWRENCE GROSS

idealab! Common (1) 22,100,000 773,500
Sameday.com Series A Preferred (2) 50,000 75,000

ROBERT KAVNER

PETsMART.com Series C Preferred 38,400 64,128

HOWARD MORGAN

idealab! Common 30,000 66,000
idealab! Series D Preferred 250,000 2,500,000

BRADLEY RAMBERG

idealab! Common (1) 5,000,000 175,000
Series D Preferred (3) 75,000 750,000
Series D Preferred (4) 50,000 500,000

BENJAMIN ROSEN

Homepage.com Series B Preferred 50,000 100,000
MyHome.com Series B Preferred 66,666 100,000
MyLife.com Series B Preferred 100,000 100,000
PayMyBills.com Series B Preferred 66,666 100,000
Sameday.com Series A Preferred 66,667 100,000

IDEALAB! CAPITAL MANAGEMENT FUNDS
idealab! Series D Preferred (5) 1,500,000 15,000,000

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

(1) Shares subject to repurchase by us at the original purchase price upon
termination of the executive's employment to the extent not vested at
the time of termination.
(2) Shares purchased by Barry Volpert, Mr. Gross' brother-in-law.
(3) Shares purchased by a trust of which Mr. Ramberg's parents are
trustees.
(4) Shares purchased by Coldwater Investments L.L.C., of which Mr. Ramberg
and his parents and siblings are members.

(5) Includes 1,317,750 shares purchased by idealab! Capital Partners II-A,
L.P., 45,000 shares purchased by idealab! Capital Partners II-B, L.P.,
and 137,250 shares purchased by idealab! Capital Principals Fund, L.P.

PURCHASES OF STOCK FROM DIRECTORS, EXECUTIVE OFFICERS AND MAJOR STOCKHOLDERS

The following table summarizes the material terms of transactions since the
beginning of fiscal 2000 in which we purchased shares of our stock or the stock
of our network companies from our directors, executive officers, major
stockholders and related persons for more than $60,000.

CLASS OF NUMBER OF AGGREGATE
ISSUER STOCK SHARES PURCHASE PRICE
----------------- -------------- ---------------- -----------------

ROBERT KAVNER.......... GoTo.Com Common 375,871 $30,069,680

HOWARD MORGAN.......... GoTo.Com Common 66,667 5,333,360 (1)
FirstLook Common 100,000 66,000 (2)

- ----------------
(1) Includes $2,833,360 and 25,000 shares of our Series D preferred stock,
which are convertible into 250,000 shares of our common stock and were
valued at $100.00 per share in third-party sales at the same time as
the transaction.
(2) Represents 30,000 shares of our common stock, which had a fair market
value of $2.20 per share at the time of the transaction as determined
by our board of directors.

VENTURE CAPITAL AFFILIATIONS

We are affiliated with two families of venture capital funds that have an
aggregate amount of capital commitments payable during the term of such funds
equal to $469.0 million. As of January 31, 2000, these funds had received
capital contributions equal to $152.2 million.

INTERESTS IN ICP I FUNDS. We are a managing member of idealab! Capital
Management I, L.L.C. ("ICM I"), the sole general partner of idealab! Capital
Partners I-A, L.P. and idealab! Capital Partners I-B, L.P. (the "ICP I Funds").
ICM I and the ICP I Funds were formed in March 1998. The ICP I Funds have an
aggregate capitalization of $105.0 million. Of this amount, we have committed
$505,000 indirectly through our capital commitment to ICM I, and Bill Gross has
committed $10,000 indirectly through his capital commitment to ICM I. In
addition, Bill Gross has committed $1.0 million directly as a limited partner of
idealab! Capital Partners I-A and Benjamin Rosen, along with two trusts of which
his children are beneficiaries, have committed an aggregate of $2.0 million
directly as limited partners of idealab! Capital Partners I-B. $46,000 of our
capital commitment to ICM I was satisfied through a capital contribution to ICM
I of 27,018 shares of our Series B preferred stock. $290,000 of Bill Gross'
capital commitment to idealab! Capital Partners I-A was satisfied through
capital contributions to idealab! Capital Partners I-A of 170,588 shares of our
Series B preferred stock owned by him. $416,000 of our capital commitment and
$9,000 of Bill Gross' capital commitment to ICM I, $870,000 of Bill Gross'
capital commitment to idealab! Capital Partners I-A and $1.1 million of the
capital commitments of Benjamin Rosen and his children's trusts to idealab!
Capital Partners I-B had been satisfied as of January 31, 2000.

INTERESTS IN ICP II FUNDS. We are a managing member of idealab! Capital
Management II, L.L.C. ("ICM II"), the sole general partner of idealab! Capital
Partners II-A, L.P., idealab! Capital Partners II-B, L.P., and idealab! Capital
Principals Fund, L.P. (the "ICP II Funds"). ICM II and the ICP II Funds were
formed in August 1999. The ICP II Funds have an aggregate capitalization equal
to $364.0 million, of which we have committed $25.5 million, including $470,000
indirectly through our capital commitment to ICM II and $25.0 million directly
through our capital commitment as limited partners of idealab! Capital
Principals Fund. Barry Volpert, the brother-in-law of Lawrence Gross, has
committed $1.0 million and Benjamin Rosen, along with two trusts of which his
children are beneficiaries, have committed an aggregate of $2.0 million,
directly as limited partners of idealab! Capital Partners II-A. Our, Barry
Volpert's, Benjamin Rosen's and his children's trusts' commitments are payable
in cash. $97,000 of our capital commitment to ICM II, $4.25 million of our
capital commitment to idealab! Capital Principals Fund, $180,000 of Barry
Volpert's capital commitment to idealab! Capital Partners II-A and $360,000 of
the capital commitments of Benjamin Rosen and his children's trusts to idealab!
Capital Partners II-A had been satisfied as of January 31, 2000.

MANAGEMENT OF ICP FUNDS. The ICP I Funds and the ICP II Funds
(collectively, the "ICP Funds") were formed primarily to make venture capital
investments in emerging growth companies. The investment activities of the ICP I
Funds and the ICP II Funds are controlled exclusively by ICM I and ICM II,
respectively. We and Bill Gross together hold 50% of the total managing member
voting rights of each of ICM I and ICM II. As a result, the ICP Funds generally
can neither acquire nor dispose of investment assets without our and Bill Gross'
consent. Bill Gross has agreed to vote his managing member interests in the same
manner as we vote ours so long as he continues to control us. Subject to
limitations set forth in the governing documents of the ICP Funds: (1) we are
indirectly subject to fiduciary duties to the ICP Funds in the exercise of our
managing member voting rights; and (2) subject to our own prior right to
participate in financings conducted by our network companies, we are required to
use our reasonable best efforts to cause our network companies to offer the ICP
Funds the opportunity to participate in these financings. Under some
circumstances, an ICP Fund may not invest in a network company without the
approval of an independent advisory committee or the fund's limited partners.
The ICP Funds do not limit their investments to network companies.

CARRIED INTEREST IN ICP I FUNDS. ICM I holds a carried interest in the
ICP I Funds, that, on a blended basis, represents the right to receive 17.4% of
the net profits generated by the ICP I Funds over their entire term. Our
interest in ICM I entitles us to receive 43.5% of ICM I's carried interest
profits, and Bill Gross' interest in ICM I entitles him to receive 0.9% of ICM
I's carried interest profits. Accordingly, through our and Bill Gross' interest
in ICM I, we hold a carried interest which represents the right to receive 7.6%
of the net profits of th ICP I Funds on a blended basis, and Bill Gross holds a
carried interest which represents the right to receive 0.2% of the net profits
of the ICP I Funds on a blended basis. These blended figures are based on the
assumption that the two ICP Funds, which have made differing investments, will
achieve identical returns. Accordingly, the actual return realized by ICM I will
be based on the actual separate investment returns of the two ICP I Funds. In
addition, our and Bill Gross' indirect capital commitment to the ICP I Funds
through ICM I entitles us and Bill Gross to a share of the ICP I Funds' profits
and losses in proportion to the amount of our respective indirect capital
commitments in the same manner as other investors. Bill Gross' direct capital
commitment as a limited partner of idealab! Capital Partners I-A and the direct
capital commitments of Benjamin Rosen and his children's trusts as limited
partners of idealab! Capital Partners I-B also entitle them to shares of the
profits and losses of those funds in proportion to the amounts of their direct
capital commitments in the same manner as other investors.

MANAGEMENT FEES FROM ICP I FUNDS. ICM I is entitled to receive an annual
management fee from the ICP I Funds equal to 2.39% of their total committed
capital, subject to a significant decrease in the annual management fee rate
following the fifth year of each fund's term. ICM I is required to apply its
management fee income to pay the day-to-day operating expenses of the ICP I
Funds and pay certain fees and salaries to its members, including an annual fee
of $400,000 to us. In the event that ICM I has an excess management fee income
after paying such fees, salaries and expenses, we are entitled to 43.12% of the
excess and Bill Gross is entitled to 0.88% of the excess.

CARRIED INTEREST IN ICP II FUNDS. ICM II holds a carried interest in
idealab! Capital Partners II-A and idealab! Capital Partners II-B that, on a
blended basis, represents the right to receive 19.4% of the net profits
generated by such funds over their entire term. This 19.4% amount will
retroactively increase to 29.1% if the internal rate of return to the funds'
investors reaches 25.0%. The 19.4% and 29.1% amounts are based on the assumption
that idealab! Capital Partners II-A and idealab! Capital Partners II-B, which
have made differing investments, will achieve identical returns. Accordingly,
the actual return realized by ICM II will be based on the actual separate
investment returns of idealab! Capital Partners II-A and idealab! Capital
Partners II-B. ICM II holds a carried interest in idealab! Capital Principals
Fund that represents a right to receive 10.0% of the net profits generated by
the Principals Fund over its entire term. This 10.0% figure will retroactively
increase to 15.0% if the internal rate of return to the Principals Fund's
investors reaches 25.0%. It is not currently clear whether the internal rate of
return to investors in any of the ICP II Funds will meet the 25.0% rate needed
to trigger ICM II's higher carried interest rate.

Our interest in ICM II entitles us to receive 47.5% of ICM II's carried
interest profits. Accordingly, through our interest in ICM II we hold a carried
interest which represents the right to receive approximately 9.3% to 13.9% of
the net profits of idealab! Capital Partners II-A and idealab! Capital Partners
II-B on a blended basis, and approximately 4.8% to 7.2% of the net profits of
idealab! Capital

Principals Fund, depending in each case on whether these funds' internal rates
of return exceed 25.0%. The 9.3% to 13.9% blended range is based on the
assumption that idealab! Capital Partners II-A and idealab! Capital Partners
II-B, which have made differing investments, achieve identical returns. Our
actual share of the returns of the ICP II funds will be based on the separate
investment returns of idealab! Capital Partners II-A and idealab! Capital
Partners II-B. In addition, our indirect capital commitment to the ICP II Funds,
our direct capital commitment as a limited partner of idealab! Capital
Principals Fund, and Barry Volpert's, Benjamin Rosen's and his children's
trusts' direct capital commitments as limited partners of idealab! Capital
Partners II-A entitle us, Barry Volpert, Benjamin Rosen and his children's
trusts to shares of these funds' profits and losses proportionate to the amount
of our and their respective capital commitments in the same manner as any other
investor.

MANAGEMENT FEES FROM ICP II FUNDS. We are also a managing member of
idealab! Capital Management Services, L.L.C. (ICMS), an entity which provides
back-office and similar services to ICM II and the ICP II Funds. In this
capacity, we are entitled to receive 47.5% of all management fees paid by the
ICP II Funds. The ICP II Funds, other than idealab! Capital Principals Fund, pay
ICMS an annual management fee equal to 2.5% of the funds' total committed
capital, subject to a significant decline in the annual management fee rate
following the fifth year of each fund's term. The annual management fee for
idealab! Capital Principals Fund is 1.25% of its total committed capital,
subject to a significant decline following the fifth year of its term. We have
no capital commitment to ICMS and have no other interest in its profits or
losses.

Limited partner interests in the ICP Funds other than idealab! Capital
Principals Fund are held primarily by institutional investors, some of whom also
hold our stock. Interests in ICM I, ICM II and idealab! Capital Principals Fund
not held by us or Bill Gross are held by investment professionals actively
involved in the management and operation of the ICP Funds, or by entities
affiliated with these professionals. ICM I and ICM II, together with the ICP
funds, will hold between 4% and 5% of our outstanding stock immediately
following this offering. We have not yet determined whether we will participate
in the formation or management of additional venture capital funds.

INDEBTEDNESS

The following table summarizes the material terms and payment status of the
loans made by us to our directors, executive officers and affiliates since the
beginning of fiscal 2000. Each of these loans is or was full recourse and bears,
or, if paid in full, bore interest at a rate of 7% per annum, compounded
annually, and is or was secured by collateral at least equal in fair market
value to the principal amount of the loan on the date the loan was made. Each
loan is or was due upon the earlier of four years from the date it was made or,
if the loan was made in connection with the exercise of options or the purchase
of restricted stock, upon the payment of cash dividends to the stockholder in an
amount greater than the principal and interest then owed. All loans not listed
as having been paid remain outstanding in full, and unless otherwise indicated
all loans listed as having been paid were paid in full on the date indicated.

LARGEST PRINCIPAL PRINCIPAL AMOUNT
AMOUNT OUTSTANDING OUTSTANDING AS OF
NAME SINCE FEBRUARY 1, 1999 MARCH 31, 2000
------- ------------------------- -----------------------

BILL GROSS....................... $30,700,000 $30,700,000
MARCIA GOODSTEIN................. 292,500 250,000
LAWRENCE GROSS................... 618,800 618,800
TOM HUGHES....................... 300,000 300,000
BRUCE JOHNSTON................... 2,550,000 2,550,000
ROBERT KAVNER.................... 430,000 430,000
HOWARD MORGAN.................... 420,000 410,000
BRADLEY RAMBERG.................. 175,000 140,000

All remaining principal amounts outstanding as of March 31, 2000 are for
loans made in connection with early exercises of stock options or in connection
with purchases of our common or preferred stock. We believe that all of these
transactions were on terms as favorable to us as we would have received from
unaffiliated third parties.

Any future transactions between us and our officers, directors and
principal shareholders and their affiliates will be approved by a majority of
the board of directors, including a majority of the independent and
non-interested directors.

PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding the beneficial
ownership of our common stock as of January 31, 2000, and as adjusted to reflect
our sale of shares in this offering, by the following individuals or groups:

o each person or entity known by us to own beneficially more than 5% of
our outstanding stock;

o each of our executive officers;

o each of our directors; and

o all of our directors and executive officers as a group.

The address for each stockholder listed in the following table is c/o
idealab!, 130 West Union Street, Pasadena, California 91103. Except as otherwise
indicated, and subject to applicable community property laws, the persons named
in the table below have sole voting and investment power with respect to all
shares of common stock held by them.

Applicable percentage ownership in the following table is based on
788,335,687 shares of common stock outstanding as of January 31, 2000, as
adjusted to reflect the automatic conversion of all outstanding shares of our
preferred stock into 236,860,100 shares of common stock upon the closing of this
offering.

Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person that are currently
exercisable or exercisable within 60 days of January 31, 2000 are deemed
outstanding. Such shares, however, are not deemed outstanding for the purpose of
computing the percentage ownership of any other person. In computing the number
of shares beneficially owned by a person, shares of common stock that are
subject to our right of repurchase at the original exercise price paid per
share, or such shares that are subject to exercisable but unvested options, are
included. Unvested options are immediately exercisable upon grant, provided that
upon the optionee's cessation of service, any unvested shares are subject to
repurchase by us at the original exercise price paid per share.

PERCENT BENEFICIALLY OWNED
------------------------------
SHARES
BENEFICIALLY BEFORE AFTER
NAME OWNED OFFERING OFFERING
----------- ---------------- ------------- --------------

5% STOCKHOLDERS
Bill Gross(1) ......................................... 390,140,900 41.58% %
Karen Gross(2) ........................................ 151,808,400 19.26
DIRECTORS AND EXECUTIVE OFFICERS
Marcia Goodstein(3) ................................... 32,363,000 4.07
Howard Morgan(4) ...................................... 31,380,000 3.97
Robert Kavner(5) ...................................... 25,966,000 3.29
Lawrence Gross(6) ..................................... 24,012,000 3.05
Thomas Hughes(7)....................................... 20,000,000 2.54
Benjamin Rosen......................................... 7,941,180 1.01
Bradley Ramberg(8)..................................... 5,036,500 *

All directors and executive officers as a group
(7 people)(9) ......................................... 536,839,580 79.39

- --------------------
* Less than 1% of the outstanding shares of common stock.

(1) Includes 16,000,000 shares subject to our right of repurchase as of 60
days after January 31, 2000, 150,000,000 shares underlying an
exercisable but unvested option as of 60 days after January 31, 2000
and 209,000 shares held in trust for certain family members of Mr.
Gross. Also includes

38,976,010 shares held by the ICP I Funds and ICP II Funds. Mr. Gross
is a managing member of entities that control these Funds. Mr. Gross
disclaims beneficial ownership of the shares owned by the ICP I Funds
and ICP II Funds except to the extent of his pecuniary interest in the
Funds.
(2) Includes 104,500 shares held in trust for certain family members of
Ms. Gross.
(3) Includes 7,000,000 shares subject to our right of repurchase as of 60
days after January 31, 2000, 5,850,000 shares underlying exercisable
but unvested options as of 60 days after January 31, 2000, 900,000
held in trust for certain family members of Ms. Goodstein's, and
10,000,000 shares held by a private foundation of which Ms. Goodstein
is trustee.
(4) Includes 11,000,000 shares subject to our right of repurchase as of 60
days after January 31, 2000 and 2,100,000 shares underlying an
exercisable but unvested option as of 60 days after January 31, 2000.
(5) Includes 11,000,000 shares subject to our right of repurchase as of 60
days after January 31, 2000, 2,100,000 shares underlying an
exercisable but unvested option as of 60 days after January 31, 2000
and 100,000 shares owned by Mr. Kavner's spouse of which 60,000 shares
are subject to our right of repurchase as of 60 days after January 31,
2000.
(6) Includes 13,260,000 shares subject to our right of repurchase as of 60
days after January 31, 2000.
(7) Includes 6,000,000 shares subject to our right of repurchase as of 60
days after January 31, 2000.
(8) Includes 3,000,000 shares subject to our right of repurchase as of 60
days after January 31, 2000 and 50,000 shares owned by Coldwater
Investments, L.L.C., of which Mr. Ramberg is a managing member. Mr.
Ramberg disclaims beneficial ownership of the shares owned by
Coldwater Investments, L.L.C. except to the extent of his pecuniary
interest in Coldwater Investments, L.L.C.
(9) Includes an aggregate of 67,260,000 shares subject to our right of
repurchase as of 60 days after January 31, 2000.

DESCRIPTION OF CAPITAL STOCK

GENERAL

Upon the completion of this offering, we will be authorized to issue
10,000,000,000 shares of common stock, $0.001 par value per share, and
100,000,000 shares of undesignated preferred stock, $0.001 par value per share.
Set forth below is a description of the common stock and preferred stock that
may be issued under our articles of incorporation to be effective upon
consummation of this offering.

COMMON STOCK

The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the board of directors out of funds legally available for that
purpose. See "Dividend Policy". In the event of our liquidation, dissolution or
winding up, the holders of common stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights of preferred stock then outstanding, if any. The holders of our common
stock have no preemptive or conversion rights or other subscription rights.
There are no redemption or sinking fund provisions applicable to our common
stock.

PREFERRED STOCK

Upon consummation of this offering, all 3,450,000 shares of our Series A
preferred stock, 5,717,135 shares of our Series B preferred stock, 6,000,000
shares of our Series C preferred stock and 8,518,875 shares of our Series D
preferred stock outstanding as of January 31, 2000 will be automatically
converted into common stock on a 10-for-1 basis. Immediately following the
offering, our board of directors will have the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, which may be
greater than the rights of the common stock. It is not possible to state the
actual effect of the issuance of any shares of preferred stock upon the rights
of holders of the common stock until the board of directors determines the
specific rights of the holders of such preferred stock. However, the effects
might include, among other things:

o restricting dividends on the common stock;

o diluting the voting power of the common stock;

o impairing the liquidation rights of the common stock; or

o delaying or preventing a change in control of our company without
further action by the stockholders.

Upon the completion of this offering, no shares of preferred stock will
be outstanding, and we have no present plans to issue any shares of preferred
stock.

REGISTRATION RIGHTS

Under an investor rights agreement, the holders of 84,605,200 shares of
common stock issuable upon conversion of our preferred stock outstanding as of
January 31, 2000 have the following rights with respect to registration of all
of their shares under the Securities Act. Because these shares can be registered
under the rights agreement, we call them registrable securities. Under these
registration rights, beginning 180 days from the effective date of an initial
public offering of common stock, and for the twelve month period thereafter, in
the event that we elect to register any of our shares of common stock for
purposes of effecting any public offering, the holders of registrable securities
are entitled to include their shares of common stock in the registration,
subject to the right of the managing underwriter to reduce the number of shares
proposed to be registered in view of market conditions. Additionally, beginning
on the date when we become eligible to register shares for public resale on Form
S-3, and for the twelve month period thereafter, holders of a majority of the
then outstanding registrable securities may require us to

register their shares for public resale on Form S-3, provided that we are not
obligated to effect more than one such registration in any twelve month period
and provided further that the anticipated aggregate offering price of the
securities to be registered is at least $50.0 million (net of underwriting
discounts and commissions). We will be responsible for all expenses in
connection with the first two registrations on Form S-3 (other than underwriting
discounts and commissions). If not terminated earlier, all such registration
rights will terminate at such time as the holder is entitled to sell all
registrable securities held by it in a three month period pursuant to Rule
144(k) of the Securities Act.

NEVADA LAW AND ARTICLES OF INCORPORATION AND BYLAWS PROVISIONS AFFECTING
STOCKHOLDERS

Our articles of incorporation, bylaws and the laws of the State of Nevada
governing corporations may have the effect, either alone or in combination with
each other, of making more difficult or discouraging a tender offer, change in
control or takeover attempt that is opposed by our board of directors.

ADVANCE NOTICE REQUIREMENT. Our bylaws provide advance notice
requirements for stockholders to submit nominations for the election of
directors or other proposals to be voted on by our stockholders. These
requirements include providing information about the proposed nominee or
proposal and the giving of notice to our secretary 120 days prior to the
distribution of a proxy statement to our stockholders in connection with the
meeting at which the nominee or proposal is to be voted upon.

The advance notice requirements for nominations of directors and
stockholder proposals will have the effect of making it more difficult for
stockholders to change the composition of our board of directors. These
provisions could also have the effect of discouraging a third party from
initiating a proxy contest, making a tender offer or otherwise attempting to
obtain control of us.

NO STOCKHOLDER ACTION BY WRITTEN CONSENT. Our articles of incorporation
require that all stockholder action be taken at a stockholders' meeting. Our
bylaws provide for annual meetings and special meetings of stockholders. Special
meetings of stockholders may be called by (1) the board of directors, (2) the
chairman of the board or (3) the chief executive officer and president.

These provisions of our articles of incorporation and bylaws are intended
to:

o reduce our vulnerability to an unsolicited acquisition proposal;

o discourage certain types of transactions that may involve an
actual or threatened change of our control; and

o discourage some tactics that may be used in proxy fights.

These provisions, however, could have the effect of discouraging others
from making tender offers for our shares and, as a consequence, they also may
inhibit fluctuations in the market price of our shares that could result from
actual or rumored takeover attempts. These provisions also may have the effect
of preventing changes in our management.

CONTROL SHARE ACQUISITIONS. Sections 78.378 through 78.3793 of the Nevada
Revised Statutes (the NRS) provide that an acquiring person who acquires a
controlling interest in an issuing corporation may only exercise voting rights
on any control shares if they are conferred by a majority vote of the issuing
corporation's disinterested stockholders at a special meeting of stockholders
held upon the request and at the expense of the acquiring person. In addition,
our articles of incorporation require that any transaction or series of related
transactions that result in the transfer of 50% or more of our outstanding
voting power be approved by two-thirds of our outstanding shares entitled to
vote. In the event that the acquiring person is accorded full voting rights and
acquires control shares with at least a majority of our voting power, any of our
stockholders who did not vote in favor of authorizing voting rights for the
control shares, is entitled to payment for the fair value of his or her shares.

For purposes of the above provisions, acquiring person generally means
any person who, individually or in association with others, acquires or offers
to acquire, directly or indirectly, a controlling interest in an issuing
corporation. Controlling interest means the ownership of outstanding voting
shares of an issuing corporation sufficient, but for the provisions of NRS
78.378 through 78.3793, to enable the

acquiring person, individually or in association with others, directly or
indirectly, to exercise at least one-fifth of the voting power of the issuing
corporation in the election of directors. Control shares means those outstanding
voting shares of an issuing corporation which an acquiring person and those
persons acting in association with an acquiring person acquires or offers to
acquire in an acquisition and those shares that are acquired within 90 days
immediately preceding the date when the acquiring person became an acquiring
person. Issuing corporation means a corporation that is organized in Nevada, has
200 or more stockholders, at least 100 of whom are stockholders of record and
residents of Nevada, and does business in Nevada directly or through an
affiliated corporation. If the articles of incorporation or bylaws of the
corporation provide that the above provisions do not apply, then the above
provisions are not applicable. Our articles of incorporation and bylaws,
however, currently do not exclude us from the restrictions imposed by these
provisions.

BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS. Sections 78.411
through 78.444 of the NRS restrict the ability of a Nevada corporation with more
than 200 stockholders to engage in any combination with an interested
stockholder for three years from when the interested stockholder acquires shares
that cause such stockholder to become an interested stockholder, unless the
combination or the purchase of shares by the interested stockholder was approved
by the board of directors before such stockholder became an interested
stockholder. If the combination was not previously approved, the interested
stockholder may only effect a combination after the three-year period if such
stockholder receives approval from a majority of the disinterested shares or the
offer meets fair price criteria under the NRS. Interested stockholder means any
person, other than the resident domestic corporation or its subsidiaries, who is
(1) the beneficial owner, directly or indirectly, of 10% or more of the voting
power of the outstanding voting shares of the resident domestic corporation or
(2) an affiliate or associate of the resident domestic corporation and (3) was,
at any time within three years before the date in question, was the beneficial
owner, directly or indirectly, of 10% or more of the voting power of the then
outstanding shares of the resident domestic corporation. The above provisions do
not apply to any combination of a corporation whose current articles of
incorporation expressly state that the corporation is not to be governed by
these provisions. Our articles of incorporation currently do not exclude us from
these restrictions.

APPLICABILITY OF CALIFORNIA LAW. We are currently subject to Section 2115
of the California General Corporation Law. Section 2115 provides that,
regardless of a company's legal domicile, some provisions of California
corporate law will apply to that company if more than 50% of its outstanding
voting securities are held of record by persons having addresses in California
and the majority of the company's operations occur in California. For example,
while we are subject to Section 2115, stockholders may cumulate votes in
electing directors. This means that each stockholder may vote a number of votes
equal to the number of candidates, multiplied by the number of votes to which
the stockholder's shares are normally entitled, in favor of one candidate. The
ability to cumulate votes potentially enables minority stockholders to elect
some members of the board of directors. When we are no longer subject to Section
2115, cumulative voting will not be allowed and a holder or holders of 50% or
more of our voting stock will be able to control the election of all directors.
In addition, Section 2115 has the following effects:

o it allows the removal of directors with or without cause with
majority stockholder approval;

o it places limitations on our distribution of dividends;

o it extends additional rights to dissenting stockholders in any
reorganization, including a merger, sale of assets or exchange of
shares; and

o it provides for stockholder information rights and required filings
in the event we effect a sale of assets or complete a merger.

We anticipate that after this offering our common stock will be listed on
The Nasdaq National Market, and that we will have at least 800 stockholders of
record by the record date for our annual meeting of stockholders in 2000.
Assuming that these two assumptions prove true, we will cease to be subject to
Section 2115 as of the record date for our 2000 annual meeting of stockholders.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the common stock is .

LISTING

We have applied for listing of our shares on the Nasdaq National Market
under the symbol "ILAB".

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for our common stock and
there can be no assurance that a significant public market for the common stock
will develop or be sustained after this offering. Future sales of substantial
amounts of common stock, including shares issued upon exercise of outstanding
options and warrants, in the public market following this offering could
adversely affect market prices prevailing from time to time and could impair
idealab!'s ability to raise capital through sale of its equity securities. As
described below, the resale of ___________ of our currently outstanding shares
will be contractually restricted for a period following this offering. Sales of
substantial amounts of our common stock in the public market after the
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.

Upon completion of this offering, we will have outstanding ____________
shares of common stock based upon shares outstanding as of January 31, 2000,
assuming no exercise of the underwriters' option to purchase additional shares
and no exercise of outstanding options or warrants prior to completion of this
offering. Of these shares, the ___________ shares sold in this offering will be
freely tradable without restriction under the Securities Act except for any
shares purchased by our "affiliates" as that term is defined in Rule 144 under
the Securities Act. The remaining 788,335,687 shares of common stock held by
existing stockholders as of January 31, 2000 are "restricted shares" as that
term is defined in Rule 144.

Of these restricted shares are subject to lock-up agreements providing
that, with limited exceptions, the stockholder will not offer, sell, contract to
sell or otherwise dispose of any common stock or any securities that are
convertible into common stock for a period of 180 days after the date of this
prospectus without the prior written consent of Goldman, Sachs & Co. As a result
of these lock-up agreements, notwithstanding possible earlier eligibility for
sale under the provisions of Rules 144, 144(k) and 701, none of these shares
will be resellable until 181 days after the date of this prospectus. However,
with respect to our directors, officers and holders of a majority of our shares,
this restriction shall terminate as to 15% of the shares after 90 days and an
additional 20% of the shares after 120 days after the date of this prospectus,
subject to delays as a result of the timing of our earnings releases and
compliance with insider trading policies, in the event that, at such dates, the
reported last sale price of our common stock on The Nasdaq National Market is at
least twice the initial public offering price for a period of time ending on
such dates. If these early releases occur, approximately _____________ and
____________ of the shares originally covered by lock-up agreements will become
available for sale on the 90th and the 120th days following the date of this
prospectus, subject to the restrictions described above.

Beginning 181 days after the date of this prospectus, approximately
_________________ restricted shares will be eligible for sale in the public
market, all of which are subject to volume limitations under Rule 144, except
________ shares eligible for sale under Rule 144(k) and _______ shares eligible
for sale under Rule 701. Of those restricted shares not eligible for sale
beginning 181 days after the date of this prospectus, ______________ restricted
shares will be eligible for sale on or prior to July 31, 2000, and
____________ restricted shares will be eligible for sale on or prior to January
31, 2001, all of which are subject to volume limitations under Rule 144. In
addition, as of January 31, 2000, there were outstanding options to purchase
200,013,550 shares of common stock, some of which may be exercised prior to
this offering. All such options and warrants are subject to lock-up agreements.
Goldman, Sachs & Co. may, in their sole discretion and at any time without
notice, release all or any portion of the securities subject to lock-up
agreements.

In general, under Rule 144 as currently in effect, beginning 90 days
after the date of this prospectus, a person who has beneficially owned
restricted shares for at least one year including the holding period of any
prior owner except an affiliate would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of:

o 1% of the number of shares of common stock then outstanding, which
will equal approximately _____________ shares immediately after this
offering; or

o the average weekly trading volume of the common stock during the
four calendar weeks preceding the filing of a Form 144 with
respect to such sale.

Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about us. Under Rule 144(k), a person who is not deemed to have been
our affiliate at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years
including the holding period of any prior owner except an affiliate, is entitled
to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.

Rule 701, as currently in effect, permits resales of shares in reliance
upon Rule 144 but without compliance with restrictions, including the holding
period requirement, of Rule 144. Any employee, officer or director of or
consultant to us who purchased shares under a written compensatory plan or
contract may be entitled to rely on the resale provisions of Rule 701. Rule 701
permits affiliates to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144. Rule 701 further
provides that non-affiliates may sell such shares in reliance on Rule 144
without having to comply with the holding period, public information, volume
limitation or notice provisions of Rule 144. All holders of Rule 701 shares are
required to wait until 90 days after the date of this prospectus before selling
such shares. However, Rule 701 shares are subject to lock-up agreements and will
only become eligible for sale at the earlier of the expiration of the lock-up
agreements or no sooner than 90 days after the offering upon obtaining the prior
written consent of Goldman, Sachs & Co.

Following the effectiveness of this offering, we will file a registration
statement on Form S-8 registering shares of common stock subject to outstanding
options or reserved for future issuance under our stock plans. As of January 31,
2000, options to purchase a total of 200,013,550 shares were outstanding and
64,085,700 shares were reserved for future issuance under our stock plans.
Common stock issued upon exercise of outstanding vested options or issued under
our purchase plan, other than common stock issued to our affiliate, is available
for immediate resale in the open market.

Also beginning six months after the date of this offering, holders of
84,605,200 restricted shares outstanding as of January 31, 2000 will be entitled
to certain registration rights for sale in the public market. See "Description
of Capital Stock Registration Rights". Registration of such shares under the
Securities Act would result in such shares becoming freely tradable without
restriction under the Securities Act, except for shares purchased by affiliates,
immediately upon the effectiveness of such registration.

UNDERWRITING

idealab! and the underwriters named below have entered into an
underwriting agreement with respect to the shares being offered. Subject to
certain conditions, each underwriter has severally agreed to purchase the number
of shares indicated in the following table. Goldman, Sachs & Co., Donaldson,
Lufkin & Jenrette Securities Corporation, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, FleetBoston Robertson Stephens Inc. and Thomas Weisel Partners LLC
are the representatives of the underwriters.

UNDERWRITERS NUMBER OF SHARES
------------ ----------------
Goldman, Sachs & Co....................................
Donaldson, Lufkin & Jenrette Securities Corporation....
Merrill Lynch, Pierce, Fenner & Smith..................
Incorporated........................
FleetBoston Robertson Stephens Inc.....................
Thomas Weisel Partners LLC.............................
----------------
Total.............................................
================

If the underwriters sell more shares than the total number set forth in
the table above, the underwriters have an option to buy up to an additional
shares from idealab! to cover such sales. They may exercise that
option for 30 days. If any shares are purchased pursuant to this option, the
underwriters will severally purchase shares in approximately the same proportion
as set forth in the table above.

The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by idealab!. Such amounts are
shown assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.

PAID BY IDEALAB!
----------------
NO EXERCISE FULL EXERCISE
----------- -------------
Per Share.............................. $ $
Total.................................. $ $

Shares sold by the underwriters to the public will initially be offered
at the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price. Any
such securities dealers may resell any shares purchased from the underwriters to
certain other brokers or dealers at a discount of up to $ per share from the
initial public offering price. If all the shares are not sold at the initial
offering price, the representatives may change the offering price and the other
selling terms.

idealab!, its directors, officers and holders of a majority of our shares
have agreed with the Underwriters not to dispose of or hedge any of their common
stock or securities convertible into or exchangeable for shares of common stock
during the period from the date of this prospectus continuing through the date
180 days after the date of this prospectus, except with the prior written
consent of the representatives; provided, however, that this restriction shall
terminate as to 15% of the shares after 90 days and an additional 20% of the
shares after 120 days after the date of this prospectus, subject to delays as a
result of the timing of idealab!'s earnings releases and compliance with insider
trading policies, in the event that, at such dates, the reported last sale price
of idealab!'s common stock on the Nasdaq National Market is at least twice the
initial public offering price specified in this prospectus for a certain period
of time ending on such dates. This agreement does not apply to any existing
employee benefit plans. See "Shares Eligible for Future Sale" for a discussion
of certain transfer restrictions.

Prior to the offering, there has been no public market for the shares.
The initial public offering price will be negotiated among idealab! and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be idealab!'s historical performance, estimates of the business
potential and earnings prospects of idealab!, an assessment of idealab!'s
management and the consideration of the above factors in relation to market
valuation of companies in related businesses.

Application has been made for quotation of the common stock on the Nasdaq
National Market under the symbol "ILAB".

In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares then they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.

The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.

These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.

At the request of idealab!, the underwriters have reserved for sale, at
the initial public offering price, up to shares of common stock
for certain directors, stockholders, employees and associates of idealab! There
can be no assurance that any of the reserved shares will be so purchased. The
number of shares available for sale to the general public in the offering will
be reduced by the number of reserved shares sold. Any reserved shares not so
purchased will be offered to the general public on the same basis as the other
shares offered hereby.

The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.

Thomas Weisel Partners LLC, one of the representatives of the
underwriters, was organized and registered as a broker-dealer in December 1998.
The following disclosure is included because Thomas Weisel Partners LLC was
organized within the past three years. Since December 1998, Thomas Weisel
Partners LLC has been named as a lead or co-manager on 153 filed public
offerings of equity securities, of which 109 have been completed, and has acted
as a syndicate member in an additional 88 public offerings of equity securities.
Thomas Weisel Partners LLC does not have any material relationship with idealab!
or any of its officers, directors or controlling persons, except with respect to
its contractual relationship with idealab! pursuant to the underwriting
agreement entered into in connection with this offering.

idealab! estimates that its share of the total expenses at the offering,
excluding underwriting discounts and commissions, will be approximately
$ million.

idealab! has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act.

LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon for
idealab! by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Certain legal matters will be passed upon for the Underwriters
by Shearman & Sterling, Menlo Park, California. As of the date of this
prospectus, an investment partnership composed of certain current and former
members of and persons associated with Wilson Sonsini Goodrich & Rosati,
Professional Corporation, as well as certain individual attorneys of this firm,
beneficially own an aggregate of 2,007,750 shares of idealab!'s common stock.

EXPERTS

The consolidated financial statements of idealab! and its subsidiaries as
of January 31, 1999 and 2000 and for each of the three years in the period ended
January 31, 2000 included in this Prospectus have been so included in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.

The financial statements of eVoice, Inc. as of December 31, 1998 and
September 30, 1999 and for the periods from December 7, 1998 (inception) to
December 31, 1998 and the nine months ended September 30, 1999 included in this
Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

The financial statements of Intranets.com, Inc. as of December 31, 1997 and
1998 and for each of the two years in the period ended December 31, 1998
included in this Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

The financial statements of Perga Capital Incorporated as of April 30, 1998
and 1999 and for each of the two years in the period ended April 30, 1999
included in this Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

The consolidated financial statements of AutoData Marketing Systems
Incorporated and its subsidiaries as of April 30, 1998 and 1999 and for each of
the two years in the period ended April 30, 1999 included in this Prospectus
have been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

The financial statements of PointCast Incorporated as of December 31, 1997
and 1998 and for each of the two years in the period ended December 31, 1998
included in this Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

The financial statements of Potamkin Auto Center, Ltd. as of December 31,
1998 and September 30, 1999 and for the year ended December 31, 1998 and the
nine months ended September 30, 1999 included in this Prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.

The financial statements of GoTo.com, Inc. at December 31, 1998 and 1999
and for each of the two years in the period ended December 31, 1999 appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.

The financial statements of idealab! Capital Management I, LLC at December
31, 1998 and 1999 and for the period from March 20, 1998 (inception) to December
31, 1998 and the year ended December 31, 1999 appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.

ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the common stock offered by this
prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the registration
statement or the exhibits and schedules which are part of the registration
statement. For further information with respect to us and our common stock, see
the registration statement and the exhibits and schedules thereto. Any document
we file with the Commission may be read and copied at the Commission's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the Commission at 1-800-SEC-0330 for further information about the
public reference rooms. Our filings with the Commission are also available to
the public from the Commission's Web site at http://www.sec.gov.

Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and,
accordingly, we will file periodic reports, proxy statements and other
information with the Commission. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the
Commission's public reference rooms, and the World Wide Web site of the
Commission referred to above.

INDEX TO FINANCIAL STATEMENTS

IDEALAB!

PAGE

Report of Independent Accountants........................................................................ F-3
Consolidated Balance Sheets.............................................................................. F-4
Consolidated Statements of Operations.................................................................... F-5
Consolidated Statements of Shareholders' Equity (Deficit)................................................ F-6
Consolidated Statements of Comprehensive Income (Loss)................................................... F-7
Consolidated Statements of Cash Flows.................................................................... F-8
Notes to Consolidated Financial Statements............................................................... F-9

Unaudited Pro Forma Financial Information - Basis of Presentation........................................ F-37
Unaudited Pro Forma Condensed Combined Consolidated Statement of Operations.............................. F-39
Notes to Unaudited Pro Forma Condensed Combined Financial Information.................................... F-40

EVOICE, INC.

PAGE

Report of Independent Accountants........................................................................ F-42
Balance Sheets........................................................................................... F-43
Statements of Operations................................................................................. F-44
Statements of Redeemable Convertible Preferred Stock and Shareholders' Equity (Deficit).................. F-45
Statements of Cash Flows................................................................................. F-46
Notes to Financial Statements............................................................................ F-47

GOTO.COM, INC.

PAGE

Report of Independent Auditors........................................................................... F-57
Balance Sheets........................................................................................... F-58
Statements of Operations................................................................................. F-59
Statements of Stockholders' Equity....................................................................... F-60
Statements of Cash Flows................................................................................. F-61
Notes to Financial Statements............................................................................ F-62

IDEALAB! CAPITAL MANAGEMENT I, LLC

PAGE

Report of Independent Auditors........................................................................... F-73
Balance Sheets........................................................................................... F-74
Statements of Operations................................................................................. F-75
Statements of Changes in Members' Equity................................................................. F-76
Statements of Cash Flows................................................................................. F-77
Notes to Financial Statements............................................................................ F-78

F-1

INTRANETS.COM, INC.

PAGE

Report of Independent Accountants........................................................................ F-82
Balance Sheets........................................................................................... F-83
Statements of Operations................................................................................. F-84
Statements of Cash Flows ................................................................................ F-85
Statements of Redeemable Convertible Preferred Stock and Stockholders' Deficit........................... F-86
Notes to Financial Statements............................................................................ F-87

PERGA CAPITAL INCORPORATED

PAGE

Auditors' Report......................................................................................... F-95
Balance Sheets........................................................................................... F-96
Statements of Operations and Deficit..................................................................... F-97
Statements of Cash Flows................................................................................. F-98
Notes to Financial Statements............................................................................ F-99

AUTODATA MARKETING SYSTEMS INCORPORATED

Auditors' Report........................................................................................ F-105
Consolidated Balance Sheets............................................................................. F-106
Consolidated Statements of Earnings and Deficit......................................................... F-107
Consolidated Statements of Cash Flows................................................................... F-108
Notes to Consolidated Financial Statements.............................................................. F-109

POINTCAST INCORPORATED

PAGE

Report of Independent Accountants........................................................................ F-119
Balance Sheets........................................................................................... F-120
Statements of Operations................................................................................. F-121
Statements of Shareholders' Deficit...................................................................... F-122
Statements of Cash Flows................................................................................. F-123
Notes to Financial Statements............................................................................ F-124

POTAMKIN AUTO CENTER, LTD.

PAGE

Report of Independent Accountants........................................................................ F-137
Balance Sheets........................................................................................... F-138
Statements of Operations................................................................................. F-139
Statements of Shareholders' Equity....................................................................... F-140
Statements of Cash Flows................................................................................. F-141
Notes to Financial Statements............................................................................ F-142

F-2

The following report is in the form that will be signed upon (i) the completion
of the Company's reincorporation in the State of Nevada as described in Note 23
of the Notes to the Consolidated Financial Statements and (ii) a determination
that the Company is not an "investment company" within the meaning of the
Investment Company Act of 1940, as amended (the "1940 Act"), as described in
Note 21 of the Notes to the Consolidated Financial Statements.

/s/ PricewaterhouseCoopers LLP

Woodland Hills, California

April 10, 2000

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of idealab!:

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, shareholders' equity,
comprehensive income (loss) and cash flows present fairly, in all material
respects, the financial position of idealab! and its subsidiaries (the
"Company") at January 31, 1999 and 2000 and the results of their operations and
their cash flows for each of the three years in the period ended January 31,
2000 in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

Woodland Hills, California

April 10, 2000, except for the information in
paragraph 2 of Note 23, as to which the date is _______________ , 2000
and paragraph 6 of Note 21, as to which the date is ________________ , 2000.

F-3

IDEALAB!

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

PRO FORMA
SHAREHOLDERS'
JANUARY 31, EQUITY
------------------------- JANUARY 31,
1999 2000 2000
----------- ------------ ---------------
ASSETS (UNAUDITED)

Current assets:
Cash and cash equivalents......................................... $ 6,339 $ 601,474
Accounts receivable, net.......................................... 77 14,760
Short-term marketable securities.................................. -- 70,526
Inventory......................................................... -- 12,080
Prepaid expenses and other current assets......................... 161 7,399
----------- ------------
Total current assets............................................ 6,577 706,239
Fixed assets, net.................................................... 2,313 18,569
Ownership interests in network companies............................. 2,286 614,292
Marketable securities................................................ 35,832 179,239
Goodwill, net........................................................ -- 109,587
Other assets......................................................... 544 46,457
----------- ------------
TOTAL ASSETS.................................................... $ 47,552 $ 1,674,383
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................. $ 1,286 $ 26,285
Income taxes payable.............................................. -- 87,249
Accrued expenses.................................................. 3,818 26,105
Short term borrowings............................................. -- 1,061
Note payable to a related party................................... 300 --
Current portion of capital lease obligations...................... 67 3,515
----------- ------------
Total current liabilities....................................... 5,471 144,215
Capital lease obligations, less current portion...................... 39 30,439
Deferred income taxes................................................ 9,692 116,413
Minority interest.................................................... 1,030 152,750
Convertible preferred stock, no par value; 28,452 shares authorized
at January 31, 2000, 9,451 and 23,686 shares issued and
outstanding at January 31, 1999 and 2000, respectively;
liquidation preference and redemption value of $13,652 and
$883,058 at January 31, 1999 and 2000, respectively;
pro forma--none authorized, issued or outstanding................. 13,652 892,782 $ --

Commitments and contingencies (Note 21)..............................

SHAREHOLDERS' EQUITY
Preferred stock, no par value; 9,548 shares authorized at January 31,
2000, no shares issued or outstanding; pro forma-$0.001 par value;
100,000 shares authorized, none issued or outstanding............. -- -- --
Common stock, no par value; 1,100,000 shares authorized at January 31,
2000; 448,654 and 551,476 shares issued and outstanding at
January 31, 1999 and 2000, respectively; pro forma --$0.001 par
value; 10,000,000 shares authorized; 788,336 shares issued
and outstanding................................................... 15,366 387,689 788
Additional paid-in capital........................................... -- -- 1,279,683
Notes receivable from shareholders................................... (1,665) (38,304) (38,304)
Deferred stock compensation.......................................... (6,387) (239,892) (239,892)
Accumulated other comprehensive income............................... 20,663 144,816 144,816
Retained earnings (deficit).......................................... (10,309) 83,475 83,475
----------- ------------ ---------------
Total shareholders' equity........................................ 17,668 337,784 $ 1,230,566
----------- ------------ ===============
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY...................... $ 47,552 $ 1,674,383
=========== ============

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-4

IDEALAB!
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

FISCAL YEAR ENDED JANUARY 31,
---------------------------------------------------
1998 1999 2000
---------------- --------------- ----------------

REVENUES
Trade revenues................................................ $ 154 $ 459 $ 18,643
Management fees from related parties.......................... -- 346 2,515
---------------- --------------- ----------------
Total revenues.............................................. 154 805 21,158
---------------- --------------- ----------------
OPERATING EXPENSES
Cost of revenues (excluding $0, $0 and $169 of stock-based
compensation charges for the years ended January 31, 1998,
1999 and 2000, respectively)................................ 172 82 28,380
Sales and marketing (excluding $0, $0 and $1,066 of stock-
based compensation charges for the years ended January 31,
1998, 1999 and 2000, respectively).......................... 2,002 1,940 70,129
Product development (excluding $0, $27 and $6,165 of stock-
based compensation charges for the years ended January 31,
1998, 1999 and 2000, respectively).......................... 3,484 1,554 10,798
General and administrative (excluding $233, $3,883 and
$101,750 of stock-based compensation charges for the
years ended January 31, 1998, 1999 and 2000,
respectively)............................................. 5,623 4,732 36,738
Stock-based compensation...................................... 233 3,910 109,150
Amortization of goodwill and other intangibles................ 49 79 7,149
---------------- --------------- ----------------
Total operating expenses.................................... 11,563 12,297 262,344
---------------- --------------- ----------------
Operating income (loss)..................................... (11,409) (11,492) (241,186)
---------------- --------------- ----------------
OTHER INCOME (EXPENSE)
Realized gains on sales of marketable securities.............. -- 2,250 201,959
Gain on stock issuance by a network company................... -- -- 22,658
Other income, net............................................. 216 5,307 92,003
Interest income............................................... 36 120 8,386
Interest expense.............................................. (178) (49) (2,695)
---------------- --------------- ----------------
74 7,628 322,311
---------------- --------------- ----------------
Income (loss) before income taxes, minority interest and equity
in the income (loss) of affiliates............................. (11,335) (3,864) 81,125
Income tax benefit (expense).................................. 3,528 2,358 (86,245)
Minority interest............................................. 1,022 572 95,537
Equity in the income (loss) of affiliates, net of tax......... (271) 51 28,067
---------------- --------------- ----------------
Net income (loss)................................................ (7,056) (883) 118,484
Deduction for beneficial conversion feature...................... -- -- (9,724)
Repurchase of convertible preferred stock........................ -- -- (3,777)
---------------- --------------- ----------------
Net income (loss) applicable to common shareholders.............. $ (7,056) $ (883) $ 104,983
================ =============== ================
Net income (loss) per share applicable to common shareholders:
Basic......................................................... $ (0.02) $ -- $ 0.25
Diluted....................................................... $ (0.02) $ -- $ 0.15
Shares used to calculate net income (loss) per share applicable
to common shareholders:
Basic......................................................... 334,760 352,083 423,525
Diluted....................................................... 334,760 352,083 695,312
Unaudited pro forma net income per share applicable to
common shareholders:
Basic......................................................... $ 0.18
Diluted....................................................... $ 0.15
Shares used to calculate unaudited pro forma net income
per share applicable to common shareholders:
Basic......................................................... 571,215
Diluted....................................................... 695,312

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-5

IDEALAB!

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)

NOTES ACCUMULATED TOTAL
COMMON STOCK ADDITIONAL RECEIVABLE DEFERRED OTHER RETAINED SHAREHOLDERS'
----------------- PAID IN FROM STOCK COMPREHENSIVE EARNINGS EQUITY
SHARES AMOUNT CAPITAL SHAREHOLDERS COMPENSATION INCOME (DEFICIT) (DEFICIT)
------- --------- ---------- ------------ ------------ ------------- --------- -------------

BALANCE AT JANUARY 31, 1997........... 326,500 $ 465 $ $ $ (65) $ $ (2,370) $ (1,970)

Issuance of common stock for cash and
services.............................. 24,434 483 483
Deferred stock compensation........... 407 (407) --
Amortization of deferred stock
compensation.......................... 233 233
Net unrealized appreciation of
marketable securities.............. 4,474 4,474
Effect of network companies' equity
transactions.......................... 937 937
Net loss.............................. (7,056) (7,056)
------- --------- ---------- ------------ ------------ ------------- --------- ------------
BALANCE AT JANUARY 31, 1998........... 350,934 2,292 (239) 4,474 (9,426) (2,899)

Issuance of common stock for services. 1,470 30 30
Deferred stock compensation........... 10,058 (10,058) --
Amortization of deferred stock
compensation.......................... 3,910 3,910
Exercise of stock options............. 96,250 1,665 (1,665) --
Net unrealized appreciation of
marketable securities.............. 16,189 16,189
Effect of network companies' equity
transactions.......................... 1,321 1,321
Net loss.............................. (883) (883)
------- --------- ---------- ------------ ------------ ------------- --------- -------------
BALANCE AT JANUARY 31, 1999........... 448,654 15,366 (1,665) (6,387) 20,663 (10,309) 17,668

Issuance of common stock.............. 664 5,311 5,311
Exercise of stock options and warrants 59,400 35,757 (35,208) 549
Tax benefit of stock option exercises. 715 715
Issuance of common stock subject to
repurchase......................... 53,600 1,876 (1,876) --
Payments on notes receivable from
shareholders....................... 375 375
Deferred stock compensation........... 323,471 (323,471) --
Amortization of deferred stock
compensation.......................... 89,966 89,966
Repurchase and retirement of stock... (10,842) (261) 70 (14,976) (15,167)
Net unrealized appreciation of
marketable securities.............. 124,153 124,153
Effect of network companies' equity
transactions....................... 5,454 5,454
Deduction for beneficial conversion
feature............................ (9,724) (9,724)
Net income............................ 118,484 118,484
------- --------- ---------- ------------ ------------ ------------- --------- -------------
BALANCE AT JANUARY 31, 2000........... 551,476 387,689 (38,304) (239,892) 144,816 83,475 337,784
Assumed conversion of convertible
preferred stock (unaudited)........ 236,860 892,782 892,782
Reincorporation in State of Nevada
and change in par value of
common stock (unaudited)........... (1,279,683) 1,279,683 --
------- --------- ---------- ------------ ------------ ------------- --------- -------------
BALANCE AT JANUARY 31, 2000, PRO
FORMA
(UNAUDITED)........................ 788,336 $ 788 $1,279,683 $ (38,304)$ (239,892) $ 144,816 $ 83,475 $ 1,230,566
======= ========= ========== ============ ============ ============= ========= =============

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-6

IDEALAB!

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)

FISCAL YEAR ENDED JANUARY 31,
-------------------------------------
1998 1999 2000
----------- ----------- ------------

NET INCOME (LOSS)....................................................... $ (7,056) $ (883) $ 118,484
----------- ----------- ------------

OTHER COMPREHENSIVE INCOME BEFORE TAX

Unrealized holding gain on marketable securities..................... 7,550 29,539 411,396
Realized gains....................................................... -- (2,250) (201,959)

TAX RELATED TO OTHER COMPREHENSIVE INCOME

Unrealized holding gain on marketable securities..................... (3,076) (12,016) (167,438)
Realized gains....................................................... -- 916 82,154
----------- ----------- ------------
Other comprehensive income, net of tax............................. 4,474 16,189 124,153
----------- ----------- ------------
COMPREHENSIVE INCOME (LOSS)............................................. $ (2,582) $ 15,306 $ 242,637
=========== =========== ============

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-7

IDEALAB!

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

FISCAL YEAR ENDED JANUARY 31,
-------------------------------
1998 1999 2000
--------- --------- ---------

OPERATING ACTIVITIES:
Net income (loss)......................................................... $ (7,056) $ (883) $118,484
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Stock-based compensation................................................ 233 3,910 109,150
Depreciation and amortization........................................... 250 585 10,344
Gain on stock issuance by a network company............................. -- -- (22,658)
Realized gains on sale of marketable securities......................... -- (2,250) (201,959)
Other income, net....................................................... (216) (5,307) (92,003)
Equity in the (income) loss of affiliates, net of tax................... 271 (51) (28,067)
Minority interest....................................................... (1,022) (572) (95,537)
Deferred income taxes................................................... (3,536) (2,366) (4,578)
Changes in assets and liabilities, net of effect of acquisitions and
deconsolidations of network companies:
Accounts receivable..................................................... (79) (51) (13,338)
Inventory............................................................... -- -- (12,080)
Accounts payable........................................................ 2,154 512 24,247
Accrued expenses........................................................ (233) 3,703 22,438
Income taxes payable.................................................... -- -- 87,249
Other assets and liabilities............................................ (296) (420) (35,247)
--------- --------- ---------

Net cash used in operating activities............................... (9,530) (3,190) (133,555)
--------- --------- ---------

INVESTING ACTIVITIES:

Capital expenditures...................................................... (1,368) (1,785) (16,916)
Purchase of ownership interests in network companies, net of cash acquired (920) (1,100) (238,704)
Proceeds from sales of marketable securities.............................. -- 3,402 202,715
Reduction in cash due to deconsolidation of network companies............. (29) (2,770) (16,939)
--------- --------- ---------

Net cash used in investing activities............................... (2,317) (2,253) (69,844)
--------- --------- ---------

FINANCING ACTIVITIES:

Issuance of notes payable................................................. 3,872 -- --
Repayments of capital lease obligations................................... (36) (91) (1,734)
Issuance of common stock.................................................. 483 30 549
Issuance of convertible preferred stock................................... 8,704 1,452 636,253
Repurchase of common and convertible preferred stock...................... -- -- (15,650)
Borrowings................................................................ -- 2,510 9,381
Issuance of note payable to a related party............................... -- 300 --
Repayment of note payable to a related party.............................. -- -- (300)
Note receivable from a related party...................................... -- -- (9,283)
Repayment of note receivable from a related party......................... -- -- 9,283
Payments on shareholder notes............................................. -- -- 375
Issuance of stock by consolidated network companies....................... 1,566 3,755 169,660
--------- --------- ---------

Net cash provided by financing activities........................... 14,589 7,956 798,534
--------- --------- ---------

NET INCREASE IN CASH AND CASH EQUIVALENTS...................................... 2,742 2,513 595,135

Cash and cash equivalents at beginning of year................................. 1,084 3,826 6,339
--------- --------- ---------

CASH AND CASH EQUIVALENTS AT END OF YEAR....................................... $ 3,826 $ 6,339 $601,474
========= ========= =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES
Cash paid during the year for:
Interest ................................................................. $ 178 $ 49 $ 2,842
Income taxes.............................................................. 8 8 8

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-8

IDEALAB!

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. DESCRIPTION OF THE COMPANY

Bill Gross' idealab! ("idealab!" or the "Company"), a California
corporation, was incorporated on March 14, 1996. The Company is primarily
engaged in the process of creating, building and operating interactive
communications businesses and identifying Internet business opportunities. In
addition to internally developed businesses, the Company has acquired ownership
interests in existing businesses which are strategically important to idealab!'s
overall network of companies. As of January 31, 2000, the Company had ownership
interests in more than 35 companies ("network companies") engaged in various
interactive communications businesses. The Company also has ownership interests
in entities that serve as the general partner of venture capital funds that
invest in emerging growth companies.

As described in Note 23, the Company will change its name to idealab! and
reincorporate in the State of Nevada prior to the closing of the planned initial
public offering of its common stock.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and certain controlled entities. All significant intercompany accounts and
transactions have been eliminated in consolidation.

The reporting periods of the Company's network companies generally
coincide with the calendar year. The Company accounts for its ownership
interests in such network companies utilizing the quarterly and annual financial
information as reported by network companies pursuant to their fiscal year-ends.
Accordingly, the financial results of network companies included in the
Company's consolidated financial statements generally reflect a reporting lag
period of one-month.

ACCOUNTING FOR OWNERSHIP INTERESTS IN NETWORK COMPANIES

The Company's ownership interests in network companies are accounted for
under one of three methods: consolidation, equity or cost. The applicable
accounting method is generally determined based on several factors including the
Company's ownership interest in the outstanding voting securities of the network
company, representation on the network company's Board of Directors and the
extent of the Company's involvement in the management of the network company.

CONSOLIDATION. Network companies which the Company effectively controls are
accounted for under the consolidation method of accounting. Effective control is
generally determined based on an ownership interest of greater than 50% of the
network company's outstanding voting securities and the ability to control the
network company's Board of Directors. Under this method, a network company's
results of operations are reflected within the Company's Consolidated Statements
of Operations and its financial position is reflected in the Company's
Consolidated Balance Sheets. Participation of other network company shareholders
in the net assets and earnings or losses of a consolidated network company is
reflected in "minority interest" in the Company's Consolidated Balance Sheets
and Statements of Operations.

The amount by which the Company's carrying value exceeds its share of the
underlying net assets of network companies accounted for under the consolidation
method is recorded as goodwill in the accompanying Consolidated Balance Sheets
and is amortized on a straight-line basis over the useful life of the underlying
assets. The related amortization expense is reflected in the Company's operating
expenses on a consolidated basis.

EQUITY METHOD. Network companies that are not accounted for under the
consolidation method, but over which the Company exercises significant
influence, are accounted for under the equity method. Whether or not the Company
exercises significant influence with respect to a network company depends on

F-9

IDEALAB!

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)--(CONTINUED)

an evaluation of several factors including, among others, representation on the
network company's Board of Directors and an ownership interest which is
generally between 20% to 50% of the outstanding voting securities of the network
company. Under the equity method, a network company's results of operations are
not reflected within the Company's Consolidated Statements of Operations;
however, the Company's share of the earnings or losses of the network company,
which in the case of losses is generally limited to the carrying value of the
Company's ownership interest in the network company, is reflected in the caption
"Equity in the income (loss) of affiliates, net of tax" in the Company's
Consolidated Statements of Operations. For those network companies accounted for
using the equity method in which the Company's ownership interest includes
preferred stock or other securities which have priority in liquidation to other
junior securities, the Company determines its share of the network company's
earnings or losses based on the change in the Company's claim on the network
company's net assets, in accordance with Emerging Issues Task Force Issue
("EITF") No. 99-10 "Percentage used to Determine the Amount of Equity Method
Losses".

The amount by which the Company's carrying value exceeds its share of the
underlying net assets of network companies accounted for under the equity method
is amortized on a straight-line basis over the useful life of the underlying
assets, generally three to five years. Amortization expense is reflected as an
adjustment to the Company's share of the network companies' earnings or losses.

COST METHOD. Network companies not accounted for under the consolidation
or equity method are accounted for under the cost method. Under this method, the
Company's share of the earnings or losses of the network company is not included
in the Consolidated Statement of Operations. However, charges are recognized in
the Consolidated Statement of Operations if events or circumstances indicate a
permanent impairment of the carrying value.

The Company's ownership interests in network companies accounted for
under the cost method which have readily determinable fair values based on
quoted market prices and which are not restricted as to sale for a period of one
year beyond the Company's balance sheet date are accounted for in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting
for Certain Investments in Debt and Equity Securities". These ownership
interests are classified as Marketable Securities in the accompanying
Consolidated Balance Sheets.

Ownership interests in network companies accounted for under the cost
method which do not have readily determinable fair values or which are
restricted as to sale for a period of one year beyond the balance sheet date are
stated at the lower of cost or net realizable value. The Company continually
evaluates the carrying values of its ownership interests for indications of
impairment based on several factors including the fair value of the ownership
interest relative to its cost and the financial condition and near-term
prospects of the underlying network company.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid instruments with an original
maturity of 90 days or less to be cash equivalents.

MARKETABLE SECURITIES

Marketable securities consists of equity securities that have a readily
determinable fair value and are not restricted as to sale within one year beyond
the Company's balance sheet date. In accordance with its stated objectives, the
Company generally intends to be a long term owner of these securities and
therefore such securities have been categorized as available-for-sale, as
defined by SFAS No. 115, for each of the periods presented. Marketable
securities are carried at fair value, based on quoted market prices, with net
unrealized gains or losses, net of tax, reported as a component of accumulated
other comprehensive

F-10

IDEALAB!

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)--(CONTINUED)

income in shareholders' equity. The cost of marketable securities sold is based
on the specific identification method.

INVENTORY

Inventory is comprised primarily of inventory of CarsDirect.com, Inc.,
one of the Company's consolidated network companies, and consists primarily of
new vehicles that are valued at the lower of cost or market. Cost is determined
using the specific identification method.

FIXED ASSETS

Fixed assets are carried at cost less accumulated depreciation and
amortization, computed on a straight line basis over the estimated useful lives
of the assets, ranging from three to five years. Leasehold improvements are
depreciated using the shorter of the estimated useful life of the related asset
or the lease term. Costs of maintenance and repairs are charged to expense as
incurred.

GOODWILL

Goodwill represents the excess cost over the fair value of the net assets
of companies acquired and the amount by which the Company's ownership interests
in network companies accounted for under the consolidation method exceeds its
share of the underlying net assets of such network companies. Goodwill is
amortized on a straight-line basis over the periods expected to be benefited
ranging from three to ten years.

OTHER INTANGIBLE ASSETS

The Company and its consolidated network companies have acquired the
rights to certain identifiable intangible assets, including domain names, which
are carried at the lower of amortized cost or fair value. Such assets, which are
included in other assets in the accompanying Consolidated Balance Sheets, are
amortized on a straight-line basis over the estimated useful life of the
underlying asset, generally three years.

REVENUE RECOGNITION

CarsDirect.com recognizes as revenues the price its customer pays it for
a vehicle following the delivery of the vehicle to the customer, provided that
collection of the resulting receivable is probable. CarsDirect.com believes that
presentation, as its revenues, of the price its customer pays for a vehicle
appropriately reflects the risks, and rewards, of its business model. In
addition, CarsDirect.com believes such presentation appropriately reflects the
substance of the transaction and its legal rights and obligations. Upon receipt
of a customer order, CarsDirect.com enters into a legally enforceable commitment
to acquire a specific vehicle from a new car dealer to fulfill that customer
order. Such commitment obligates CarsDirect.com to pay the dealer for the
specific car regardless of whether the customer pays CarsDirect.com. The
customer has the right to cancel an order anytime prior to accepting delivery of
the specific car. CarsDirect.com sets the price of the vehicle to the customer,
and the price is not based on a formula related to the price CarsDirect.com pays
for the vehicle. Customers conduct their business directly with CarsDirect.com
and have no influence over which supplier CarsDirect.com uses. CarsDirect.com's
cost and payment terms are fixed, and are independent of the price and terms
customers pay it for vehicles. Prior to delivery of the vehicle to the customer,
CarsDirect.com bears the inventory risk for the vehicles it commits to acquire;
CarsDirect.com has the sole legal right to direct the disposition of the
vehicles it commits to acquire; CarsDirect.com has an insurable interest as
beneficial owner in the vehicles it commits to acquire; and CarsDirect.com is
responsible for taxes that may be assessed on a vehicle it commits to

F-11

IDEALAB!

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)--(CONTINUED)

acquire. CarsDirect.com bears the risk of return of the vehicle if a customer
defaults on the sale or if the customer returns the vehicle in accordance with
applicable law. CarsDirect.com does not have the right to return the vehicle to
its supplier in those instances and CarsDirect.com establishes a reserve for
estimated customer returns. Upon delivery of the vehicle to the customer,
CarsDirect.com bears credit and other risks related to the customer's payment
obligation.

In automobile transactions with its customers that do not include the
foregoing characteristics, CarsDirect.com recognizes as net revenues the
difference between the amount its customer pays and the cost of the vehicle.
CarsDirect.com revenues also include licensing revenue, extended warranty
commissions and finance fee income related to automobile sales. Licensing
revenues are recognized on a pro rata basis over the license period, generally
ranging from three to twelve months. Depending upon the nature of extended
warranty contracts sold, commissions on extended warranties are either
recognized as revenue ratably over the lives of the underlying contracts or when
our obligations to refund any portion of the commissions upon customer
termination expires. Finance fees are recognized as revenue upon acceptance of
the customer's credit by the financing institution.

The Company also derives a significant portion of revenue from
EntryPoint, Inc. formerly Launchpad Technologies, Inc. ("EntryPoint"), and
Free-PC, Inc. ("Free-PC" -- see Note 15 which describes the sale of our
ownership interest in Free-PC), two of the Company's majority-owned network
companies. These companies derive revenue principally from the sale of
advertising, including the sale of banner advertisements and referrals of users
to other websites. These network companies obligations typically include the
guarantee of a minimum number of impressions or the satisfaction of other
performance criteria. Advertising revenue is recognized as the impressions are
displayed or as click-throughs occur, depending on the contract terms, provided
that no significant company obligations remain and collection of the related
receivable is probable. To the extent minimum guaranteed impressions or other
performance criteria are not met, recognition of the corresponding revenues is
deferred until the remaining guaranteed impressions or other performance
criteria are met. Referral revenues are recognized as referrals are made to
other websites, provided that no significant company obligations remain and
collection of the related receivable is probable.

The Company provides services to certain affiliated companies which are
general partners in various venture capital funds (see Note 6). Management fees
for providing such services are recorded as earned.

SALES AND MARKETING COSTS

The Company expenses advertising media costs as incurred and advertising
production costs upon first airing or printing of the underlying advertisement.
Advertising expense was $423,000, $329,000 and $34,576,000 for the years ended
January 31, 1998, 1999 and 2000, respectively, and is included in sales and
marketing expenses in the accompanying Consolidated Statements of Operations.

Included in sales and marketing expenses has been the cost of personal
computers given away to users by FreePC, Inc., a consolidated network company,
in exchange for a 30-month user agreement. The Company considers the cost of the
computers as the cost of procuring users and recognizes the expense upon
delivery of the computer to the user. For the year ended January 31, 2000, the
Company recorded approximately $18,100,000 of such costs. No such costs were
incurred during the year ended January 31, 1999.

PRODUCT DEVELOPMENT COSTS

Product development costs are costs incurred to develop, enhance, manage,
monitor and operate the Company's web sites and related technologies. Such costs
are expensed as incurred unless certain criteria

F-12

IDEALAB!

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)--(CONTINUED)

for capitalization are met. To date, costs subject to capitalization have not
been significant and, therefore, have not been capitalized.

GAIN OR LOSS ON ISSUANCES OF STOCK BY NETWORK COMPANIES

Pursuant to the Securities Exchange Commission's Staff Accounting
Bulletin No. 84, at the time a network company accounted for under the
consolidation or equity method of accounting sells its stock to a third party at
a price per share which is different than the Company's carrying value per
share, the Company's share of the network company's net equity changes. If, at
that time, the network company is not a newly-formed, non-operating entity, nor
a research and development, start-up or development stage company, nor is there
question as to the network company's ability to continue in existence, the
Company records the change in its share of the network company's net equity as a
non-operating gain or loss in its Consolidated Statements of Operations. Gains
and losses on the issuance of stock by network companies which are not included
in the Consolidated Statements of Operations are recorded in Shareholders'
Equity, net of tax.

INCOME TAXES

Income taxes are accounted for using the asset and liability method
whereby deferred tax assets and liabilities are recognized based on the
differences between the financial statement reporting and tax bases of the
Company's assets and liabilities. Deferred tax assets and liabilities are
measured using enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Valuation allowances are established, when
necessary, to reduce deferred tax assets to their expected realizable amount.

NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is computed by dividing the net income
(loss) applicable to common shareholders by the weighted average number of
shares of common stock outstanding excluding the unvested portion of common
stock which is subject to repurchase. Diluted net income (loss) per share is
computed by dividing the net income (loss) applicable to common shareholders by
the weighted average number of shares of common stock outstanding plus the
dilutive effect, if any, of options, convertible preferred stock and
common stock subject to repurchase. Common share equivalents are included in the
computation of diluted net income (loss) per share only when the effect of their
inclusion would be dilutive.

PRO FORMA SHAREHOLDERS' EQUITY AND NET INCOME (LOSS) PER SHARE (UNAUDITED)

Unaudited pro forma shareholders' equity at January 31, 2000 reflects the
automatic conversion of the Company's convertible preferred stock outstanding
and the change in the par value of the Company's common stock in connection with
the reincorporation in the State of Nevada (See Note 23) at January 31, 2000
as if each had occurred as of that date. Unaudited pro forma basic net income
per share for the year ended January 31, 2000 is computed by dividing the net
income applicable to common shareholders by the weighted average number of
common shares outstanding excluding the unvested portion of common stock which
is subject to purchase, including the pro forma effects of the automatic
conversion of the Company's convertible preferred stock into shares of the
Company's common stock effective upon the closing of the Company's initial
public offering as if such conversion occurred on February 1, 1999 or at the
date of issuance if later.

CONCENTRATION OF RISK

The Company is potentially subject to credit risk with respect to its
cash and cash equivalents and accounts receivable balances. The Company
deposits cash and cash equivalents in financial institutions

F-13

IDEALAB!

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)--(CONTINUED)

and, at times, such balances may be in excess of the federal deposit insurance
limits. The Company generally does not require collateral from its customers.

As of January 31, 2000, 15% of the Company's accounts receivable balance
is due from one party.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying values of cash and cash equivalents, accounts receivable,
accounts payable and short term borrowings approximate their fair value due to
the short maturity of these instruments.

ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS

In accordance with SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", the Company
records an impairment loss on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the asset's carrying amount. If
the Company determines that an asset is impaired, an impairment loss is recorded
to reduce the carrying value of the asset to its estimated fair value, which is
generally based on undiscounted cash flows.

STOCK-BASED COMPENSATION

The Company accounts for stock-based employee compensation arrangements
in accordance with the provisions of Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees," and complies with the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Under APB No. 25, compensation expense is recognized over the
vesting period of the related instrument based on the difference, if any,
between the deemed fair value for accounting purposes of the Company's common
stock and the exercise price on the date of grant. The Company accounts for
stock issued to non-employees in accordance with the provisions of SFAS No. 123
and EITF Issue No. 96-18 "Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services".

COMPREHENSIVE INCOME

Comprehensive income is the change in equity of a business enterprise
during a period from transactions and other events and circumstances from
non-owner sources. Excluding net income, the Company's source of comprehensive
income is derived from net unrealized changes in the value of its marketable
securities. Reclassification adjustments result from the recognition in net
income of realized gains or losses that were included in comprehensive income in
prior periods.

SEGMENT INFORMATION

SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", mandates the use of the management approach in the determination
of reportable segments. The management approach designates the internal
organization that is used by management for allocating resources and assessing
performance as the source of the Company's reportable segments. SFAS No. 131
also requires disclosures about products and services, geographic areas and
major customers. The Company currently operates in one industry segment.

ACCOUNTING ESTIMATES

F-14

IDEALAB!

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)--(CONTINUED)

liabilities and disclosure of contingent liabilities and the reported amounts of
revenues and expenses. Actual results could differ from those estimates.

RECENT ACCOUNTING PRONOUNCEMENTS

SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging. In July 1999, SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of Financial Accounting Standards Board Statement No. 133", was issued. SFAS No.
137 deferred the effective date of SFAS No. 133 from fiscal years beginning
after June 15, 1999 to fiscal years beginning after June 15, 2000. Because the
Company does not currently hold any derivative instruments and does not engage
in hedging activities, the impact of adoption of SFAS No. 133 is not currently
expected to have a material impact on the Company's consolidated financial
position, results of operations or cash flows.

In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"), which provides additional guidance related to applying generally
accepted accounting principles in financial statements. In March 2000, the SEC
issued Staff Accounting Bulletin No. 101A, which requires implementation of SAB
101 no later than June 30, 2000. Management does not believe that adoption of
SAB 101 will have a significant impact on the Company's consolidated financial
position, results of operations or cash flows.

3. OWNERSHIP INTERESTS IN NETWORK COMPANIES

The following table summarizes the Company's ownership interests in
network companies accounted for under the equity method or cost method of
accounting, classified according to applicable accounting methods at January 31,
1999 and 2000. The cost basis column represents the Company's original
acquisition basis of the underlying ownership interests less any impairment
charges.

JANUARY 31, 1999 JANUARY 31, 2000
--------------------------------------- ---------------------------------------
CARRYING VALUE COST BASIS CARRYING VALUE COST BASIS
------------------- ------------------ ------------------- ------------------

Equity Method........ $ 1,056 $ 1,578 $ 488,047 $ 435,035
Cost Method.......... 1,230 1,484 126,245 126,846
------------------- ------------------ ------------------- ------------------
$ 2,286 $ 3,062 $ 614,292 $ 561,881
=================== ================== =================== ==================

At January 31, 2000, the Company's carrying value of its ownership
interests in network companies accounted for under the equity method exceeded
its share of the underlying equity in the net assets of such companies by
$346,420,000, net of accumulated amortization. Amortization expense of
$1,274,000 related to this difference is included in "Equity in the income
(loss) of affiliates, net of tax" in the accompanying Consolidated Statements of
Operations for the year ended January 31, 2000. The Company's carrying value of
its ownership interests in network companies accounted for under the equity
method did not exceed its share of the underlying equity in the net assets of
such companies at January 31, 1999.

The Company includes advances to network companies accounted for under
the equity method and cost method in the carrying value of its ownership
interests. Such amounts are comprised of receivables for services provided, cash
advances in the form of short term loans to fund certain costs of the network
companies and convertible notes. Advances to network companies generally do not
bear interest and are payable on demand. As of January 31, 1999, the Company had
$108,000 and $126,000 in advances to network companies accounted for under the
equity method and cost method, respectively. As of January 31, 2000, the Company
had $12,072,000 and $611,000 in advances to network companies accounted for
under the equity method and cost method, respectively.

F-15

IDEALAB!

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)--(CONTINUED)

At January 31, 2000, the Company's ownership interest in GoTo.com, Inc.
("GoTo.com"), the only network company accounted for using the equity method
which is publicly traded, was approximately $1,000,854,000 based on quoted
market prices.

The following summarized financial information for network companies and
other affiliates accounted for under the equity method of accounting at January
31, 1999 and 2000 has been compiled from the financial statements of the
respective network companies and other affiliates:

BALANCE SHEETS:

JANUARY 31,
---------------------------------------
1999 2000
------------------- -------------------

Current assets........................................$ 52,602 $ 279,389
Non-current assets.................................... 7,948 184,360
------------------- -------------------
Total assets.....................................$ 60,550 $ 463,749
=================== ===================

Current liabilities...................................$ 12,418 $ 82,618
Non-current liabilities............................... 673 4,717
Convertible preferred stock........................... 66,719 220,045
Shareholders' equity (deficit)........................ (19,260) 156,369
------------------- -------------------
Total liabilities and shareholders' equity.......$ 60,550 $ 463,749
=================== ===================

RESULTS OF OPERATIONS:

YEAR ENDED JANUARY 31,
-----------------------------------------------------------
1998 1999 2000
------------------- ------------------- ------------------

Revenues.................... $ 588 $ 27,086 $ 43,741
=================== =================== ==================

Net income (loss)........... $ (2,075) $ (36,535) $ 79,328
=================== =================== ==================

4. MARKETABLE SECURITIES

Marketable securities consist of equity securities and are carried at
fair value based on quoted market prices. The Company did not have any realized
losses on any sales of marketable securities. The following tables provide
certain additional information related to the Company's marketable securities:

JANUARY 31,
---------------------------------------
1999 2000
------------------- ------------------

Adjusted cost basis............................. $ 993 $ 5,334
=================== ==================
Fair value...................................... $ 35,832 $ 249,765
=================== ==================

YEAR ENDED JANUARY 31,
-----------------------------------------------------------
1998 1999 2000
------------------- ------------------- ------------------

Gross unrealized:
Gains.................... $ 7,550 $ 29,840 $ 424,037
=================== =================== ==================
Losses................... $ -- $ 301 $ 12,641
=================== =================== ==================

5. BUSINESS COMBINATIONS

In May, 1999, EntryPoint completed its acquisition of PointCast
Incorporated ("PointCast") pursuant to an agreement and plan of reorganization.
PointCast offers current news and information services to viewers

F-16

IDEALAB!

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)--(CONTINUED)

and corporations using the Internet and corporate intranets. As consideration
for the purchase, EntryPoint issued shares of its convertible preferred stock
(valued at approximately $6,000,000) to the stockholders of PointCast and paid
them $1,000,000 in cash.

In July 1999, CarsDirect.com acquired AutoData Marketing Systems
Incorporated ("AutoData") through the purchase of all of the outstanding shares
of its parent, Perga Capital Incorporated. AutoData has designed and populated
an automotive information data warehouse that serves as the basis for licensing
vehicle content to various customers. The aggregate purchase price of $8,765,000
was comprised of $6,820,000 in cash, $265,000 in acquisition costs and 210,000
shares of CarsDirect.com Class A common stock with an estimated fair value for
accounting purposes of $1,680,000. Additional cash consideration may be paid by
CarsDirect.com based on the level of AutoData's net income during periods
subsequent to the acquisition. The contingent consideration, if any, will be
recorded as an increase to the purchase price at the time that the contingency
is resolved. In connection with the purchase, CarsDirect.com issued 390,000
shares of restricted Class A common stock valued at $3,120,000 to two former
owners of AutoData, which vest over 4 years, subject to continued employment of
these individuals, and subject to acceleration in the event of an IPO by
CarsDirect.com or a change of control transaction, as defined. Such restricted
Class A common stock has been accounted for by CarsDirect.com as stock-based
compensation, which will be amortized over each employees' service period.
During the year ended December 31, 1999, CarsDirect.com recorded $325,000 of
stock-based compensation charges related to the amortization of deferred stock
compensation by CarsDirect.com.

In October 1999, CarsDirect.com acquired certain assets of Potamkin Auto
Center Ltd. ("Potamkin"). Potamkin is engaged in the sale and lease of new and
used automobiles and also offers extended warranties and financing arrangements.
The aggregate purchase price of $14,145,000 was comprised of 1,250,000 shares of
CarsDirect.com's Class A common stock with an estimated fair value for
accounting purposes of $13,750,000 and $395,000 in acquisition costs. In
conjunction with the acquisition, CarsDirect.com issued 400,000 shares of
restricted Class A common stock with an estimated fair value for accounting
purposes of $4,400,000 to the sellers, including a key employee of Potamkin. The
shares will be distributed in quarterly increments commencing on December 31,
1999 and ending on September 30, 2002, subject to continued employment by the
current employee on the dates specified; accordingly, such stock has been
accounted for by CarsDirect.com as stock-based compensation, which will be
amortized over the employee's service period. During the year ended December 31,
1999, CarsDirect.com recorded $251,000 of stock-based compensation charges
related to the amortization of deferred stock compensation by CarsDirect.com.

During 1999, CarsDirect.com entered into an agreement to form and operate
CD1Financial.com LLC ("CD1Financial"), a joint venture formed to provide
automotive related financial products to customers of CarsDirect.com. In
connection with this agreement, CarsDirect.com issued to the minority member of
the joint venture a warrant to purchase an amount of shares of CarsDirect.com
Class A common stock to be determined based upon the combined value of
CD1Financial and CarsDirect.com at the time of the occurrence of certain events.
In December 1999, CarsDirect.com acquired the minority member's 49% interest in
CD1Financial and terminated the master and operating agreement which governed
CD1Financial for $32,875,000 in cash. The terms of the warrant were also
modified to make the warrant non-forfeitable and immediately exercisable into
2,085,970 shares of CarsDirect.com Class A common stock with an exercise price
of $0.01 per share. The estimated fair value of the warrant for accounting
purposes was approximately $29,579,000 and has been accounted for as part of the
purchase price of the additional interest in CD1Financial and included in
goodwill.

These acquisitions have been accounted for using the purchase method,
and, accordingly, the purchase prices have been allocated to the assets
purchased and liabilities assumed based upon their fair values at the dates of
acquisition. The portion of the purchase price allocated to goodwill will be
amortized

F-17

IDEALAB!

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)--(CONTINUED)

on a straight line basis over three years for PointCast, AutoData and
CD1Financial and over ten years for Potamkin. The fair value of the identifiable
intangible assets acquired from AutoData, CD1Financial and Potamkin will be
amortized on a straight-line basis over the estimated useful lives, ranging from
six months to ten years.

The purchase prices of these acquisitions were allocated as follows:

POINTCAST AUTODATA POTAMKIN CD1 FINANCIAL
-------------- --------------- -------------- --------------
--------------

Tangible assets............................$ 8,329 $ 1,268 $ 71 $ 1,706
Liabilities assumed........................ (6,204) (1,048) -- --
Identifiable intangibles................... -- 1,095 2,390 71
Goodwill................................... 4,875 7,450 11,684 60,677
-------------- --------------- -------------- --------------
Purchase price.............................$ 7,000 $ 8,765 $ 14,145 $ 62,454
============== =============== ============== ==============

The Company's consolidated results of operations incorporate the results
of operations of PointCast, AutoData, Potamkin and CD1Financial commencing on
the dates of acquisition. The following unaudited pro forma combined information
presents the combined results of operations of the Company as if these
acquisitions had occurred on the first day of each respective period. The
unaudited pro forma combined information does not necessarily reflect the
results of operations that would have occurred had the Company, PointCast,
AutoData, CD1Financial and Potamkin constituted a single entity during such
periods.

YEAR ENDED JANUARY 31,
----------------------------
1999 2000
-------------- -------------
(UNAUDITED) (UNAUDITED)

Revenues................................................................$ 55,516 $ 135,504
============== =============
Net income (loss) before extraordinary item.............................$ (10,404) $ 90,371
============== =============
Net income (loss) applicable to common shareholders.....................$ (10,404) $ 94,508
============== =============
Net income (loss) per share applicable to common shareholders:

Basic................................................................$ (0.03) $ 0.22
Diluted..............................................................$ (0.03) $ 0.14

6. INVESTMENT IN CERTAIN INVESTMENT ADVISORY FIRMS

idealab! Capital Management I, L.L.C. ("ICM I") was formed in March 1998
to serve as the general partner of two venture capital funds: idealab! Capital
Partners I-A, L.P. ("ICP Fund I-A") and idealab! Capital Partners I-B, L.P.
("ICP Fund I-B") (collectively the "ICM I Funds"). The ICM I Funds have received
aggregate capital commitments of $105,051,000. ICM I has a 1% capital commitment
in each of the ICM I Funds and is entitled to 18.2% of the net profits, as
defined, of the ICM I Funds on a blended basis. The ICM I Funds are managed by
ICM I and are bound by the terms of a limited partnership agreement which
describes the ICM I Fund's investment policy. The ICM I Funds invest in idealab!
network companies and entities that are not affiliates of the Company in
accordance with the terms of the investment policy. In certain situations, the
ICM I Funds' investment in a network company is subject to approval from an
independent advisory committee of the respective ICM I Fund's limited partners.

ICM I is managed, controlled and operated exclusively by its managing
members with any action or decision for, in respect of or on behalf of ICM I
requiring the approval of a majority in interest of its managing members. The
Company, together with its CEO, control 50% of the managing member interest in
ICM I. The Company is entitled to 43.5% of the profits and losses of ICM I. As
consideration for providing management services, the Company is also entitled to
an annual management fee equal to 0.5% of the aggregate capital committed to the
Funds not to exceed $400,000.

F-18

IDEALAB!

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)--(CONTINUED)

idealab! Capital Management II, L.L.C. ("ICM II") was formed in August
1999 to serve as the general partner of idealab! Capital Partners II-A, L.P.
("ICP Fund II-A"), idealab! Capital Partners II-B, L.P. ("ICP Fund II-B"), and
the idealab! Capital Principals Fund, L.P. ("Principals Fund") (collectively the
"ICM II Funds"). The ICM II Funds have received aggregate capital commitments of
$363,940,000. ICM II has a 0.15%, 1% and 1% capital commitment in ICP Fund II-A,
ICP Fund II-B and the Principals Fund, respectively. ICM II is entitled to
receive 19.4% of the net profits, as defined, of ICP Fund II-A and ICP Fund
II-B, on a blended basis, which is subject to retroactive adjustment to 29.1% if
the Funds achieve a specified internal rate of return. ICM II is also entitled
to receive 10% of the net profits, as defined, of the Principals Fund which is
subject to retroactive adjustment to 15% if the Principals Fund achieves a
specified internal rate of return. The investment policies of the ICM II Funds
are generally similar to those of the ICM I Funds.

ICM II is managed, controlled and operated exclusively by its managing
members with any action or decision for, in respect of or on behalf of ICM II
requiring the approval of a majority in interest of its managing members. The
Company controls 50% of the managing member interest in ICM II, has a 50%
capital commitment and is entitled to 50% of the profits and losses of ICM II.
As consideration for providing management services, the Company is also entitled
to an annual management fee, payable quarterly in advance, equal to 50% of the
management fee earned by ICM II pursuant to the limited partnership agreements
of the ICM II Funds. The ICM II Funds pay management fees to ICM II based on a
percentage of the aggregate capital commitment to the ICM II Funds.

The Company accounts for its ownership interest in each of ICM I and ICM
II under the equity method. The Company's equity in the income or loss of ICM I
and ICM II reflects the participation in the net profits of ICM I and ICM II,
which includes ICM I and ICM II's proportionate share of the unrealized
appreciation or depreciation of certain investment holdings of the ICM I Funds
and the ICM II Funds. The Company eliminates profits and losses attributable to
the Funds' investment holdings in network companies which the Company accounts
for using the consolidation or equity method. These profits and losses will only
be recognized upon realization in the form of a sale of the underlying shares by
the Funds or by the Company. Additionally, the Company eliminates the portion of
ICM I's equity in the income of the ICM I Funds which is attributable to the
appreciation or depreciation on holdings by the ICM I Funds in the Company's
convertible preferred stock.

The Company also has a limited partnership interest in the Principals
Fund and has made a capital commitment of $25,000,000 of the aggregate committed
capital of $33,333,000, of which the Company has paid $4,250,000 as of January
31, 2000. The Company is entitled to 64% of the Principal Fund's profit and
losses, unless a target internal rate of return is not achieved, at which time
idealab!'s entitlement will retroactively adjust to 67.5%.

The Company's equity in the net income of ICM I was $314,000 and
$41,231,000 during the years ended January 31, 1999 and 2000. The carrying value
of the Company's equity interest in ICM I was $738,000 and $47,408,000 at
January 31, 1999 and January 31, 2000. The Company's equity in the net loss of
ICM II was $551,000 during the year ended January 31, 2000. The carrying value
of the Company's equity interest in ICM II was $(455,000) at January 31, 2000.
During the year ended January 31, 2000 the Company received a distribution from
ICM I comprised of $2,000,000 in cash and equity securities with a value of
$20,909,000 on the date of the distribution.

7. DECONSOLIDATION OF NETWORK COMPANIES

During the three years in the period ended January 31, 2000, the Company
has experienced reductions in the ownership interests in certain of its
consolidated network companies to below 50%, primarily due to the issuance of
additional voting securities by the network companies, generally with priority

F-19

IDEALAB!

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)--(CONTINUED)

in liquidation preference to the securities owned by the Company. During periods
prior to the reduction in the Company's ownership interest to below 50%, the
Company consolidated the operating results and assets and liabilities of the
network company. At the date of deconsolidation, the Company has recorded gains
equal to the amount, if any, by which the cumulative losses of the network
company recorded by idealab! exceeded the cost of the Company's ownership
interest in the network company. Gains recorded in connection with the
deconsolidation of network companies are included in Other Income in the
Consolidated Statements of Operations.

During the quarter ended January 31, 1998, the Company's ownership
interest in the common stock of eToys, Inc. ("eToys") was reduced from 61% to
37% as a result of the issuance of shares of convertible preferred stock by
eToys. The Company's Consolidated Statement of Operations for the year ended
January 31, 1998 includes eToys net revenue of $0 and operating losses of
$381,000. As a result of the deconsolidation of eToys, during the year ended
January 31, 1998, the Company recorded a gain of $124,000.

During March 1998, Intranets.com, Inc. ("Intranets"), formerly
IntraNetics, Inc., issued shares of its convertible preferred stock for total
cash proceeds of approximately $5,452,000 and the conversion of $2,831,000 of
convertible notes payable, plus accrued interest. As a result of these
transactions the Company's ownership interest in the common stock of Intranets
was reduced from 59% to 19%. The Company's Consolidated Statement of Operations
for the year ended January 31, 1998 includes Intranets net revenue of $70,000
and operating losses of $5,357,000. As a result of the deconsolidation of
Intranets, during the year ended January 31, 1999, the Company recorded a gain
of $5,259,000.

During the quarter ended July 31, 1998, the Company's ownership interest
in GoTo.com was reduced from 80% to 45% as a result of the issuance of shares of
convertible preferred stock by GoTo.com. The Company's Consolidated Statement of
Operations for the year ended January 31, 1998 includes GoTo.com net revenue of
$22,000 and operating losses of $119,000. As a result of the deconsolidation of
GoTo.com, the Company recorded a gain of $243,000.

During the quarter ended July 31, 1999, the Company's ownership interest
in FirstLook, Inc. ("FirstLook"), formerly MusicNow, Inc., was reduced from 96%
to 45% as a result of the issuance of shares of common stock by FirstLook. The
Company's Consolidated Statement of Operations for the year ended January 31,
1999 includes FirstLook net revenue of $0 and operating losses of $254,000. As
a result of the deconsolidation of FirstLook, during the year ended January 31,
2000 the Company recorded a gain of $332,000.

8. GAIN ON STOCK ISSUANCE BY A NETWORK COMPANY

During the year ended January 31, 2000, the Company recorded a pre-tax
gain of $22,658,000 representing the net increase in the Company's proportionate
share of the dollar amount of GoTo.com's equity resulting from stock issued by
GoTo.com in connection with it's initial public offering ("IPO"). GoTo.com, an
online marketplace where advertisers bid for introductions to consumers seeking
information, services and products, raised $94,800,000 of net proceeds by
issuing 6,900,000 shares of common stock at $15.00 per share. As a result of the
IPO the Company's percentage interest in the outstanding voting securities of
GoTo.com decreased from 25% to 20%. The Company recorded $9,222,000 of deferred
income taxes as a result of the gain.

9. EFFECT OF NETWORK COMPANIES' EQUITY TRANSACTIONS

During the three years in the period ended January 31, 2000, several of
idealab's network companies issued common and preferred stock to third parties
at a price per share that was greater than the Company's average carrying value
per share on the date of the financing. Due to the fact that the

F-20

IDEALAB!

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)--(CONTINUED)

underlying network companies did not have significant operating histories or
revenues at the time of the financings, or other factors as described in Note 2,
the increase in the Company's proportionate share of the dollar amount of the
underlying network company's equity has been recorded, net of tax, as an equity
transaction under the heading "Effect of network companies' equity
transactions".

During the year ended January 31, 1998, these gains resulted primarily
from the initial public offering of 1,300,000 shares of Shopping.com common
stock which raised net proceeds of $10,289,000 and reduced the Company's
ownership interest from 22% to 15%. At the time of the transaction
Shopping.com's ability to continue as a going concern was in question. The
Company recorded a gain of $770,000, net of tax of $530,000.

During the year ended January 31, 1999 these gains resulted primarily
from several issuances of securities by our network companies, each of which was
not significant.

During the year ended January 31, 2000 these gains resulted primarily
from the following transactions:

o The Company's ownership interest in CarsDirect.com was impacted by
the issuances by CarsDirect.com of Class A common stock and warrants
in connection with the acquisitions of AutoData, Potamkin and
CD1Financial which are described in Note 5. The Company recorded an
aggregate gain of $2,131,000, net of tax of $1,462,000, as a result
of these transactions based on the deemed fair value for accounting
purposes of the CarsDirect.com Class A common stock and warrants
issued in connection with these acquisitions. These issuances of
stock and warrants by CarsDirect.com decreased the Company's
ownership interest in the outstanding voting securities of
CarsDirect.com by approximately three percentage points.

o PetsMart.com issued shares of convertible preferred stock for net
proceeds of $55,406,000 which reduced the Company's ownership
interest from 28% to 22%. The Company recorded a gain of $757,000,
net of tax of $519,000.

10. BALANCE SHEET AMOUNTS

JANUARY 31,
---------------------------
1999 2000
------------- -------------

Accounts receivable, net:
Accounts receivable..........................................................$ 92 $ 15,268
Allowance for doubtful accounts.............................................. (15) (508)
------------- -------------
$ 77 $ 14,760
============= =============
Fixed assets, net:
Computer equipment and software..............................................$ 1,028 $ 12,543
Office equipment and furniture............................................... 334 2,954
Vehicles..................................................................... -- 1,453
Leasehold improvements....................................................... 1,668 5,200
------------- -------------
3,030 22,150
Less: accumulated depreciation and amortization................................. (717) (3,581)
============= =============
$ 2,313 $ 18,569
============= =============

Total depreciation and amortization expense on fixed assets was $201,000,
$506,000 and $3,195,000 for the years ended January 31, 1998, 1999 and 2000,
respectively. Fixed assets include $204,000 and $4,863,000 of computer equipment
acquired under capital leases at January 31, 1999 and 2000, respectively, and
$88,000 and $1,038,000 of accumulated depreciation on such assets.

F-21

IDEALAB!

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)--(CONTINUED)

Allowance for doubtful accounts increased for additional reserves of $0,
$15,000 and $674,000 for the years ended January 31, 1998, 1999 and 2000,
respectively, and decreased for write-offs of $0, $0 and $181,000 for the years
ended January 31, 1998, 1999 and 2000, respectively.

JANUARY 31,
---------------------------
1999 2000
Goodwill, net: ------------- -------------

Goodwill.....................................................................$ -- $ 114,370
Less: accumulated amortization............................................... -- (4,783)
------------- -------------
$ -- $ 109,587
============= =============

Accrued Expenses:

Book overdrafts..............................................................$ -- $ 12,016
Liability under an inventory supply agreement................................ -- 5,638
Deferred revenue............................................................. 58 2,504
Deposit for convertible preferred stock...................................... 2,500 --
Payroll expenses............................................................. 78 1,268
Deferred rent................................................................ 144 624
Accrued legal settlement..................................................... 790 --
Other accrued expenses....................................................... 248 4,055
------------- -------------
$ 3,818 $ 26,105
============= =============

11. SHORT TERM BORROWINGS

LINE OF CREDIT ARRANGEMENTS

In July 1999, the Company entered into an $8 million revolving promissory
note (the "Promissory Note") with a financial institution. The Promissory Note
is collateralized by certain marketable securities owned by the Company and
expires on May 21, 2000, if not renewed. Borrowings under the Promissory Note
accrue interest at the Eurodollar Rate, as defined, plus one percent (7.125% at
January 31, 2000) and interest payments are due monthly. The Promissory Note
does not have any restrictive covenants, however, the Company must maintain
adequate collateral, as defined in a separate Pledge Agreement, in relation to
the outstanding borrowings. At January 31, 2000, no amounts were outstanding
under the Promissory Note.

BORROWINGS

EntryPoint has a note payable to an insurance company which bears
interest at the rate of 9.7% per annum and is collateralized by EntryPoint's
property and equipment; at January 31, 2000, $992,000 was outstanding. Principal
and interest payments of $107,000 are due monthly through October 2000.

12. MINORITY INTEREST

In October 1999, CarsDirect.com, a consolidated network company, issued
convertible preferred stock, some of which was purchased by the Company. The
preferred stock is convertible on a one-to-one basis, subject to antidilution,
into shares of CarsDirect.com Class A common stock at the option of the holder
at any time. Any shares which have not been converted will automatically convert
upon the effective date of a qualifying initial public offering of
CarsDirect.com Class A common stock, as defined, which raises at least $20
million at a per share offering price of at least $7.00. The preferred
shareholders are entitled to vote based on the number of Class A common shares
into which the preferred shares are convertible. The holders of the preferred
shares are entitled to receive noncumulative dividends in an amount equal to
$1.26 per share per annum when and if declared by the Board of Directors of
CarsDirect.com. The preferred

F-22

IDEALAB!

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)--(CONTINUED)

shares are redeemable by CarsDirect.com upon the sale of all or substantially
all of its assets or the acquisition of CarsDirect.com by another entity by
means of merger or consolidation resulting from the transfer of 50% or more of
CarsDirect.com's voting power. Additionally, as described in Note 5,
CarsDirect.com issued Class A common stock and a warrant to purchase Class A
common stock in connection with certain business acquisitions. At January 31,
2000, the minority interest balance attributable to CarsDirect.com, net of the
minority shareholders' share of CarsDirect.com's losses, was $141,591,000.

In October 1999, HomePage.com, a consolidated network company, issued
convertible preferred stock to third parties. The preferred stock is convertible
on a one-to-one basis, subject to antidilution, into shares of HomePage.com
common stock at the option of the holder at any time. Any shares of preferred
stock which have not been converted will automatically convert upon the
effective date of a qualifying initial public offering of HomePage.com common
stock, as defined, which raises at least $15,000,000. The preferred shareholders
are entitled to vote based on the number of common shares into which the
preferred shares are convertible. The holders of the preferred shares are
entitled to receive noncumulative dividends in an amount equal to $0.16 per
share per annum when and if declared by the Board of Directors of HomePage.com.
The preferred shares are redeemable by HomePage.com upon the sale of all or
substantially all of its assets or the acquisition of HomePage.com by another
entity by means of merger or consolidation resulting from the transfer of 50% or
more of HomePage.com's voting power. At January 31, 2000, the minority interest
balances attributable to HomePage.com, net of the minority shareholders' share
of HomePage.com's losses, was $8,915,000.

13. CAPITALIZATION

As of January 31, 2000, the Company was authorized to issue 1,138,000,000
shares of stock, comprised of 1,100,000,000 shares of common stock, no par
value, and 38,000,000 shares of preferred stock, no par value. The authorized
shares of preferred stock may be offered in one or more series. The Company's
Board of Directors is authorized to determine the rights of each offering of
preferred stock including, among other terms, dividend rights, voting rights,
conversion rights, redemption prices and liquidation preferences, if any.

COMMON STOCK

In December 1999, the Company's Board of Directors declared a stock split
of ten shares for every one share of common stock effective for common
shareholders of record as of December 30, 1999. Accordingly, the accompanying
financial statements and footnotes have been restated for all periods presented
to reflect the stock split.

During the years ended January 31, 1999 and 2000, the Company issued
96,250,000 and 25,777,000 shares, respectively, of common stock to certain
employees and directors upon the early exercise of stock options in exchange for
the issuance of full recourse promissory notes. Under the terms of the related
common stock agreements, the Company has the right to repurchase any unvested
shares at the exercise price in the event the employee or director ceases to be
an employee or director of the Company. The repurchase option lapses in the same
amounts and on the same dates that the options would have vested had they not
been exercised early.

During the year ended January 31, 2000, the Company sold 53,600,000 shares
of common stock to certain executive employees in exchange for the issuance of
full recourse promissory notes. Under the terms of the restricted common stock
purchase agreements, the Company has the right to repurchase any unvested shares
at the original issue price in the event the employee ceases to be an employee
of the Company. The repurchase option lapses at the rate of 20% of the common
shares immediately, subject to certain adjustments, with the remainder vesting
over a four year period. The Company has accounted for

F-23

IDEALAB!

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)--(CONTINUED)

the difference between the deemed fair value of the Company's common stock for
accounting purposes and the purchase price of the common stock on the date of
issuance as compensation, and accordingly has recorded $15,003,000 as deferred
stock compensation in the accompanying Consolidated Balance Sheet which is being
amortized over the vesting period. During the year ended January 31, 2000,
stock-based compensation included amortization of $7,891,000 of such deferred
stock compensation.

The holders of these common shares have all the rights of a common
shareholder including the right to vote the shares held and receive any
dividends declared thereon. During the year ended January 31, 2000, the Company
repurchased and retired 3,249,000 shares of common stock pursuant to its
repurchase option. The shares were repurchased at their original issue price. At
January 31, 2000, 107,575,000 shares of common stock were subject to repurchase.

CONVERTIBLE PREFERRED STOCK

The following table summarizes the Series A, Series B, Series C and
Series D activity for each of the three years in the period ended January 31,
2000:

SERIES A SERIES B SERIES C SERIES D
-------------------- --------------------- -------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- --------- ---------- ---------- --------- ---------- ---------- ----------

Balance at January 31, 1997. 3,450 $ 3,450
Issuance of Series B........ 5,120 $ 8,704
---------- --------- ---------- ----------
Balance at January 31, 1998. 3,450 3,450 5,120 8,704
Issuance of Series B........ 881 1,498
---------- --------- ---------- ----------
Balance at January 31, 1999. 3,450 3,450 6,001 10,202
Issuance of Series C........ 6,000 $ 18,000
Issuance of Series D........ 8,519 $ 851,889
Beneficial conversion
feature.................. 9,724
Repurchase of Series B...... (284) (483)
---------- --------- ---------- ---------- --------- ---------- ---------- ----------
Balance at January 31, 2000. 3,450 $ 3,450 5,717 $ 9,719 6,000 $ 27,724 8,519 $ 851,889
========== ========= ========== ========== ========= ========== ========== ==========

Redeemable convertible preferred stock consists of the following at January
31, 2000:

LIQUIDATION
SHARES AND
------------------------------- REDEMPTION
AUTHORIZED OUTSTANDING VALUE
------------- -------------- --------------

Series A convertible.............................. 3,450 3,450 $ 3,450
Series B convertible.............................. 6,002 5,717 9,719
Series C convertible.............................. 6,000 6,000 18,000
Series D convertible.............................. 13,000 8,519 851,889
Undesignated...................................... 9,548 -- --
------------- -------------- --------------
38,000 23,686 $ 883,058
============= ============== ==============

Each share of preferred stock is convertible, at the holder's option, into
such number of fully paid and nonassessable shares of common stock as is
determined by dividing $1.00, in the case of Series A, $1.70, in the case of
Series B, $3.00, in the case of Series C, and $100.00, in the case of Series D,
by the conversion price, as defined. At January 31, 2000, the conversion price
of the Series A, Series B, Series C, and Series D Preferred Stock was $0.10,
$0.17, $0.30, and $10.00, respectively, such that each share of convertible
preferred stock is convertible into ten shares of common stock. In December
1999, the Company amended its Articles of Incorporation such that in the event
of the issuance of additional shares of common stock, subject to certain
exclusions, at a price per share less than the conversion price for any series
of convertible preferred stock in effect on the date of such issuance, the
conversion price for such

F-24

IDEALAB!

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)--(CONTINUED)

series of convertible preferred stock shall be reduced, concurrently with such
issuance, to the price per share of the common stock issued. The conversion
price is also subject to adjustment based on certain other anti-dilution
provisions. Each share of preferred stock shall automatically convert into
shares of common stock at its then effective conversion rate immediately upon
the closing of an underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, the
aggregate proceeds of which exceed $100,000,000 to the Company. As of January
31, 2000, the Company was required to reserve and keep available, out of its
authorized but unissued shares of common stock, 236,860,000 shares for
conversion of preferred stock.

In the event of any liquidation, dissolution or winding up of the
Company, either voluntary or involuntary, the holders of Series A, Series B,
Series C and Series D preferred stock are entitled to receive, on parity with
each other and prior and in preference to any distribution of any assets or
surplus funds to the holders of the common stock, an amount per share equal to
$1.00, $1.70, $3.00 and $100.00 per share, respectively, plus an amount equal to
any dividends declared but unpaid on such shares. Liquidation is also deemed to
include the Company's sale of all or substantially all of its assets or the
acquisition of the Company by another entity by means of merger or consolidation
resulting from the transfer of 50% or more of the Company's voting power. The
holders of common stock are entitled to the remaining assets, if any, on a pro
rata basis.

The Series A, Series B, Series C and Series D preferred shareholders are
entitled to one vote for each share of common stock into which such preferred
stock can be converted. The preferred stock generally votes together with the
common stock and not as a separate class. The Company's Amended and Restated
Certificate of Incorporation includes certain provisions which require a
majority vote of the holders of the Series D preferred shareholders, voting
separately as a class, with respect to certain actions of the Board of Directors
including: (1) changing the rights, preferences and privileges of the Series D
preferred stock; (2) authorizing, creating or issuing any shares of any class or
series of stock having any preference or priority superior as to dividends,
liquidation or conversion over Series D preferred stock; or (3) approving a
consolidation or merger of the corporation with or into any other corporation,
or the sale of all or substantially all of the assets of the corporation, or a
series of related transactions in which more than 50% of the voting power of the
corporation is disposed of, without consideration or for a consideration per
share less than the Conversion Price for the Series D preferred stock in effect
on the date of and immediately prior to such approval. The Company's Amended and
Restated Certificate of Incorporation also includes certain provisions which
require the approval of more than 50% of the holders of the Series A, Series B
and Series C preferred shareholders, voting separately as a class, with respect
to certain actions of the Board of Directors including changing the rights,
preferences and privileges of the Series A, B and C preferred shareholders.

The holders of each series of preferred stock are entitled to receive
noncumulative dividends when and if declared by the Board of Directors. In all
cases, if dividends are declared and paid to preferred shareholders they must
have at least the same terms as dividends declared and paid to common
shareholders. No dividends have been declared by the Board of Directors during
the period from March 14, 1996 (inception) to January 31, 2000.

The Company recorded a deduction for the beneficial conversion feature
associated with the Series C convertible preferred stock, based on the deemed
fair value of the Company's common stock on the issuance date of the Series C
convertible preferred stock. The Series C preferred stock was convertible at
the date of issuance and therefore the full amount of the beneficial conversion
feature was accreted in the year ended January 31, 2000.

F-25

IDEALAB!

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)--(CONTINUED)

WARRANT

In August 1998, the Company issued a warrant to purchase 1,000,000 shares
of common stock at $0.095 per share to a non-employee. The warrant was fully
vested on the date of grant and was exercised in March 1999. The fair value of
the warrant was determined using the Black-Scholes option pricing model.

NOTES RECEIVABLE FROM SHAREHOLDERS

Notes receivable from shareholders of $1,665,000 and $38,304,000 at
January 31, 1999 and 2000, respectively, represent interest bearing notes
receivable from certain employees in connection with their purchase of shares of
the Company's common stock, as described above. The notes bear interest at the
annual rate of 7.00% compounded semi-annually with accrued interest due
annually. The notes issued generally have a four year term, however, are payable
immediately if cash dividends in excess of the principal and interest owed are
paid to the shareholder.

SHARES REPURCHASED

In September 1999, the Company purchased and retired 7,593,500 shares of
common stock and 284,000 shares of Series B convertible preferred stock from
investors at per share prices of $1.50 and $15.00, respectively, for a total of
$15,650,000.

14. STOCK OPTION PLANS

The Company currently has three stock option plans in effect: the 1996
Employee Stock Plan (the "1996 Plan"), the 1999 Employee Stock Plan (the "1999
Plan" and, collectively the "Employee Plans") and the 1999 Executive Stock Plan
(the "1999 Executive Plan" and, together with the Employee Plans, the "Plans").
The Plans provide for the grant of nonstatutory stock options to the Company's
or its subsidiaries' employees or consultants and the grant of incentive stock
options to employees of the Company or its subsidiaries. Stock purchase rights
may also be granted under the terms of the Plans.

The Company's Board of Directors administer the Plans, select the
individuals to whom options will be granted, determine the number of options to
be granted and the term and exercise price of each option. Incentive stock
options granted pursuant to the terms of the Plans cannot be granted with an
exercise price of less than 100% of the fair market value on the date of grant
(110% if the award is issued to a 10% or more shareholder). Nonstatutory stock
options granted pursuant to the terms of the Plans cannot be granted with an
exercise price of less than 85% of the fair market value on the date of grant
(110% for awards granted pursuant to the terms of the Employee Plans issued to a
10% or more shareholder). The term of the options granted under the Plans cannot
be greater than 10 years; 5 years for certain optionees who have an ownership
interest in the Company or one of its subsidiaries. Options granted generally
vest 20% immediately or upon 6 month anniversary, subject to certain
adjustments, with the remaining balance vesting evenly on each of the next four
anniversary dates of the date of grant. Options are immediately exercisable for
common stock, with the unvested portion of the common stock subject to
repurchase by the Company at the exercise price until the option vesting period
is complete (see Note 13). An aggregate of 150,000,000, 90,000,000 and
175,000,000 shares of common stock have been reserved for issuance under the
1996 Plan, the 1999 Plan and the 1999 Executive Plan, respectively. As of
January 31, 2000, stock purchase rights have not been granted under the terms of
the Plans.

F-26

IDEALAB!

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)--(CONTINUED)

The following table summarizes the activity of the Company's stock option
plans during each of the three years in the period ended January 31, 2000:

1998 1999 2000
--------------------- ---------------------- ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------- --------- ------------ --------- ------------- ----------

Options outstanding, beginning of the year 55,790 $ 0.010 73,837 $ 0.012 44,430 $ 0.014
Granted................................... 27,104 0.016 71,063 0.020 216,587 1.289
Exercised................................. -- -- (96,250) 0.017 (57,900) 0.616
Canceled / forfeited...................... (9,057) 0.010 (4,220) 0.013 (3,103) 0.036
------------ ----------- -------------
Options outstanding, end of the year, all
of which are exercisable............... 73,837 0.012 44,430 0.014 200,014 1.221
============ =========== =============
Options available for grant, end of year.. 76,163 9,320 64,086
============ =========== =============

The following table summarizes information about stock options
outstanding, all of which are exercisable, at January 31, 2000:

OPTIONS OUTSTANDING
-------------------------------------------------------
WEIGHTED AVERAGE WEIGHTED
REMAINING AVERAGE
NUMBER OF CONTRACTUAL LIFE EXERCISE
RANGE OF EXERCISE PRICES SHARES (NOT IN THOUSANDS) PRICE
---------------------------------- -------------- -------------------- --------------

$ 0.01 - $ 0.04................ 9,644 7.25 $ 0.02
$ 0.80......................... 4,000 9.38 $ 0.80
$ 1.28 - $ 1.87................ 186,370 9.53 $ 1.29

Options granted to employees during the years ended January 31, 1999 and
2000 resulted in total deferred stock compensation of $7,795,000 and
$244,537,000, respectively which has been included in shareholders' equity. This
deferred compensation represents the difference between the deemed fair value of
the Company's common stock for accounting purposes and the exercise price of
these options at the date of grant. The deferred stock compensation will be
recognized as stock-based compensation over the vesting period of the related
options. During the years ended January 31, 1999 and 2000, such stock-based
compensation was $1,967,000 and $41,234,000, respectively.

During the years ended January 31, 1998, 1999 and 2000, the Company
granted 8,753,420, 2,862,940, and 2,885,460 options, respectively, to
non-employees. The fair value of these options is being re-measured over the
vesting periods and $407,000, $2,263,000 and $63,931,000 during each of the
years ended January 31, 1998, 1999 and 2000, respectively, has been recorded as
deferred stock compensation. The fair value was determined and remeasured using
the Black-Scholes option pricing model assuming a volatility of 80%, an option
life of 10 years (adjusted as applicable), a dividend yield of 0% and varying
risk free interest rates which approximated 6%. The amortization, which is
included in stock-based compensation in the accompanying Consolidated Statement
of Operations, is being charged to operations over the vesting period of the
related option grant, generally four years. Such amortization was $233,000,
$1,943,000, and $40,841,000 for the years ended January 31, 1998, 1999 and 2000,
respectively.

The Company's consolidated network companies typically maintain separate
stock option plans. During the years ended January 31, 1998, 1999 and 2000, the
Company's stock-based compensation expense included $0, $0 and $19,184,000,
respectively, of stock-based compensation recorded by consolidated network
companies.

F-27

IDEALAB!

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)--(CONTINUED)

The Company applies APB No. 25 and related interpretations to account for
stock options granted to employees and directors. Had compensation cost been
recognized pursuant to the fair value approach of SFAS No. 123, the Company's
pro forma net income (loss) and net income (loss) per share applicable to common
shareholders would have been as follows:

YEAR ENDED JANUARY 31,
--------------------------------------
1998 1999 2000
------------ ------------- -----------

Net income (loss) applicable to common shareholders:
As reported............................................... $ (7,056) $ (883) $ 104,983
SFAS 123 pro forma........................................ $ (7,132) $ (963) $ 88,263
Net income (loss) per share applicable to common
shareholders:
As reported:
Basic................................................. $ (0.02) $ -- $ 0.25
Diluted............................................... $ (0.02) $ -- $ 0.15
SFAS 123 pro forma:
Basic................................................. $ (0.02) $ -- $ 0.21
Diluted............................................... $ (0.02) $ -- $ 0.13

These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over the
vesting period, and additional options may be granted in future years.

The per share weighted-average fair value of options issued by the Company
to employees where the exercise price equaled the deemed fair value of the
Company's common stock on the grant date during the year ended January 31, 1998
was approximately $0.01. During the years ended January 31, 1999 and 2000 the
per share weighted average fair value of options issued by the Company to
employees where the exercise price was below the deemed fair value of the
Company's common stock for accounting purposes was approximately $0.12 and
$1.64. The minimum fair value of each stock option grant has been estimated on
the date of grant using the Black Scholes option-pricing model with the
following weighted average assumptions:

YEAR ENDED JANUARY 31,
--------------------------------------
1998 1999 2000
------------ ------------ ------------

Risk-free interest rate...................................... 6.2% 4.8% 5.9%
Expected life (in years)..................................... 8 8 8
Dividend yield............................................... -- -- --
Expected volatility.......................................... -- -- --

F-28

IDEALAB!

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)--(CONTINUED)

15. OTHER INCOME, NET

Other income, net consists of the following for the years ended January
31:

1998 1999 2000
--------------- ---------------- ---------------

Deconsolidation of eToys, Inc.............. $ 124 $ -- $ --
Deconsolidation of Intranets.com........... -- 5,259 --
Deconsolidation of GoTo.com................ -- 243 --
Deconsolidation of FirstLook............... -- -- 332
Sale of ownership interest in
Free-PC, Inc............................ -- -- 90,783
Other, net................................. 92 (195) 888
--------------- ---------------- ---------------
$ 216 $ 5,307 $ 92,003
=============== ================ ===============

See Note 7 for a description of the gains resulting from
deconsolidations.

In January 2000, eMachines, Inc. ("eMachines") completed a transaction
whereby one of its wholly-owned subsidiaries was merged with and into Free-PC.
In connection with the acquisition, eMachines issued 21,630,000 shares of common
and convertible preferred stock and warrants to purchase 9,270,000 shares of
eMachines common stock in exchange for all of the outstanding common and
convertible preferred stock of Free-PC. In connection with this transaction, the
Company's 57% interest in Free-PC was converted into common and convertible
preferred shares of eMachines and a warrant to purchase shares of eMachines
common stock. The eMachines stock and warrants were valued at $97,391,000 on the
date of the exchange resulting in a gain of $90,783,000. The Company's ownership
interest in eMachines is accounted for using the cost method.

16. INCOME TAXES

The income tax benefit (expense) for the years ended January 31, 1998,
1999 and 2000, consists of the following:

CURRENT DEFERRED TOTAL
-------------- -------------- --------------

January 31, 1998:
Federal................. $ -- $ 3,037 $ 3,037
State................... (8) 499 491
-------------- -------------- --------------
$ (8) $ 3,536 $ 3,528
============== ============== ==============
January 31, 1999:
Federal................. $ -- $ 2,032 $ 2,032
State................... (8) 334 326
-------------- -------------- --------------
$ (8) $ 2,366 $ 2,358
============== ============== ==============
January 31, 2000:
Federal................. $ (72,330) $ (1,627) $ (73,957)
State................... (18,493) 6,205 (12,288)
-------------- -------------- --------------
$ (90,823) $ 4,578 $ (86,245)
============== ============== ==============

F-29

IDEALAB!

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)--(CONTINUED)

Deferred tax assets and liabilities, all of which are classified as
non-current, are comprised of the following:

JANUARY 31,
---------------------------------
1999 2000
---------------- ----------------

Deferred tax assets:
Tax basis in excess of financial
reporting basis of investments in
network companies..................... $ 1,064 $ 19,630
Stock-based compensation................. 1,138 21,356
State taxes.............................. -- 6,472
Net operating loss carryforward.......... 7,513 19,594
---------------- ----------------
Total gross deferred tax assets....... 9,715 67,052
Less: valuation allowance................ (4,497) (19,594)
---------------- ----------------
Net deferred tax assets............... 5,218 47,458
---------------- ----------------
Deferred tax liabilities:
Financial reporting basis in excess of
tax basis of investments in network
companies............................. (734) (64,411)
Financial reporting basis in excess of
tax basis of available-for-sale
securities............................ (14,176) (99,460)
---------------- ----------------
Total gross deferred tax liabilities..... (14,910) (163,871)
---------------- ----------------
Net deferred tax liability............... $ (9,692) $ (116,413)
================ ================

The provision for income taxes differs from the amount of income taxes
determined by applying the applicable U.S. statutory federal income tax rate to
pretax income from continuing operations as a result of the following
differences:

YEAR ENDED JANUARY 31,
------------------------------------
1998 1999 2000
---------- ---------- ------------

Income tax benefit (expense) at federal
statutory rates............................... $ 3,967 $ 1,352 $ (28,394)
Difference in income tax benefit (expense)
resulting from:

State taxes, net of federal...................... 1,059 321 (4,669)
Stock-based compensation......................... -- (520) (12,126)
Valuation allowance, consolidated network company
losses not benefited.......................... (2,946) (1,367) (15,096)
Write off, consolidated subsidiary losses not
benefited..................................... (416) (233) (38,928)
Basis difference in subsidiaries not
consolidated for tax purposes................. 2,531 1,174 12,968
Valuation allowance.............................. (667) 1,631 --
---------- ---------- ------------
Actual income tax benefit (expense).............. $ 3,528 $ 2,358 $ (86,245)
========== ========== ============

The Company files its income tax return on a calendar year basis. The
Company does not include its less than 80% owned subsidiaries in its
consolidated income tax return. As a result, taxable income and losses of less
than 80% owned subsidiaries do not offset each other or that of the Company.
Accordingly, the Company has recorded a valuation allowance against net
operating losses for its proportionate share of

F-30

IDEALAB!

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)--(CONTINUED)

its less than 80% owned network companies due to uncertainty surrounding the
timing of the realization of such losses by those network companies.

The net increase (decrease) in the valuation allowance for deferred tax
assets is $3,613,000, $(264,000), and $15,096,000 for the years ended January
31, 1998, 1999, and 2000, respectively. The increases primarily relate to
additional reserves for the net operating loss carryforwards of the Company's
less than 80% owned subsidiary companies which are not consolidated
for tax purposes (as discussed above).

Net operating loss carryforwards of the Company and its share of its less
than 80% owned subsidiaries totaled approximately $18,438,000 and $48,087,000 at
January 31, 1999 and January 31, 2000, respectively. Their use is limited to
future taxable earnings of the Company and the subsidiaries. The net operating
losses have 20 and 8 year carryforward periods for federal and state income tax
purposes, respectively. If certain substantial changes occur with respect to the
ownership of the Company or its less than 80% owned subsidiary companies, there
could be an annual limitation on the amount of the net operating loss
carryforward which can be utilized.

Excluded from the tax benefit and tax provision but included in deferred
tax liabilities is the effect of network companies' equity transactions of
approximately $644,000, $908,000, and $3,750,000 for the years ended January 31,
1998, 1999, and 2000, respectively. Also excluded from the tax benefit and tax
provision but included in deferred tax liabilities is the unrealized holding
gains from the increase in market value of the Company's marketable securities
of approximately $3,076,000, $11,100,000, and $85,284,000 for the years ended
January 31, 1998, 1999, and 2000, respectively.

17. RELATED PARTY TRANSACTIONS

Trade revenues for the year ended January 31, 1999 and 2000 included
$49,000 and $83,000 of revenue generated from transactions with network
companies which are accounted for using the equity method. Revenues for the year
ended January 31, 1998 did not include any revenue generated from Network
Companies which are accounted for using the equity method.

The Company provides facilities and various services, including executive
recruiting, web development, information technology, legal, finance, accounting
and human resources, to certain of its network companies. The Company charges
each of these network companies a monthly fee at rates which approximate the
cost of providing such facilities and services. During the years ended January
31, 1998, 1999 and 2000, the Company charged certain of its equity method
network companies aggregate fees of $42,000, $453,000 and $1,541,000,
respectively, for these facilities and other services. See also Note 3 which
describes amounts due from network companies which are accounted for using the
equity method at January 31, 1999 and 2000.

In February 1999, the Company entered into a sublease agreement with one
of its network companies which is accounted for using the equity method. In
December 1999, both parties agreed to terminate this agreement and enter into a
separate sublease agreement commencing in January 2000 and expiring in October
2004. Total remaining minimum sublease income due pursuant to the terms of the
sublease is approximately $6,100,000. During the year ended January 31, 2000,
the Company recorded $364,000 of sublease income from this Network Company.

In October 1999, the Company issued an equity method network company
which is accounted for using the equity method a promissory note in the amount
of $1,962,007 which accrued interest at the rate of 7% per annum. The note
financed the Company's purchase of an additional interest in the network company
and was collateralized by the underlying convertible preferred stock. The note,
including accrued

F-31

IDEALAB!

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)--(CONTINUED)

interest, was paid in full prior to January 31, 2000. The Company recorded
interest expense of $33,000 on this note during the year ended January 31, 2000.

During the year ended January 31, 2000, the Company issued promissory
notes to its Chairman and Chief Executive Officer with total principal amounting
to $9,283,000. Each of the promissory notes accrued interest at the rate of 7%
per annum compounded semi-annually and was payable on the earlier of demand by
the Company or December 31, 1999. During December 1999, all of the notes,
including accrued interest, were paid in full. The Company recorded interest
income of $231,000 on such notes during the year ended January 31, 2000.

In December 1998, the Company entered into a promissory note with its
Chairman and Chief Executive Officer under which the Company borrowed $300,000
which was payable on demand. The note did not bear interest and was paid in full
by the Company in February 1999.

See Note 13 for a description of notes receivable from shareholders,
including employees, officers and directors, issued upon the early exercise of
stock options, or the sale of common stock subject to repurchase.

18. SUPPLEMENTAL NON-CASH FINANCING AND INVESTING ACTIVITIES

The Company acquired $314,000 of fixed assets under capital leases
during the year ended January 31, 1998.

The following describes the Company's non-cash financing and investing
activities during the year ended January 31, 1999:

o The Company acquired $66,000 of fixed assets under capital leases.

o The Company issued notes receivable to shareholders for $1,665,000 in
connection with the exercise of stock options.

The following describes the Company's non-cash financing and investing
activities during the year ended January 31, 2000:

o The Company acquired $31,568,000 of fixed assets and other intangible
assets under capital leases.

o The Company issued notes receivable to shareholders for $37,084,000
in connection with the exercise of stock options and the sale of
common stock subject to repurchase.

o The Company issued 2,331,000 shares of Series D convertible
preferred stock valued at $233,136,000 to acquire ownership interests
in network companies.

o The Company issued 664,000 shares of common stock valued at
$5,311,000 to acquire an ownership interest in a network company.

o The Company issued 5,000 shares of Series D convertible preferred
stock valued at $500,000 to acquire the rights to a domain name.

o The Company cancelled $70,000 in notes receivable from shareholders
and exercised its right to repurchase restricted common stock.

o EntryPoint, a consolidated network company, issued shares of
convertible preferred stock valued at $6,000,000 and paid $1,000,000
in cash to acquire PointCast.

F-32

IDEALAB!

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)--(CONTINUED)

o CarsDirect.com, a consolidated network company, issued shares of Class
A common stock valued at $1,680,000 and paid $7,085,000 in cash and
acquisition costs to acquire Perga Capital Incorporated, the parent
company of AutoData.

o CarsDirect.com, a consolidated network company, issued shares of Class
A common stock valued at $13,750,000 and paid $395,000 in acquisition
costs to acquire certain net assets of Potamkin.

o CarsDirect.com, a consolidated network company, acquired an additional
49% interest in CD1Financial and terminated the master and operating
agreement which governed CD1Financial for $32,875,000 in cash and a
warrant valued at $29,579,000.

19. DEFINED CONTRIBUTION PLAN

In 1997, the Company established a defined contribution plan that covers
all of its eligible employees. Participants may contribute 1% to 15% of their
eligible pre-tax compensation, as defined. The Company may make discretionary
contributions to the plan. During each of the three years in the period ended
January 31, 2000, the Company has not made any contributions to the plan.

F-33

IDEALAB!

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)--(CONTINUED)

20. NET INCOME (LOSS) PER SHARE APPLICABLE TO COMMON SHAREHOLDERS

The following table sets forth the computation of basic and diluted
net income (loss) per share applicable to common shareholders:

Year ended January 31,
---------------------------------------------------
1998 1999 2000
---------------- ---------------- ----------------

Numerator:
Net income (loss)............................. $ (7,056) $ (833) $ 118,484
Deduction for beneficial conversion feature... -- -- (9,724)
Repurchase of convertible preferred
stock....................................... -- -- (3,777)
---------------- ---------------- ----------------
Numerator for both basic and diluted net income
(loss) per share applicable to common
shareholders................................ $ (7,056) $ (833) $ 104,983
================ ================ ================

Denominator:
Denominator for basic net income (loss) per
share--weighted-average shares of
common stock outstanding.................... 334,760 352,083 423,525

Effect of dilutive securities:
Stock options and warrants.................. -- -- 44,088
Convertible preferred stock--Series A....... -- -- 34,500
Convertible preferred stock--Series B....... -- -- 59,062
Convertible preferred stock--Series C....... -- -- 48,032
Convertible preferred stock--Series D....... -- -- 6,095
Common stock subject to repurchase.......... -- -- 80,010
---------------- ---------------- ----------------
Dilutive potential common shares.............. -- -- 271,787
---------------- ---------------- ----------------
Denominator for dilutive net income (loss) per
share--adjusted weighted-average
shares and assumed conversions............ 334,760 352,083 695,312
================ ================ ================

Basic net income (loss) per share applicable to
common stockholders....................... $ (0.02) $ -- $ 0.25

Diluted net income (loss) per share applicable to
common stockholders....................... $ (0.02) $ -- $ 0.15

The per share computations for the years ended January 31, 1998 and 1999
exclude convertible preferred stock, stock options and the unvested portion of
common stock subject to repurchase, because their effects were anti-dilutive.
The numbers of shares of convertible preferred stock, stock options and the
unvested portion of common stock subject to repurchase excluded from the diluted
net loss per share computation were 85,700,000, 73,837,000, and 0, respectively,
for the year ended January 31, 1998 and 94,511,000, 44,430,000 and 6,071,000,
respectively, for the year ended January 31, 1999.

F-34

IDEALAB!

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)--(CONTINUED)

21. COMMITMENTS AND CONTINGENCIES

The Company leases facilities under noncancelable operating
leases which expire on various dates through May 2015. The Company leases
certain computer equipment, office furniture and other assets under
noncancelable leases accounted for as capital leases. These leases expire on
various dates through January 2012. Future minimum lease payments as of January
31, 2000 under the leases are as follows:

OPERATING CAPITAL
LEASES LEASES
------------- -------------

2001....................... $ 10,771 $ 6,276
2002....................... 12,098 6,057
2003....................... 10,203 4,411
2004....................... 8,487 4,121
2005....................... 7,229 4,100
Thereafter................. 26,959 29,000
Less: imputed interest..... -- (20,011)
------------- -------------
$ 75,747 33,954
=============
Less: current portion...... (3,515)
-------------
$ 30,439
=============

Rent expense under the noncancelable operating leases was approximately
$493,000, $591,000 and $4,223,000 for the years ended January 31, 1998, 1999 and
2000, respectively.

From time to time, the Company guarantees certain trade payables of its
network companies. As of January 31, 2000, no such guarantees were outstanding.

In August 1999 idealab! Capital Principals Fund, L.P. ("Principals Fund")
was created for the purpose of making co-investments in securities along with
certain other venture capital funds which are managed by idealab Capital
Management II, L.L.C. (see also Note 6). The Company is a limited partner in the
Principals Fund and has made a capital commitment of $25,000,000, of which
$4,250,000 has been paid as of January 31, 2000.

The Company and its subsidiaries are involved in various claims and legal
actions arising in the ordinary course of business. In the opinion of management
and based on the advice of Counsel, the amount of the ultimate liability with
respect to these actions will not materially affect the financial position,
results of operations or cash flows of the Company and its subsidiaries.

The Investment Company Act of 1940 requires registration for companies that
are engaged primarily in the business of investing, reinvesting, owning, holding
or trading in securities. A company may be deemed to be an investment company if
it owns "investment securities" with a value exceeding 40% of the value of its
total assets (excluding government securities and cash items) on an
unconsolidated basis, unless an exemption or safe harbor applies. Securities
issued by companies other than majority-owned subsidiaries are generally
considered investment securities for purposes of the Investment Company Act. At
January 31, 2000, substantially all of the Company's assets on an unconsolidated
basis, excluding government securities and cash items, consisted of equity
interests in majority-owned subsidiaries and equity interests in other
companies. The Company's equity interests in companies that are not
majority-owned subsidiaries could be counted as investment securities. At
January 31, 2000, more than 40% of the value of the Company's total assets on an
unconsolidated basis consisted of securities issued by companies that are not
majority-owned subsidiaries. Therefore, the Company could be considered an
investment company unless the Securities and Exchange Commission issues an order
declaring that the Company is primarily engaged in a business or businesses
other than that of investing, reinvesting, owning, holding or is trading in
securities or (ii) the Company does not fall within the definition of investment

F-35

IDEALAB!

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)--(CONTINUED)

company in Section 3(a) of the Investment Company Act. On January 28, 2000, the
Company filed an application with the Securities and Exchange Commission
requesting a permanent order declaring that the Company is primarily engaged in
a business other than that of investing, reinvesting, owning, holding or trading
in securities. On March 28, 2000, the Commission granted a temporary order
exempting the Company from all provisions of the Investment Company Act for a
120-day period that ends on July 26, 2000 while it considers the Company's
request for a permanent order.

Registration as an investment company would subject the Company to
restrictions that are inconsistent with its fundamental business strategy of
equity growth through creating, building and operating interactive
communications companies. The Company may have to take actions, including
buying, refraining from buying, selling or refraining from selling securities,
when it would otherwise not choose to in order to continue to avoid registration
under the Investment Company Act. For example, the Company may have to ensure
that it retain controlling ownership interests in its network companies after
their initial public offerings, which would require the Company to expend
significant amounts of capital that the Company might otherwise use to create or
acquire other companies.

22. NETWORK COMPANY INTERVENING EVENTS--UNAUDITED

On January 31, 2000, GoTo.com, Inc., a network company accounted for
under equity method, acquired Cadabra, Inc. for cash, GoTo.com, Inc. common
stock and other acquisition related costs. The increase in the Company's share
of the net assets of GoTo.com resulting from the Cadabra, Inc. acquisition was
approximately $66,000,000 and will be recorded as a gain on stock issuance by
network companies during the first quarter of fiscal year 2001.

23. SUBSEQUENT EVENTS--UNAUDITED

On April 12, 2000, the Company's Board of Directors authorized the filing
of a registration statement with the Securities and Exchange Commission ("SEC")
that would permit the Company to sell shares of the Company's common stock in
connection with a proposed initial public offering ("IPO"). If the IPO is
consummated under the terms presently anticipated, upon the closing of the
proposed IPO, all of the then outstanding shares of the Company's convertible
preferred stock will automatically convert into shares of common stock on a
ten-for-one basis, subject to anti dilution provisions.

On April ____ , 2000, the Company's Board of Directors approved the
reincorporation of the Company in the State of Nevada, the change of the
Company's name to idealab!, the authorization of 10,000,000,000 shares of $0.001
par value common stock and 100,000,000 shares of $0.001 par value preferred
stock, all of which will occur prior to the closing of the IPO.

On March 15, 2000, the Company sold 1,488,000 shares of Series D
convertible preferred stock in exchange for cash and other proceeds totaling
of $118,807,000 and a note receivable of $30,000,000.

F-36

IDEALAB!

UNAUDITED PRO FORMA FINANCIAL INFORMATION
BASIS OF PRESENTATION

The unaudited pro forma condensed combined consolidated statement of
operations for the year ended January 31, 2000 gives effect to each of the
transactions described below as if they had occurred on February 1, 1999. The
pro forma financial information has been prepared on the basis of the
assumptions described in the notes to the unaudited pro forma combined financial
information.

An unaudited condensed consolidated pro forma balance sheet at January
31, 2000 has not been presented as all of the transactions described above
occurred before January 31, 2000 and are reflected in the Company's historical
financial statements.

In May 1999, EntryPoint, a consolidated network company, acquired all of
the outstanding stock of PointCast Incorporated ("PointCast") for $1,000,000 in
cash and shares of EntryPoint convertible preferred stock with an estimated fair
value of $6,000,000. The acquisition has been accounted for as a purchase. The
acquisition cost has been allocated to the assets acquired and liabilities
assumed based on estimates of their respective fair values. The excess of
purchase consideration over the net tangible assets acquired of $4,875,000 has
been allocated to goodwill and is being amortized on a straight line basis over
three years.

In July 1999, CarsDirect.com, a consolidated network company, acquired
all of the outstanding stock of Perga Capital Incorporated, the parent of
AutoData Marketing Systems Incorporated ("AutoData"). The purchase price of
$8,765,000 was comprised of $7,085,000 in cash, other acquisition related
expenses and issuance of CarsDirect.com Class A common stock with an estimated
fair value of $1,680,000. In connection with the acquisition, CarsDirect.com
issued additional shares of its Class A common stock to two individuals which
will vest over four years, subject to the continuing employment of these
individuals and subject to acceleration in the event of an initial public
offering or change in control transaction of CarsDirect.com. These shares were
valued at $3,120,000 and will be recorded as stock based compensation over the
vesting period of the employees. The acquisition has been accounted for as a
purchase. The acquisition cost has been allocated to the assets acquired and
liabilities assumed based on estimates of their respective fair values. The
excess of purchase consideration over the net tangible assets acquired of
$8,545,000 has been allocated to identifiable intangibles ($1,095,000) and
goodwill ($7,450,000) all of which are being amortized on a straight line basis
over three years.

In October 1999, CarsDirect.com acquired certain assets and liabilities
of Potamkin Auto Center, Ltd. ("Potamkin") for an aggregate purchase price of
$14,145,000. The purchase price was comprised of CarsDirect.com Class A common
stock with a fair value of $13,750,000 and $395,000 in acquisition related
expenses. In conjunction with the acquisition, CarsDirect.com issued shares of
its Class A common stock valued at $4,400,000 to certain individuals which will
vest equally in quarterly increments commencing on December 31, 1999 and
continuing through September 30, 2002, subject to their continuing employment.
The value of these shares will be recorded as stock based compensation over the
vesting periods. The acquisition has been accounted for as a purchase. The
acquisition cost has been allocated to the assets acquired and liabilities
assumed based on estimates of their respective fair values. The excess of
purchase consideration over net tangible assets acquired of $14,074,000 has been
allocated to identifiable intangibles ($2,390,000) and goodwill ($11,684,000)
which are being amortized on a straight line basis over periods ranging from six
months to ten years.

In May 1999 CarsDirect.com entered into an agreement to form and operate
CD1Financial.com, L.L.C. ("CD1Financial"), a joint venture formed to provide
automotive related financial products to customers of CarsDirect.com. In
connection with this agreement, CarsDirect.com issued to the minority member of
the joint venture a warrant to purchase an amount of shares of CarsDirect.com
Class A common stock to be determined based upon the combined value of
CD1Financial and CarsDirect.com at the time of the occurrence of certain events.
In December 1999, CarsDirect.com acquired the minority member's 49% interest in
CD1Financial and terminated the master and operating agreement which governed
CD1Financial for $32,875,000 in cash. The terms of the warrant were also
modified to make the warrant non-forfeitable and immediately exercisable into
shares of CarsDirect.com Class A common stock with an exercise price of

F-37

IDEALAB!

UNAUDITED PRO FORMA FINANCIAL INFORMATION
BASIS OF PRESENTATION--(CONTINUED)

$0.01 per share. The estimated fair value of the warrant for accounting purposes
was approximately $29,579,000 and has been accounted for as part of the purchase
price of the additional interest in CD1Financial and included in goodwill. This
acquisition was accounted for using the purchase method. The purchase price was
allocated to the estimated fair value of tangible and identifiable intangible
net assets acquired. The estimated fair value of the tangible and intangible net
assets acquired approximated their historical cost basis. The excess of the
purchase price over the net assets acquired of approximately $60,677,000 was
allocated to goodwill and is being amortized on straight-line basis over an
estimated life of three years.

In August 1999, the Company increased its minority interest in
Intranets.com, Inc. purchasing convertible preferred stock of Intranets.com,
Inc. for $2,000,000 in cash. The excess of the purchase price over the Company's
share of the underlying net assets acquired, was $1,659,000 and is being
amortized on a straight line basis over three years.

In October and December 1999, the Company acquired shares of
CarsDirect.com Class B common stock and Series D convertible preferred stock for
$218,422,000 in cash. The excess of the purchase price over the Company's share
of the underlying net assets acquired was $21,850,000 and is being amortized on
a straight line basis over three years.

In December 1999, the Company acquired a minority interest in eVoice,
Inc. for $30,000,000 in cash. The excess of the purchase price over the
Company's share of the underlying net assets acquired was $5,960,000 and is
being amortized on a straight line basis over three years.

In January 2000, the Company increased its minority interest in GoTo.com,
Inc. through the purchase of shares of GoTo.com, Inc. common stock. The
aggregate purchase price of $340,256,000 was comprised of $112,456,000 in cash
and 2,278,000 shares of idealab! Series D convertible preferred stock with an
estimated fair value of $227,800,000. The excess of the purchase price over the
Company's share of the underlying net assets acquired was $329,950,000 and is
being amortized on a straight line basis over five years.

In January 2000, the Company sold its ownership interest in Free-PC to
eMachines, Inc. for approximately 12,265,000 shares of eMachines, Inc. common
and convertible preferred stock and a warrant to purchase approximately
5,256,000 shares of eMachines, Inc. common stock. Prior to the date of the sale,
the Company had a controlling interest in Free-PC and therefore consolidated the
results of Free-PC for the period from January 1999 (Free-PC's inception) to
January 2000.

The pro forma financial information is presented for illustrative
purposes only and is not necessarily indicative of the operating results or
financial position that would have occurred had these transactions been in
effect as of the beginning of the periods presented, nor is it necessarily
indicative of future operating results or financial position. The audited
historical financial statements of the Company, eVoice, Inc., GoTo.com, Inc.,
Intranets.com, Inc., Perga Capital Incorporated, AutoData, PointCast and
Potamkin are included elsewhere in this Prospectus and the unaudited pro forma
financial information presented herein should be read in conjunction with those
financial statements and related notes.

F-38

IDEALAB!
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED JANUARY 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

PERGA AUTO DATA POTAMKIN
CONSOLIDATED POINTCAST CAPITAL MARKETING AUTO DISPOSITION OF
IDEALAB! INCORPORATED INCORPORATED INCORPORATED CENTER, LTD. FREE-PC INC.
(HISTORICAL) (HISTORICAL) (HISTORICAL) (HISTORICAL) (HISTORICAL) (HISTORICAL)
--------- ------------ ----------- ------------ ------------ -----------

Revenues............................... $ 21,158 $ 3,836 $ -- $ 1,729 $ 108,781 $ (1,201)
--------- ----------- ----------- ------------- ------------ -----------
Operating expenses:
Cost of revenues.................... 28,380 4,657 58 98,835 (3,320)
Sales and marketing................. 70,129 3,943 272 4,913 (20,147)
Product development................. 10,798 3,815 -- -- (2,059)
General and administrative.......... 36,738 2,437 1,284 5,490 (4,422)
Stock-based compensation............ 109,150 435 -- -- (1,902)
Amortization of goodwill and other
intangibles....................... 7,149 -- --
--------- ----------- ----------- ------------ ------------ -----------
Total operating expenses........... 262,344 15,287 1,614 109,238 (31,850)
--------- ----------- ----------- ------------ ------------ -----------
Operating income (loss)............ (241,186) (11,451) 115 (457) 30,649
--------- ----------- ----------- ------------ ------------ -----------

Other income, net....................... 316,620 2,249 -- -- 39
Interest income (expense)............... 5,691 (1,073) (17) (350) (902)
--------- ----------- ----------- ------------ ------------ -----------

Income (loss) before income taxes,
minority interest and equity in the
income (loss) of affiliates......... 81,125 (10,275) 98 (807) 29,786
Income tax expense..................... (86,245) (5) (65) 1

Minority interest...................... 95,537

Equity in the income (loss) of
affiliates, net of tax.............. 28,067 12
--------- ------------ ----------- ------------ ------------ -----------

Net income (loss)...................... 118,484 (10,280) 12 33 (807) 29,787

Deduction for beneficial conversion
feature............................. (9,724) -- -- -- -- --

Repurchase of convertible preferred stock. (3,777) -- -- -- -- --
--------- ------------ ----------- ------------ ----------- -----------

Net income (loss) applicable to common
shareholders............................. $ 104,983 $ (10,280) $ 12 $ 33 $ (807) $ 29,787
========= ============ =========== ============ =========== ===========

Net income (loss) per share
Basic................................ $ 0.25
Diluted.............................. $ 0.15
Weighted average shares outstanding
Basic.................................. 423,525
Diluted................................ 695,312

PRO FORMA PRO FORMA
ADUSTMENTS COMBINED
------------ -----------

Revenues............................... $ -- $ 134,303
------------ ------------
Operating expenses:
Cost of revenues.................... 128,610
Sales and marketing................. 191 (1) 59,301
Product development................. 12,554
General and administrative.......... 1,059 (2)(3) 42,586
Stock-based compensation............ 1,616 (4) 109,299
Amortization of goodwill and other
intangibles....................... 27,116 (5) 34,265
------------ ------------
Total operating expenses........... 29,982 386,615
------------ ------------
Operating income (loss)............ (29,982) (252,312)
------------ ------------

Other income, net....................... 318,908
Interest income (expense)............... (1,970)(6) 1,379
------------ ------------

Income (loss) before income taxes,
minority interest and equity in the
income (loss) of affiliates......... (31,952) 67,975
Income tax expense..................... 13,100 (7) (73,214)
Minority interest...................... 42,797 (8) 138,334
Equity in the income (loss) of
affiliates, net of tax.............. (51,416)(9) (23,337)
------------ ------------

Net income (Loss)...................... (27,471) 109,758

Deduction for beneficial conversion
feature............................. -- (9,724)

Repurchase of convertible preferred stock -- (3,777)
------------ ------------

Net income (loss) applicable to common
shareholders.............................$ (27,471) $ 96,257
============ ============

Net income (loss) per share
Basic................................ $ 0.17
Diluted.............................. $ 0.14
Weighted average shares outstanding
Basic................................. 573,743(10)
Diluted............................... 697,839(10)

F-39

IDEALAB!

NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
(IN THOUSANDS EXCEPT PER SHARE DATA)

Pro forma adjustments reflect the following in the unaudited pro forma
condensed combined consolidated statement of operations, giving effect to
the acquisitions as if they had occurred on February 1, 1999:

(1) Additional sales compensation of $191 due to employment agreements signed
in connection with the Potamkin acquisition.

(2) Additional rent expense of $1,139 due to new lease agreements signed in
connection with the Potamkin acquisition.

(3) Net adjustment of $80 to reduce depreciation expense for assets not
acquired in connection with the Potamkin acquisition.

(4) Stock-based compensation expense related to the issuance and subsequent
vesting of the shares of CarsDirect.com Class A common stock issued
in connection with the AutoData and Potamkin acquisitions,
respectively as follows:

AutoData.............................................. $ 455
Potamkin.............................................. 1,161
-------
$ 1,616
=======

(5) Additional amortization expense related to the intangible assets acquired
in connection with the acquisitions of AutoData, PointCast, Potamkin and
CD1Financial and the purchase of additional ownership interests in
CarsDirect.com by the Company and elimination of amortization expense
recognized in connection with the disposition of the Company's
ownership interest in Free-PC, as follows:

PointCast............................................. $ 677
AutoData.............................................. 1,662
Potamkin............................................. 1,804
CarsDirect............................................ 3,756
CD1Financial.......................................... 19,383
Free-PC............................................... (166)
--------
$ 27,116
========

(6) Reduction of interest income by $1,970 related to the cash paid in the
acquisitions of AutoData, CD1Financial and PointCast.

(7) Income tax expense has been adjusted to reflect the tax effect of the pro
forma adjustments.

(8) Additional minority interest to reflect the minority shareholders interest
in the effects of the adjustments described in notes (1) through (6) above
and the pre-acquisition results of operations of PointCast, AutoData and
Potamkin. Also reflects the reduction in minority interest due to the
disposition of the Company's ownership interest Free-PC.

(9) Additional equity income (loss) and amortization expense as a component
thereof related to the purchase of additional ownership interests in
eVoice Inc., GoTo.com, Inc. and Intranets.

F-40

IDEALAB!

NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION--(CONTINUED)
(IN THOUSANDS)

(10) Additional weighted average shares used in the calculation of pro
forma basic and diluted net income per share applicable to common
shareholders to reflect the issuance of:

o 22,780 shares of common stock assuming the conversion of 2,278 shares
of Series D convertible preferred stock issued in exchange for
additional ownership interests in GoTo.com as though such shares were
issued on February 1, 1999,

o an aggregate of 14,246 shares of common stock assuming the conversion
of 1,425 shares of Series D preferred stock, the proceeds from the
sale of which were used to finance the acquisition of additional
ownership interests in GoTo.com for $112,460 and in eVoice Inc. for
$30,000, as though the shares were issued on February 1, 1999,

o the automatic conversion of the Company's convertible preferred stock
into shares of the Company's common stock effective upon the closing
of the Company's initial public offering as if such conversion
occurred on February 1, 1999 or at the date of issuance if later (see
Note 2 of Notes to idealab! Consolidated Financial Statements).

F-41

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
of eVoice, Inc.
(a development stage company)

In our opinion, the accompanying balance sheets and the related
statements of operations, of redeemable convertible preferred stock and
shareholders' equity (deficit) and of cash flows present fairly, in all material
respects, the financial position of eVoice, Inc. (a development stage company)
at December 31, 1998 and at September 30, 1999, and the results of its
operations and its cash flows for the period from December 7, 1998 (date of
inception) to December 31, 1998, the nine month period ended September 30, 1999
and for the cumulative period from December 7, 1998 (date of inception) through
September 30, 1999, in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

/s/PricewaterhouseCoopers LLP

San Jose, California
February 28, 2000

F-42

EVOICE, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 1998 AND SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)

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

ASSETS
Current assets:
Cash and cash equivalents................................................... $ 10 $ 3,415
Prepaid expenses and other current assets................................... 18 364
---------------- ----------------
Total current assets...................................................... 28 3,779
Property and equipment, net.................................................... -- 3,455
Internal-use software development costs........................................ -- 148
Other assets................................................................... -- 230
---------------- ----------------
Total assets.............................................................. $ 28 $ 7,612
================ ================

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Notes payable, current...................................................... $ 290 $ --
Accounts payable............................................................ 121 1,168
Accrued liabilities......................................................... -- 286
Capital lease obligations, current portion.................................. -- 220
---------------- ----------------
Total current liabilities................................................. 411 1,674
Capital lease obligations, long-term portion................................... -- 598
---------------- ----------------
411 2,272
---------------- ----------------
Commitments (Note 6)
Redeemable Convertible Preferred Stock (Note 7)................................ -- 12,162
Shareholders' equity (deficit):................................................
Common Stock: $0.0001 par value; 50,000
shares authorized; 11,640 and 13,075 shares issued and
outstanding at December 31, 1998 and September 30, 1999................... 1 1
Additional paid-in capital..................................................... 10 1,570
Notes receivable from shareholders............................................. (1) (116)
Deferred stock-based compensation.............................................. -- (1,089)
Deficit accumulated during the development stage............................... (393) (7,188)
---------------- ----------------
Total shareholders' equity (deficit)...................................... (383) (6,822)
---------------- ----------------
Total liabilities, redeemable Convertible Preferred Stock and
shareholders' equity (deficit).......................................... $ 28 $ 7,612
================ ================

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

F-43

EVOICE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
PERIOD ENDED DECEMBER 31, 1998 AND NINE MONTH
PERIOD ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)

PERIOD FROM
DECEMBER 7,
1998 (DATE OF
NINE MONTH INCEPTION)
PERIOD ENDED PERIOD ENDED THROUGH
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1999
--------------- --------------- ---------------

OPERATING EXPENSES:
Research and development (excluding amortization of
deferred stock-based compensation of $193 in 1999).... $ 393 $ 3,242 $ 3,635
Sales and marketing (excluding amortization of deferred
stock-based compensation of $73 in 1999).............. -- 1,507 1,507
General and administrative (excluding amortization of
deferred stock-based compensation of $90 in 1999)..... -- 1,670 1,670
Amortization of stock-based compensation................ -- 356 356
--------------- --------------- ---------------
Total operating expenses.............................. 393 6,775 7,168
--------------- --------------- ---------------
Loss from operations....................................... 393 6,775 7,168
Interest income............................................ -- 104 104
Interest expense........................................... -- (124) (124)
Other income (expense), net................................ -- (20) (20)
--------------- --------------- ---------------
Net loss................................................... $ 393 $ 6,795 $ 7,188
=============== =============== ===============

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

F-44

EVOICE, INC.

(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY
(DEFICIT) PERIOD ENDED DECEMBER 31, 1998 AND NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)

REDEEMABLE
CONVERTIBLE
PREFERRED STOCK NOTES
(NOTE 7) COMMON STOCK ADDITIONAL RECEIVABLE
-------------------- ----------------------- PAID-IN FROM
SHARES AMOUNT SHARES AMOUNT CAPITAL SHAREHOLDERS
-------- ---------- ---------- ----------- ----------- ------------

Issuance of Common Stock to founders .... -- $ -- 10,840 $ 1 $ 9 $ (1)
Issuance of Series A Convertible
Preferred Stock, Common Stock and
Common Stock warrants in connection
with acquisition of assets ........... 122 -- 800 -- 1 --
Net loss ................................ -- -- -- -- -- --
------- ------- ------- ------- ------- -------
BALANCE AT DECEMBER 31, 1998 ............ 122 -- 11,640 1 10 (1)
Issuance of Series A Convertible
Preferred Stock, net of issuance costs
of $648 .............................. 970 230 -- -- -- --
Issuance of Series A Convertible
Preferred Stock warrants ............. -- 121 -- -- -- --
Issuance of Series B Convertible
Preferred Stock, net of issuance costs
of $8 ................................ 17,696 11,392 -- -- -- --
Issuance of Series B Convertible
Preferred Stock warrants ............. -- 419 -- -- -- --
Stock-based compensation for services
rendered ............................. -- -- -- -- 13 --
Repurchase of stock ..................... -- -- (365) -- (14) --
Exercise of Stock Purchase Rights ....... -- -- 1,800 -- 116 (116)
Repayment of notes receivable ........... -- -- -- -- -- 1
Deferred stock-based compensation ...... -- -- -- -- 1,445 --
Amortization of deferred stock-based
compensation ......................... -- -- -- -- -- --
Net loss ................................ -- -- -- -- -- --
------- ------- ------- ------- ------- -------
BALANCE AT SEPTEMBER 30, 1999 ........... 18,788 $12,162 13,075 $ 1 $ 1,570 $ (116)
======= ======= ======= ======= ======= =======

TOTAL
DEFERRED SHAREHOLDERS
STOCK-BASED ACCUMULATED EQUITY
COMPENSATION DEFICIT (DEFICIT)
------------ ------------ -------------

Issuance of Common Stock to founders .... $ -- $ -- $ 9
Issuance of Series A Convertible
Preferred Stock, Common Stock and
Common Stock warrants in connection
with acquisition of assets ........... -- -- 1
Net loss ................................ -- (393) (393)
------- ------- -------
BALANCE AT DECEMBER 31, 1998 ............ -- (393) (383)
Issuance of Series A Convertible
Preferred Stock, net of issuance costs
of $648 .............................. -- -- --
Issuance of Series A Convertible
Preferred Stock warrants ............. -- -- 121
Issuance of Series B Convertible
Preferred Stock, net of issuance costs
of $8 ................................ -- -- --
Issuance of Series B Convertible
Preferred Stock warrants ............. -- -- 419
Stock-based compensation for services
rendered ............................. -- -- 13
Repurchase of stock ..................... -- -- (14)
Exercise of Stock Purchase Rights ....... -- -- --
Repayment of notes receivable ........... -- -- 1
Deferred stock-based compensation ...... (1,445) -- --
Amortization of deferred stock-based
compensation ......................... 356 -- 356
Net loss ................................ -- (6,795) (6,795)
------- ------- -------
BALANCE AT SEPTEMBER 30, 1999 ........... $(1,089) $(7,188) $(6,282)
======= ======= =======

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

F-45

EVOICE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
PERIOD ENDED DECEMBER 31, 1998 AND
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
(IN THOUSANDS)

PERIOD FROM
DECEMBER 7,
1998 (DATE OF
PERIOD NINE MONTH INCEPTION)
ENDED PERIOD ENDED THROUGH
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1999
------------ ------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss $ (393) $ (6,795) $ (7,188)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... -- 80 80
Amortization of stock-based compensation expense....... -- 356 356
Other non-cash expense................................. 272 102 374
Changes in current assets and liabilities:
Prepaid expenses and other current assets............ -- (262) (262)
Accounts payable..................................... 121 1,047 1,168
Accrued liabilities.................................. -- 286 286
------------ ------------- ------------
Net cash used in operating activities.............. -- (5,186) (5,186)
------------ ------------- ------------

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of property and equipment......................... -- (3,535) (3,535)
Capitalized software development costs..................... -- (148) (148)
Acquisition of other assets................................ -- (230) (230)
------------ ------------- ------------
Net cash used in investing activities.............. -- (3,913) (3,913)
------------ ------------- ------------

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from issuance of Series A Convertible Preferred
Stock, net of issuance costs............................. -- 674 674
Proceeds from issuance of Series B Convertible Preferred
Stock, net of issuance costs............................. -- 11,192 11,192
Proceeds from issuance of Series A Convertible Preferred
Stock warrants........................................... -- 83 83
Proceeds from issuance of Common Stock..................... 10 -- 10
Repurchase of Common Stock................................. -- (13) (13)
Proceeds from capital lease................................ -- 865 865
Principal payments on capital lease obligations............ -- (47) (47)
Proceeds from note payable................................. -- 100 100
Repayment of notes payable................................. -- (350) (350)
------------ ------------- ------------
Net cash provided by financing activities.......... 10 12,504 12,514
------------ ------------- ------------
Net increase in cash and cash equivalents..................... 10 3,405 3,415
Cash and cash equivalents at beginning of period.............. -- 10 --
------------ ------------- ------------
Cash and cash equivalents at end of period.................... $ 10 $ 3,415 $ 3,415
============ ============= ============

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

F-46

EVOICE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
PERIOD ENDED DECEMBER 31, 1998 AND
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

eVoice, Inc. (the "Company") was incorporated in Nevada on December 7,
1998 under the name of Talkstar.com, Inc. In April 1999, the Company
reincorporated in the state of Delaware. In December 1999 the Company changed
its name to eVoice, Inc. The Company was incorporated to provide advertising and
voice mail services through Internet and telecommunication networks.

eVoice is in the development stage. The Company has not commenced its
principal operations and has had no revenues since inception. The Company has
devoted substantially all of its efforts since inception to acquiring and
installing equipment, recruiting and training employees and establishing its
organizational structure.

The Company has a limited operating history and its prospects are subject
to risks, expenses and uncertainties frequently encountered by companies in new
and rapidly evolving markets. These risks include the failure to build a
sufficient base of active users of voice mail services necessary to attract
advertisers, the rejection of the Company's products by customers, vendors
and/or advertisers, as well as other risks and uncertainties.

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 reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. At December
31, 1998 and September 30, 1999, cash and cash equivalents consist of bank
deposits, amounts in money market accounts and petty cash. The Company places
its cash with major domestic financial institutions.

INTERNAL-USE SOFTWARE DEVELOPMENT COSTS

Under the provisions of SOP 98-1, "Software for internal use," the
Company capitalizes costs associated with software developed or obtained for
internal-use when both the preliminary project stage is completed and the
Company's management has authorized further funding for the project which it
deems probable will be completed and used to perform the function intended.
Capitalized costs include only (1) external direct costs of materials and
services consumed in developing or obtaining internal-use software, (2) payroll
and payroll-related costs for employees who are directly associated with and who
devote time to the internal-use software project, and (3) interest costs
incurred, when material, while developing internal-use software. Capitalization
of such costs ceases no later than the point at which the project is
substantially complete and ready for its intended purpose.

Research and development costs and other computer software maintenance
costs related to software development are expensed as incurred. Internal-use
software development costs are amortized using the straight-line method over two
years, but not exceeding the expected life of the software.

F-47

EVOICE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The carrying value of software development costs is regularly reviewed by
the Company, and a loss is recognized when the value of estimated undiscounted
cash flow benefit related to the asset falls below the unamorized cost.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the shorter of estimated useful lives of the
assets, generally three years, or the lease term of the respective assets.

LONG-LIVED ASSETS

The Company periodically evaluates the recoverability of its long-lived
assets based upon expected undiscounted cash flows and recognizes impairment
from the carrying value of long-lived assets, if any, based on the fair value of
such assets.

INCOME TAXES

The Company accounts for income taxes under the asset and liability method,
which requires, among other things, that deferred income taxes be provided for
temporary differences between the tax base of the Company's assets and
liabilities and their financial statement reported amounts. In addition,
deferred tax assets are recorded for the future benefit of utilizing net
operating losses and research and development credit carryforwards. A valuation
allowance is provided against deferred tax assets when it is more likely than
not that they will not be realized.

RESEARCH AND DEVELOPMENT

Research and development costs are charged to operations as incurred.

STOCK-BASED COMPENSATION

The Company accounts for employee stock-based compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion ("APB") No.
25, "Accounting for Stock Issued to Employees," and complies with the disclosure
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Under APB
No. 25, stock-based compensation is based on the difference, if any, on the date
of grant, between the estimated fair value of the Company's common stock and the
exercise price. Deferred stock-based compensation is amortized in accordance
with Financial Accounting Standards Board ("FASB") Interpretation No. 28. The
Company accounts for stock options issued to non-employees in accordance with
the provisions of SFAS No. 123 and Emerging Issues Task Force Issue No 96-18,
"Accounting for Equity Instruments that are Issued to Other than Employees for
Acquiring, or in Conjunction with Selling Goods or Services."

COMPREHENSIVE INCOME

Comprehensive income, as defined by SFAS No. 130 "Reporting Comprehensive
Income," includes all changes in equity (net assets) during a period from
nonowner sources. To date, the Company has not had any transactions that are
required to be reported in comprehensive income (loss) as compared to its
reported net loss, and accordingly net loss is equal to comprehensive net loss
for all periods presented.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities." SFAS No. 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. In July 1999, the

F-48

EVOICE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date FASB Statement No. 133." SFAS No.
137 deferred the effective date of SFAS No. 133 until fiscal years beginning
after June 15, 2000. The Company will adopt SFAS No. 133 during year ending
December 31, 2001. To date, the Company has not engaged in derivative or hedging
activities.

2. SUPPLEMENTAL CASH FLOW INFORMATION

SUPPLEMENTAL CASH FLOW INFORMATION:

PERIOD FROM
DECEMBER 7,
1998 (DATE OF
NINE MONTH INCEPTION)
PERIOD ENDED PERIOD ENDED THROUGH
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1999
--------------- --------------- ---------------

Cash paid for interest...................................... -- 23 23

SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITY:

PERIOD FROM
DECEMBER 7,
1998 (DATE OF
NINE MONTH INCEPTION)
PERIOD ENDED PERIOD ENDED THROUGH
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1999
--------------- ---------------- ---------------

Issuance of note payable for Common Stock................... 1 -- 1
Issuance of note payable for exercised Stock Purchase Rights -- 116 116
Issuance of Common Stock in connection with assets acquired. 1 -- 1
Issuance of options for services............................ -- 13 13
Payment of note payable and interest with Series A
Convertible Preferred Stock.............................. -- 90 90
Issuance of Series A Convertible Preferred Stock warrants
in connection with notes payable......................... -- 38 38
Issuance of Series B Convertible Preferred Stock for
services in connection with sale of Series A
Convertible Preferred Stock.............................. -- 198 198
Issuance of Series B Convertible Preferred Stock warrants
for services in connection with sale of Series A
Convertible Preferred Stock.............................. -- 336 336
Issuance of Series B Convertible Preferred Stock warrants
in connection with lease agreement....................... -- 83 83
Deferred stock-based compensation........................... -- 1,445 1,445

F-49

EVOICE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

3. BALANCE SHEET COMPONENTS

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

PROPERTY AND EQUIPMENT, NET:
Computer equipment........................................................... $ -- $ 617
Furniture and fixtures....................................................... -- 27
Construction in progress..................................................... -- 2,891
--------------- ----------------
-- 3,535
Less: Accumulated depreciation and amortization.............................. -- (80)
--------------- ----------------
$ -- $ 3,455
=============== ================

Property and equipment includes $0 and $896 of computer equipment under
capital leases at December 31, 1998 and September 30, 1999, respectively.
Accumulated amortization of assets under capital leases totaled $0 and $13 at
December 31, 1998 and September 30, 1999, respectively.

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

INTERNAL-USE SOFTWARE DEVELOPMENT COSTS, NET:
Internal-use software development costs................................... $ -- $ 148
Less: Accumulated amortization............................................ -- --
-------------- ---------------
$ -- $ 148
-------------- ---------------
ACCRUED LIABILITIES:
Payroll and related expenses.............................................. $ -- $ 168
Other..................................................................... -- 118
-------------- ---------------
$ -- $ 286
============== ===============

4. ASSET ACQUISITION

In December 1998 the Company acquired certain assets and assumed certain
liabilities from Talkstar, Inc, a Nevada Corporation ("Talkstar Nevada"),
previously and subsequently named Manhattan Beach Properties in exchange for 800
shares of Common Stock, 122 shares of Series A Convertible Preferred Stock and
warrants to purchase 44 shares of Common Stock of the Company. Talkstar Nevada
was not related to the Company. The transaction was accounted for as a purchase.
The fair value of the consideration paid of $1 exceeded the fair value of assets
acquired and liabilities assumed by $272 and was charged to research and
development expense in the period ended December 31, 1998.

The Company estimated the value of the acquired assets and believes that
substantially all of the excess of the purchase price over the fair value of
liabilities assumed is attributable to incomplete technology that had not
reached technological feasibility and for which there is no alternative use and
that does not have identifiable positive cash flow stream. Accordingly due to
the Company's assessment of the stage of completion and lack of alternative
future use the excess purchase price was charged to expense in the period of
acquisition.

F-50

EVOICE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

5. INCOME TAXES

DEFERRED TAX ASSETS AND LIABILITIES CONSIST OF THE FOLLOWING:

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

DEFERRED TAX ASSETS:
Net operating loss carryforwards.......................................... $ -- 2,500
Accruals and reserves..................................................... -- 40
Research credits.......................................................... -- --
--------------- ---------------
-- 2,540
--------------- ---------------
DEFERRED TAX LIABILITIES:
Internal-use software development costs................................... $ -- $ --
--------------- ---------------
Net deferred tax assets................................................... -- 2,540
Valuation allowance....................................................... -- (2,540)
--------------- ---------------
$ -- $ --
=============== ===============

For financial reporting purposes, the Company has incurred a loss in each
period since inception. Based on the available objective evidence, management
believes it is more likely than not that the net deferred tax assets will not be
fully realizable. Accordingly, the Company has provided a full valuation
allowance against its net deferred tax assets at December 31, 1998 and September
30, 1999.

At September 30, 1999, the Company had approximately $6,400 of federal and
$6,400 of state net operating loss carryforwards available to offset future
taxable income which expire in varying amounts from 2006 to 2019. Under the Tax
Reform Act of 1986, the amounts of and benefits from net operating loss
carryforwards may be impaired or limited in certain circumstances. Events which
cause limitations in the amount of net operating losses that the Company may
utilize in any one year include, but are not limited to, a cumulative ownership
change of more than 50%, as defined, over a three year period.

6. COMMITMENTS

LEASES

The Company leases office space and equipment under noncancelable operating
and capital leases with various expiry dates through 2004. Rent expense for the
period ended December 31, 1998 and nine month period ended September 30, 1999
was $0 and $269, respectively. The terms of the facility lease provide for
rental payments on a graduated scale. The Company recognizes rent expense on a
straight-line basis over the lease period, and has accrued for rent expense
incurred but not paid.

F-51

EVOICE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

FUTURE MINIMUM LEASE PAYMENTS UNDER NONCANCELABLE OPERATING AND CAPITAL
LEASES ARE AS FOLLOWS:

CAPITAL PERATING
YEAR ENDED SEPTEMBER 30, LEASES LEASES
- ------------------------- --------- -----------

2000............................................................................. $ 347 $ 399
2001............................................................................. 347 441
2002............................................................................. 366 458
2003............................................................................. -- 475
2004............................................................................. -- 122
--------- -----------
Total minimum lease payments and sublease income...................................... 1,060 $ 1,895
===========
Less: Amount representing interest................................................... (242)
---------
Present value of capital lease obligations............................................ 818
Less: Current portion................................................................ (220)
---------
Long-term portion of capital lease obligations..................................... $ 598
=========

The effective interest rate on the Company's capital leases at September
30, 1999 was 19%.

In June 1999 the Company entered into a two-year agreement with a
telecommunication services provider for telecommunication services and space for
Company equipment. In February 2000 the agreement was terminated by the Company
due to the failure of the service provider to comply with certain terms of the
agreement. Monthly rent expense amounted to $53.

In July 1999 the Company entered into an agreement with an Internet
services provider for the lease of space for Company equipment. The term of the
lease is not defined. Rent is charged monthly based on the usage of space. In
September 1999 monthly rent expense amounted to $11 including utilities costs.

In September 1999 the Company entered into three-year capital lease
agreement providing for the lease of equipment for up to $3,000. There were no
transactions associated with this agreement before October 1, 1999.

7. REDEEMABLE CONVERTIBLE PREFERRED STOCK

CONVERTIBLE PREFERRED STOCK AT SEPTEMBER 30, 1999 CONSISTS OF THE
FOLLOWING:

SHARES
--------------------------- PROCEEDS NET
LIQUIDATION OF ISSUANCE
SERIES AUTHORIZED OUTSTANDING AMOUNT COSTS
------ ------------ ------------- -------------- --------------

A ............................................ 1,409 1,092 $ 1,092 $ 230
B ............................................ 19,010 17,696 11,398 11,392
------------ ------------- --------------- ---------------
20,419 18,788 $ 12,490 $ 11,622
============ ============= =============== ===============

The holders of Preferred Stock have various rights and preferences as
follows:

VOTING

Each share of Series A and B has voting rights equal to an equivalent
number of shares of Common Stock into which it is convertible and votes together
as one class with the Common Stock.

F-52

EVOICE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

As long as at least 25% shares of Convertible Preferred Stock remain
outstanding and 25% of Series B Convertible Preferred Stock remain outstanding,
the Company must obtain approval from a majority of the holders of Convertible
Preferred Stock and a majority of holders of Series B Convertible Preferred
Stock voting separately as a class in order to amend the Articles of
Incorporation as related to Convertible Preferred Stock; authorize or issue
shares of any class or Series of stock having any preference or priority as to
dividends, liquidation rights or assets superior to or on parity with any such
preference or priority of the Series A and B Convertible Preferred Stock;
declare or pay any dividend or other distribution on the Common Stock, effect a
merger, consolidation or sale of assets where the existing shareholders retain
less than 50% of the voting stock of the surviving entity. In addition, as long
as at least 25% shares of Series B Convertible Preferred Stock remain
outstanding, the Company must obtain approval from a majority of the holders of
Series B Convertible Preferred Stock in order to repurchase any shares of Common
Stock other than shares subject to the right of repurchase by the Company,
change the total number of authorized shares of Series B Convertible Preferred
Stock or change the authorized number of directors of the Company.

DIVIDENDS

Holders of Series A and B Convertible Preferred Stock are entitled to
receive noncumulative dividends at the per annum rate of $0.08 and $0.0515 per
share, respectively, when and if declared by the Board of Directors. Holders of
Series B Convertible Preferred Stock have preference and priority to any payment
of any dividend on Series A Convertible Preferred Stock. The holders of Series A
and B Convertible Preferred Stock will also be entitled to participate in
dividends on Common Stock, when and if declared by the Board of Directors, based
on the number of shares of Common Stock held on an as-if converted basis. No
dividends on Convertible Preferred Stock or Common Stock have been declared by
the Board from inception through September 30, 1999.

LIQUIDATION

In the event of any liquidation, dissolution or winding up of the Company,
including merger, acquisition or sale of assets where the beneficial owners of
the Company's Common Stock and Convertible Preferred Stock own 50% or less of
the resulting voting power of the surviving entity, the holders of Convertible
Preferred Stock are entitled to the following:

(1) Holders of Series B Convertible Preferred Stock are entitled to
receive an amount of $0.6441 per share plus any declared but unpaid
dividends prior to and in preference to any distribution to the holders of
Series A Convertible Preferred Stock and Common Stock. If the assets and
funds distributed to the holders of Series B Convertible Preferred Stock
are insufficient to permit payment to such holders, then the entire assets
or property of the Company legally available for distribution shall be
distributed ratably to the holders of Series B Convertible Preferred Stock.

(2) After payments has been made to the holders of Series B
Convertible Preferred Stock, holders of Series A Convertible Preferred
Stock are entitled to receive an amount of $1.00 per share plus any
declared but unpaid dividends prior to and in preference to any
distribution to the holders of Common Stock. If the assets and funds
distributed to the holders of Series A Convertible Preferred Stock are
insufficient to permit payment to such holders, then the entire assets or
property of the Company legally available for distribution shall be
distributed ratably to the holders of Series A Convertible Preferred Stock.

(3) After payment has been made to the holders of Series A and B
Convertible Preferred Stock of the preferential amounts, the remaining
assets and funds of the Company legally available for distribution, are
distributed ratably to the holders of Common Stock and Series A and B
Convertible Preferred Stock on an as-converted basis; provided, however
that holders of Series B Convertible Preferred Stock are not entitled to
receive more than $1.2882 (including Series B Convertible Preferred Stock
Liquidation Preference) per share; and provided further, that the

F-53

EVOICE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

holders of Series A Convertible Preferred Stock are not entitled to receive
more than $2.00 (including Series A Convertible Preferred Stock Liquidation
Preference) per share.

CONVERSION

Each share of Series A and B Convertible Preferred Stock is convertible, at
the option of the holder, according to a conversion ratio, subject to adjustment
for dilution. Each share of Series A and B Convertible Preferred Stock
automatically converts into the number of shares of Common Stock into which such
shares are convertible at the then effective conversion ratio upon: either the
closing of a public offering of Common Stock at a per share price of at least
$2.58 per share with gross proceeds of at least $15,000 upon the consent of the
holders of the majority of each Series of Convertible Preferred Stock.

At September 30, 1999, the Company reserved 20,732 shares of Common Stock
for the conversion of Convertible Preferred Stock.

WARRANTS TO PURCHASE CONVERTIBLE PREFERRED STOCK

SHARES OF OUTSTANDING AND
CONVERTIBLE EXERCISABLE AT
PREFERRED SEPTEMBER 30,
DATE OF ISSUANCE EXERCISE PRICE STOCK 1999
------------------ --------------- -------------- -----------------

Warrants to purchase Series A
Convertible Preferred Stock
Series A........................... March 1999 $ 1.00 217 217
Series A........................... March 1999 1.00 100 100
-------------- -----------------
Total............................ 317 317
-------------- -----------------
Warrants to purchase Series B
Convertible Preferred Stock
Series B........................... May 1999 $ 0.6441 754 754
Series B........................... May 1999 0.6441 186 186
-------------- -----------------
Total............................ 940 940
============== =================

In connection with issuance of Series A Convertible Preferred Stock, the
Company issued to investors warrants to purchase 217 shares of Series A
Convertible Preferred Stock for $1.00 per share in March 1999. Such warrants are
outstanding at September 30, 1999 and expire in 2009. Using the Black-Scholes
pricing model, the Company determined that the fair value of the warrants were
$83 at the date of grant.

In connection with a note payable that was issued and repaid in the period
ended September 30, 1999, the Company issued warrants to purchase 100 shares of
Series A Convertible Preferred Stock for $1.00 per share in March 1999. Such
warrants are outstanding at September 30, 1999 and expire in 2009. Using the
Black-Scholes pricing model, the Company determined that the fair value of the
warrants were $38 at the date of grant. Accordingly, the Company recorded $38 in
interest expense in the nine month period ended September 30, 1999 associated
with these warrants.

In connection with issuance of the Series A Convertible Preferred Stock
issuance, the Company issued warrants to purchase 754 shares of Series B
Convertible Preferred Stock for $0.6441 per share in May 1999. Such warrants are
outstanding at September 30, 1999 and expire in 2009. Using the Black-Scholes
pricing model, the Company determined that the fair value of the warrants were
$336 at the date of grant. Accordingly, the Company netted $336 against the
proceeds from the issuance of Series A Convertible Preferred Stock.

F-54

EVOICE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

In connection with entering into equipment lease agreement, the Company
issued warrants to purchase 186 shares of Series B Convertible Preferred Stock
for $0.6441 per share in May 1999. Such warrants are outstanding at September
30, 1999 and expire in 2009. Using the Black-Scholes pricing model, the Company
determined that the fair value of the warrants were $83 at the date of grant.
Accordingly, the Company recorded $83 as deferred financing costs which will be
amortized as interest expense over period of the lease.

8. COMMON STOCK

The Company's Articles of Incorporation, as amended, authorize the Company
to issue 50,000 shares of $0.0001 par value Common Stock. A portion of the
shares sold are subject to a right of repurchase by the Company subject to
vesting, which is generally over a four year period from the earlier of grant
date or employee hire date, as applicable, until vesting is complete. At
September 30, 1999, there were 6,709 shares subject to repurchase.

WARRANTS FOR COMMON STOCK

In connection with purchase of assets, the Company issued warrants to
purchase 294 shares of Common Stock for $1.00 per share in December 1998. Such
warrants are outstanding at September 30, 1999 and expire in 2008. Using the
Black-Scholes pricing model, the Company determined that the fair value of the
warrants was nil at the date due to the fact that the warrants were
substantially out-of-the-money at the date of issue of grant. Accordingly, the
Company did not record expense associated with these warrants.

9. STOCK OPTION PLANS

In February 1999, the Company adopted the 1999 Stock Option Plan. Following
the reincorporation in the State of Delaware in April 1999, the Company adopted
a new 1999 Stock Option Plan. The terms of the Plans are similar. The Plans
provide for the granting of stock options to employees and consultants of the
Company. Options granted under the Plans may be either incentive stock options
or nonqualified stock options. Incentive stock options ("ISO") may be granted
only to Company employees (including officers and directors who are also
employees). Nonqualified stock options ("NSO") may be granted to Company
employees and consultants. The Company has reserved 9,086 shares of Common Stock
for issuance under the Plans.

Under the Plans the Company may grant stock options or stock purchase
rights which may be granted for periods of up to ten years and at prices no less
than 85% of the estimated fair value of the shares on the date of grant as
determined by the Board of Directors, provided, however, that (i) the exercise
price of an ISO and NSO shall not be less than 100% and 85% of the estimated
fair value of the shares on the date of grant, respectively, and (ii) the
exercise price of an ISO and NSO granted to a 10% shareholder shall not be less
than 110% of the estimated fair value of the shares on the date of grant,
respectively. Stock purchase rights are exercisable immediately and are subject
to repurchase rights held by the Company which lapse over a maximum period of
four years at such times and under such conditions as determined by the Board of
Directors. To date, options granted generally vest over four years.

During the nine month period ended September 30, 1999, the Company recorded
$1,445 of deferred stock based compensation for the excess of the deemed fair
market value over the exercise price at the date of grant related to certain
options granted in 1999. The compensation expense is being recognized over the
option vesting period of four years.

F-55

EVOICE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

OPTIONS OUTSTANDING
-----------------------------------------------------------------------------
WEIGHTED
SHARES AVERAGE
AVAILABLE NUMBER OF AGGREGATE EXERCISE
FOR GRANT SHARES EXERCISE PRICE PRICE PRICE
------------- ------------- --------------- -------------- -------------

Shares reserved at Plans inception...... 9,086 -- $ -- $ -- $ --
Options granted......................... (7,383) 7,383 0.065-0.10 493 0.0668
Options exercised....................... -- (1,800) 0.065 (117) 0.0650
Options cancelled....................... 498 (498) 0.065-0.10 (33) 0.0663
------------- ------------- --------------- -------------- -------------
September 30, 1999..................... 2,201 5,085 $ 0.065-0.10 $ 343 $ 0.0675
------------- ------------- --------------- -------------- -------------

OPTIONS EXERCISABLE AT
OPTIONS OUTSTANDING AT SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
------------------------------------------------------------ -----------------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE OUTSTANDING EXERCISE PRICE
- ------------------ ------------------- -------------------- ----------------- ------------------ ----------------

$ 0.065 4,741 9.86 $ 0.065 2,740 $ 0.065
$ 0.100 344 9.27 $ 0.100 -- --
------------------- -------------------- ----------------- ------------------ ----------------
5,085 9.82 0.0675 2,740 0.065
=================== ==================== ================= ================== ================

FAIR VALUE DISCLOSURES

Had compensation cost for the Company's stock-based compensation plan been
determined based on the fair value at the grant dates for the awards under a
method prescribed by SFAS No. 123, the Company's net loss would have been
increased to the pro forma amounts indicated below:

PERIOD FROM
DECEMBER 7,
1998 (DATE OF
NINE MONTHS INCEPTION)
PERIOD ENDED ENDED THROUGH
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1999
---------------- ---------------- ----------------

Net loss:
As reported............................. $ 393 $ 6,795 $ 7,188
---------------- ---------------- ----------------
Pro forma............................... $ 393 $ 6,810 $ 7,203
---------------- ---------------- ----------------

The Company calculated the fair value of each option grant on the date of
grant using the Black-Scholes pricing model with the following assumptions:
dividend yield at 0%; weighted average expected option term of four years;
volatility of 0%; risk free interest rate of 5.30% to 6.27% for the nine months
period ended September 30, 1999. The weighted average fair value of options
granted during the nine months of 1999 was $0.204.

10. SUBSEQUENT EVENTS

In December 1999 the Company issued 4,872 shares of series C and 18,271
shares of series C1 Convertible Preferred Stock and raised $37,978 net of
issuance costs.

F-56

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
GoTo.com, Inc.

We have audited the accompanying balance sheets of GoTo.com, Inc. as of
December 31, 1999 and 1998, and the related statements of operations,
stockholders' equity, and cash flows for the years ended December 31, 1999 and
1998 and for the period from September 15, 1997 (inception) through December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GoTo.com, Inc. at December
31, 1999 and 1998, and the results of its operations and its cash flows for the
years ended December 31, 1999 and 1998 and for the period from September 15,
1997 (inception) through December 31, 1997, in conformity with accounting
principles generally accepted in the United States.

/s/ ERNST & YOUNG LLP

Los Angeles, California
February 8, 2000

F-57

GOTO.COM, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

AS OF DECEMBER 31,
--------------------------------
ASSETS 1999 1998
---------------- --------------

CURRENT ASSETS:
Cash and cash equivalents.................................................. $ 11,914 $ 16,357
Short-term investments..................................................... 93,409 --
Accounts receivable, net of allowance of
$250 and $86 for 1999 and 1998,
respectively............................................................. 2,927 356
Prepaid expenses and other................................................. 851 150
Prepaid marketing expenses................................................. 2,034 1,741
---------------- --------------
Total current assets........................................................... 111,135 18,604
Property and equipment:
Furniture and fixtures..................................................... 1,923 17
Computer hardware.......................................................... 9,036 1,302
Computer software.......................................................... 4,234 292
---------------- --------------
15,193 1,611
Accumulated depreciation and amortization.................................. (2,490) (275)
---------------- --------------
12,703 1,336
Long-term investments.......................................................... 4,932 --
Other assets................................................................... 742 29
---------------- --------------
Total assets................................................................... $ 129,512 $ 19,969
================ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................................... $ 10,465 $ 2,816
Accrued expenses........................................................... 2,562 282
Deferred revenue........................................................... 2,058 181
Current portion of debt.................................................... 131 --
Current portion of capital lease obligations............................... 754 110
---------------- --------------
Total current liabilities...................................................... 15,970 3,389
Long-term capital lease obligations............................................ 768 183
Commitments and contingencies

STOCKHOLDERS' EQUITY:
Convertible Preferred Stock; $0.0001 par value, 10,000 and 20,187 shares
authorized as of December 31, 1999 and 1998, respectively Series A
Preferred Stock; Shares issued and
outstanding--none and 471 as of December 31,
1999 and 1998, respectively............................................ -- 212
Series B and C Preferred Stock; Shares issued and
outstanding--none and 19,022 as of December 31,
1999 and 1998, respectively............................................ -- 28,433
Common Stock, $0.0001 par value, 200,000 and 45,000
shares authorized as of December 31, 1999 and
1998, respectively.......................................................
Shares issued and outstanding--45,519
and 10,444 as of December 31, 1999 and 1998,
respectively............................................................. 5 1
Additional paid-in capital on Common Stock................................. 158,799 3,212
Deferred compensation, net................................................. (2,584) (1,318)
Accumulated deficit........................................................ (43,405) (14,143)
Unrealized losses on short-term and long-term
investments.............................................................. (41) --
---------------- --------------
Total stockholders' equity..................................................... 112,774 16,397
---------------- --------------
Total liabilities and stockholders' equity..................................... $ 129,512 $ 19,969
================ ==============

F-58

GOTO.COM, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

PERIOD FROM
YEAR ENDED SEPTEMBER 15, 1997
------------------------------------------- (INCEPTION) THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------- --------------------- -------------------

Revenue................................... $ 26,809 $ 822 $ 22
Cost of revenue........................... 6,213 1,429 6
-------------------- --------------------- -------------------
Gross profit (loss)....................... 20,596 (607) 16
Operating expenses:
Marketing, sales and service........... 34,459 9,645 65
General and administrative............. 12,467 1,655 24
Product development.................... 3,689 1,232 46
Amortization of deferred
compensation.......................... 3,585 1,199 --
-------------------- --------------------- -------------------
54,200 13,731 135
-------------------- --------------------- -------------------
Loss from operations...................... (33,604) (14,338) (119)
Other income:
Interest income........................ 3,777 316 --
Other income........................... 566 -- --
-------------------- --------------------- -------------------

Loss before provision for income taxes.... (29,261) (14,022) (119)
Provision for income taxes................ 1 1 1
-------------------- --------------------- -------------------
Net loss.................................. $ (29,262) $ (14,023) $ (120)
==================== ===================== ===================

Pro forma net loss per share.............. $ (0.77) $ (0.75)
Historical basic and diluted net loss per
share..................................... $ (1.04) $ (1.36) $ (0.01)
Weighted average shares used to compute
pro forma net loss per share........... 38,219 18,714
Weighted average shares used to compute
historical basic and diluted net loss
per share.............................. 28,207 10,296 9,869

SEE ACCOMPANYING NOTES.

F-59

GOTO.COM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

SERIES A SERIES B AND C SERIES D
CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK
------------------ ------------------ ------------------ -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- --------- -------- --------- -------- --------- ------- ----------

Issuance of Common Stock.... -- $ -- -- $ -- -- $ -- 10,017 $ 1
Issuance of Series A
Convertible Preferred
Stock.................... -- -- -- -- -- -- -- --
Net loss.................... -- -- -- -- -- -- -- --
-------- --------- -------- --------- -------- --------- -------- ----------
BALANCE AT DECEMBER 31, 1997 -- -- -- -- -- -- 10,017 1
Issuance of Common Stock for
cash and services........ -- -- -- -- -- -- 427 --
Issuance of Series A
Convertible Preferred
Stock.................... 471 212 -- -- -- -- -- --
Issuance of Series B
Convertible Preferred
Stock and capital
contribution............. -- -- 8,312 6,281 -- -- -- --
Issuance of Series C
Convertible Preferred
Stock.................... -- -- 10,710 22,152 -- -- -- --
Issuance of warrants for
services................. -- -- -- -- -- -- -- --
Stock option compensation... -- -- -- -- -- -- -- --
Amortization of deferred
compensation............. -- -- -- -- -- -- -- --
Net loss.................... -- -- -- -- -- -- -- --
-------- --------- -------- --------- -------- --------- -------- ----------
BALANCE AT DECEMBER 31, 1998 471 212 19,022 28,433 -- -- 10,444 1
Issuance of Common Stock,
net of issuance costs of
$8,655................... -- -- -- -- -- -- 6,900 1
Issuance of Series D
Convertible Preferred
Stock.................... -- -- -- -- 3,628 24,969 -- --
Conversion of Preferred
Stock to Common Stock.... (471) (212) (19,022) (28,433) (3,628) (24,969) 23,121 2
Exercise of common stock
options and warrants, net
of repurchases........... -- -- -- -- 5,054 1
Issuance of warrants and
options for services..... -- -- -- -- -- -- --
Stock option compensation... -- -- -- -- -- -- -- --
Amortization of deferred
compensation............. -- -- -- -- -- -- -- --
Unrealized losses on
short-term and long-term
investments.............. -- -- -- -- -- -- -- --
Net loss.................... -- -- -- -- -- -- -- --
-------- --------- -------- --------- -------- --------- -------- ----------
BALANCE AT DECEMBER 31, 1999 -- $ -- -- $ -- -- $ -- 45,519 $ 5
======== ========= ======== ========= ======== ========= ======== ==========

UNREALIZED
ADDITIONAL LOSSES ON
PAID-IN SHORT-TERM
CAPITAL ON AND
COMMON DEFERRED LONG-TERM ACCUMULATED
STOCK COMPENSATION INVESTMENTS DEFICIT TOTAL
------------ --------------- -------------- -------------- ---------
Issuance of Common Stock.... $ 242 $ $ $ $ 243
Issuance of Series A
Convertible Preferred
Stock.................... -- -- -- -- --
Net loss.................... -- -- -- (120) (120)
------------ --------------- -------------- -------------- ---------
BALANCE AT DECEMBER 31, 1997 242 -- -- (120) 123
Issuance of Common Stock for
cash and services........ 286 -- -- -- 286
Issuance of Series A
Convertible Preferred
Stock.................... -- -- -- -- 212
Issuance of Series B
Convertible Preferred
Stock and capital
contribution............. 77 -- -- -- 6,358
Issuance of Series C
Convertible Preferred
Stock.................... -- -- -- -- 22,152
Issuance of warrants for
services................. 90 -- -- -- 90
Stock option compensation... 2,517 (2,517) -- -- --
Amortization of deferred
compensation............. -- 1,199 -- -- 1,199
Net loss.................... -- -- -- (14,023) (14,023)
------------ --------------- -------------- --------------- ---------
BALANCE AT DECEMBER 31, 1998 3,212 (1,318) -- (14,143) 16,397
Issuance of Common Stock,
net of issuance costs of
$8,655................... 94,834 -- -- -- 94,835
Issuance of Series D
Convertible Preferred
Stock.................... -- -- -- -- 24,969
Conversion of Preferred
Stock to Common Stock.... 53,612 -- -- -- --
Exercise of common stock
options and warrants, net
of repurchases........... 2,044 -- -- -- 2,045
Issuance of warrants and
options for services..... 246 -- -- -- 246
Stock option compensation... 4,851 (4,851) -- -- --
Amortization of deferred
compensation............. -- 3,585 -- -- 3,585
Unrealized losses on
short-term and long-term
investments.............. -- -- (41) -- (41)
Net loss.................... -- -- -- (29,262) (29,262)
------------ --------------- -------------- --------------- ---------
BALANCE AT DECEMBER 31, 1999 $ 158,799 $ (2,584) $ (41) $ (43,405) $ 112,774
============ =============== ============== =============== =========

SEE ACCOMPANYING NOTES.

F-60

GOTO.COM, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

PERIOD FROM
SEPTEMBER 15,
1997
YEAR ENDED (INCEPTION)
----------------------------------- THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
---------------- ----------------- -----------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................... $ (29,262) $ (14,023) $ (120)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Amortization of deferred compensation.. 3,585 1,199 --
Accretion of discounts from the
purchase of short-term and long-term
investments.......................... (1,990) -- --
Other common stock and warrants expense 246 370 --
Depreciation and amortization.......... 2,247 294 5
Changes in operating assets and
liabilities:
Accounts receivable.................. (2,571) (334) (22)
Prepaid expenses and other........... (701) (150) --
Prepaid marketing expenses........... (293) (1,741) --
Accounts payable and accrued expenses 9,929 3,007 91
Deferred revenues...................... 1,877 181 --
---------------- ----------------- -----------------
Net cash used in operating activities.. (16,933) (11,197) (46)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term and long-term
investments, net..................... (96,392) (1,554) (57)
Capital expenditures for property and
equipment............................ (12,820) -- --
Other assets........................... (745) -- (53)
---------------- ----------------- -----------------
Net cash used in investing activities.. (109,957) (1,554) (110)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of Common
Stock, net........................... 96,880 6 243
Proceeds from the issuance of
Preferred Stock...................... 24,969 28,722 --
Proceeds from lease line............... 1,203 330 --
Repayments under lease line............ (499) (37) --
Repayment of debt...................... (106) -- --
---------------- ----------------- -----------------
Net cash provided by financing
activities........................... 122,447 29,021 243
Net increase (decrease) in cash and
cash equivalents..................... (4,443) 16,270 87
Cash and cash equivalents at beginning
of period............................ 16,357 87 --
---------------- ----------------- -----------------
Cash and cash equivalents at end of
period............................... $ 11,914 $ 16,357 $ 87
================ ================= =================

Supplemental disclosures:
Income taxes paid...................... $ 1 $ 2 $ --
Interest paid.......................... $ 214 $ 11 $ --

Non-Cash Investing and Financing Activities: During 1999, the Company
acquired approximately $525,000 of equipment under capital leasing arrangements
and approximately $237,000 of equipment under a debt arrangement.

SEE ACCOMPANYING NOTES.

F-61

GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

GENERAL

GoTo.com operates an online marketplace that introduces consumers and
businesses who search the Internet to advertisers, who provide products,
services and information. Advertisers participating in our marketplace include
retail merchants, wholesale and service businesses and manufacturers. We
facilitate these introductions through our search service, which enables
advertisers to bid in an ongoing auction for priority placement in our search
results. Priority placement means that the search results appear on the page
ranked in descending order of bid price, with the highest bidder's listing
appearing first. Each advertiser pays GoTo.com the amount of its bid whenever a
consumer clicks on the advertiser's listing in our search results. Advertisers
pay GoTo.com for each click-through, so advertisers bid only on keywords
relevant to the products, services or information that they offer. Because each
advertiser chooses the bid amount and advertisement placement that is optimal
for its business, we believe the GoTo.com marketplace provides advertisers with
a cost-effective way to target consumers. Consumers access the GoTo.com search
service both at our Web site and through our affiliates, a network of Web sites
that have integrated the GoTo.com search service into their sites or that direct
consumer traffic to our site. On January 31, 2000, GoTo.com acquired Cadabra
Inc. (Cadabra), an online comparison shopping service that we now call "GoTo
Shopping." We believe GoTo Shopping further facilitates introductions between
consumers and advertisers. GoTo Shopping simplifies the consumers' process of
finding desired products by automating product comparison across multiple
attributes. By enabling consumers to search at the product level, GoTo Shopping
creates more targeted, and therefore highly valuable, advertising opportunities
for our advertisers. As with Web search, we will offer GoTo Shopping at our Web
site as well as through our affiliate network, providing consumers with multiple
points of access to, and advertisers with, multiple points of distribution for
the advertisers' products. The Company operates in one reportable business
segment.

GoTo.com, Inc. (the Company or GoTo.com) was incorporated on September 15,
1997 in the state of Delaware and officially launched its service on June 1,
1998.

ESTIMATES AND ASSUMPTIONS

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, and the reported amounts of
revenues and expenses. Actual results could differ materially from those
estimates.

REVENUE RECOGNITION

Revenue consists of search listing advertisements and banner
advertisements. Banner advertising arrangements are short-term in duration and
have no minimum guarantees. The Company has had no barter transactions.

Search listing advertising enables the advertisers to determine their
placement within the GoTo.com search term results by placing a bid (the price
they will pay when a user clicks through to their site) for each keyword search
item that they select. The amount of the bid determines the placement of the
advertiser's site within the search results. Search listing advertisement
revenue is determined by multiplying the number of click-throughs on paid search
results by the price bid for the particular keyword listing at the time of the
click-through. Search listing advertising revenues are earned and recognized as
actual click-throughs occur to the extent the customer has deposited sufficient
funds with the Company or provided that the collection of any resulting
receivable is probable.

Banner advertisement arrangements provide for the Company to receive
specified amounts each time a customer's banner advertisement is made visible to
a user (an impression) and/or each time a user clicks-through to the
advertiser's Web site. Banner advertisement revenue is recognized when earned

F-62

GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

under the terms of the contractual arrangement with the advertiser or agency,
provided that collection of the resulting receivable is probable. Under the
terms of these arrangements, revenues are generally earned when the banner
advertisement is displayed or when the click-through occurs. For the year ended
December 31, 1999, banner advertisement revenue constituted less than 10 percent
of our revenue.

COMPREHENSIVE INCOME (LOSS)

The Company accounts for comprehensive income (loss) using Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting comprehensive income and its
components in financial statements. Comprehensive income, as defined therein,
refers to revenues, expenses, gains and losses that are not included in net
income (loss) but rather are recorded directly in shareholders' equity. Total
comprehensive loss for 1999 approximated net loss.

COST OF REVENUE

Cost of revenue consists primarily of fees paid to outside resources that
provide and manage unpaid listings and costs associated with maintaining our Web
site. Cost associated with serving the Web site includes salaries, depreciation
of Web site equipment, co-location charges for equipment, and software licensing
fees.

AFFILIATES

The Company enters into short-term agreements with other Internet companies
(affiliates) whereby the Company provides search services within the affiliates'
Web sites or the affiliates provide a link to the Company's site. In some cases,
the Company pays the affiliates fees based on the term of the agreement and the
amount of traffic the Company receives from the Web sites. Some of these fees
are paid at the beginning of the contract resulting in prepaid distribution
affiliate fees and some of the fees are billed during the term of the contracts
resulting in accrued affiliate fees. The fees are charged to marketing and sales
expense ratably over the contract or based on actual traffic received under the
terms of the agreements. A significant portion of the Company's traffic has been
generated from a small number of the Company's larger affiliates, such as
Microsoft through its Internet Explorer browser, and Netscape. The traffic from
these affiliates converts to revenue when consumers click on paid listings.
Therefore, a large portion of the Company's revenue is reliant on these few
affiliates.

The Company expenses advertising media costs as incurred and production
cost upon first airing or printing. For the years ended December 31, 1999 and
1998 and the period from inception through December 31, 1997, the Company
incurred advertising costs, including affiliate fees, of approximately $30.2
million, $8.8 million and $29,000, respectively.

PRODUCT DEVELOPMENT

Product development expenses consist of expenses incurred by the Company
in the development, creation and enhancement of its Internet site and service.
Product development expenses include compensation and related expenses, costs of
computer hardware and software, and costs incurred in developing features and
functionality of the service. Product development costs are expensed as incurred
or capitalized in accordance with Statement of Position 98-1 "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" (SOP-98-1).
SOP 98-1 requires that cost incurred in the preliminary project and
post-implementation stages of an internal use software project be expensed as
incurred and that certain costs incurred in the application development stage of
a project be capitalized.

CASH, CASH EQUIVALENTS AND SHORT-TERM AND LONG-TERM INVESTMENTS

The Company considers those investments that are highly liquid, readily
convertible to cash and which mature within three months from the original date
of purchase to be cash equivalents. All of the

F-63

GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

Company's cash equivalents, short-term and long-term investments, consisting of
commercial paper and certificate of deposits, are classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with unrealized gains and losses included in "unrealized losses on short-term
and long-term investments" as a separate component of stockholders' equity net
of applicable income taxes. As of December 31, 1999, the fair value of these
securities approximated cost and the unrealized holding losses was approximately
$41,000. The realized gains and losses on sales of available-for-sale
investments for the year ended December 31, 1999 were not significant. All
available-for-sale investments generally mature within one year or less, except
for one investment with a fair value of approximately $4.9 million and original
maturity of 28 months.

The estimated fair value of cash, cash equivalents and short-term and
long-term investments, which approximates the carrying costs as of December 31,
1999, are as follows (in thousands):

CASH AND CASH SHORT TERM LONG-TERM
EQUIVALENT INVESTMENTS INVESTMENTS
------------------- ---------------- -----------------

Cash......................... $ 2,289 $ -- $ --
Commercial Paper............. 9,625 65,751 4,932
Certificates of deposit...... -- 27,658 --
------------------- ---------------- -----------------
$ 11,914 $ 93,409 $ 4,932
=================== ================ =================

ACCOUNTS RECEIVABLE

The allowance for doubtful account activity for the periods indicated are
as follows (in thousands):

ADDITIONS
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT END
PERIOD EXPENSES OF PERIOD
------------------- --------------- ------------------

Allowance for doubtful accounts:
December 31, 1997.................... $ -- $ -- $ --
December 31, 1998.................... $ -- $ 86 $ 86
December 31, 1999.................... $ 86 $ 164 $ 250

CONCENTRATION OF CREDIT RISK

Accounts receivable are typically unsecured and are due from customers
primarily located in the United States. Credit losses have generally been within
management's expectations. At December 31, 1999, no customer represented more
than ten percent of total accounts receivable. At December 31, 1998, one
customer represented 13% of total accounts receivable.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost. Property and equipment consists
of computer hardware, computer software, which includes costs incurred in the
application development stage for computer software developed for internal use,
and furniture and fixtures. Depreciation is provided using the straight-line
method based upon estimated useful lives of the assets, which range from 18
months to five years. Equipment under capital leases and leasehold improvements
are recorded at cost. Amortization is provided using the straight-line method
over the shorter of the term of the related lease or estimated useful lives of
the assets.

LONG-LIVED ASSETS

The Company evaluates the recoverability of its long-lived assets in
accordance with SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." The Company assesses the
impairment of long-lived assets and certain identifiable intangibles whenever

F-64

GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. An impairment loss would be recognized when estimated
future cash flows expected to result from the use of the asset and its eventual
disposition is less than its carrying amount. No such impairment losses have
been identified by the Company.

DEFERRED REVENUE

Deferred revenue represents all payments received from customers in excess
of revenue earned based on line-item click-through activity and will be
recognized as actual click-throughs occur.

INCOME TAXES

Income taxes are accounted for under SFAS No. 109, "Accounting for Income
Taxes." Under SFAS No. 109, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax basis of assets and
liabilities, and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. Valuation reserves
against deferred tax assets are provided as necessary.

ACCOUNTING FOR STOCK-BASED COMPENSATION

SFAS No. 123, "Accounting for Stock-Based Compensation," requires that
stock awards granted subsequent to January 1, 1995 be recognized as compensation
expense based on their fair value at the date of grant. Alternatively, a company
may account for granted stock awards under Accounting Principles Board Opinion
(APB) No. 25 "Accounting for Stock Issued to Employees," and disclose pro forma
income amounts which would have resulted from recognizing such awards at their
fair value. The Company has elected to account for stock-based compensation
expense under APB No. 25 and make the required pro forma disclosures for
compensation expense (see Note 4).

EARNINGS (LOSS) PER SHARE COMPUTATION

Historical basic and diluted net loss per share is computed using the
weighted average number of shares of common stock outstanding excluding the
unvested portion of stock issued in connection with the exercise of such options
subject to repurchase. The effect of outstanding stock options, convertible
preferred stock and unvested stock are excluded from the calculation of
historical diluted net loss per share for the periods presented as their
inclusion would be antidilutive.

Pro forma basic and diluted net loss per share is computed using the
historical weighted average number of shares of common stock outstanding plus
the weighted average number of shares resulting from the assumed conversion of
all outstanding convertible preferred stock as though such conversion occurred
at the beginning of the period or original date of issuance, if later. The
effect of outstanding stock options and unvested stock are excluded from the
calculation of pro forma diluted net loss per share for the periods presented as
their inclusion would be antidilutive.

Options to purchase approximately 2.8 million and 5.0 million shares of
common stock were outstanding as of December 31, 1999 and 1998, respectively. In
addition, as of December 31, 1999, there were approximately 2.2 million shares
of unvested common stock outstanding that were issued in connection with the
exercise of options and are subject to repurchase.

F-65

GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The following table sets forth the computation of historical basic and
diluted net loss per share and pro forma basic and diluted net loss per share
for the periods indicated (in thousands, except per share amounts):

PERIOD FROM
SEPTEMBER 15
YEAR ENDED 1997 (inception)
------------------------------ THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
-------------- -------------- ----------------

Numerator:
Net loss................................................ $ (29,262) $ (14,023) $ (120)
============== ============== ================
Denominator:
Denominator for historical basic and diluted
calculation--weighted average share................... 28,207 10,296 9,869
Weighted average effect of pro forma securities:
Series A Convertible Preferred Stock................... 226 360
Series B Convertible Preferred Stock................... 3,994 5,403
Series C Convertible Preferred Stock................... 5,147 2,655
Series D Convertible Preferred Stock................... 645 -
-------------- -------------- ----------------
Denominator for pro forma calculation.................. 38,219 18,714
============== ============== ================
Net loss per share:
Pro forma basic and diluted net loss per share......... $ (0.77) $ (0.75) $ --
Historical basic and diluted net loss per share........ $ (1.04) $ (1.36) $ (0.0)

RECLASSIFICATIONS

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

2. INCOME TAXES

As a result of the net operating losses incurred since inception, no income
tax provision has been recorded except for state minimum taxes of approximately
$1,000 for 1999, 1998 and 1997. The following is a reconciliation of the
statutory federal income tax rate to the Company's effective income tax rate:

SEPTEMBER 15,
1997
(INCEPTION)
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
-------------- --------------- ----------------

Statutory federal rate................................... (34)% (34)% (34)%
State income taxes (net of
federal benefit)...................................... (6) (5) (5)
Valuation allowance...................................... 36 37 41
Nondeductible stock compensation......................... 4 3 --
Other.................................................... -- (1) (2)
-------------- --------------- ----------------
-- % -- % -- %
============== =============== ================

F-66

GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The components of the deferred tax assets and related valuation allowance
at December 31, 1999 and 1998 are as follows:

DECEMBER 31
------------------------------
1999 1998
---------------- ------------
(IN THOUSANDS)

Net operating loss carryforwards......................... $ 16,739 $ 4,955
Other.................................................... 350 167
-------------- --------------
Deferred tax assets...................................... 17,089 5,122
Valuation allowance...................................... (17,089) (5,122)
-------------- --------------
$ -- $ --
============== ==============

Due to the uncertainty surrounding the timing of realizing the benefits of
its deferred tax assets in future tax returns, the Company has recorded a
valuation allowance against its deferred tax assets.

At December 31, 1999, the Company had net operating loss carryforwards of
approximately $42.0 million available to reduce future federal and state taxable
income, which expire beginning in the years 2017 through 2019 for federal and in
2005 for state. Under Section 382 of the Internal Revenue Code, the utilization
of the net operating loss carryforwards can be limited based on changes in the
percentage of ownership of the Company.

3. STOCKHOLDERS' EQUITY

COMMON AND PREFERRED STOCK

GoTo.com issued shares of its preferred stock as described below:

o In March 1998, GoTo.com issued a total of 471,111 shares of Series A
Preferred Stock to various investors at a purchase price of $0.45 per
share.

o In May 1998, GoTo.com issued a total of 8,311,688 shares of Series B
Preferred Stock to various investors at a purchase price of $0.77 per
share.

o In July 1998, November 1998 and December 1998, GoTo.com issued a
total of 10,710,348 shares of Series C Preferred Stock to various
investors at a purchase price of $2.076 per share.

o In April 1999, GoTo.com issued a total of 3,628,447 shares of Series
D Preferred Stock to various investors at a purchase price of $6.89
per share.

As part of the Series B Preferred Stock financing, Bill Gross, the
Company's founder, paid a consultant 111,111 shares of the Company's Common
Stock owned by him for services provided in connection with the Series B
Preferred Stock financing. The exchange of the founder's shares was recorded at
the fair market value of the Common Stock, on the date of the exchange, as a
contribution to capital and cost of the Series B Preferred financing.

In June 1999, the Company completed its initial public offering and
issued 6,900,000 shares of its common stock at a price to the public of $15.00
per share. The Company received approximately $94.8 million in cash, net of
underwriting discounts, commissions and other offering costs. Simultaneously
with the closing of the initial public offering, each outstanding share of
Series A, B, C and D Preferred Stock was automatically converted into one share
of common stock.

Upon completion of the Company's initial public offering the number of
common and undesignated preferred shares authorized for issuance changed to
200,000,000 and 10,000,000, respectively.

WARRANTS

In September and November of 1998, the Company issued warrants in
exchange for certain consulting services to purchase an aggregate of 63,272
shares of the Company's Common Stock at

F-67

GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

exercise prices ranging from $0.77 to $2.076 per share. In February 1999, the
Company issued additional warrants in exchange for certain consulting and other
services to purchase 41,699 shares of the Company's Common Stock at exercise
prices ranging from $2.076 to $5.00 per share. The warrants were fully
exercisable upon issuance and those warrants not exercised by the warrant
holders for Common Stock prior to our initial public offering on June 18, 1999
were terminated. The deemed fair value of warrants issued in 1999 and 1998 was
$180,000 and $90,000, respectively; these amounts were recorded in general and
administrative expenses in the respective periods.

DEFERRED STOCK OPTION COMPENSATION

The excess of the deemed fair value of the Company's Common Stock over
the exercise price of options granted during the year ended December 31, 1999
and 1998 at the date of grant, adjusted for the return of unvested options or
repurchase of restricted stock resulting from employee terminations, amounted to
an aggregate of $4,851,000 and $2,517,000, respectively. The deemed fair value
of the Common Stock was determined by the Company based on the selling prices of
contemporaneous sales of each series of Preferred Stock considering the relative
rights and privileges of each security, the stages of development of the
Company's business and the inherent risks and perceived future potential of the
Company at the time of grant or issuance. The typical vesting period of the
options is 20%, 10% or zero immediately upon grant with the remaining balance
vesting evenly either annually or quarterly over the following four years. The
amortization of deferred compensation is charged to operations on a graded
methodology basis over the vesting period of the options. During the year ended
December 31, 1999 and 1998, deferred compensation amortization of $3,585,000 and
$1,199,000, respectively, was recorded. At December 31, 1999 and 1998, deferred
compensation of $2,584,000 and $1,318,000, respectively, was reflected as a
reduction of stockholders' equity. The deferred compensation amortization
relates only to stock options awarded to employees; the salaries and related
benefits of these employees are included in the applicable cost of revenue or
operating expense line item.

OTHER STOCK COMPENSATION

The Company sold or issued 427,195 shares of Common Stock to various
consultants during 1998 at prices less than the deemed fair value of the Common
Stock on the day it was sold. The excess of the deemed fair value of the Common
Stock on the day it was sold aggregating $280,000 was recognized as consulting
expense.

4. STOCK PLAN AND STOCK PURCHASE PLAN

The Company's 1998 Stock Plan provides for the granting of options for
the purchase of up to 8,500,000 shares of the Company's Common Stock, plus an
annual increase to be added on the first day of the Company's fiscal year
beginning in 2000 equal to the lesser of (i) 7,500,000 shares, (ii) 4% of the
outstanding shares on such date or (iii) a lesser amount determined by the
Board. The increase for fiscal 2000 was determined to be approximately 1.8
million shares. Under terms of the plan, options may be granted to employees,
nonemployee directors or consultants at prices not less than the fair value at
the date of grant. Options granted to nonemployees are recorded at the value of
negotiated services received. All options are immediately exercisable, however,
shares issuable upon exercise of the option vest typically 20%, 10% or zero
immediately upon grant of the option with the remaining balance vesting evenly
either annually or quarterly over the following four years. The Company has the
right to repurchase unvested shares issued upon exercise of the option.

F-68

GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Information relating to the outstanding stock options is as follows:

WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
----------------- ----------------
(IN THOUSANDS)
Outstanding at inception.................... -- $ --
Granted................................. 115 0.44
Exercised............................... -- --
Canceled................................ -- --
----------------
Outstanding at December 31, 1997............ 115 0.44
Granted................................. 4,888 0.15
Exercised............................... -- --
Canceled................................ (3) 0.15
----------------
Outstanding at December 31, 1998............ 5,000 0.16
Granted................................. 2,979 19.62
Exercised............................... (5,035) 0.37
Cancelled............................... (114) 11.58
----------------
Outstanding at December 31, 1999............ 2,830 $ 19.87
================

The following table summarizes information regarding options outstanding
and options exercisable at December 31, 1999 (in thousands except per share
data):

OUTSTANDING AND EXERCISABLE
--------------------------------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
NUMBER CONTRACTUAL EXERCISE
RANGE OF EXERCISE PRICES OF SHARES LIFE PRICE
- -------------------------------- ----------- -------------- -----------
$0.15--$0.30.................... 852 8.6 $ 0.20
=========== ============== ===========
$0.75--$6.20.................... 609 9.3 $ 4.24
=========== ============== ===========
$12.00.......................... 861 9.4 $ 12.00
=========== ============== ===========
$39.38--$55.25.................. 200 9.7 $ 47.10
=========== ============== ===========
$108.25......................... 308 9.9 $ 108.25
=========== ============== ===========

Options available for future grant totaled 716,324 and 999,529 at
December 31, 1999 and 1998, respectively. As of January 1, 2000 the Company
added approximately 1.8 million options available for future grant in accordance
with the Company's 1998 Stock Plan.

The fair value of these options were estimated at the date of grant using
a Black-Scholes option pricing model with the following assumptions:

PERIOD FROM
SEPTEMBER 15,
1997
(INCEPTION)
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ --------------
Risk free interest rate....... 5.38% 5.14% 6.00%
Expected lives (in years)..... 2.5 4 4
Dividend yield................ -- -- --
Expected volatility........... 0.80 -- --

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Under SFAS No.
123, the Company would have incurred an additional compensation expense of
approximately $2.4 million, $51,000 and zero for the years ended

F-69

GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

December 31, 1999 and 1998 and the period from inception through December 31,
1997, respectively.

PERIOD FROM
SEPTEMBER 15,
1997
(INCEPTION)
YEAR ENDED YEAR ENDED THROUGH
DECEMBER DECEMBER DECEMBER 31,
31, 1999 31, 1998 1997
---------- ---------- -------------
Net loss, as reported............ $ (29,262) $ (14,023) $ (120)
Pro forma net loss............... (31,656) (14,074) (120)
Pro forma loss per share......... (0.83) (0.75) (0.01)
Pro forma historical basic
and diluted loss per share.... $ (1.12) $ (1.37) $ (0.01)

Applying SFAS No. 123 in the pro forma disclosure may not be
representative of the effects on pro forma net income (loss) for future years as
options vest over several years and additional awards will likely be made each
year.

In April 1999, the Board of Directors also approved the establishment,
upon the closing of the Company's initial public offering, of the 1999 Employee
Stock Purchase Plan (1999 Purchase Plan). The 1999 Purchase Plan initially
reserves 2,000,000 shares of Common Stock for future issuance which will
increase annually by the lesser of 1,000,000 shares, 3% of the outstanding
shares on such date, or a lesser amount determined by the Board. The 1999
Purchase Plan provides for successive six month offering periods and allows
eligible employees to participate in the plan through payroll deductions that
will be used to purchase Common Stock at the end of each six month period for
the lesser of 85% of the price of the Common Stock at the beginning or the end
of the six month offering period.

5. RELATED PARTY TRANSACTIONS

During 1997 and 1998, GoTo.com shared facilities and received certain
management services including certain accounting, payroll processing, access to
shared local area computer communications network, and general business
insurance from Bill Gross' idealab!, which, with its affiliate, idealab!
Holdings, L.L.C., is a significant stockholder of GoTo.com. Bill Gross' idealab!
charged a management fee for the use of its facilities and the services
provided. During 1998 and through January 1999, Bill Gross' idealab! provided
certain payroll processing services for GoTo.com and charged a fee for those
services. On February 1, 1999, GoTo.com entered into a lease with Bill Gross'
idealab! for office space. GoTo.com also uses a shared local area computer
communications network. In 1999, GoTo.com entered into a lease agreement with
Bill Gross' idealab! for additional office space. The term of the agreement is
from August 1999 through January 2000. The total management and leasing fee
associated with both facilities was approximately $364,000, $229,000 and $59,000
during the years ended December 31, 1999 and 1998 and the period from inception
through December 31, 1997, respectively. From inception through March 1, 1998,
Bill Gross, GoTo.com's founder and a principal of idealab! Holdings, L.L.C. and
Bill Gross' idealab!, was the President and Chief Executive Officer of GoTo.com
and received no compensation for his service. The value of these services was
not material to the financial statements. During March 1998, certain
stockholders provided temporary funding of $2.5 million to GoTo.com which
carried no interest. In early May 1998 this funding was contributed to GoTo.com
in return for Series B Preferred Stock. In December 1999, GoTo.com terminated
both leases in effect during 1999 and entered into an arrangement with Bill
Gross' idealab! for approximately 58,000 square feet of office space. The term
of the lease commenced on January 15, 2000 and will terminate on October 31,
2004 with total lease payments of approximately $7.1 million. Management
believes these amounts are materially representative of the fair value of
services recorded.

During 1999, GoTo.com recorded approximately $53,000 of search listing
advertising revenue from Bill Gross' idealab!, which, with its affiliate,
idealab! Holdings, L.L.C., is a significant stockholder of

F-70

GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

GoTo.com. During 1999, GoTo.com also recorded approximately $112,000 of search
listing and banner revenue from Cadabra Inc. (Cadabra). Cadabra began listing on
GoTo.com on December 17, 1999 and ceased advertising on GoTo.com on January 13,
2000. On January 31, 2000, GoTo.com acquired Cadabra (See Note 7). Management
believes these amounts are materially representative of the fair value of
advertising services provided.

6. COMMITMENTS AND CONTINGENCIES

LEASES

The Company leases office space under operating lease agreements expiring
in October 2004. The future minimum lease payments under non-cancelable
operating leases and present value of future minimum capital lease payments are
as follows (in thousands):

OPERATING CAPITAL
LEASE LEASE
-------------- ---------------
2000......................................... $ 1,542 $ 855
2001......................................... 1,524 807
2002......................................... 1,439 87
2003......................................... 1,439 --
2004......................................... 1,200 --
-------------- ---------------
Total minimum lease payments................. $ 7,144 1,749
==============
Less amount representing interest............ (227)
---------------
$ 1,522
===============

Total rent expense was approximately $504,000, $116,000 and $2,000 during
the years ended December 31, 1999 and 1998 and the period from inception through
December 31, 1997, respectively.

EQUIPMENT FINANCING ARRANGEMENT

At December 31, 1999, the Company had a line of credit arrangement with a
leasing institution that provides for a capital equipment lease line of up to a
maximum of $1,500,000. The terms of the agreement include a requirement for the
Company to keep an unrestricted cash balance of no less than $1.0 million at any
time. The Company was in compliance as of December 31, 1999 and 1998. Under this
agreement, $117,000 was available for future financing transactions at December
31, 1999.

During 1999, the Company obtained an additional equipment financing line
of credit with a lender in the amount of $1.0 million. During 1999, the Company
did not use any of the available credit and accordingly $1.0 million was
available for future financing transactions as of December 31, 1999. As of
January 31, 2000, the Company did not use any of the available credit and did
not renew the financing line of credit.

OTHER DEBT

During January 1999, the Company executed a licensing and consulting
agreement with a software vendor for the implementation of a new financial
reporting system. The cost has been financed by an affiliate of the vendor and
will be repaid in quarterly installments of $34,000 through the end of fiscal
2000. Implementation of the system was completed during the third quarter of
1999.

AFFILIATE COMMITMENTS

The Company is obligated to make payments totaling $8.7 million and $5.0
million in 2000 and 2001, respectively, under contracts to provide search
services to its affiliates.

F-71

GOTO.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

LITIGATION

We are engaged in litigation that will be expensive to pursue and will be
distracting to our management and other employees. Any adverse developments
resulting from this litigation could seriously harm our business. We believe
that The Walt Disney Company and certain of its affiliates, including Infoseek
Corporation, are infringing our GoTo.com logo. On February 18, 1999, we sued
these companies and two affiliated companies in the United States District Court
for the Central District of California alleging violation of federal trademark
law and unfair competition. Our lawsuit is based on the use by these companies
of a "GO" design mark to provide Internet services, including a search engine in
connection with their "Go Network." We are seeking to prevent these companies
from using this "GO" design mark as well as other remedies. We cannot assure you
that the outcome of this litigation will be favorable to us. For example, we may
not prevail and be able to stop these companies from causing confusion among
consumers and advertisers through continued use of the "GO" design mark. The
defendants have asserted counterclaims against GoTo.com. GoTo.com believes that
the proposed counterclaims are without merit and will defend against them
vigorously. An unfavorable result could affect the value of the Goto.com logo or
even prevent us from using the GoTo.com logo.

On November 12, 1999, the federal district court in Los Angeles
preliminarily enjoined The Walt Disney Company, Infoseek and related companies
from using their Go Network logo. On November 18, 1999, the Ninth Circuit Court
of Appeals granted the defendants' motion for a stay of the preliminary
injunction pending appeal, and the defendants were permitted to use the Go
Network logo while the Ninth Circuit reviewed the district court's preliminary
injunction order. GoTo.com and the defendants briefed the appeal during
December, and the Ninth Circuit heard oral arguments on the matter on January
19, 2000. On January 27, 2000, the Ninth Circuit vacated the stay and reinstated
the preliminary injunction. No trial date has been set, and despite the issuance
of the preliminary injunction, we cannot assure you that we will ultimately
prevail in this litigation.

7. EVENTS SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS' REPORT (UNAUDITED)

On January 31, 2000, GoTo.com acquired Cadabra, an online comparison
shopping service. Pursuant to the Agreement and Plan of Reorganization, GoTo.com
acquired all of the outstanding shares of capital stock and assumed all
outstanding options to acquire shares of capital stock of Cadabra, for $8.0
million in cash and 3,283,672 shares of GoTo.com common stock, including 214,833
shares to be issued upon exercise of options assumed by GoTo.com. The
acquisition was accounted for as a purchase. Under the purchase method of
accounting, the purchase price is allocated to the assets acquired and
liabilities assumed based on their estimated fair values as determined by
GoTo.com at the date of the acquisition. The total purchase price of the
acquisition was approximately $263.1 million and consisted of cash of $8.0
million; GoTo.com common stock of $252.5 million valued at the closing price of
GoTo.com's common stock on the date the acquisition exchange ratio was set, net
of expected proceeds from the exercise of Cadabra stock options assumed by
GoTo.com; and acquisition costs of $2.6 million, primarily for investment
banking, legal and accounting costs. Of the purchase price, $7.6 million was
assigned to in-process research and development to be expensed immediately
following the consummation of the acquisition, $6.0 million was assigned to the
value of purchased technology and other intangibles and will be amortized on a
straight-line basis over three years and $4.4 million was allocated to the net
tangible assets.

F-72

REPORT OF INDEPENDENT AUDITORS

The Members
idealab! Capital Management I, LLC:

We have audited the accompanying balance sheets of idealab! Capital Management
I, LLC (a limited liability company) as of December 31, 1999 and 1998, and the
related statements of operations, changes in members' equity, and cash flows for
the year ended December 31, 1999 and the period March 20, 1998 (inception)
through December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of idealab! Capital Management I,
LLC at December 31, 1999 and 1998, and the results of its operations, cash
flows, and changes in members' equity for the year ended December 31, 1999 and
for the period March 20, 1998 (inception) through December 31, 1998, in
conformity with accounting principles generally accepted in the United States.

/s/Ernst & Young LLP

February 21, 2000
Los Angeles, California

F-73

IDEALAB! CAPITAL MANAGEMENT I, LLC
(A LIMITED LIABILITY COMPANY)
BALANCE SHEETS

DECEMBER 31
-------------------------------
1999 1998
---------------- -------------

ASSETS
Investment in Funds, at fair value (cost: 1999--$827,040: 1998--
$328,311) (NOTE 2).......................................................... $ 142,995,842 $ 1,810,238
Cash and cash equivalents...................................................... 444,569 30,098
Accounts receivable from affiliate............................................. 21,718 364,363
Furniture, fixtures, and equipment, net........................................ 50,286 35,030
Other assets................................................................... 61,191 14,300
---------------- -------------
Total assets................................................................... $ 143,573,606 $ 2,254,029
================ =============

LIABILITIES AND MEMBERS' EQUITY
Accounts payable and accrued liabilities....................................... $ 306,098 $ 31,526
---------------- -------------
Total liabilities.............................................................. 306,098 31,526

Members' equity:
Capital accounts............................................................ 1,098,706 740,576
Unrealized appreciation on investment in Funds.............................. 142,168,802 1,481,927
---------------- -------------
Total members' equity.......................................................... 143,267,508 2,222,503
---------------- -------------
Total liabilities and members' equity.......................................... $ 143,573,606 $ 2,254,029
================ =============

SEE ACCOMPANYING NOTES.

F-74

IDEALAB! CAPITAL MANAGEMENT I, LLC
(A LIMITED LIABILITY COMPANY)
STATEMENTS OF OPERATIONS

PERIOD
MARCH 20,
1998
(INCEPTION)
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1999 1998
---------------- ---------------

Income:
Fair value of securities received......................................... $66,996,503 $ --
Realized loss on distribution of securities............................... (174,955) --
Realized loss on sale of securities....................................... (601,092) --
Management fees........................................................... 2,858,123 1,575,966
Interest.................................................................. 37,156 13,651
---------------- ---------------
Total income................................................................. 69,115,735 1,589,617
General and administrative expenses.......................................... 2,305,772 1,174,396
---------------- ---------------
Income from operations....................................................... 66,809,963 415,221
Increase in unrealized appreciation on investment in Funds................... 140,686,874 1,481,927
---------------- ---------------
Increase in net assets resulting from operations............................. $207,496,837 $1,897,148
================ ===============

SEE ACCOMPANYING NOTES.

F-75

IDEALAB! CAPITAL MANAGEMENT I, LLC
(A LIMITED LIABILITY COMPANY)
STATEMENTS OF CHANGES IN MEMBERS' EQUITY

Balance at March 20, 1998 (inception)............... $ --
Capital contributions............................ 325,355
Increase in net assets resulting from
operations....................................... 1,897,148
--------------
Balance at December 31, 1998........................ 2,222,503
Capital contributions............................ 571,990
Capital distributions............................ (67,023,822)
Increase in net assets resulting from
operations....................................... 207,496,837
--------------
Balance at December 31, 1999........................ $143,267,508
==============

SEE ACCOMPANYING NOTES.

F-76

IDEALAB! CAPITAL MANAGEMENT I, LLC
(A LIMITED LIABILITY COMPANY)
STATEMENTS OF CASH FLOWS

PERIOD
MARCH 20,
1998
(INCEPTION)
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1999 1998
--------------- ---------------

OPERATING ACTIVITIES
Income from operations........................................................ $ 66,809,963 $ 415,221
Adjustments to reconcile income from operations to net cash provided by
operating activities:
Fair value of securities received........................................ (66,996,503) --
Realized loss on distribution of securities.............................. 174,955 --
Depreciation and amortization............................................ 34,137 6,423
Accounts receivable from affiliate....................................... 342,645 (364,363)
Other assets............................................................. (46,891) (14,300)
Accounts payable......................................................... 274,572 31,526
--------------- ---------------
Net cash provided by operating activities..................................... 592,878 74,507

INVESTING ACTIVITIES
Investment in Funds........................................................... (538,355) (282,380)
Cost of securities sold....................................................... 5,131,011 --
Purchase of furniture, fixtures, and equipment................................ (49,393) (41,453)
--------------- ---------------
Net cash (used in) provided by investing activities........................... 4,543,263 (323,833)

FINANCING ACTIVITIES
Capital contributions......................................................... 571,990 279,424
Capital distributions......................................................... (5,293,660) --
--------------- ---------------
Net cash provided by (used in) financing activities........................... (4,721,670) 279,424
--------------- ---------------
Net increase in cash and cash equivalents..................................... 414,471 30,098
Cash and cash equivalents at beginning of period.............................. 30,098 --
--------------- ---------------
Cash and cash equivalents at end of period.................................... $ 444,569 $ 30,098
=============== ===============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
The following securities were contributed to the Company in exchange for
membership interest and subsequently contributed to idealab! Capital
Partners, I-A, L.P.:
Bill Gross' idealab! Series B Preferred Stock.............................. $ -- $ 45,931
=============== ===============
The following securities were distributed by the Company to its members:
Distribution of eToys, Inc. Common Stock (916,532 shares)................ $ 46,800,360 $ --
=============== ===============
Distribution of GoTo.Com, Inc. Common Stock (186,622 shares)............. $ 14,929,803 $ --
=============== ===============

SEE ACCOMPANYING NOTES.

F-77

IDEALAB! CAPITAL MANAGEMENT I, LLC
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF FINANCIAL STATEMENTS

idealab! Capital Management I, LLC (the Company) was organized and
commenced operations on March 20, 1998, as a limited liability company under the
provisions of the Delaware Limited Liability Company Act. The Company was formed
to serve as a constituent general partner of idealab! Capital Partners I-A, LP,
a Delaware limited partnership, and idealab! Capital Partners I-B, LP, a
Delaware limited partnership (collectively, the Funds).

Investments are accounted for on a fair value basis to reflect the fair
value of the Company's investment in the Funds.

ALLOCATION OF PROFITS AND LOSSES

Items of profit and loss of the Company are allocated among the members
based either on each members' relative capital commitments or their respective
carried interest percentages depending on the character of the item.

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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.

TAXES BASED ON INCOME

The operations of the Company will be included in the taxable income of the
individual members and, accordingly, no provision or credit for taxes on the
results of realized operations or net unrealized appreciation or depreciation of
investments of the Company is recorded in the accompanying financial statements.

MANAGEMENT FEE INCOME

The Company provides management services to the Funds for an annual fee of
2.5% of the Funds' capital commitments, net of certain securities contributed by
the Company to the Funds at inception. The management agreement provides for the
management fee to be adjusted in future periods as defined in the agreement.

STATEMENT OF CASH FLOWS

The Company considers all highly liquid debt instruments with an original
maturity of three months or less, which includes investments in U.S. government
money market mutual funds, to be cash equivalents.

2. INVESTMENT IN FUNDS

The Company is the general partner of the Funds in which it has a capital
interest of 1%. The investment in Funds is reported at fair value consistent
with the methodology applied in the Funds' financial statements and disclosed
below.

F-78

IDEALAB! CAPITAL MANAGEMENT I, LLC
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Summary information on the Funds is as follows:

COMBINED BALANCE SHEET INFORMATION

DECEMBER 31, DECEMBER 31,
1999 1998
------------------ ----------------

Portfolio investments, at fair value (Cost: 1999--$82,727,153;
1998--$26,521,799).................................................... $1,015,342,917 $38,066,379
Cash and cash equivalents............................................... 5,647,305 5,267,109
Appropriated cash....................................................... 3,083,243 --
Receivables............................................................. 6,943 331,582
------------------ ----------------
Total assets............................................................ $1,024,080,408 $43,665,070
================== ================
Total liabilities....................................................... $ 9,325 $ 364,363
Total partners' equity, at fair value................................... 1,024,071,083 43,300,707
------------------ ----------------
Total liabilities and partners' equity.................................. $1,024,080,408 $43,665,070
================== ================

COMBINED STATEMENTS OF OPERATIONS INFORMATION

PERIOD
MARCH 20,
1998
(INCEPTION)
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1999 1998
------------------ ----------------

Income:
Realized gain on distribution of securities............................ $ 425,486,865 $ --
Realized gain on sale of securities.................................... 12,114,881 --
Interest income........................................................ 691,826 610,625
Dividend income........................................................ 76,087 --
------------------ ----------------
Total income.............................................................. 438,369,659 610,625
Investment expenses:
Management fees........................................................ 2,858,123 1,575,966
Other general and administrative....................................... 198,462 109,613
------------------ ----------------
Total investment expenses................................................. 3,056,585 1,685,579
Income (loss) from investment operations.................................. 435,313,074 (1,074,954)
Increase in unrealized appreciation of portfolio investments.............. 921,071,166 11,544,600
------------------ ----------------
Increase in net assets resulting from operations.......................... $1,356,384,240 $10,469,646
================== ================

VALUATION OF PORTFOLIO INVESTMENTS IN THE FUNDS

Investments are stated at fair value as determined by the general partner
of the Funds and unrealized appreciation or depreciation is included in
partners' equity and reflected in the statements of operations.

In establishing the fair value of nonpublicly traded securities (amounting
to $349,190,347 and $38,066,379 at December 31, 1999 and 1998, respectively),
the general partner takes into consideration the financial condition and
operating results of the portfolio companies, the investment, the price of
subsequent rounds of financing, and other factors the general partner deems
appropriate. Because of the inherent uncertainty of valuation, these estimated
values may differ significantly from the values that would have been used had a
ready market for nonpublicly traded securities existed, and these differences
could be material. Included in the fair value of nonpublicly traded securities
are Series B and

F-79

IDEALAB! CAPITAL MANAGEMENT I, LLC
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

C Preferred Stock of Bill Gross' idealab! Valued at $193,001,451 and $4,670,925
at December 31, 1999 and 1998 respectively.

In establishing the fair value of publicly traded securities that are
subject to trading restrictions (amounting to $666,152,570 and $-0- at December
31, 1999 and 1998, respectively), the general partner takes a 30% discount on
the period end closing price from the appropriate stock exchange. Holdings of
publicly traded securities that are not subject to trading restrictions are
valued at the period end closing price from the appropriate stock exchange.

Investments made by the Funds, by their nature, are generally considered to
be long-term investments and are not intended to be liquidated on a short-term
basis. In the absence of significant external valuation measures, fair value is
determined by the price at which the investments could change hands, where
neither party to the transaction is under any compulsion to buy or sell and both
have reasonable knowledge of the salient facts. Valuations do not reflect taxes
or other expenses which might be incurred upon disposition. Notes are valued in
combination with any equity investments in the same portfolio company.

3. ACCOUNTS RECEIVABLE FROM AFFILIATE

Accounts receivable from affiliate consists of expenses paid by the Company
on behalf of the Funds.

4. REQUIRED CAPITAL DUE FROM MEMBERS

The obligation of the members to pay the required capital in cash at the
times specified is absolute, unqualified and unconditional and, without
limitation, is not conditioned upon the need of the Company for funds or upon
any other member making the cash contributions that they are obligated to make.

5. CONTRIBUTED SECURITIES

At the inception, the following securities were contributed at their fair
value in exchange for membership interests:

TYPE OF
INTEREST NUMBER OF SHARES VALUE SECURITY
- ---------------- ------------------ ------------------ -----------------------------------------

Bill Gross' idealab! Series B Preferred
Non- Managing 27,018 $45,931 Stock

6. FAIR VALUE OF SECURITIES RECEIVED AND REALIZED LOSSES

FAIR VALUE OF
NUMBER OF SECURITIES
INVESTMENT SHARES BASIS FAIR VALUE RECEIVED
- ------------------------------------------------------ ------------- ---------- --------------------------------

eToys, Inc. Common Stock............................. 1,009,717 $ 7,225 $51,931,371 $51,924,146
GoTo.com, Inc. Common Stock.......................... 186,622 32,401 15,104,758 15,072,357
----------------
Total realized gain on securities received........... $66,996,503
================

REALIZED LOSS ON
NUMBER OF DISTRIBUTION OF
INVESTMENT SHARES BASIS FAIR VALUE SECURITIES
- ------------------------------------------- ------------- --------------- ---------------- -------------------

GoTo.com, Inc. Common Stock............... 186,622 $15,104,758 $14,929,803 $(174,955)

NUMBER OF REALIZED LOSS ON
INVESTMENT SHARES BASIS FAIR VALUE SALE OF SECURITIES
- ------------------------------------------- ------------- --------------- ---------------- -------------------

eToys, Inc. Common Stock.................. 93,185 $ 5,131,011 $ 4,529,919 $(601,092)

F-80

IDEALAB! CAPITAL MANAGEMENT I, LLC
(A LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

7. RELATED PARTY TRANSACTIONS

In accordance with the Company's operating agreement, an annual fee equal
to 0.5 percent of the aggregate capital committed to the Funds (up to a maximum
annual fee of $400,000) is payable to Bill Gross' idealab!, a member of the
Company. For the year ended December 31, 1999 and for the period March 20, 1998
(inception) through December 31, 1998, the Company incurred fees of $400,000 and
$317,000, respectively, which are reflected in general and administrative
expenses.

8. 401(K) PLAN AND TRUST

The ICM 401(k) Plan and Trust (the Plan) adopted in 1999 by the Company
provides that eligible employees may defer up to 10% of their wages annually. An
employee is eligible to contribute to the Plan on the first day of employment.
In addition, the Company may elect annually to match all or a portion of the
employees' contributions to the Plan. An employee is eligible to share in the
discretionary employer contribution after one year of service and must be
actively employed on the last day of the plan year. No employer contributions
were made to the Plan during 1999.

9. IMPACT OF YEAR 2000 (UNAUDITED)

The Company experienced no significant disruptions in its software and
computer systems and believes those systems successfully responded to the Year
2000 date change. The Company is not aware of any material problems resulting
from Year 2000 issues, either with its internal systems or those of its
investees. The Company will continue to monitor its software and computer
systems and those of its investees throughout the Year 2000 to ensure that any
latent Year 2000 matters that may arise are addressed promptly.

F-81

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of Intranets.com, Inc. (formerly IntraNetics, Inc.):

In our opinion, the accompanying balance sheets and the related
statements of operations, redeemable convertible preferred stock and
stockholders' deficit and cash flows present fairly, in all material respects,
the financial position of Intranets.com, Inc. (formerly IntraNetics, Inc.) at
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
June 30, 1999, except for the information
presented in Note 12 for which the dates are
August 24, 1999 and November 18, 1999

F-82

INTRANETS.COM, INC.
BALANCE SHEETS

DECEMBER 31,
------------------------------ JUNE 30,
1997 1998 1999
------------- --------------- --------------
(UNAUDITED)

ASSETS
Current assets:
Cash and cash equivalents.................................... $ 455,159 $ 2,030,315 $ 1,880,552
Accounts receivable, net of allowance for doubtful accounts of
$399,000, $153,892 and $230,405 at December 31, 1997,
December 31, 1998 and June 30, 1999
(unaudited), respectively.................................. 54,451 49,932 116,504
Prepaid expenses and other current assets.................... 82,448 34,348 31,116
------------- --------------- --------------
Total current assets..................................... 592,058 2,114,595 2,028,172
Fixed assets, net............................................... 436,298 427,231 388,329
Other assets.................................................... -- 30,835 24,355
------------- --------------- --------------
$ 1,028,356 $ 2,572,661 $ 2,440,856
============= =============== ==============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
Current liabilities:

Convertible notes payable.................................... $ 2,830,542 $ -- $ --
Demand notes payable......................................... 1,041,112 888,889 722,222
Promissory notes payable-- officer and stockholder........... 653,500 -- --
Current portion of capital lease obligations................. 71,814 81,921 51,928
Accounts payable............................................. 1,338,669 206,201 117,066
Accrued expenses............................................. 251,415 169,858 227,303
Deferred revenue............................................. -- 13,098 13,098
------------- --------------- --------------
Total current liabilities................................ 6,187,052 1,359,967 1,131,617
Capital lease obligations....................................... 99,846 12,537 --
------------- --------------- --------------
Total liabilities 6,286,898 1,372,504 1,131,617
------------- --------------- --------------
Commitments (Note 9)............................................
Redeemable convertible preferred stock:
Series B redeemable convertible preferred stock, $.0001 par
value; 32,000,000 and 35,000,000 shares authorized at
December 31, 1998 June 30, 1999 (unaudited), respectively;
24,863,994 and 28,818,909 shares issued and outstanding at
December 31, 1998 and 30, 1999 (unaudited), respectively; at
issuance price plus accretion net of issuance costs
(liquidation preference of $13,261,467 and $15,788,964 at
December 31, 1998 and June 30, 1999 (unaudited),
respectively).............................................. -- 12,435,088 15,061,751
Stockholder's deficit:
Series A convertible preferred stock, $.0001 par value; 4,000,000
shares authorized; 166,667 shares issued and
outstanding at December 31, 1997........................... 250,000 -- --
Common stock, $.0001 par value; 50,000,000 and 52,000,000
shares authorized at December 31, 1998 and June 30, 1999
(unaudited),respectively; 10,000,000 shares issued and outstanding
at December 31, 1997; 10,029,500 issued and 8,529,500 outstanding at
December 31, 1998; 10,035,750 shares issued and 8,535,750 shares
outstanding at June 30, 1999(unaudited).................... 1,000 1,003 1,004
Additional paid-in capital...................................... 249,000 -- --
Treasury stock, at cost, 1,500,000 shares at December 31, 1998
and June 30, 1999 (unaudited).............................. -- (37,500) (37,500)
Accumulated deficit............................................. (5,758,542) (11,198,434) (13,716,016)
------------- --------------- --------------
Total stockholders' deficit.............................. (5,258,542) (11,234,931) (13,752,512)
------------- --------------- --------------
Total liabilities, redeemable convertible preferred stock
and stockholders' deficit.............................. $ 1,028,356 $ 2,572,661 $ 2,440,856
============= =============== ==============

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

F-83

INTRANETS.COM, INC.
STATEMENTS OF OPERATIONS

YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------ ------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
(UNAUDITED)

Revenue........................... $ 69,936 $ 300,462 $ 224,256 $ 345,016
----------- ----------- ----------- -----------
Costs and expenses:
Costs of revenue............... 99,705 101,468 41,991 49,663
Research and development....... 2,088,787 1,545,164 819,549 635,391
Selling and marketing.......... 2,405,597 2,238,900 1,027,582 1,063,592
General and administrative..... 832,488 1,159,296 566,095 489,333
----------- ----------- ----------- -----------
5,426,577 5,044,828 2,455,217 2,237,979
----------- ----------- ----------- -----------
Loss from operations.............. (5,356,641) (4,744,366) (2,230,961) (1,892,963)
Interest expense, net............. (151,003) (92,977) (77,899) 1,732
----------- ----------- ----------- -----------
Net loss.......................... (5,507,644) (4,837,343) (2,308,860) (1,891,231)
----------- ----------- ----------- -----------
Accretion of preferred
stock dividends and issuance
costs.......................... -- (853,021) (315,814) (626,663)
----------- ----------- ----------- -----------
Net loss attributable to common
stockholders................... $(5,507,644) $(5,690,364) $(2,624,674) $(2,517,894)
----------- =========== =========== ===========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

F-84

INTRANETS.COM, INC.
STATEMENTS OF CASH FLOWS

YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------------ ------------------------------
1997 1998 1998 1999
-------------- -------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES: (unaudited)

Net loss .................................... $(5,507,644) $(4,837,343) $(2,308,860) $(1,891,231)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization ............. 76,095 179,062 68,236 92,062
Loss on sale of fixed assets .............. -- 8,810 -- --
Changes in assets and liabilities:
Accounts receivable ..................... (54,451) 4,519 (43,441) (66,572)
Prepaid expenses and other current assets (70,346) 14,865 (14,562) 3,232
Accounts payable ........................ 1,325,930 (1,132,468) (990,521) (89,135)
Accrued expenses ........................ 251,415 42,642 93,045 57,445
Deferred revenue ........................ -- 13,098 -- --
----------- ----------- ----------- -----------
Net cash used in operating activities ..... (3,979,001) (5,706,815) (3,196,103) (1,894,199)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets ................... (438,324) (176,405) (95,327) (46,680)
Proceeds from sale and leaseback of fixed
assets .................................... 141,000 -- -- --
----------- ----------- ----------- -----------
Net cash used in investing activities ..... (297,324) (176,405) (95,327) (46,680)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible notes
payable ................................... 2,830,542 -- -- --
Proceeds from issuance of demand notes
payable ................................... 1,041,112 1,000,000 50,000 --
Payments of demand notes payable ............ -- (1,152,223) -- (166,667)
Proceeds from issuance of promissory notes
payable--officer and stockholder .......... 370,000 -- -- --
Principal payments on promissory notes
payable--officer and stockholder .......... -- (653,500) (653,500) --
Payments of capital lease obligations ....... (10,170) (77,202) (37,564) (42,530)
Proceeds from issuance of Series A
convertible preferred stock ............... 250,000 -- -- --
Proceeds from issuance of Series B
redeemable convertible preferred stock,
net of issuance costs ..................... -- 8,377,326 5,377,324 2,000,000
Proceeds from issuance of common stock ...... 250,000 1,475 1,400 313
Purchases of treasury stock ................. -- (37,500) (37,500) --
----------- ----------- ----------- -----------
Net cash provided by financing activities ...... 4,731,484 7,458,376 4,700,160 1,791,116
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents .................................... 455,159 1,575,156 1,408,730 (149,763)
Cash and cash equivalents, beginning of year ... -- 455,159 455,159 2,030,315
----------- ----------- ----------- -----------
Cash and cash equivalents, end of year ......... $ 455,159 $ 2,030,315 $ 1,863,889 $ 1,880,552
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest ...................... $ 25,515 $ 179,467 $ 122,565 $ 42,497
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Assets acquired under capital lease.......... $ 159,708
Issuance of Series B redeemable convertible
preferred stock upon conversion of Series
A convertible preferred stock.............. $ 250,000 $ 250,000
Issuance of Series B redeemable convertible
preferred stock upon conversion of
convertible notes payable (principal and
accrued interest).......................... $ 2,954,741 $2,954,741
Conversion of accrued interest on
convertible notes payable into shares of
Series B redeemable convertible preferred
stock...................................... $ 124,199 $ 124,199

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

F-85

INTRANETS.COM, INC.
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT FOR THE YEARS ENDED DECEMBER 13, 1997 AND 1998
AND THE SIX MONTHS ENDING JUNE 30,1999 (UNAUDITED)

SERIES B SERIES A
REDEEMABLE CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
---------------------- ---------------------- ---------------------- ADDITIONAL
PAR PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES VALUE CAPITAL
---------- ---------- ---------- ---------- ---------- ---------- ----------

Balance at December 31, 1996........
Issuance of Series A convertible
preferred stock.................. 166,667 $ 250,000
Issuance of common stock............ 10,000,000 $ 1,000 $ 249,000
Net loss............................
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997........ 166,667 250,000 10,000,000 1,000 249,000
Issuance of Series B redeemable
convertible preferred stock
upon conversion of Series A
convertible preferred stock...... 494,365 $ 250,000 (166,667) (250,000)
Issuance of Series B redeemable
convertible preferred stock upon
conversion of convertible notes
payable (principal and accrued
interest)....................... 7,655,607 2,954,741
Issuance of Series B redeemable
convertible preferred stock, net
of issuance costs of $74,953..... 16,714,022 8,377,326
Accretion of preferred stock
redemption value................. 853,021 (250,472)
Treasury stock purchased...........
Issuance of common stock
pursuant to exercise of stock
options.......................... 29,500 3 1,472
Net loss............................
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1998........ 24,863,994 12,435,088 10,029,500 1,003
Issuance of series B redeemable
convertible preferred stock...... 3,954,915 2,000,000
Accretion of preferred stock
redemption value ................ 626,663 (312)
Issuance of common stock
pursuant to exercise of stock
options.......................... 6,250 1 312
Net loss............................
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 1999
(unaudited)...................... 28,818,909 $15,061,751 -- $ -- 10,035,750 $ 1,004 $ --
========== ========== ========== ========== ========== ========== ==========

TREASURY STOCK
---------------------- TOTAL
ACCUMULATED STOCKHOLDERS'
SHARES COST DEFICIT DEFICIT
---------- ---------- ---------- ----------

Balance at December 31, 1996........ $ (250,898) $ 250,898)
Issuance of Series A convertible
preferred stock.................. 250,000
Issuance of common stock............ 250,000
Net loss............................ (5,507,644) (5,507,644)
---------- ----------
Balance at December 31, 1997........ (5,758,542) (5,258,542)
Issuance of Series B redeemable
convertible preferred stock
upon conversion of Series A
convertible preferred stock...... (250,000)
Issuance of Series B redeemable
convertible preferred stock upon
conversion of convertible notes
payable (principal and accrued
interest).......................
Issuance of Series B redeemable
convertible preferred stock, net
of issuance costs of $74,953.....
Accretion of preferred stock
redemption value................. (602,549) (853,021)
Treasury stock purchased........... 1,500,000 $ (37,500) (37,500)
Issuance of common stock
pursuant to exercise of stock
options.......................... 1,475
Net loss............................ (4,837,343) (4,837,343)
---------- ---------- ---------- ----------
Balance at December 31, 1998........ 1,500,000 (37,500) (11,198,434) 11,234,931)
Issuance of series B redeemable
convertible preferred stock......
Accretion of preferred stock
redemption value ................ (626,351) (626,663)
Issuance of common stock
pursuant to exercise of stock
options.......................... 313
Net loss............................ (1,891,231) (1,891,231)
---------- ---------- ---------- ----------
Balance at June 30, 1999
(unaudited)...................... 1,500,000 $ (37,500) $(13,716,016) $(13,752,512)
========== ========== ========== ==========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

F-86

INTRANETS.COM, INC.

NOTES TO FINANCIAL STATEMENTS

1. NATURE OF THE BUSINESS AND BASIS OF PRESENTATION

Intranets.com, Inc. (formerly IntraNetics, Inc.) (the "Company") was
incorporated in Delaware in December 1996 to design and market a turnkey
integrated suite of intranet business applications. The Company's principal
markets are domestic and international business markets. In June 1999, the
Company decided to discontinue further development and marketing of its packaged
intranet software products and instead commenced the development of a free
hosted intranet service over the internet. In connection with this change in
product direction, the Company legally changed its name to Intranets.com, Inc.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

UNAUDITED INTERIM FINANCIAL STATEMENTS

The accompanying financial statements of the Company for the six months
ended June 30, 1998 and 1999 are unaudited. In the opinion of management, the
accompanying interim financial statements contain all adjustments necessary for
a fair presentation of the Company's financial position, results of operations,
and cash flows at the dates and for the periods indicated, which adjustments
consist only of adjustments of a normal recurring nature.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. The Company invests its
excess cash primarily in money market accounts and commercial paper.
Accordingly, these investments are subject to minimal credit and market risk.

At December 31, 1998, cash equivalents included commercial paper and
money market funds of $1,700,000 and $275,000, respectively. These investments
are classified as available-for-sale and are recorded at amortized cost which
approximates fair market value.

REVENUE RECOGNITION

The Company's revenue is derived from the sale of licenses to use the
Company's software products primarily to end-users and resellers. Revenue from
sales to end-users and resellers is recognized upon delivery provided that no
uncertainties remain relating to the sale, and that collection of the related
receivable is probable.

ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK

Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
Management believes its credit policies are prudent and reflect normal industry
terms and business risk. The Company performs ongoing credit evaluations of
customers' financial condition but does not require collateral. Credit losses
have not been significant to date.

FIXED ASSETS

Fixed assets are recorded at cost and depreciated using the straight-line
method over the estimated useful lives of the related assets. Equipment held
under capital leases is stated at the lower of the fair value of the equipment
or the present value of the minimum lease payments at inception of the leases
and is amortized on a straight-line basis over the lives of the related assets
or the term of the leases.

ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS

Long-lived assets and identifiable intangibles held and used are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets or intangibles may

F-87

INTRANETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

exceed the undiscounted future net cash flow expected to be generated by such
assets. If it is determined that impairment has occurred, the asset is written
down to fair value as determined by market value or discounted cash flow

RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS

Costs incurred in the research and development of the Company's products
are expensed as incurred, except for certain software development costs. Costs
associated with the development of computer software are expensed until
technological feasibility has been established (as defined by SFAS No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed") and are capitalized thereafter until the related product is available
for general release. Costs subject to capitalization during the years ended
December 31, 1997 and 1998 were not significant.

ACCOUNTING FOR STOCK-BASED COMPENSATION

The Company accounts for stock-based compensation awards to employees and
directors in accordance with Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, no compensation expense is recorded for options issued to employees
and directors in fixed amounts and with exercise prices equal to the fair market
value of the Company's common stock at the date of grant. The Company has
adopted the disclosure only (Note 7) provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation." All stock-based awards to non-employees are accounted
for at their fair value in accordance with SFAS No. 123.

INCOME TAXES

Deferred tax assets and liabilities are determined based on the difference
between the financial statement and the tax basis of assets and liabilities
using currently enacted tax rates. A valuation allowance against deferred tax
assets is recorded if, based upon the weight of available evidence, it is more
likely than not that some or all of the deferred tax assets will not be
realized.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses during
the reporting period. Components particularly subject to estimation include
accrued expenses and the fair values of the Company's equity instruments. Actual
amounts could differ from those estimates.

3. FIXED ASSETS

Fixed assets consist of the following:

JUNE 30,
ESTIMATED DECEMBER 31, 1999
USEFUL -------------------------- -------------
LIFE (YEARS) 1997 1998 (UNAUDITED)
------------ ------------ -------------
Computer equipment...... 2-5 $ 336,329 $ 374,211 $ 420,891
Computer software....... 3 45,074 80,137 80,137
Furniture and fixtures.. 2-7 45,166 131,221 131,221
Office equipment........ 5 76,099 80,274 80,274
Leasehold improvements.. 3 9,725 10,369 10,369
------------- ------------ -------------
512,393 676,212 722,892
Less-- accumulated
depreciation and
amortization.......... (76,095) (248,981) (334,563)
------------- ------------ -------------
$ 436,298 $ 427,231 $ 388,329
============= ============ =============

F-88

INTRANETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

At December 31, 1998 and June 30, 1999 (unaudited), computer equipment and
furniture and fixtures under capital leases were $89,458 and $70,250,
respectively. Accumulated amortization relating to such computer equipment and
furniture and fixtures totaled $44,498, $79,854 and $139,745 for the years ended
December 31, 1997, December 31, 1998 and June 30, 1999 (unaudited),
respectively. During the year ended December 31, 1997, the Company sold and
leased back certain computer equipment with a net book value of $141,000 from a
third-party lessor for cash proceeds of $141,000.

4. DEBT

CONVERTIBLE NOTES PAYABLE

In December 1997, the Company entered into a bridge financing agreement
with certain investors for an aggregate amount of $1,355,542. The bridge
financing was interest bearing at an annual rate of 12%. In March 1998, the
financing, together with accrued interest thereon, was converted into 2,746,663
shares of Series B Preferred Stock. (Note 5).

In addition, the Company issued subordinated convertible notes payable of
$1,475,000 to certain investors. These notes were interest bearing at an annual
rate of 10%. In March 1998, these notes, together with accrued interest thereon,
were converted into 4,908,944 shares of Series B Preferred Stock.

DEMAND NOTES PAYABLE

In November 1997, the Company entered into two demand notes payable
agreements with a third-party lending institution totaling $1,041,112. In March
1998, the Company refinanced these demand notes into a single note payable due
December 31, 1998 bearing interest at the institution's base lending rate
(8.50%). Under the terms of the agreement, the note payable was collateralized
by a certificate of deposit in the amount of $1,100,000. In September 1998, the
entire note payable was repaid by the Company.

In August 1998, the Company obtained a $1,000,000 term loan from another
third-party lending institution. Borrowings outstanding under the term loan bear
interest of 8.93% per annum. The term loan is collateralized by the assets of
the Company. Under the terms of the term loan agreement, the Company is required
to comply with certain covenant requirements and to maintain certain financial
ratios. At December 31, 1998 and June 30, 1999 and during the year ended
December 31, 1998 and the six months ended June 30, 1999, the Company was in
violation of certain covenants related to the level of net income and other
ratio covenants. As of June 30, 1999, $722,222 was outstanding under the term
loan (Note 12).

PROMISSORY NOTES PAYABLE -- OFFICER AND STOCKHOLDER

During 1996 and 1997, the Company issued subordinated notes payable to one
of its stockholders for advances made to the Company in the aggregate principal
amount of $583,500. In March 1998, the outstanding balance plus accrued interest
at a rate of 8% per annum was repaid by the Company.

In addition, during 1997, the Company received an advance from an officer
and stockholder of the Company totaling $70,000. The advance was short-term and
bore no interest. In March 1998, the advance was repaid by the Company.

EQUIPMENT LINE OF CREDIT

At December 31, 1998, the Company has an equipment line of credit
arrangement with a lender under which the Company may borrow up to $500,000 to
finance fixed asset purchases through June 2002. Borrowings outstanding under
the line of credit bear interest at the bank's prime rate plus 0.5%. All

F-89

INTRANETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

borrowings under the fixed asset line are collateralized by the assets of the
Company. At December 31, 1998 and June 30, 1999, no balance was outstanding
under this line.

5. REDEEMABLE CONVERTIBLE PREFERRED STOCK

In March 1998, the Company granted the holders of Series A convertible
preferred stock (the "Series A Preferred Stock") the option to convert their
shares into Series B redeemable convertible preferred stock (the "Series B
Preferred Stock") at a rate of one share of Series B Preferred Stock for every
.3371 shares of Series A Preferred Stock. In March 1998, all Series A
stockholders exercised this option and converted a total of 166,667 shares of
Series A Preferred Stock into 494,365 shares of Series B Preferred Stock.

In March and October 1998, the Company issued a total of 16,714,022 shares
of Series B Preferred Stock for total proceeds of approximately $8,452,000. Of
the shares issued in March 1998, 7,655,607 shares were issued in connection with
the conversion of $2,830,542 of convertible notes payable plus accrued interest
and 494,365 shares were issued in connection with the conversion of 166,667
shares of Series A Preferred Stock.

The Series B Preferred Stock has the following characteristics:

CONVERSION

Each share of Series B Preferred Stock is convertible at any time, at
the option of the holder, into shares of common stock based on the
applicable conversion rate, currently one to one, subject to certain
anti-dilution adjustments. All outstanding shares of Series B Preferred
Stock will automatically convert to common stock upon the closing of a
qualified public offering of the Company's common stock in which the per
share price to the public is not less than 300% of the then applicable
conversion value of the Series B Preferred Stock resulting in gross
proceeds to the Company of at least $25,000,000.

DIVIDENDS

Holders of Series B Preferred Stock are entitled to receive, when and
as declared by the Board of Directors, and in any event upon liquidation,
dissolution or winding-up of the Company or the redemption of such shares,
out of funds legally available, dividends at the rate of $.04 per share per
annum. Cumulative dividends are payable in preference and priority to any
payment of any dividend on any other class or series of capital stock.
Through December 31, 1998, no dividends have been declared or paid by the
Company.

LIQUIDATION, DISSOLUTION OR WINDING-UP OF THE COMPANY

In the event of any liquidation, dissolution or winding up of the
Company, the holders of the Series B Preferred Stock will be entitled to
receive, in preference to the holders of the common stock, an amount per
share equal to the sum of $0.5057 per share of the Series B Preferred Stock
held, plus an amount equal to all accrued but unpaid dividends in respect
of such share. If the assets of the Company are insufficient to pay the
Series B stockholders the full amount to which they are entitled, they
shall receive a distribution of the remaining assets in proportion to the
respective total amounts they were entitled. Any assets remaining after the
initial distribution to the holders of the Series B Preferred Stock shall
be available for distribution ratably among the holders of shares of Series
B Preferred Stock and the holders of shares of common stock.

F-90

INTRANETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

REDEMPTION

At any time on or after March 2003, upon the consent of stockholders
representing a majority of the then outstanding Series B Preferred Stock,
such stockholders may redeem all or any portion of the shares of Series B
Preferred Stock at a redemption price equal to the greater of $0.5057 per
share or the fair market value per share.

VOTING

Each holder of the Series B Preferred Stock is entitled to the number
of votes equal to the number of shares of common stock into which such
holder's shares are convertible at the record date for such vote.

WARRANTS

In connection with the issuance of the Series A Preferred Stock, the
Company entered into a warrant agreement with the holders which allows them to
purchase 233,334 shares of the Company's common stock at an exercise price of
$.15 per share. The warrant is currently exercisable in whole or in part,
subject to certain limitations. The warrant shall expire on the earlier of
December 31, 2006 or a sale of substantially all of the business or assets of
the Company. Upon the conversion of Series A preferred stock into Series B
Preferred Stock, the exercise price for this warrant was repriced to $.025 per
common share and an additional warrant to purchase 327,698 shares of the
Company's common stock at an exercise price of $.025 per share was granted.

In connection with the issuance of convertible notes payable in 1997, the
Company entered into a warrant agreement with the holders which allows them to
purchase 686,664 shares of the Company's Series B Preferred Stock at an exercise
price of $.51 per share. The warrant is currently exercisable and expires on
December 31, 2008.

The value ascribed to each of the above warrants was not material.

6. COMMON STOCK

The Company formally issued its founding equity in January 1997.

Each share of common stock entitles the holder to one vote on all matters
submitted to a vote of the Company's stockholders. Common stockholders are
entitled to receive dividends only when and if declared by the Board of
Directors, subject to the preferential dividend rights of the preferred
stockholders.

At December 31, 1998, the Company had reserved 4,205,176 shares of common
stock for issuance upon the exercise of outstanding common stock options (Note
7), 1,247,696 shares of common stock for issuance upon the exercise of common
stock warrants, and 24,863,994 shares of common stock for issuance upon the
conversion of preferred stock.

7. STOCK OPTION PLAN

During 1997, the Company adopted the 1997 Stock Option Plan (the "1997
Plan"). The 1997 Plan provides for the granting of incentive and nonqualified
stock options and common stock to directors, consultants and employees of the
Company. On August 26, 1999, the Company's Board of Directors increased the
maximum number of shares that may be issued under the 1997 Plan from 5,000,000
to 12,560,000.

For stock options issued under the 1997 Plan, the exercise price of each
stock option shall be specified by the Board of Directors at the time of grant.
However, incentive stock options may not be granted at less than the fair value
of the Company's common stock as determined by the Board of

F-91

INTRANETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Directors at the date of grant or for a term in excess of ten years. For holders
of more than 10% of the Company's total combined voting power of all classes of
stock, incentive stock options may not be granted at less than 110% of the fair
value of the Company's common stock at the date of grant or for a term in excess
of five years. All options granted through December 31, 1998 under the 1997 Plan
were issued at or above fair value as determined by the Board of Directors, vest
either immediately or over a five-year period for employees or over the service
period for nonemployees, and expire ten years from the date of grant.

During 1997, the Company granted 35,176 options of common stock to
consultants at exercise prices of $0.15 and $0.51 per share in exchange for
services rendered. The value ascribed to these shares was not material. No stock
options were issued to consultants in 1998.

A summary of the status of the Company's stock option plan as of December
31, 1997 and 1998 and changes during the years then ended is presented below:

1997 1998
-------------------------------- --------------------------------
NUMBER WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
OF SHARES EXERCISE PRICE OF SHARES EXERCISE PRICE
--------------- ---------------- ------------- ---------------

Outstanding at beginning of year..................... -- $ -- 1,845,176 $ 0.15
Granted.............................................. 1,847,676 0.15 4,810,000 0.05
Exercised............................................ -- (29,500) 0.05
Canceled............................................. (2,500) 0.15 (2,420,500) 0.15
--------------- ----------
Outstanding at end of year........................... 1,845,176 0.15 4,205,176 0.05
=============== ==========
Options exercisable at end of year................... 276,676 0.18 684,176
=============== ==========
Options available for future grant................... 1,654,824 794,824
=============== ==========

The following table summarizes information about stock options outstanding
at December 31, 1998:

WEIGHTED-
AVERAGE
REMAINING
EXERCISE NUMBER CONTRACTUAL LIFE NUMBER
PRICE OUTSTANDING (IN YEARS) EXERCISABLE
- ------------ ------------- ------------------ ------------
$ 0.05 4,180,000 9.3 659,000
0.51 25,176 8.9 25,176
------------- ------------
4,205,176 9.3 684,176
============= ============

The fair value of each option grant was estimated on the date of grant
using the minimum value method with the following assumptions used for grants in
1998 and 1997: dividend yield of zero, volatility of zero, risk-free interest
rate of 5.0% and 5.9%, respectively, and weighted-average expected option term
of 5 years.

No compensation expense has been recognized for the Company's stock option
plan under APB Opinion No. 25. Had compensation cost for these awards been
determined based on the fair value at the date of grant consistent with the
method prescribed by SFAS No. 123, the Company's net loss would not have
differed materially from the amount reported. However, because additional option
grants are expected to be made subsequent to December 31, 1998 and because
options vest over several years, the pro forma effects of applying the fair
value method may be material to reported net income or loss in future years.

In June 1998, the Company elected to reprice all outstanding common stock
options granted to employees and directors to $.05 which was not less than the
fair market value of common stock as determined by the Company's Board of
Directors.

F-92

INTRANETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

8. INCOME TAXES

Deferred tax assets (liabilities) consist of the following:

DECEMBER 31,
---------------------------------
1997 1998
---------------- ---------------

Net operating loss carryforwards.............................. $ 2,324,000 $ 4,173,000
Research and development tax credit carryforwards............. 119,000 122,000
Fixed assets.................................................. (15,000) 82,000
---------------- ---------------
Net deferred tax assets....................................... 2,428,000 4,377,000
Deferred tax asset valuation allowance........................ (2,428,000) (4,377,000)
---------------- ---------------
$ -- $ --
================ ===============

The Company provided a valuation allowance for the full amount of the net
deferred tax assets since realization of any future benefit from deductible
temporary differences and net operating loss and tax credit carryforwards cannot
be sufficiently assured at December 31, 1998.

At December 31, 1998, the Company had federal and state net operating loss
carryforwards of approximately $10,300,000 available to reduce future taxable
income and which expire at various dates through 2018. The Company also has
federal and state research and development tax credit carryforwards of
approximately $80,000 and $60,000, respectively, available to reduce future tax
liabilities and which expire in the year 2018.

Under the provisions of the Internal Revenue Code, certain substantial
changes in the Company's ownership may limit the amount of net operating loss
and tax credit carryforwards which could be utilized annually to offset future
taxable income and taxes payable. The amount of this annual limitation is
determined based upon the Company's value prior to an ownership change.

9. COMMITMENTS

OPERATING LEASES

The Company leases its facility under a noncancelable operating lease which
expires in January 2000. Rent expense under this lease was $109,274 and $147,891
during the years ended December 31, 1997 and 1998, respectively.

Future minimum payments under noncancelable operating and capital leases as
of December 31, 1998 are as follows:

OPERATING CAPITAL
LEASE LEASES
-------------- --------------
YEAR ENDING DECEMBER 31,
---------------------------

1999............................................................ $ 135,586 $ 95,035
2000............................................................ 11,299 13,815
-------------- --------------
Total minimum lease payments.................................... $ 146,885 108,850
==============
Less amount representing interest............................... (14,392)
--------------
Present value of minimum lease payments......................... $ 94,458
==============

10. SAVINGS PLAN

In January 1997, the Company adopted a retirement savings plan for its
employees pursuant to Section 401(k) of the Internal Revenue Code (the "401(k)
Plan"). Employees become eligible to participate under the 401(k) Plan upon
completion of three months of service to the Company. Employees may contribute
from 1% to 15% of their salary, up to a maximum annual statutory limit. The
Company is not required to contribute to this plan and has made no contributions
through December 31, 1998.

F-93

INTRANETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

11. GEOGRAPHIC INFORMATION

The Company's revenue was derived from the following:

YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------------- ----------------------------
1997 1998 1998 1999
------------- -------------
(UNAUDITED)
------------- ------------- ------------- -------------

Domestic......................................... 66,311 245,169 175,918 312,368
International.................................... 3,625 55,293 48,338 32,648
------------- ------------- ------------- -------------
Total......................................... 69,936 300,462 224,256 345,016
============= ============= ============= =============

12. SUBSEQUENT EVENTS

ISSUANCE OF SERIES C REDEEMABLE CONVERTIBLE PREFERRED STOCK

On August 24, 1999, the Company issued 25,716,179 shares of Series C
Redeemable Convertible Preferred Stock ("Series C Preferred Stock") to one
investor for proceeds to the Company of $2,000,000, prior to any fees or
offering costs. The Series C Preferred Stock has substantially identical voting,
dividend, redemption and conversion rights as the Series B Preferred Stock,
except for the redemption amount per share of $0.0777. In the event of any
dissolution or winding-up of the Company, the holders of Series C Preferred
Stock rank equally with the holders of the Series B Preferred Stock and are
entitled to receive $0.0777 per share prior to any distributions to holders of
Common Stock.

In conjunction with the issuance of Series C Preferred Stock, the investor
received a warrant to purchase 15,383,090 shares of the Company's Series C
Preferred Stock at an exercise price of $0.0777 per share. The warrant becomes
exercisable if the Company issues equity securities on or before February 24,
2000 at a pre money company valuation of at least $45,000,000 and receives
aggregate proceeds of at least $5,000,000. A value of $340,970 was ascribed to
the warrant.

ISSUANCE OF SERIES D REDEEMABLE CONVERTIBLE PREFERRED STOCK

On November 18, 1999, the Company issued 35,473,572 shares of Series D
Redeemable Convertible Preferred Stock ("Series D Preferred Stock") at a per
share price of $0.56 for aggregate proceeds of $20,000,000, prior to any fees or
offering costs. The Series D Preferred Stock has substantially identical voting,
dividend, redemption and conversion rights as the Series B and Series C
Preferred Stock except for the redemption amount per share of $0.5638. In the
event of any dissolution or winding-up of the Company, the holders of Series D
Preferred Stock rank equally with the holders of Series B and Series C Preferred
Stock and are entitled to receive $0.5638 per share prior to any distributions
to holders of Common Stock.

DEBT REPAYMENT (UNAUDITED)

On December 14, 1999, the Company repaid the remaining balance of
approximately $550,000 outstanding under its term loan.

WARRANT EXERCISE (UNAUDITED)

Upon the closing of the Series D Preferred Stock financing the warrant for
the Company's Series C Preferred Stock became exercisable. On February 8, 2000,
the warrant was exercised and the Company received aggregate proceeds of
$1,196,343.

F-94

AUDITORS' REPORT

October 27, 1999

To the Directors of Perga Capital Incorporated (formerly R. L. Perrier
Investments Limited)

We have audited the balance sheets of PERGA CAPITAL INCORPORATED as at
April 30, 1998 and 1999, and the statements of operations and deficit, and cash
flows for the years ended April 30, 1998 and 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at April 30, 1998 and 1999,
and the results of its operations and its cash flow for the years ended April
30, 1998 and 1999 in accordance with Canadian generally accepted accounting
principles.

/s/ PricewaterhouseCoopers LLP
Chartered Accountants
London, Ontario, Canada

F-95

PERGA CAPITAL INCORPORATED
BALANCE SHEETS
AS AT APRIL 30, 1998 AND 1999
(EXPRESSED IN CANADIAN DOLLARS)

1998 1999
-------- --------
ASSETS

CURRENT ASSETS
Cash...................................................... $ 3,524 $ 862
Accounts receivable....................................... 4,823 5,383
Income taxes recoverable (note 7)......................... -- 12,942
-------- --------
8,347 19,187

ADVANCES TO SIGNIFICANTLY INFLUENCED COMPANY (note 3)..... 150,675 310,084

INVESTMENT IN SIGNIFICANTLY INFLUENCED COMPANY (note 4)... -- --
-------- --------
$159,022 $329,271
======== ========

LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY

CURRENT LIABILITIES
Non-interest bearing advances from a shareholder.......... $223,508 $232,069
-------- --------
223,508 232,069
-------- --------

SHAREHOLDERS' (DEFICIT) EQUITY

Capital stock............................................. 205 205
Contributed surplus....................................... 221,583 221,583
Deficit................................................... (286,274)(124,586)
-------- --------
(64,486) 97,202
-------- --------
$159,022 $329,271
======== ========

SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.

F-96

PERGA CAPITAL INCORPORATED
STATEMENTS OF OPERATIONS AND DEFICIT
FOR THE YEARS ENDED APRIL 30, 1998 AND 1999
(EXPRESSED IN CANADIAN DOLLARS)

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

NET SALES REVENUE..................................................................... $ -- $ --
------------ -------------

General and administrative expenses................................................... 10,876 8,000
Interest expense...................................................................... 652 2,663
Share of loss (income) in significantly influenced company............................ 12,623 (159,409)
------------ -------------
24,151 (148,746)
------------ -------------

(LOSS) EARNINGS BEFORE INCOME TAXES................................................... (24,151) 148,746
RECOVERY OF INCOME TAXES (note 7)..................................................... (943) (12,942)
------------ -------------
NET (LOSS) EARNINGS FOR THE YEAR...................................................... (23,208) 161,688
DEFICIT--BEGINNING OF YEAR............................................................. (263,066) (286,274)
------------ -------------
DEFICIT--END OF YEAR................................................................... $ (286,274) $ (124,586)
============ =============

SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.

F-97

PERGA CAPITAL INCORPORATED
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED APRIL 30, 1998 AND 1999
(EXPRESSED IN CANADIAN DOLLARS)

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

OPERATING ACTIVITIES
Net (loss) earnings for the year....................................... $ (23,208) $ 161,688
Items not affecting cash--
Share of loss (income) in significantly influenced company.......... 12,623 (159,409)
------------ ------------
(10,585) 2,279

Net change in non-cash working capital--
Increase in accounts receivable..................................... (4,823) (560)
Increase in income taxes receivable................................. -- (12,942)
Decrease in income taxes payable.................................... (26,742) --
------------ ------------
(42,150) (11,223)
------------ ------------

FINANCING ACTIVITIES
Non-interest bearing advances from a shareholder....................... 23,891 8,561
------------ ------------
23,891 8,561
------------ ------------

NET CHANGE IN CASH AND CASH EQUIVALENTS................................ (18,259) (2,662)
CASH AND CASH EQUIVALENTS--BEGINNING OF YEAR............................ 21,783 3,524
------------ ------------
CASH AND CASH EQUIVALENTS--END OF YEAR.................................. $ 3,524 $ 862
============ ============

SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS.

F-98

PERGA CAPITAL INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 1998 AND 1999
(EXPRESSED IN CANADIAN DOLLARS)

1. NATURE OF OPERATIONS

Perga Capital Incorporated (the "Company") is a holding company without
significant operations and owns 35.4% of the common shares of AutoData Marketing
Systems Incorporated ("Autodata") which is located in London, Ontario, Canada.
The significantly influenced company is focused primarily on licensing
decision-making support tools and content to the automotive and related
industries in North America.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT

The Company's 35.4% investment in Autodata is accounted for using the
equity method. If an other than temporary decline in value occurs, the
investment would be written down to its net realizable value.

INCOME TAXES

The Company follows the deferral method of income tax allocation. Under
this method, timing differences between reported and taxable income result in
provisions for taxes not currently payable.

FOREIGN CURRENCY TRANSLATION

All foreign currency denominated accounts of the Company are translated
at the exchange rate at the balance sheet date. Transactions denominated in
foreign currency occuring during the period are translated at the rate in effect
at the date of the transaction.

STATEMENT OF CASH FLOWS

During the year, the Company retroactively implemented the new
presentation and disclosure requirements regarding cash flow statements per the
Canadian Institute of Chartered Accountants Handbook, section 1540.

CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.

FINANCIAL INSTRUMENTS

The Company's estimate of the fair value of its financial instruments,
which include cash accounts receivable and borrowings, approximates their
carrying value, due to the short-term nature of the instruments.

USE OF ESTIMATES

The preparation of these financial statements requires management to make
estimates and assumptions that affect revenues and expenses during the reporting
periods, in addition to the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements.
Actual results could differ from those estimates.

F-99

PERGA CAPITAL INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 1998 AND 1999--(CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)

3. ADVANCES TO SIGNIFICANTLY INFLUENCED COMPANY

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

Note receivable from Autodata bearing interest at the prime lending rate of the
Royal Bank of Canada.............................................................. $ 100,000 $ 100,000
Note receivable from Autodata bearing interest at the prime lending rate of the
Royal Bank of Canada.............................................................. 55,000 55,000
Note receivable from Autodata bearing interest at the prime lending rate of the
Royal Bank of Canada.............................................................. 136,750 136,750

--------- ---------
Note receivable from Autodata bearing interest at the prime lending rate of the
Royal Bank of Canada.............................................................. 29,004 29,004
--------- ---------
320,754 320,754
Write-down of advances arising from share of loss in significantly influenced
company in excess of the investment value (see note 4)............................ (170,079 (10,670)
--------- ---------
$ 150,675 $ 310,084
========= =========

The Company has agreed to waive all interest receivable for 1995 through
1999. All notes are due on demand, however, as the Company has agreed not to
demand payment within the next year, all notes are classified as long-term.

The Company has been granted the right, at its sole option, subject to
shareholders' approval, to convert the $100,000 and $55,000 notes to equity of
Autodata at the rate of 500 Class "A" special shares, plus 1 common share for
each $500 of notes receivable (see note 9).

The Company has been granted the option to convert the $29,004 note to
29,000 Class "A" special shares and 372 common shares of Autodata with stated
values of $29,000 and $4, respectively (see note 9).

4. INVESTMENT IN SIGNIFICANTLY INFLUENCED COMPANY

OWNERSHIP 1998 1999
--------- --------- ---------

Investment in Autodata:
Shares....................................... 35.4% $ 130,000 $ 130,000
Equity in cumulative losses.................. (130,000) (130,000)
--------- ---------
$ -- $ --
========= =========

The Company's investment in Autodata includes $383,378 attributable to
goodwill which is being amortised on a straight-line basis over ten years. The
accumulated amortization balance as at April 30, 1999 is $191,690. The
investment balance is further offset by the cumulative share of losses in the
significantly influenced company. As the Company accounts for its investment in
Autodata on the equity basis, it records its share of the income or loss of
Autodata against the value of its investment in Autodata. To the extent the
cumulative share of the losses of Autodata exceed the value of the investment,
at any time, the excess loss is then charged against any advances made to
Autodata until the investment and advances balances are nil.

F-100

PERGA CAPITAL INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 1998 AND 1999--(CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)

The Company's share of Autodata's income has been calculated based on
earnings for the years ended April 30, 1998 and 1999. The following summarized
financial information is disclosed as at April 30, 1998 and 1999 and for the
years then ended:

1998 1999
----------- -----------
Current assets........................ $ 230,043 $ 980,803
Other assets.......................... 218,294 493,687
----------- -----------
$ 448,337 $ 1,474,490
=========== ===========

Current liabilities................... $ 873,752 $ 1,205,137
Long-term debt........................ 564,004 700,754
Redeemable special shares............. 429,000 429,000
----------- -----------

1,866,756 2,334,891
Shareholders' deficit................. (1,418,419) (860,401)
----------- -----------
$ 448,337 $ 1,474,490
=========== ===========

Revenue............................... $ 1,903,335 $ 3,721,351
----------- -----------

Expenses.............................. 1,830,770 3,163,333
----------- -----------

Net earnings.......................... $ 72,565 $ 558,018
=========== ===========

The Company has an irrevocable option to purchase a further 53.7% of the
common shares of Autodata for a fixed price from another shareholder (see
note 9).

5. RELATED PARTY TRANSACTIONS

During a prior year, the Company entered into a management and consulting
agreement with Autodata, whereby management and consulting fees were payable by
Autodata at the rate of 10% of the first $1,000,000 of annual pre-tax income of
Autodata and 8% of any excess. Management fees have been waived for all years up
to and including 1999.

6. CAPITAL STOCK

As at April 30, 1998 and 1999, the share capital of the Company is as
follows:

AUTHORIZED

10,000 8% non-cumulative, voting special shares of $.01 each, redeemable
and retractable at $100 each.

Unlimited common shares.

ISSUED (see note 9)

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

205 Common shares.............................................. $ 205 $ 205
===== =====

7. INCOME TAXES

The recovery of income taxes relates to the recovery of previously
provided taxes.

F-101

PERGA CAPITAL INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 1998 AND 1999--(CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)

8. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE

The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when information
using year 2000 dates is processed. In addition, similar problems may arise in
some systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
entity, including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.

9. SUBSEQUENT EVENTS

Subsequent to the year-end, the Company acquired all of the common shares
from the remaining shareholders of the significantly influenced company,
Autodata.

Following completion of the above transactions, the Company cancelled all
remaining options to acquire shares and to convert notes receivable to shares so
that no options remain outstanding.

On May 13, 1999, the Company changed the 205 common shares which were
issued and outstanding to 9,000 common shares. The Articles were also amended by
creating an unlimited number of class "B" special shares and 10,000 class "C"
voting shares.

On July 27, 1999, the Company was acquired by CarsDirect.com Inc.

Subsequent to the acquisition, the Company was amalgamated with its
subsidiary companies and continued as Autodata Solutions Company.

Subsequent to the acquisition, the Company repaid advances from a
shareholder at face value with funds received from the ultimate parent company.

10. DIFFERENCES FROM UNITED STATES ACCOUNTING PRINCIPLES

These financial statements have been prepared in accordance with Canadian
generally accepted accounting principles ("Canadian GAAP"). The only significant
difference between Canadian GAAP and U.S. generally accepted accounting
principles ("U.S. GAAP") relates to the share of income of the investment in the
significantly influenced company, Autodata, as there are differences in income
as determined under Canadian GAAP versus U.S. GAAP for Autodata.

The following adjustments would be required in order to present the
results of operations of Autodata in accordance with U.S. GAAP.

ACCOUNTING FOR INCOME TAXES UNDER U.S. GAAP

For U.S. GAAP purposes, the benefits of the losses for income tax
purposes and excess of amortization of capital assets over capital cost
allowance must be recognized in the financial statements with an
appropriate valuation allowance established for the portion of the
benefits not likely to be utilized in the foreseeable future.

F-102

PERGA CAPITAL INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 1998 AND 1999--(CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)

Accordingly, under U.S. GAAP, the tax benefit of these losses and excess
amortization of capital assets over capital cost allowance would be:

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

Tax benefit of losses............................................ $ 567,000 $ 317,600
Amortization in excess of capital cost allowance................. 61,450 97,500
--------- ---------
628,450 415,100
Valuation allowance.............................................. (628,450) --
--------- ---------
Net tax benefit of losses and amortization in excess of capital
cost allowance................................................ $ -- $ 415,100
========= =========

A valuation allowance of 100% of the potential benefit of the losses and
amortization of capital assets in excess of capital cost allowance was
established in 1998 as at the year end 1998 it was not likely that Autodata
would generate sufficient income in the future years before the losses would
expire and Autodata had only generated marginal income before tax in each of the
years 1997 and 1998. In 1999, Autodata generated increased pre-tax income from
operations; Autodata had generated increasing pre-tax profit in each of the last
three years, and the anticipated income in subsequent years was estimated to be
sufficient to utilize the losses before their expiry dates in the carryforward
periods. Accordingly, no valuation allowance was deemed necessary at April 30,
1999.

ACCOUNTING FOR DEFERRED CHARGES

Under U.S. GAAP, items recorded as deferred charges under Canadian GAAP,
such as development costs and training costs, are expensed as incurred. Deferred
charges on the Canadian GAAP balance sheet of Autodata in 1999 include costs
related to the development of new products for the company and internally
developed software. The costs in 1998 represent training costs relating to the
proprietary processes of Autodata.

Accordingly, under U.S. GAAP, the deferred charges relating to product
development and training of $98,158 in 1998 and $73,040 in 1999, would have been
expensed, resulting in a reversal of these expenses in the subsequent year for
U.S. GAAP purposes, when the expense was recognized under Canadian GAAP. Costs
of $34,000 relating to internally developed software would have been capitalized
at April 30, 1999, to be amortized over the period of use of the software.

ACCOUNTING FOR PREPAID LEGAL COSTS

Under U.S. GAAP, costs relating to legal fees paid for assessment of
contracts relating to the regular business activities of Autodata would be
expensed as incurred. Prepaid expenses at April 30, 1998 and 1999 respectively,
include legal costs of $6,344 and $19,679.

Accordingly, under U.S. GAAP, these prepaid legal fees would have been
expensed in the year incurred, resulting in a reversal of these expenses in the
subsequent year for U.S. GAAP purposes, when the expense was recognized under
Canadian GAAP.

CASH FLOW STATEMENTS

The cash flow statements have been prepared on a basis consistent with
International Accounting Standards.

F-103

PERGA CAPITAL INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 1998 AND 1999--(CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)

The following summarizes the Company's balance sheets and statements of
operations prepared in accordance with U.S. GAAP.

BALANCE SHEETS

1998 1999
--------- ---------
ASSETS

Cash.................................................................. $ 3,524 $ 862
Accounts receivable................................................... 4,823 5,383
Advances to significantly influenced company.......................... 113,642 320,754
Income taxes recoverable.............................................. -- 12,942
Investment in significantly influenced company........................ -- 103,573
--------- ---------
$ 121,989 $ 443,514
========= =========
LIABILITIES
Non-interest bearing advances from a shareholder...................... $ 223,508 $ 232,069
--------- ---------
223,508 232,069
--------- ---------
SHAREHOLDERS' (DEFICIT) EQUITY
Capital stock......................................................... 205 205
Contributed surplus................................................... 221,583 221,583
Deficit............................................................... (323,307) (10,343)
--------- ---------
(101,519) 211,445
--------- ---------
$ 121,989 $ 443,514
========= =========

STATEMENTS OF OPERATIONS

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

Net sales revenue......................................................... $ -- $ --
--------- ---------
General and administrative expenses....................................... 10,876 8,000
Interest expense.......................................................... 652 2,663
Share of loss (income) in significantly influenced company................ 49,656 (310,685)
--------- ---------
61,184 (300,022)
--------- ---------
(Loss) earnings before income taxes....................................... (61,184) 300,022
Recovery of income taxes.................................................. (943) (12,942)
--------- ---------
Net (loss) earnings for the year.......................................... $ (60,241) $ 312,964
========= =========
RECONCILIATION OF SHAREHOLDERS' (DEFICIT) EQUITY

Opening shareholders' deficit under Canadian GAAP and U.S. GAAP........... $ (41,278)
Adjustments 1998:
Net loss for the year.................................................. (60,241)
----------
Shareholders' deficit as at April 30, 1998................................ (101,519)
Adjustments 1999:
Net earnings for the year.............................................. 312,964
----------
Shareholders' equity as at April 30, 1999................................. $ 211,445
==========

F-104

AUDITORS' REPORT

October 27, 1999

To the Directors of
Autodata Marketing Systems Incorporated

We have audited the consolidated balance sheets of AUTODATA MARKETING
SYSTEMS INCORPORATED as at April 30, 1998 and 1999, and the consolidated
statements of earnings and deficit, and cash flows for the years ended April 30,
1998 and 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits in accordance
with Canadian generally accepted auditing standards. Those standards require
that we plan and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. In our opinion, these
consolidated financial statements present fairly, in all material respects, the
financial position of the Company as at April 30, 1998 and 1999, and the results
of its operations and its cash flow for the years ended April 30, 1998 and 1999
in accordance with Canadian generally accepted accounting principles.

/s/ PricewaterhouseCoopers LLP
Chartered Accountants
London, Ontario, Canada

F-105

AUTODATA MARKETING SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS
AS AT APRIL 30, 1998 AND 1999
(EXPRESSED IN CANADIAN DOLLARS)

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

ASSETS
CURRENT ASSETS
Cash............................................................................ $ 20,055 $ 87,201
Term deposits................................................................... -- 200,000
Trade accounts receivable (net of allowance for doubtful accounts of $NIL and
$21,000 at April 30, 1998 and 1999, respectively)............................ 175,936 567,424
Other accounts receivable....................................................... 9,235 64,405
Prepaid expenses................................................................ 24,817 61,773
--------------- ---------------
230,043 980,803
CAPITAL ASSETS (note 3)......................................................... 120,136 386,647
Deferred charges (net of accumulated amortization of $NIL and $98,158 at April
30, 1998 and 1999, respectively)............................................. 98,158 107,040
--------------- ---------------
$ 448,337 $ 1,474,490
=============== ===============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued liabilities........................................ $ 236,412 $ 295,623
Deferred revenue................................................................ 500,590 909,514
--------------- ---------------
737,002 1,205,137
NOTES PAYABLE TO RELATED PARTIES (notes 4 and 14)............................... 700,754 700,754
REDEEMABLE SPECIAL SHARES (note 6).............................................. 429,000 429,000
--------------- ---------------
1,866,756 2,334,891
--------------- ---------------
SHAREHOLDERS' DEFICIT
Capital stock (notes 7 and 14).................................................. 90,717 90,717
Contributed surplus............................................................. 146,347 146,347
Deficit......................................................................... (1,655,483) (1,097,465)
--------------- ---------------
(1,418,419) (860,401)
--------------- ---------------
$ 448,337 $ 1,474,490
=============== ===============

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

F-106

AUTODATA MARKETING SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF EARNINGS AND DEFICIT
FOR THE YEARS ENDED APRIL 30, 1998 AND 1999
(EXPRESSED IN CANADIAN DOLLARS)

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

NET SALES REVENUE................................................................ $ 1,903,335 $ 3,721,351
-------------- --------------
Cost of sales materials.......................................................... 112,010 257,519
Selling, general and administrative expenses..................................... 1,710,193 2,899,379
Interest expense................................................................. 8,567 6,435
-------------- --------------
1,830,770 3,163,333
-------------- --------------
EARNINGS BEFORE INCOME TAXES..................................................... 72,565 558,018
PROVISION FOR INCOME TAXES (note 9).............................................. -- --
-------------- --------------
NET EARNINGS FOR THE YEAR........................................................ 72,565 558,018
DEFICIT - BEGINNING OF YEAR...................................................... (1,728,048) (1,655,483)
-------------- --------------
DEFICIT - END OF YEAR............................................................ $ (1,655,483) $ (1,097,465)
============== ==============

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

F-107

AUTODATA MARKETING SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED APRIL 30, 1998 AND 1999
(EXPRESSED IN CANADIAN DOLLARS)

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

OPERATING ACTIVITIES
Net earnings for the year............................................................ $ 72,565 $ 558,018
Items not affecting cash--
Amortization of capital assets.................................................. 34,997 80,637
Amortization of deferred charges................................................ -- 98,158
Loss on disposal of capital assets.............................................. 2,834 --
------------ ------------
110,396 736,813
Net change in non-cash working capital (note 10)..................................... 138,951 (15,479)
------------ ------------
249,347 721,334
------------ ------------
FINANCING ACTIVITIES
Decrease in bank indebtedness........................................................ (100,000) --
------------ ------------
INVESTING ACTIVITIES
Purchase of capital assets........................................................... (58,956) (347,148)
Deferred charges incurred............................................................ (98,158) (107,040)
------------ ------------
(157,114) (454,188)
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS.............................................. (7,767) 267,146
CASH AND CASH EQUIVALENTS--BEGINNING OF YEAR......................................... 27,822 20,055
------------ ------------
CASH AND CASH EQUIVALENTS--END OF YEAR............................................... $ 20,055 $ 287,201
============ ============

SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

F-108

AUTODATA MARKETING SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 1998 AND 1999
(EXPRESSED IN CANADIAN DOLLARS)

1. NATURE OF OPERATIONS

AutoData Marketing Systems Incorporated (the "Company") is located in
London, Ontario, Canada. The Company is focused primarily on licensing
decision-making support tools and content to the automotive and related
industries in North America.

Subsequent to the year end, the Company's parent, Perga Capital
Incorporated, was acquired by CarsDirect.com, Inc., a U.S. company, and the
Company name was changed to Autodata Solutions Company.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF CONSOLIDATION

The consolidated financial statements include those of the Company and
its wholly-owned subsidiary, Paradigm Publishing Inc.

REVENUE RECOGNITION

Revenues from contract services are recorded evenly over the period of
the contracts. Terms of the executed contracts, under which the price has been
established and delivery of services has commenced, range from 3 months to 12
months.

CAPITAL ASSETS

Capital assets are recorded at cost. Amortization is provided annually at
rates calculated to write-off the assets over their estimated useful lives as
follows:

Computer hardware..................................... 30% declining balance
Computer software..................................... 30% declining balance
Furniture and fixtures................................ 20% declining balance
Leasehold improvements................................ 20% straight line

DEFERRED CHARGES

Deferred charges include direct salary costs relating to the development
of new products and training costs associated with the Company's proprietary
processes. These charges are recorded at cost and amortized against income in
the period in which the related income is earned.

INCOME TAXES

The Company follows the deferral method of income tax allocation. Under
this method, timing differences between reported and taxable income result in
provisions for taxes not currently payable.

FOREIGN CURRENCY TRANSLATION

All foreign currency denominated accounts of the Company are translated
at the exchange rate at the balance sheet date. Transactions denominated in
foreign currency occurring during the period are translated at the rate in
effect at the date of the transaction.

F-109

AUTODATA MARKETING SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 1998 AND 1999--(CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)

STATEMENT OF CASH FLOWS

CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.

FINANCIAL INSTRUMENTS

The Company's estimate of the fair value of its financial instruments,
which include cash and term deposits, accounts receivable, accounts payable, and
borrowings approximates their carrying value. Notes payable to related parties
are interest bearing, but such interest has been waived since 1995. Therefore,
the carrying value is not necessarily representative of fair value. Subsequent
to year-end, notes payable to related parties were repaid in full, at face
value, which establishes the fair value of the debt.

USE OF ESTIMATES

3. CAPITAL ASSETS

1998
-----------------------------------------
ACCUMULATED
COST AMORTIZATION NET
----------- -------------- ------------
Computer hardware................ $ 117,371 $ 59,823 $ 57,548
Computer software................ 70,022 38,848 31,174
Furniture and fixtures........... 34,102 13,697 20,405
Leasehold improvements........... 21,238 10,229 11,009
----------- -------------- ------------
$ 242,733 $ 122,597 $ 120,136
=========== ============== ============

1999
-----------------------------------------
ACCUMULATED
COST AMORTIZATION NET
----------- -------------- ------------
Computer hardware................ $ 195,298 $ 88,776 $ 106,522
Computer software................ 76,405 49,157 27,248
Furniture and fixtures........... 48,450 19,213 29,237
Leasehold improvements........... 269,726 46,086 223,640
----------- -------------- ------------
$ 589,879 $ 203,232 $ 386,647
=========== ============== ============

F-110

AUTODATA MARKETING SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 1998 AND 1999--(CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)

4. NOTES PAYABLE TO RELATED PARTIES

As at April 30, the following amounts were due to shareholders of the
Company:

LONG TERM 1998 1999
--------------------------------------------------------------------------- ------------ ------------

8% note payable to a shareholder, secured by a general security agreement
(maximum $400,000)........................................................ $ 350,000 $ 350,000
Note payable to a shareholder bearing interest at the prime lending rate
of the Royal Bank of Canada (Note 14(i)).................................. 100,000 100,000
Note payable to a shareholder bearing interest at the prime lending rate
of the Royal Bank of Canada............................................... 30,000 30,000
Note payable to shareholder bearing interest at the prime lending rate
of the Royal Bank of Canada............................................... 55,000 55,000
Note payable to a shareholder bearing interest at the prime lending rate
of the Royal Bank of Canada............................................... 136,750 136,750
Note payable to a shareholder bearing interest at the prime lending rate
of the Royal Bank of Canada............................................... 29,004 29,004
------------ ------------
$ 700,754 $ 700,754
============ ============

The shareholders have agreed to waive all interest for 1995 through 1999.
All notes are payable on demand, however as note holders have agreed not to
demand payment within the next year, all notes are classified as long-term.

The Company has granted the right to the holders of the first 4 long-term
notes, as set out above, at their sole option, subject to shareholders'
approval, to convert this debt to equity of the Company at the rate of 500 Class
"A" special shares, plus 1 common share for each $500 of debt (see Note 14
(iv)).

The Company has granted to the holder of the 6th note above, the option
to convert this debt to 29,000 Class A Special shares and 372 common shares with
stated values of $29,000 and $4, respectively (see Note 14 (iv)).

5. RELATED PARTY TRANSACTIONS

REGULAR BUSINESS TRANSACTIONS

The Company received services from a shareholder during the ordinary
course of business, with a value of $7,600 (1998 - $11,400). An unpaid balance
of $32,404 (1998 - $31,454) due to the shareholder is included in accounts
payable and accrued liabilities.

MANAGEMENT AGREEMENT

During a prior year, the Company entered into a management and consulting
agreement with shareholders, whereby management and consulting fees were payable
to the shareholders at the rate of 13% of the first $1,000,000 of annual pre-tax
income and 8% of any excess. Management fees have been waived for all years up
to and including 1999.

F-111

AUTODATA MARKETING SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 1998 AND 1999--(CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)

6. REDEEMABLE SPECIAL SHARES

AUTHORIZED

426 5% cumulative, non-voting, convertible, redeemable, and retractable
preference shares.

Unlimited non-cumulative, non-participating, non-voting redeemable Class
"A" special shares.

ISSUED (SEE NOTE 14)
1998 1999
---------- ----------
429,000 Class "A" special shares............. $429,000 $429,000
========== ==========

7. CAPITAL STOCK

As at April 30, 1998 and 1999, the share capital of the Company is as
follows:

AUTHORIZED

Unlimited common shares.

ISSUED AND OUTSTANDING (SEE NOTE 14)

1998 1999
---------- ----------
1,109 Common shares.......................... $90,717 $90,717
========== ==========

8. LINE OF CREDIT

At April 30, 1999, the Company had an available bank line of credit of
$100,000. As security for this line, a shareholder has guaranteed this amount
and the shareholder has placed a term deposit receipt in the amount of $100,000
with the Company's banker. The balance of the line of credit at April 30, 1999
is Nil (1998 - Nil). Subsequent to the year end this line of credit was
cancelled.

9. INCOME TAXES

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

Income tax provision at statutory rates...... $ 16,200 $ 124,450
Application of loss carryforwards............ (16,200) (124,450)
---------- -----------
$ -- $ --
========== ===========

Non-capital losses available for carryforward to future accounting
periods which may be applied to reduce income taxes otherwise payable expire as
follows:

July 27, 1999.................................. $ 139,310
April 30, 2000................................. 231,923
April 30, 2001................................. 147,970
April 30, 2002................................. 192,235
------------
$ 711,438
============

The Company has also recorded amortization for accounting purposes in
excess of capital cost allowance for tax purposes in the amount of $218,294
(1998 - $137,657).

The Company estimates that non-refundable investment tax credits
amounting to approximately $7,848 arising from the purchase of research and
development assets are available for the reduction of income taxes payable in
future years.

F-112

AUTODATA MARKETING SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 1998 AND 1999--(CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)

The potential benefits relating to the available losses, additional
capital cost allowances, and investment tax credits have not been recorded in
the financial statements.

Losses in the amount of approximately $558,000 (1998 - $73,000) have been
utilized during the year to offset the tax provision that would be otherwise
payable.

10. NET CHANGE IN NON-CASH WORKING CAPITAL

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

(Increase) decrease in--
Trade accounts receivable............................................. $ 147,918 $ (391,488)
Other accounts receivable............................................. (9,235) (55,170)
Prepaid expenses...................................................... (14,105) (36,956)
Increase (decrease) in--....................................................
Accounts payable and accrued liabilities.............................. (73,918) 59,211
Deferred revenue...................................................... 88,291 408,924
----------- -------------
$ 138,951 $ (15,479)
=========== =============

11. CONTINGENCIES AND COMMITMENTS

a) Under the terms of various leases for equipment and premises, the
Company is committed to the following lease payments:

$
----------
Year ended April 30, 2000......................................... 132,840
2001......................................... 102,331
2002......................................... 47,634
2003......................................... 2,288

b) Contingency

The Company, along with CarsDirect.com, Inc. ("CarsDirect.com"), was
named in an action for patent infringement on October 22, 1999. The complaint
alleges that CarsDirect.com and the Company have infringed, and are infringing,
upon another company's patent. Specifically, the claim alleges that the method
which defendants use to configure consumers' vehicles and vehicle options
infringes upon their patent. The claimant seeks damages, preliminary and
permanent injunctive relief, and attorney's fees and costs.

CarsDirect.com and the Company will defend the lawsuit on two grounds:
that the claimant's patent is invalid, and, in the alternative, the defendants
have not infringed the patent. CarsDirect.com and the Company do not believe
that this lawsuit will have a material averse effect on their respective
companies and intend to vigorously defend themselves.

12. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE

F-113

AUTODATA MARKETING SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 1998 AND 1999--(CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)

13. SEGMENTED INFORMATION

The Company operates primarily in one industry segment, data collection
and licensing.

GEOGRAPHIC INFORMATION

1998 1999
-------------- -------------
REVENUES

Canada................................................................ $ 818,434 $ 1,153,619
Europe................................................................ 38,067 223,281
United States......................................................... 1,046,834 2,344,451
-----------------------------
$ 1,903,335 $ 3,721,351
============== =============

The Company derives revenues from a number of customers. One customer
represents approximately $743,000 for 1999. Amounts receivable from this
customer were approximately $191,000 at April 30, 1999. Amounts receivable from
two different customers were approximately $40,000 and $147,000 at April 30,
1998 and April 30, 1999, respectively.

14. SUBSEQUENT EVENT

Subsequent to year-end, the shareholders approved a reorganization of the
Company's capitalization as follows:

i) The $100,000 note payable as set out in note 4 above was converted
to the following:

o 45,000 Class "A" special shares with stated value of $45,000

o 90 common shares

o Note payable to shareholder of $55,000

ii) One of the shareholders acquired all of the common shares from the
remaining shareholders.

iii) The Company redeemed 100% of its Class "A" shares, for
consideration of $474,000 in the form of a new promissory note
payable to its shareholder.

iv) Following completion of the above transactions, the Company
cancelled all remaining options to acquire shares and to convert
debt to shares so that no options remain outstanding.

Subsequent to the year-end the Company was amalgamated with its parent
and subsidiary companies and continued as Autodata Solutions Company.

Subsequent to the year-end the Company repaid its notes payable to
related parties at their face value with funds received from the ultimate parent
Company.

15. DIFFERENCES FROM UNITED STATES ACCOUNTING PRINCIPLES

These consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles ("Canadian GAAP"). The
following adjustments would be required in order to present these financial
statements in accordance with U.S. generally accepted accounting principles
("U.S. GAAP").

ACCOUNTING FOR INCOME TAXES UNDER U.S. GAAP

For U.S. GAAP purposes, the benefits of the losses for income tax
purposes and excess of amortization of capital assets over capital cost
allowance must be recognized in the

F-114

AUTODATA MARKETING SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 1998 AND 1999--(CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)

financial statements with an appropriate valuation allowance established
for the portion of the benefits not likely to be utilized in the
foreseeable future.

Accordingly, under U.S. GAAP, the tax benefit of these losses and
excess amortization of capital assets over capital cost allowance would
be:

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

Tax benefit of losses................................................................ $ 567,000 $ 317,600
Amortization in excess of capital cost allowance..................................... 61,450 97,500
----------- ------------
628,450 415,100
Valuation allowance.................................................................. (628,450) --
----------- ------------
Net tax benefit of losses and amortization in excess of capital cost allowance....... $ -- $ 415,100
=========== ============

A valuation allowance of 100% of the potential benefit of the
losses and amortization of capital assets in excess of capital cost
allowance was established in 1998 as at the year end 1998 it was not
likely that the Company would generate sufficient income in the future
years before the losses would expire and the Company had only generated
marginal income before tax in each of the years 1997 and 1998. In 1999,
the Company generated increased pre-tax income from operations; the
Company had generated increasing pre-tax profit in each of the last three
years and the anticipated income in subsequent years was estimated to be
sufficient to utilize the losses before their expiry dates in the
carryforward periods. Accordingly, no valuation allowance was deemed
necessary at April 30, 1999.

ACCOUNTING FOR DEFERRED CHARGES

Under U.S. GAAP, items recorded as deferred charges under
Canadian GAAP, such as development costs and training costs. are
expensed as incurred. Deferred charges on the Canadian GAAP balance
sheet in 1999 include costs related to the development of new products
for the Company and internally developed software. The costs in 1998
represent training costs relating to the proprietary processes of the
Company.

Accordingly, under U.S. GAAP, items recorded as deferred charges
relating to product development and training of $98,158 in 1998, and
$73,040 in 1999, would have been expensed, resulting in a reversal of
these expenses in the subsequent year for U.S. GAAP purposes when the
expense was recognized under Canadian GAAP. Costs of $34,000 relating to
internally developed software would have been capitalized at April 30,
1999, to be amortized over the period of use of the software.

ACCOUNTING FOR PREPAID LEGAL COSTS

Under U.S. GAAP, costs relating to legal fees paid for assessment
of contracts relating to the regular business activities of the Company
would be expensed as incurred. Prepaid expenses at April 30, 1998 and
1999 respectively, include legal costs of $6,344 and $19,679.

Accordingly, under U.S. GAAP, these prepaid legal fees would have
been expensed in the year incurred resulting in a reversal of these
expenses in the subsequent year for U.S. GAAP purposes when the expense
was recognized under Canadian GAAP.

INTEREST WAIVED ON NOTES PAYABLE

Under U.S. GAAP, interest on notes payable that is waived by the
holder, who is a shareholder, is considered to be a capital contribution
and recorded as an increase in contributed surplus. During the years 1995
to 1999, the shareholders waived all interest owing on the note payable
(see note 4). The interest expense that was waived amounted to $43,000
(1995), $51,700 (1996), $46,600 (1997), $47,400 (1998), and $51,600
(1999).

F-115

AUTODATA MARKETING SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 1998 AND 1999--(CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)

Accordingly, under U.S. GAAP, interest expense of $47,400 and
$51,600 would have been recorded for the years 1998 and 1999,
respectively. A corresponding increase in contributed surplus would have
been recorded in each year. Additionally, contributed surplus would have
been increased in prior years by $141,300 with a corresponding interest
expense which would have increased the deficit balance at April 30, 1997
by $141,300.

MANAGEMENT FEES

Under U.S. GAAP, management fees that have been waived (see note 5)
by shareholders would be treated as contributed surplus. For the years
1997, 1998, and 1999, the Company generated pre-tax income and,
therefore, certain shareholders were entitled to receive management fees,
which were waived (see note 5). Management fees waived amounted to $4,350
(1997), $9,433 (1998) and $72,542 (1999).

Accordingly, under U.S. GAAP, management fees expense would have
been $9,433 (1998) and $72,542 (1999) with a corresponding increase in
contributed surplus. In addition, the management fee waived in 1997 would
have increased contributed surplus and the deficit at April 30, 1997 by
$4,350.

ACCOUNTING FOR CONVERTIBLE NOTES PAYABLE

Under U.S. GAAP, convertible debt with a non-detachable conversion
feature that is considered, at the date of issue, to be a beneficial
conversion feature requires financial statement recognition of the
intrinsic value of such feature. All of the Company's notes payable,
excluding the note payable of $136,750, were issued as convertible debt
with a beneficial conversion feature in a prior year. The conversion
feature for four of the notes payable totalling $535,000 allows for the
debt holder to convert the debt into equity of the Company at the rate of
500 Class `A' special shares plus 1 common share for $500 of debt, or
1,070 common shares. The remaining convertible debt of $29,004 is
convertible into $29,000 of Class `A' Special shares and 372 common
shares.

The value of the common shares, corresponding to the beneficial
conversion feature amounts to $124,004 based on the fair value of the
shares at the time the convertible debt was issued.

As a result, under U.S. GAAP, the impact of the beneficial
conversion feature would have resulted in the allocation of the proceeds
received when the debt was issued between the debt and the beneficial
conversion feature. The debt would initially have been recorded at a
discounted value of $440,000 and the beneficial conversion feature would
have been recorded at $124,004. As the option to convert the debt was
exercisable upon issuance of the debt, U.S. GAAP would have required that
the discount on the face value of the debt be recorded as interest
expense upon issuance, with a corresponding increase in the face amount
of the debt.

CASH FLOW STATEMENTS

The cash flow statements have been prepared on a basis consistent
with International Accounting Standards.

F-116

AUTODATA MARKETING SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 1998 AND 1999--(CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)

The following summarizes the Company's balance sheets and
statements of operations in accordance with U.S. GAAP.

BALANCE SHEETS

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

ASSETS
Cash and term deposits............................................. $ 20,055 $ 287,201
Trade accounts receivable.......................................... 175,936 567,424
Other accounts receivable.......................................... 9,235 64,405
Prepaid expenses................................................... 18,473 42,094
Capital assets..................................................... 120,136 386,647
Intangible assets.................................................. -- 34,000
Deferred tax asset................................................. -- 415,100
Deferred charges................................................... -- --
------------- -------------
$ 343,835 $ 1,796,871
============= =============
LIABILITIES
Accounts payable and accrued liabilities........................... $ 236,412 $ 295,623
Deferred revenue................................................... 500,590 909,514
Notes payable to related parties................................... 700,754 700,754
Redeemable special shares.......................................... 429,000 429,000
------------- -------------
1,866,756 2,334,891
------------- -------------
SHAREHOLDERS' DEFICIT
Capital stock...................................................... 90,717 90,717
Contributed surplus................................................ 348,830 472,972
Beneficial conversion feature...................................... 124,004 124,004
Deficit............................................................ (2,086,472) (1,225,713)
------------- -------------
(1,522,921) (538,020)
------------- -------------
$ 343,835 $ 1,796,871
============= =============

STATEMENTS OF OPERATIONS

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

Net sales revenue......................................................... $ 1,903,335 $ 3,721,351
------------- -------------
Cost of sales materials................................................... 112,010 257,519
Selling, general and administrative expenses.............................. 1,824,128 2,960,138
Interest expense.......................................................... 55,967 58,035
------------- -------------
1,992,105 3,275,692
------------- -------------
(Loss) earnings before taxes.............................................. (88,770) 445,659
Recovery of income taxes.................................................. -- 415,100
------------- -------------
Net (loss) earnings for the year.......................................... $ (88,770) $ 860,759
============= =============

F-117

AUTODATA MARKETING SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 1998 AND 1999--(CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)

RECONCILIATION OF SHAREHOLDERS' DEFICIT

Opening shareholders' deficit under Canadian GAAP and U.S. GAAP........... $ (1,490,984)
Adjustments 1998:
Net loss for the year.................................................. (88,770)
Increase in contributed surplus
Interest waived on notes payable to related parties.................. 47,400
Management fees waived............................................... 9,433
--------------
Shareholders' deficit as at April 30, 1998................................ (1,522,921)
Adustments 1999:
Net earnings for the year.............................................. 860,759
Increase in contributed surplus
Interest waived on notes payable to related parties.................. 51,600
Management fees waived............................................... 72,542
--------------
Shareholders' deficit as at April 30, 1999................................ $ (538,020)
==============

F-118

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of PointCast Incorporated:

In our opinion, the accompanying balance sheets and the related
statements of operations, of shareholders' deficit and of cash flows present
fairly, in all material respects, the financial position of PointCast
Incorporated at December 31, 1998 and 1997, and the results of its operations
and its cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

/s/ PricewaterhouseCoopers LLP

San Jose, California
March 26, 1999, except for Note 11
which is as of May 27, 1999

F-119

POINTCAST INCORPORATED
BALANCE SHEETS

DECEMBER 31,
MARCH 31, ---------------------------------
1999 1998 1997
--------------- --------------- ----------------
(UNAUDITED)

ASSETS
Current Assets:
Cash and cash equivalents.............................. $ 3,883,000 $ 8,511,000 $ 7,767,000
Short-term investments................................. -- -- 12,438,000
Accounts receivable, net of allowance for doubtful
accounts of $687,000 (unaudited), $957,000
and $604,000......................................... 787,000 1,516,000 4,362,000
Prepaid expenses and other current assets.............. 762,000 1,346,000 864,000
--------------- --------------- ----------------
Total current assets................................. 5,432,000 11,373,000 25,431,000
Property and equipment, net............................... 5,079,000 5,750,000 7,438,000
Investment in subsidiary.................................. -- 106,000 738,000
Notes receivable from shareholder......................... -- 2,000,000 2,000,000
Other assets.............................................. 137,000 283,000 131,000
--------------- --------------- ----------------
Total assets......................................... $ 10,648,000 $ 19,512,000 $ 35,738,000
=============== =============== ================
LIABILITIES, MANDATORILY REDEEMABLE
SECURITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Notes payable and capital lease obligations, current... $ 1,367,000 $ 1,390,000 $ 1,450,000
Accounts payable....................................... 4,023,000 4,250,000 6,220,000
Accrued expenses....................................... 2,564,000 3,154,000 2,289,000
Deferred revenue....................................... 816,000 688,000 3,669,000
--------------- --------------- ----------------
Total current liabilities............................ 8,770,000 9,482,000 13,628,000
Notes payable and capital lease obligations, long-term.... 15,228,000 15,567,000 3,820,000
Other liabilities......................................... 825,000 553,000 715,000
--------------- --------------- ----------------
Total liabilities.................................... 24,823,000 25,602,000 18,163,000
--------------- --------------- ----------------
Mandatorily redeemable convertible preferred stock, no par
value,19,500,000 shares designated, 17,413,316
(unaudited), 17,663,316 and 17,452,790 shares issued
and outstanding........................................ 66,985,000 69,326,000 66,785,000
Mandatorily redeemable convertible preferred
stock warrants......................................... 3,000,000 3,000,000 3,000,000
--------------- --------------- ----------------
69,985,000 72,326,000 69,785,000
--------------- --------------- ----------------
Commitments and contingencies (Note 5)
Shareholders' deficit:
Preferred stock, 20,200,000 shares authorized,
19,500,000 shares designated as mandatorily
redeemable convertible preferred stock............... -- -- --
Common stock, no par value 50,000,000 authorized;
9,313,331 (unaudited), 9,261,365 and 8,381,625
shares issued and outstanding........................ 2,725,000 4,190,000 2,310,000
Accumulated deficit.................................... (88,267,000) (79,755,000) (50,357,000)
Deferred stock compensation............................ (846,000) (2,704,000) (3,963,000)
Other.................................................. 2,228,000 (147,000) (200,000)
--------------- --------------- ----------------
Total shareholders' deficit.......................... (84,160,000) (78,416,000) (52,210,000)
--------------- --------------- ----------------
Total liabilities and shareholders' deficit........ $ 10,648,000 $ 19,512,000 $ 35,738,000
=============== =============== ================

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

F-120

POINTCAST INCORPORATED
STATEMENTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31,
------------------------------- --------------------------------
1999 1998 1998 1997
--------------- --------------- --------------- ---------------
(UNAUDITED)

REVENUE:
Advertising (includes related party
revenue of $0 (unaudited), $648,000
(unaudited), $1,541,000 and $527,000;
see Note 3).............................. $ 2,393,000 $ 4,742,000 $ 15,915,000 $ 15,015,000
Development, license and other fees
(includes related party revenue of
$40,000 (unaudited), $25,000
(unaudited), $469,000 and $457,000; see
Note 3).................................. 56,000 197,000 1,157,000 2,303,000
--------------- --------------- --------------- ---------------
Total revenue............................ 2,449,000 4,939,000 17,072,000 17,318,000
--------------- --------------- --------------- ---------------
COST OF REVENUE:
Advertising................................ 3,088,000 2,451,000 10,229,000 6,928,000
Development, license and other fees........ -- 21,000 177,000 413,000
--------------- --------------- --------------- ---------------
Total cost of revenue.................... 3,088,000 2,472,000 10,406,000 7,341,000
--------------- --------------- --------------- ---------------
Gross profit/(loss)........................... (639,000) 2,467,000 6,666,000 9,977,000
--------------- --------------- --------------- ---------------
OPERATING EXPENSES:
Sales and marketing........................ 2,487,000 4,271,000 17,178,000 20,636,000
Product development........................ 3,148,000 2,879,000 10,212,000 10,515,000
General and administrative................. 1,481,000 1,169,000 5,838,000 7,582,000
Amortization of stock-based compensation... 379,000 596,000 2,523,000 865,000
--------------- --------------- --------------- ---------------
Total operating expenses................. 7,495,000 8,915,000 35,751,000 39,598,000
--------------- --------------- --------------- ---------------
Loss from operations.......................... (8,134,000) (6,448,000) (29,085,000) (29,621,000)

Interest and other income..................... 172,000 336,000 1,079,000 1,049,000
Interest expense.............................. (410,000) (110,000) (626,000) (277,000)
Loss from investment in subsidiary............ (106,000) (173,000) (632,000) (262,000)
--------------- --------------- --------------- ---------------
Net loss...................................... $ (8,478,000) $ (6,395,000) $ (29,264,000) $ (29,111,000)
=============== =============== =============== ===============

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

F-121

POINTCAST INCORPORATED
STATEMENTS OF SHAREHOLDERS' DEFICIT

COMMON STOCK
------------------- ACCUMULATED DEFERRED STOCK
SHARES AMOUNT DEFICIT COMPENSATION OTHER TOTAL
--------- --------- ------------ --------------- ---------- ------------

BALANCE AT DECEMBER 31, 1996. 7,158,368 $ 441,000 $(21,113,000) $ -- $ -- $(20,672,000)
Issuance of common stock in
connection with the
exercise of stock options
in exchange for cash and
notes receivable.......... 1,223,257 1,622,000 -- (1,018,000) (200,000) 404,000
Unearned stock compensation
expense recorded in
connection with Executive
Agreement (Note 6)........ -- -- -- (3,563,000) (3,563,000)
Stock compensation expense... -- 247,000 -- 618,000 865,000
Accretion of mandatorily
redeemable convertible
preferred stock
redemption value.......... -- -- (133,000) -- (133,000)
Net loss..................... -- -- (29,111,000) -- (29,111,000)
--------- --------- ------------ --------------- ---------- ------------
BALANCE AT DECEMBER 31, 1997. 8,381,625 2,310,000 (50,357,000) (3,963,000) (200,000) (52,210,000)
Issuance of common stock in
connection with the
exercise of stock options
in exchange for cash and
notes receivable.......... 1,181,759 921,000 -- (147,000) 774,000
Repurchase of unvested stock. (102,019) (105,000) -- -- (105,000)
Cancellation of note
receivable in exchange
for repurchase of
common stock.............. (200,000) (200,000) -- 200,000 --
Unearned stock compensation
expense................... -- 1,264,000 -- (1,264,000) --
Stock compensation expense... -- -- -- 2,523,000 2,523,000
Accretion of mandatorily
redeemable convertible
preferred stock
redemption value.......... -- -- (134,000) -- (134,000)
Net loss..................... -- -- (29,264,000) -- (29,264,000)
--------- --------- ------------ --------------- ---------- ------------
BALANCE AT DECEMBER 31, 1998. 9,261,365 4,190,000 (79,755,000) (2,704,000) (147,000) (78,416,000)
Issuance of common stock in
connection with the
exercise of stock options
in exchange for cash and
note receivable (unaudited). 54,208 13,000 -- -- 13,000
Repurchase of unvested
stock (unaudited)......... (2,242) -- -- -- --
Reversal of unearned stock
compensation expense
(unaudited)............... -- (1,478,000) -- 1,478,000 --
Unearned stock compensation
expense (unaudited)....... -- -- -- -- --
Cancellation of unvested
Series E mandatorily
redeemable convertible
preferred
stock (unaudited)......... -- -- -- 2,375,000 2,375,000
Stock compensation
expense (unaudited)....... -- -- -- 380,000 380,000
Accretion of mandatorily
redeemable convertible
preferred stock
redemption value
(unaudited)............... -- -- (34,000) -- (34,000)
Net loss (unaudited)......... -- -- (8,478,000) -- (8,478,000)
---------- -------- ------------ --------------- ---------- ------------
BALANCE AT MARCH 31, 1999
(UNAUDITED)............... 9,313,331 $2,725,000 $(88,267,00O) $ (846,000) $2,228,000 $(84,160,000)
========= ========= ============ =============== ========== ============

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

F-122

POINTCAST INCORPORATED
STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31,
------------------------------- ---------------------------------
1999 1998 1998 1997
-------------- --------------- ---------------- ---------------
(UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................... $ (8,478,000) $ (6,395,000) $ (29,264,000) $ (29,111,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............ 868,000 831,000 3,525,000 2,723,000
Loss from investment in subsidiary....... 106,000 173,000 632,000 262,000
Amortization of stock-based compensation. 379,000 596,000 2,523,000 865,000
Amortization of non-cash prepaid
advertising expenses................... -- 100,000 400,000 2,276,000
Changes in current assets and
liabilities:
Accounts receivable.................... 729,000 1,155,000 2,846,000 (1,217,000)
Prepaid expenses and other assets...... 727,000 (450,000) (558,000) 87,000
Accounts payable....................... (227,000) (226,000) (1,970,000) 3,135,000
Accrued expenses....................... (592,000) 698,000 865,000 1,186,000
Deferred revenue....................... 128,000 (1,458,000) (2,776,000) 2,010,000
Other liabilities...................... 276,000 (80,000) (367,000) 715,000
-------------- --------------- --------------- ----------------
Net cash used in operating activities (6,084,000) (5,056,000) (24,144,000) (17,069,000)
-------------- --------------- --------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments......... -- (2,511,000) (2,550,000) (21,090,000)
Maturity of short-term investments......... -- 12,414,000 14,988,000 32,335,000
Investment in subsidiary................... -- -- -- (1,000,000)
Purchase of property and equipment......... (197,000) (419,000) (1,837,000) (6,180,000)
-------------- --------------- --------------- ----------------
Net cash (used in) provided by
investing activities............... (197,000) 9,484,000 10,601,000 4,065,000
-------------- --------------- --------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock,
net of issuance costs and repurchases.... 13,000 80,000 669,000 404,000
Proceeds from issuance of mandatorily
redeemable convertible preferred stock,
net of issuance costs.................... -- 2,000,000 1,986,000 15,791,000
Repayment of borrowings.................... (360,000) (331,000) (2,813,000) (1,669,000)
Proceeds from issuance of notes payable.... -- -- 14,500,000 4,786,000
Repayment (issuance) of amounts due from
shareholder.............................. 2,000,000 421,000 (55,000) (2,000,000)
-------------- --------------- --------------- ----------------
Net cash provided by
financing activities............... 1,653,000 2,170,000 14,287,000 17,312,000
-------------- --------------- --------------- ----------------
Net increase (decrease) in cash and
cash equivalents........................... (4,628,000) 6,598,000 744,000 4,308,000
Cash and cash equivalents at beginning of year 8,511,000 7,767,000 7,767,000 3,459,000
-------------- --------------- --------------- ----------------
Cash and cash equivalents at end of year...... $ 3,883,000 $ 14,365,000 $ 8,511,000 $ 7,767,000
============== =============== =============== ================
Supplemental cash flow information:

Cash paid for interest..................... $ 56,000 $ 73,000 $ 500,000 $ 277,000
============== =============== =============== ================

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

F-123

POINTCAST INCORPORATED
NOTES TO FINANCIAL STATEMENTS

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

PointCast Incorporated, (the "Company"), was incorporated in California
in July 1992. In February 1996, the Company launched the PointCast Network
offering current news and information services to viewers and corporations via
the Internet and corporate intranets. The Company operates in one business
segment.

BASIS OF PRESENTATION

The financial statements include the accounts of PointCast; its
majority-owned subsidiary, PointCast Japan L.L.C. ("PointCast Japan") is not
consolidated. During 1997, the Company and the minority shareholder established
PointCast Japan, a joint venture to offer the Company's services in Japan. The
Company contributed $1.0 million of cash and certain rights to technology and
trademarks for use in Japan in consideration of its 60% ownership interest. The
minority shareholder contributed $2.0 million in cash in exchange for its 40%
ownership interest. No gain was recognized on the formation of the joint
venture.

The Company's investment in PointCast Japan is accounted for using the
equity method as the provisions of the joint venture agreement provides the
minority shareholder with certain participating and protective rights, which may
impact the Company's ability to control the joint venture's operations. As the
participating and protective rights of the minority shareholder lapse over the
term of the agreement, the Company will continue to monitor this investment and
the accounting method used. Under the terms of the joint venture agreement, the
joint venture will pay to the minority shareholder a management fee equal to 47%
of the joint venture's revenue over the two-year life of the administrative
services and management agreement. For the years ended December 31, 1998 and
1997, such management fees were $400,000 and $0, respectively.

RECLASSIFICATIONS

Certain reclassifications have been made to the prior year financial
statements to conform to the current period presentation.

USE OF ESTIMATES

REVENUE RECOGNITION

Advertising revenue is derived from the sale of advertising space on the
PointCast Network. Advertising revenue is recognized in the period the
advertisement is displayed, provided no significant Company obligations remain
and collection of the resulting receivable is probable. Company obligations
typically include guarantees of a minimum number of "billable deliveries," a
measurement of the number of times an advertisement is downloaded to a unique
user of the PointCast Network. To the extent minimum billable delivery
guarantees are met, the Company recognizes revenue for the billable deliveries
provided or, if an amount has been invoiced in the excess of the billable
deliveries provided, the Company defers recognition of the corresponding revenue
until the minimum billable delivery guarantees are satisfied. Deferred revenue
primarily represents billings in excess of revenue recognized on advertising
contracts. For the three months ended March 31, 1999 and 1998 and for the years
ended

F-124

POINTCAST INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

December 31, 1998 and 1997, advertising revenue represented 98% (unaudited), 96%
(unaudited), 93% and 87% of total revenue, respectively. Revenue from the sale
of certain advertising space on the PointCast Network is shared with third
parties under the terms of certain agreements. Where the Company shares
collection risk and is not responsible for invoicing or collection of the
receivable, the Company recognizes only its pro rata share of revenue from the
contract. Development, license and other fees primarily consist of channel
development fees from the Company's agreements with partners ("Industry Insider
Agreements") and fees for the customization of versions of the PointCast Network
Client. Fees for the development of industry specific channels and customization
of the PointCast Network Client are recognized using the completed contract
method.

During 1997, the Company licensed software under noncancelable license
agreements. Revenue from perpetual software license agreements was recognized
upon shipment of the software if there were no significant post-delivery
obligations, if collection was probable, and if payment was due within one year.
Revenue from post-contract support services was recognized ratably over the term
of the support period. The Company's PointCast Network Client is provided to
users without charge and the Company does not expect revenue from the licensing
of software or post-contract support to be a significant component of revenue in
the future.

COST OF ADVERTISING REVENUE

Cost of advertising revenue is expensed as incurred and includes the
costs to run the Company's Central Broadcasting Facility and the costs
associated with licensed content.

CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

The Company considers all highly liquid instruments with a maturity of
three months or less from the purchase date to be cash equivalents. Those with
original maturities greater than three months and current maturities less than
twelve months from the balance sheet date are considered short-term investments,
and those with maturities greater than twelve months from the balance sheet date
are considered long-term investments.

Short-term investments in marketable securities are classified as
available-for-sale and consist primarily of high-grade commercial paper and debt
instruments of U.S. Government agencies. The fair value of the investments
approximates cost.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, cash equivalents, short-term
investments and accounts receivable. Substantially all of the Company's cash,
cash equivalents and short-term investments are invested in high-grade
commercial paper and debt instruments of U.S. Government agencies. The Company's
accounts receivable have been derived primarily from revenue earned from
customers located in the United States and are denominated in U.S. dollars. The
Company performs ongoing credit evaluations of its customers' financial
condition and generally requires no collateral. The Company maintains an
allowance for doubtful accounts receivable based upon the expected
collectibility of accounts receivable.

During the years ended December 31, 1998 and 1997, no single customer
accounted for more than 10% of total revenues.

At March 31, 1999 one customer accounts for 19% (unaudited) of total
accounts receivable, while another customer accounts for 12% (unaudited) of
total accounts receivable.

At December 31, 1998, one customer accounts for 13% of total accounts
receivable. At December 31, 1997, no single customer accounted for more than 10%
of total accounts receivable.

F-125

POINTCAST INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

PRODUCT DEVELOPMENT COSTS

Product development costs are expensed as incurred until achieving
technological feasibility has been established. To date, the Company's software
has been available for general release concurrent with the establishment of
technological feasibility and, accordingly, no costs have been capitalized.

PROPERTY AND EQUIPMENT

Property and equipment are stated at historical cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets, generally three to five years, or the shorter of the lease term or the
estimated useful life of the respective assets, if applicable.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company continually monitors events and changes in circumstances that
could indicate carrying amounts of long-lived assets, including intangible
assets, may not be recoverable. When such events or changes in circumstances are
present, the Company assesses the recoverability of long-lived assets by
determining whether the carrying value of such assets will be recovered through
undiscounted expected future cash flows. If the total of the future cash flows
is less than the carrying amount of those assets, the Company recognizes an
impairment loss based on the excess of the carrying amount over the fair value
of the assets.

ADVERTISING EXPENSE

Advertising is expensed as incurred. Advertising expense totaled $70,000
(unaudited), $476,000 (unaudited), $1,925,000 and $4,844,000 for the three
months ended March 31, 1999 and 1998, and for the years ended December 31, 1998
and 1997, respectively.

STOCK-BASED COMPENSATION

The Company accounts for stock-based employee compensation arrangements
in accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB No. 25") and complies with the
disclosure provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS No. 123"). Under APB No. 25,
compensation expense is recognized based on the difference, if any, on the date
of grant between the fair value of the Company's stock and the amount an
employee must pay to acquire the stock. The compensation expense is recognized
over the option vesting period.

OTHER COMPREHENSIVE INCOME (LOSS)

Effective January 1, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 establishes standards for reporting comprehensive
income (loss) and its components in financial statements. Comprehensive income
(loss) as defined, includes all changes in equity (net assets) during a period
from nonowner sources. No items were included in other comprehensive income
(loss) during the three months ended March 31, 1999 and 1998, and for the years
ended December 31, 1998 and 1997.

SEGMENT REPORTING

In June 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for the way companies report financial and descriptive
information about their operating segments. The Company offers current news and

F-126

POINTCAST INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

information services to viewers and corporations via the Internet and corporate
intranets and, accordingly operates in one reportable segment as defined in SFAS
131.

NEW ACCOUNTING PRONOUNCEMENT

In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 98-1, "Software for Internal Use,"
which provides guidance on accounting for the cost of computer software
developed or obtained for internal use. SOP No. 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. Costs of computer
software developed or obtained for internal use were not material for the three
months ended March 31, 1999.

2. BALANCE SHEET COMPONENTS

DECEMBER 31,
MARCH 31, -----------------------------
1999 1998 1997
--------------- -------------- -------------
(UNAUDITED)

PROPERTY AND EQUIPMENT, NET:
Computer and equipment.................................... $ 9,303,000 $ 9,113,000 $ 8,314,000
Furniture and fixtures.................................... 2,529,000 2,529,000 1,549,000
Leasehold improvements.................................... 1,315,000 1,315,000 1,257,000
--------------- -------------- -------------
13,147,000 12,957,000 11,120,000
Less: Accumulated depreciation........................... (8,068,000) (7,207,000) (3,682,000)
--------------- -------------- -------------
$ 5,079,000 $ 5,750,000 $ 7,438,000
=============== ============== =============

Property and equipment included $698,000 of fixed assets under capital
leases at March 31, 1999 (unaudited), December 31, 1998 and 1997, respectively.
Accumulated amortization of such assets was $698,000 (unaudited), $519,000 and
$286,043 at March 31, 1999, December 31, 1998 and 1997, respectively.

DECEMBER 31,
MARCH 31, -----------------------------
1999 1998 1997
------------- -------------- --------------
(UNAUDITED)

ACCRUED EXPENSES:
Administrative expenses.................................. $ 728,000 $ 1,000,000 $ 750,000
Payroll and related expenses............................. 1,652,000 1,944,000 1,456,000
Other.................................................... 184,000 210,000 83,000
------------- -------------- --------------
$ 2,564,000 $ 3,154,000 $ 2,289,000
============= ============== ==============

3. RELATED PARTY TRANSACTIONS

INDUSTRY INSIDER AGREEMENTS

During 1998 and 1997, the Company entered into Industry Insider
Agreements with certain shareholders of the Company's outstanding common stock
at December 31, 1998. Management believes that the terms of these agreements
were similar to those terms given to unaffiliated Industry Insider partners. For
the three months ended March 31, 1999 and 1998 and during the years ended
December 31, 1998 and 1997, the Company recognized $40,000 (unaudited), $25,000
(unaudited), $469,000 and $457,000, respectively, of revenue from Industry
Insider Agreements with related parties.

F-127

POINTCAST INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

ADVERTISING REVENUE

For the three months ended March 31, 1999 and 1998 and for the years
ended December 31, 1998 and 1997, the Company recognized advertising revenue
from certain shareholders in the amount of $0 (unaudited), $648,000 (unaudited),
$1,541,000 and $527,000, respectively, in exchange for cash. The Company
believes that the terms of advertising contracts with related parties were
similar to those given on orders of similar size to unaffiliated customers.

MANAGEMENT FEES

Under the terms of the joint venture agreement, the joint venture will
pay to the Company a management fee; accordingly for the three months ended
March 31, 1999 and 1998 and for the years ended December 31, 1998 and 1997, the
Company recorded management fees totaling $125,000 (unaudited), $125,000
(unaudited), $500,000 and $125,000, respectively.

NOTE RECEIVABLE DUE FROM SHAREHOLDER

Under the terms of a 1997 employment agreement with the Company's Chief
Executive Officer (the "CEO Agreement"), the Company in October 1997 entered
into two full recourse notes receivable amounting to $2,000,000. The notes
issued are further secured by approximately 375,000 shares of Series E
mandatorily redeemable convertible preferred stock, bear interest at the rate of
6.01% compounded semi-annually and are due no later than 2002. The notes were
classified as Notes receivable from shareholder in the accompanying balance
sheet at December 31, 1998 and December 31, 1997. The note was repaid in full in
March 1999.

In 1997, a loan for $421,000 was made in connection with the purchase of
Series E mandatorily redeemable convertible preferred stock by the Chief
Executive Officer. The loan was recorded as a reduction of the carrying value of
mandatorily redeemable convertible preferred stock at December 31, 1997 and was
repaid in full in March 1998. In 1998, a further loan for $477,000, which bore
interest at a rate of 4.21% compounded semi-annually was made to the Chief
Executive Officer and was repaid in full in March 1999.

4. BORROWINGS

At December 31, 1998, the Company had $14,500,000 payable pursuant to
various notes payable due on March 31, 2000. The various notes payable bear
interest at a variable rate based on a 90-days libor rate plus a 4.5% margin
which increases by 0.5% on selected 90-days periods (9.75%-9.88% at December 31,
1998). The notes are secured by a general collateral on all of the assets of the
Company. In addition, the Company will issue warrants to the lenders if the
notes payable remain outstanding on selected future dates (see Note 8).

At December 31, 1997, the Company had $1,439,000 payable under a line of
credit with a financial institution. The line of credit was repaid in 1998.

At March 31, 1999, December 31, 1998 and 1997, the Company had $1,780,000
(unaudited), $2,053,000 and $3,079,000, respectively, of borrowings outstanding
under a note payable due to an insurance company. The note payable bears
interest at an annual rate of 9.7% and is secured by the Company's property and
equipment. The Company is required to make monthly payments of principal and
interest of $107,000 through October 2000.

At December 31, 1996, the Company had loans outstanding totaling
$1,088,000 payable to a bank. The loans were repaid during 1997.

F-128

POINTCAST INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

At March 31, 1999, December 31, 1998 and 1997, the Company had $316,000
(unaudited), $404,000 and $752,000, respectively, for equipment leased with
various expiration dates through 2001. The capital lease agreements charge
interest at rates ranging up to eleven percent per annum.

As of December 31, 1998, the maturities under the note payable and
capital leases are as follows:

YEARS ENDING DECEMBER 31,
----------------------------
1999.................................... $ 1,390,000
2000.................................... 15,531,000
2001.................................... 36,000
----------------
16,957,000
Less: Current portion.................. 1,390,000
----------------
Long-term portion....................... $ 15,567,000
================

5. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

The Company leases office space and equipment under noncancelable
operating leases with various expiration dates through 2002. Rent expense for
the three months ended March 31, 1999 and 1998, and for the years ended December
31, 1998 and 1997 was $420,000 (unaudited), $394,000 (unaudited), $2,136,000 and
$1,751,000, respectively. The terms of a facility lease and certain equipment
leases provide for rental payments that increase over the term of the lease. The
Company recognizes the expense on a straight-line basis over the lease period,
and has accrued for rent expense incurred but not paid.

Future minimum lease payments under noncancelable operating leases and
future minimum sub-lease rental income under noncancelable operating leases are
as follows:

OPERATING SUB-LEASE
YEARS ENDING DECEMBER 31, LEASES INCOME
--------------------------- --------------- --------------
1999................................. $ 3,028,000 $ (898,000)
2000................................. 2,546,000 (610,000)
2001................................. 2,577,000 --
2002................................. 2,701,000 --
Thereafter........................... -- --
--------------- --------------
Total................................ $ 10,852,000 $ (1,508,000)
=============== ==============

LITIGATION

From time to time, the Company is subject to legal proceedings and claims
in the ordinary course of business, including claims against the Company of
alleged infringement of patents, trademarks and other intellectual property
rights and challenges to the validity or enforceability of certain intellectual
property rights held by the Company. The Company has received inquiries from
patent holders alleging that elements of The PointCast Network infringe their
rights and offering to license such patents to the Company. Legal standards
relating to the validity, enforceability and scope of protection of intellectual
property rights in Internet-related industries are evolving. Accordingly, the
ultimate outcome of intellectual property claims against the Company and the
ability of the Company to defend against such claims are difficult to predict.
However, the Company is not currently aware of any legal proceedings or claims
that the Company believes will have, individually or in the aggregate, a
material adverse impact on the Company's financial condition, results of
operations or cash flows.

F-129

POINTCAST INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

6. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK

Mandatorily redeemable convertible preferred stock at March 31, 1999
(unaudited) consists of the following series:

SHARES
----------------------------------- LIQUIDATION
SERIES AUTHORIZED OUTSTANDING AMOUNT
- ------------------------------------------ ----------------- ---------------- ----------------

A......................................... 6,500,000 6,421,385 $ 4,025,000
B......................................... 4,000,000 3,674,446 5,170,000
C......................................... 1,500,000 1,456,554 2,913,000
D......................................... 5,300,000 3,810,527 36,200,000
E......................................... 2,900,000 2,050,404 19,479,000
----------------- ---------------- ----------------
20,200,000 17,413,316 $ 67,787,000
================= ================ ================

A summary of mandatorily redeemable convertible preferred stock
outstanding as of March 31, 1999, December 31, 1998 and 1997 and changes during
the periods then ended is presented below:

CANCELLATION
(SHARES) OUTSTANDING OUTSTANDING OUTSTANDING DURING THREE OUTSTANDING
AS OF AS OF AS OF MONTHS ENED AS OF
DECEMBER 31, ISSUANCES IN DECEMBER 31, ISSUANCES IN DECEMBER 31, MARCH 31, MARCH 31,
SERIES 1996 1997 1997 1998 1998 1999 1999
------------- ------------- ------------- ------------- -------------- -------------- -------------

A......... 6,421,385 -- 6,421,385 -- 6,421,385 -- 6,421,385

B......... 3,674,446 -- 3,674,446 -- 3,674,446 -- 3,674,446

C......... 1,456,554 -- 1,456,554 -- 1,456,554 -- 1,456,554

D......... 3,810,527 -- 3,810,527 -- 3,810,527 -- 3,810,527

E......... -- 2,089,878 2,089,878 210,526 2,300,404 (250,000) 2,050,404
------------- ------------- ------------- ------------- -------------- -------------- -------------
15,362,912 2,089,878 17,452,790 210,526 17,663,316 (250,000) 17,413,316
============= ============= ============= ============= ============== ============== =============

ACTIVITY DURING
THREE MONTHS
(DOLLARS) AS OF AS OF AS OF ENDED
DECEMBER 31, ACTIVITY IN DECEMBER 31, ACTIVITY IN DECEMBER 31, MARCH 31, AS OF MARCH
SERIES 1996 1997 1997 1998 1998 1999 1999
------------- ------------- ------------- ------------- ------------- -------------- ------------

A......... $ 3,999,000 $ -- $ 3,999,000 $ -- $ 3,999,000 $ -- $ 3,999,000

B......... 5,153,000 -- 5,153,000 -- 5,153,000 -- 5,153,000

C......... 2,912,000 -- 2,912,000 -- 2,912,000 -- 2,912,000

D......... 35,234,000 133,000(1) 35,367,000 134,000(1) 35,501,000 34,000(1) 35,535,000

E......... -- 19,354,000(2) 19,354,000 2,407,000(3) 21,761,000 (2,375,000)(4) 19,386,000
------------- ------------- ------------- ------------- ------------- -------------- ------------
$ 47,298,000 $ 19,487,000 $ 66,785,000 $ 2,541,000 $ 69,326,000 $ (2,341,000) $66,985,000
============= ============= ============= ============= ============= ============== ============

(1) accretion of difference between carrying value and redemption value (as
discussed herein)
(2) issuance of shares, net of loan made to Chief Executive Officer for
purchase of a portion of the shares issued (see Note 3)
(3) issuance of shares and repayment of loan made to Chief Executive Officer
(see Note 3)
(4) cancellation of unvested shares

F-130

POINTCAST INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The holders of mandatorily redeemable convertible preferred stock have
various rights and preferences as follows:

VOTING

Each share of mandatorily redeemable convertible preferred stock has
voting rights equal to an equivalent number of shares of common stock into which
it is convertible and votes together as one class with the common stock.

As long as any of the shares of mandatorily redeemable convertible
preferred stock remain outstanding, the Company must obtain approval from the
holders of at least 55% of the shares of mandatorily redeemable convertible
preferred stock in order to alter the articles of incorporation as they relate
to mandatorily redeemable convertible preferred stock, change the authorized
number of shares of mandatorily redeemable convertible preferred stock,
authorize or issue other equity having a preference over the preferred stock
with respect to voting dividends, redemption, or upon liquidation, repurchase
any shares of common stock other than shares subject to the right of repurchase
by the Company, pay any dividends on common stock, or change the authorized
number of directors.

DIVIDENDS

Holders of Series A, B, C, D and E mandatorily redeemable convertible
preferred stock are entitled to receive noncumulative dividends at the rate of
$0.062, $0.14, $0.20, $0.95 and $0.95 per share, respectively, when and if
declared by the Board of Directors. The holders of the Series A, B, C, D and E
mandatorily redeemable convertible preferred stock will also be entitled to
participate in dividends on common stock, when and if declared by the Board of
Directors, based on the number of shares of common stock held on a converted
basis. No dividends on mandatorily redeemable convertible preferred stock or
common stock have been declared by the Board from inception through March 31,
1999.

LIQUIDATION

In the event of any acquisition, liquidation, dissolution or winding up
of the Company, or in the event of a sale of greater than 50% of the assets of
the Company, the holders of Series A, B, C, D, and E mandatorily redeemable
convertible preferred stock are entitled to receive an amount of $0.6268,
$1.4069, $2.00, $9.50 and $9.50 per share, respectively, plus any declared but
unpaid dividends prior to and in preference to any distribution to the holders
of common stock. After payment has been made to the holders of the mandatorily
redeemable convertible preferred stock of the full liquidation amount, any
remaining assets of the Company would be distributed with equal priority and pro
rata among the holders of common stock.

CONVERSION

Each share of mandatorily redeemable convertible preferred stock is
convertible into common stock on a one-for-one basis at the option of the holder
subject to adjustment for dilution. Each share of mandatorily redeemable
convertible preferred stock automatically converts into common stock at the then
prevailing conversion ratio upon the closing of a public offering of common
stock with gross proceeds in excess of $20,000,000.

REDEMPTION

The holders may request that the shares of mandatorily redeemable
convertible preferred stock be redeemed at any time after June 3, 2001. Shares
of mandatorily redeemable convertible preferred stock may be redeemed at a price
equal to the original issue price, subject to adjustment for dilution and
declared but unpaid dividends. The difference between the carrying value of
shares of mandatorily redeemable convertible preferred stock and their
redemption value is being accreted through June 3,

F-131

POINTCAST INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

2001. Accretion is charged directly to accumulated deficit and totaled $34,000
(unaudited), $134,000 and $133,000 for the three months ended March 31, 1999 and
for the years ended December 31, 1998 and 1997, respectively.

OTHER

In connection with a lease agreement, the Company issued warrants to
purchase 39,419 shares of Series B mandatorily redeemable convertible preferred
stock during 1995. The warrants are exercisable at a price of $1.4069 per share
and expire on July 31, 2002. Management determined that the value of the
warrants at the date of grant was insignificant.

In connection with an advertising agreement under the terms of which the
Company received certain advertising space during December 1996, the Company
issued immediately exercisable warrants to purchase 1,052,632 shares of the
Company's Series D mandatorily redeemable convertible preferred stock at a per
share price of $9.50 of which warrants to purchase 526,316 shares expire in 1999
and warrants to purchase 526,316 shares expire in 2001, subject to provisions
for acceleration of the expiration date due to an initial public offering or the
acquisition of the Company. The Company calculated the fair value of the
warrants, which approximated the value of advertising received at the date of
grant, as $3,000,000 (using an established option pricing model) which was
recorded as prepaid advertising. The Company is recognizing the advertising
expense over the greater of straight-line over the advertising period or as such
advertising is used by the Company. The Company has recorded advertising expense
of $400,000 and $2,276,000 for the years ended December 31, 1998 and 1997,
respectively, related to the advertising agreement which is included in sales
and marketing in the accompanying statement of operations.

Under the terms of the CEO Agreement, the Chief Executive Officer
received 375,000 shares of the Company's Series E mandatorily redeemable
convertible preferred stock at the date of hiring. The shares were subject to
repurchase by the Company in the event of termination for any reason; provided,
however, that such repurchase right lapsed as to 93,750 shares on November 1,
1998, and lapses as to 7,812 shares on the 1st day of each month thereafter. The
Company recorded deferred stock compensation of $3,563,000 in connection with
the Executive Agreement based on the price of preferred shares sold to
unaffiliated investors in contemporaneous transactions. The deferred stock
compensation is being amortized over the vesting period of the shares. Deferred
compensation expense of $379,000 (unaudited), $463,000 (unaudited), $1,704,000
and $309,000 was amortized during the three months ended March 31, 1999 and 1998
and for the years ended December 31, 1998 and 1997, respectively. Additionally,
the Chief Executive Officer purchased 125,000 shares of the Company's Series E
mandatorily redeemable convertible preferred stock at $9.50 per share under the
Executive Agreement. The purchase price of the shares was similar to that paid
by unaffiliated investors in contemporaneous transactions.

In conjunction with the resignation of the Chief Executive Officer in
March 1999, the Company entered into a Cessation of Employment Agreement (the
"Agreement") with the Chief Executive Officer. At the date of his resignation,
125,000 shares of the Series E mandatorily redeemable convertible preferred
stock that had been granted to the Chief Executive Officer were fully vested.

7. COMMON STOCK

A portion of the outstanding shares are subject to a right of repurchase
by the Company at the original price paid by the purchaser subject to vesting,
which is generally over a four year period from the earlier of grant date or
employee hire date, as applicable. At December 31, 1998 and 1997, there were
148,087 and 448,746, respectively, shares subject to repurchase.

F-132

POINTCAST INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

As of March 31, 1999, the Company has reserved shares of common stock as
follows:

Conversion of mandatorily redeemable convertible preferred stock
(unaudited).............................................................. 17,413,000
Exercise of common stock and mandatorily redeemable convertible
preferred stock warrants (unaudited)..................................... 1,405,000
Options under stock option plan (Note 8) (unaudited)....................... 10,334,000
---------------
Total shares reserved...................................................... 29,152,000
===============

8. COMMON STOCK OPTIONS AND WARRANTS

In 1994, the Company adopted the 1994 Stock Option Plan (the "Plan"). The
Plan provides for the granting of stock options to employees and consultants of
the Company. Options granted under the Plan may be either incentive stock
options or nonqualified stock options. Incentive stock options ("ISO") may be
granted only to Company employees (including officers and directors who are also
employees). Nonqualified stock options ("NSO") may be granted to Company
employees and consultants.

Options under the Plan may be granted for periods of up to ten years and
at prices no less than 85% of the estimated fair value of the shares on the date
of grant as determined by the Board of Directors, provided, however, that (i)
the exercise price of an ISO and NSO shall not be less than 100% and 85% of the
estimated fair value of the shares on the date of grant, respectively, and (ii)
the exercise price of an ISO and NSO granted to a 10% shareholder shall not be
less than 110% of the estimated fair value of the shares on the date of grant,
respectively. Options are exercisable immediately and if exercised prior to
vesting subject to a repurchase option which expires over the four year vesting
period. To date, options granted generally vest over four years.

In connection with certain option grants and stock issues during the
years ended December 31, 1998 and 1997, the Company recognized unearned
compensation totaling $1,264,000 and $1,018,000, respectively, which is being
amortized over the four year vesting periods of the related options.
Amortization expense recognized during the years ended December 31, 1998 and
1997 totaled approximately $819,000 and $309,000, respectively.

In 1997, approximately, 200,000 of such options were exercised by the
holder in exchange for a full recourse note receivable. The note bears interest
at an annual rate of 6.01%, is due on October 21, 2001 and was recorded in Other
Shareholders' Equity in the accompanying balance sheet at December 31, 1997.
Amounts outstanding under the note totaled $200,000 at December 31, 1997. The
loan was canceled in 1998 in exchange for the repurchase of the 200,000 shares
by the Company at an amount equal to the original exercise price.

In 1998, a further 220,000 of such options were exercised by another
holder in exchange for a full recourse note receivable. This note bears interest
at an annual rate of 6.01%, is due on April 15, 2001 or ninety days following
termination and was recorded in Other Shareholders' Equity in the accompanying
balance sheet at December 31, 1998. During the year, the Company terminated the
services of this individual, however this loan remained outstanding at year end.
No allowance for this loan was made at December 31, 1998 as management believes
the amount owed is collectible.

During 1997, the Company accelerated the vesting of common stock options
for certain executives in connection with severance agreements and recorded
compensation expense of $247,000. Such compensation expense represents the
difference between the exercise price and the then-deemed fair value of the
shares on the date that vesting was accelerated.

In conjunction with the $14,500,000 of note payable entered into in 1998,
the Company will issue warrants to purchase common stock to the holders of these
notes if the amounts remain outstanding on the following selected dates.
Provided the notes remain outstanding after March 31, 1999, the Company

F-133

POINTCAST INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

will issue 1,799,775 warrants and an additional 359,955 warrants in each of the
five subsequent months. The warrants which bear an exercise price of $0.01
expire on March 31, 2004 if not exercised.

During 1997, the Company issued warrants to purchase 312,500 shares of
the Company's common stock to partnerships associated with two directors. The
warrants have an exercise price of $5.00, which the Company believes represents
the fair value of the Company's common stock at the date of grant, and expire in
2002. The warrants were issued in exchange for services by a director as an
acting Chief Executive Officer while the Company completed its search for a
Chief Executive Officer. The director received no cash compensation for his
services. Management determined that the value of the warrants at the date of
grant was not material.

A summary of options outstanding under the Plan and certain other options
noted below outstanding as of March 31, 1999, December 31, 1998 and 1997 and
changes during the periods then ended is presented below:

OPTIONS OUTSTANDING
-------------------------------------------------
DECEMBER 31,
MARCH 31, --------------------------------
1999 1998 1997
--------------- --------------- ---------------
(UNAUDITED)

Outstanding at beginning of year.......................... 5,831,000 7,245,000 4,099,000
Granted................................................ -- 2,287,000 4,919,000
Exercised.............................................. (54,000) (1,182,000) (1,223,000)
Canceled............................................... (2,108,000) (2,519,000) (550,000)
--------------- --------------- ---------------
Outstanding at end of year................................ 3,669,000 5,831,000 7,245,000
Weighted average fair value of options granted
during the year........................................ $ -- $ 4.25 $ 3.49

At March 31, 1999, 6,665,000 options were available for grant under the
Plan.

OPTIONS VESTED AT
OPTIONS OUTSTANDING AT MARCH 31, 1999 (UNAUDITED) MARCH 31, 1999 (UNAUDITED)
----------------------------------------------------------- -----------------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE OUTSTANDING EXERCISE PRICE
- ------------------ ---------------- --------------------- ----------------- ---------------- -----------------

$0.00 - 0.54 386,000 1.2 $0.33 262,000 $0.30
0.55 - 1.09 392,000 0.5 1.00 82,000 1.00
1.10 - 3.29 1,007,000 3.3 2.77 234,000 2.43
3.30 - 5.49 1,884,000 2.1 4.54 1,010,000 4.12
---------------- ----------------
3,669,000 1,588,000
================ ================

FAIR VALUE DISCLOSURES

Had the Company's stock based compensation cost been determined based on
the minimum value at the grant dates for the awards under a method prescribed by
SFAS No. 123, the Company's net loss would have been increased to the pro forma
amounts indicated below:

YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1997
------------------ ------------------
Net loss:
As reported................... $29,264,000 $29,111,000
================== ==================
Pro forma..................... $30,405,000 $30,253,000
================== ==================

F-134

POINTCAST INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The Company calculated the minimum value of each option grant on the date
of grant using the minimum value method with the following assumptions: no
dividend yield, weighted average expected option term of 2.75 years; risk free
interest rate of 4.99% and 5.51% for the years ended December 31, 1998 and 1997,
respectively.

9. EMPLOYEE BENEFIT PLANS

In 1995, the Company adopted a 401(k) Plan that is intended to qualify
under section 401(k) of the Internal Revenue Code of 1986, as amended. The
401(k) Plan covers substantially all of the Company's employees. Participants
may elect to contribute a percentage of their compensation to this plan, up to
the statutory maximum amount. Through March 31, 1999, the Company has made no
discretionary contributions to the 401(k) Plan.

10. INCOME TAXES

No provision for income taxes was recorded from inception through
December 31, 1998 as the Company incurred net operating losses during the
period. The components of the net deferred tax asset as of December 31, 1998 and
1997 were as follows:

DECEMBER 31,

---------------------------------
1998 1997
--------------- ---------------

Net operating loss carryforwards........... $26,600,000 $16,020,000
Cumulative temporary differences........... 1,375,000 1,305,000
Tax credit carryforwards................... 1,829,000 1,059,000
--------------- ---------------
29,804,000 18,384,000
Less: Valuation allowance.................. (29,804,000) (18,384,000)
--------------- ---------------
Net deferred tax asset..................... $ -- $ --
=============== ===============

Management believes that, based on a number of factors including the
absence of taxable income to date, the available objective evidence creates
sufficient uncertainty regarding the realizability of the deferred tax assets
such that a full valuation allowance has been recorded.

At December 31, 1998, the Company had approximately $68,000,000 of
federal and $31,000,000 of California net operating loss carryforwards available
to offset future taxable income. The federal loss carryforwards expire through
the year 2018 and the California loss carryforwards expire at various dates from
1999 through the year 2002. Under the Tax Reform Act of 1986, the amounts of and
benefits from net operating loss carryforwards may be impaired or limited in
certain circumstances. Events which cause limitations in the amount of net
operating losses that the Company may utilize in any one year include, but are
not limited to, a cumulative ownership change of more than 50%, as defined, over
a three year period. During 1997, in connection with the sale of preferred
stock, the Company triggered a limitation, and as a result at December 31, 1998
was limited to utilizing approximately $11,000,000 of federal net operating
losses annually to offset taxable income.

11. SUBSEQUENT EVENTS

On April 19, 1999, the Company sold a 41% interest in its PointCast Japan
L.L.C. joint venture ("joint venture") to the minority shareholder in the joint
venture, for approximately $2.25 million in cash. The Company recorded a gain of
$2.25 million in income as the carrying amount of the investment was $0 at the
time of the sale. The Company's remaining interest in the joint venture is 19%
and will continue to account for the investment under the equity method as it
continues to have the ability to exercise significant influence over the joint
venture's operating and financial policies.

F-135

POINTCAST INCORPORATED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

On May 10, 1999, the $14.5 million notes payable due on March 31, 2000
was forgiven by the Company's creditors pursuant to the Settlement Agreement and
Full and Final Release. In addition to the forgiveness of the loan and accrued
interest, the creditors also made a cash payment of $4.5 million to the Company;
the Company's obligations to issue warrants, (see Note 8) were also discharged
by the creditors. An extraordinary gain of approximately $19.7 million was
recorded in income in May 1999 as a result of this transaction. The creditors
terminated all financial interests in the Company and there are no continuing
obligations by the Company to the creditors.

In May 1999, the Company cancelled the note receivable issued in
connection with the 220,000 stock option exercise (see Note 8) and the
underlying shares were forfeited by the shareholder.

On May 27, 1999, Launchpad Technologies, Inc. ("Launchpad"), a majority
owned subsidiary of idealab! Holdings L.L.C., which is a wholly owned subsidiary
of Bill Gross' idealab!, completed its acquisition of PointCast Incorporated
("PointCast") pursuant to an agreement and plan of reorganization dated May 10,
1999; Launchpad was subsequently renamed EntryPoint. As consideration for the
purchase, Entrypoint issued to the stockholders of PointCast 4,316,547 shares of
EntryPoint Preferred Series E stock and paid them $1 million in cash The
Preferred Series E stock was valued at approximately $6 million based on the
deemed fair value of the shares issued on the date the transaction was
announced. The total purchase price was approximately $7 million.

F-136

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of CarsDirect.com, Inc.

In our opinion, the accompanying balance sheets and the related statements
of operations, stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Potamkin Auto Center, Ltd. (the
"Company") at December 31, 1998 and September 30, 1999, and the results of its
operations and its cash flows for the years ended December 31, 1997 and 1998 and
the nine month period ended September 30, 1999 in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

/s/ PricewaterhouseCoopers LLP

New York, New York
December 22, 1999

F-137

POTAMKIN AUTO CENTER, LTD.
BALANCE SHEETS

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

ASSETS

Current assets

Cash................................................................ $ 116,614 $ 121,312
Accounts receivable, net............................................ 3,939,367 3,387,117
Inventories......................................................... 10,391,356 7,949,884
Due from related parties............................................ 113,922 33,152
Prepaid expenses and other current assets........................... 380,900 358,332
----------------- ------------------
TOTAL CURRENT ASSETS.............................................. 14,942,159 11,849,797
Property and equipment, net............................................ 7,009,853 6,915,743
Other assets........................................................... 113,808 113,808
----------------- ------------------
TOTAL ASSETS...................................................... $ 22,065,820 $ 18,879,348
================= ==================

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities

Book overdrafts..................................................... $ 2,169,175 $ 427,924
Floor plan notes payable............................................ 10,027,706 8,377,902
Accounts payable.................................................... 891,919 1,143,372
Accrued expenses and other liabilities.............................. 1,387,558 1,528,665
Current maturities of long-term debt................................ 181,448 192,296
Due to related parties.............................................. 20,308 22,871
Note payable to shareholders........................................ -- 500,000
Deferred revenue.................................................... 1,594,409 1,625,814
----------------- ------------------
TOTAL CURRENT LIABILITIES......................................... 16,272,523 13,818,844
----------------- ------------------
Long-term debt, excluding current maturities........................... 5,441,474 5,301,131
----------------- ------------------
TOTAL LIABILITIES................................................. 21,713,997 19,119,975
================= ==================

Stockholders' equity (deficit)
Common stock, no par value, 100 shares authorized; 70 issued and
outstanding....................................................... -- --

Additional paid-in capital.......................................... 1,900,000 1,900,000
Accumulated deficit................................................. (1,548,177) (2,140,627)
----------------- ------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT).............................. 351,823 (240,627)
----------------- ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT).............. $ 22,065,820 $ 18,879,348
================= ==================

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

F-138

POTAMKIN AUTO CENTER, LTD.
STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------------- -------------------------
1997 1998 1998 1999
------------ ------------ ----------- ------------
(UNAUDITED)
Revenues

Vehicle sales....................... $152,617,145 $130,635,912 $94,644,249 $102,203,465
Other revenues, net................. 3,199,410 3,812,088 2,874,659 2,923,729
------------ ------------ ----------- ------------
TOTAL REVENUES.................... 155,816,555 134,448,000 97,518,908 105,127,194
Cost of sales, including floor plan
note interest of approximately
$820,000, $791,000, $611,000
(unaudited) and $441,000,
respectively........................ 140,623,616 120,925,182 87,321,179 95,120,180
------------ ------------ ----------- ------------
GROSS PROFIT...................... 15,192,939 13,522,818 10,197,729 10,007,014
Selling, general and administrative.... 13,459,175 12,806,989 9,647,558 10,033,848
------------ ------------ ----------- ------------
INCOME (LOSS) FROM OPERATIONS..... 1,733,764 715,829 550,171 (26,834)
Interest expense....................... 571,692 467,801 355,080 327,511
------------ ------------ ----------- ------------
Income (loss) before income taxes. 1,162,072 248,028 195,091 (354,345)
Provision for state and local income
taxes (Note 2)...................... 138,421 33,471 33,471 23,579
------------ ------------ ----------- ------------
NET INCOME (LOSS)................. $ 1,023,651 $ 214,557 $ 161,620 $ (377,924)
============ ============ =========== ============

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

F-139

POTAMKIN AUTO CENTER, LTD.
STATEMENTS OF STOCKHOLDERS' EQUITY

COMMON STOCK
-------------- ADDITIONAL TOTAL
ISSUED PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT)
------ ------ ----------- ----------- ----------------

Balances, December 31, 1996......... 70 $ -- $ 1,900,000 $ (884,409) $ 1,015,591

Distribution to shareholders........ -- -- -- (443,000) (443,000)

Net income for 1997................. -- -- -- 1,023,651 1,023,651
------ ------ ----------- ----------- ----------------

Balances, December 31, 1997......... 70 -- 1,900,000 (303,758) 1,596,242

Distribution to shareholders........ -- -- -- (1,458,976) (1,458,976)

Net income for 1998................. -- -- -- 214,557 214,557
------ ------ ----------- ----------- ----------------

Balances, December 31, 1998......... 70 -- 1,900,000 (1,548,177) 351,823

Distribution to shareholders........ -- -- -- (214,526) (214,526)

Net loss for the nine months ended
September 30, 1999............... -- -- -- (377,924) (377,924)
------ ------ ----------- ----------- ----------------
Balances, September 30, 1999........ 70 $ -- $ 1,900,000 $(2,140,627) $ (240,627)
====== ====== =========== =========== ================

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

F-140

POTAMKIN AUTO CENTER, LTD.
STATEMENTS OF CASH FLOWS

FOR THE YEAR ENDED FOR THE NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------------- -----------------------------
1997 1998 1998 1999
------------- ------------- ------------- --------------
(UNAUDITED)

Cash flows from operating activities
Net income (loss)................................. $ 1,023,651 $ 214,557 $ 161,620 $ (377,924)
Adjustments to reconcile net (loss) income to net
cash provided by operating activities
Depreciation and amortization................... 147,357 139,337 96,673 102,661
Changes in operating assets and liabilities
Accounts receivable........................... 2,001,265 206,152 (147,293) 552,250
Inventories................................... (5,337,316) 3,384,678 3,060,057 2,441,472
Prepaid expenses and other
current assets.............................. (187,447) (2,679) (119,632) 22,568
Other assets.................................. (5,625) -- -- --
Floor plan notes payable...................... 6,816,777 (3,449,660) (2,906,038) (1,649,804)
Accounts payable ............................. 251,106 (232,331) 308,140 251,453
Accrued expenses and other liabilities........ (120,013) 473,473 (5,219) 141,107
Due to related parties, net................... (225,073) 165,230 174,426 83,333
Deferred revenue.............................. 630,400 180,844 135,633 31,405
------------- ------------- ------------- --------------
Net cash provided by operating activities............ 4,995,082 1,079,601 758,367 1,598,521
------------- ------------- ------------- --------------
Cash flows from investing activities
Purchase of property and equipment................ (80,801) (33,863) (25,610) (8,551)
------------- ------------- ------------- --------------
Net cash used in investing activities................ (80,801) (33,863) (25,610) (8,551)
------------- ------------- ------------- --------------
Cash flows from financing activities
Book overdrafts................................... (3,991,154) 635,439 746,686 (1,741,251)
Repayments of long-term debt...................... (492,675) (154,696) (115,085) (129,495)
Advances from related parties..................... -- -- -- 500,000
Distribution to shareholders...................... (443,000) (1,458,976) (1,294,577) (214,526)
------------- ------------- ------------- --------------
Net cash used in financing activities................ (4,926,829) (978,233) (662,976) (1,585,272)
------------- ------------- ------------- --------------
(Decrease) increase in cash ......................... (12,548) 67,505 69,781 4,698
Cash, beginning of year........................... 61,657 49,109 49,109 116,614
------------- ------------- ------------- --------------
Cash, end of year................................. 49,109 $ 116,614 $ 118,890 $ 121,312
============= ============= ============= ==============
Supplemental disclosure of cash flow information:

Interest paid .................................... $ 1,308,092 $ 1,262,903 $ 984,187 $ 820,261
============= ============= ============= ==============
Income taxes paid................................. $ 164,250 $ 106,470 $ 106,470 $ 42,143
============= ============= ============= ==============

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.

F-141

POTAMKIN AUTO CENTER, LTD.
NOTES TO FINANCIAL STATEMENTS

1. BACKGROUND

The Potamkin Auto Center, Ltd. (the "Company") is engaged in the sale of
new and used automobiles and light trucks of numerous manufacturers. In
addition, the Company arranges financing for and sells extended warranties to
vehicle customers. The Company operates from a central location in Manhattan
with remote sales locations in Westbury, Brooklyn and until April 1999, Nanuet,
New York.

Approximately 50% of the common stock of the Company was owned by Robert
Potamkin and Alan Potamkin who have similar or greater ownership interests in
various entities (herein referred to as the Potamkin Companies or "related
parties") engaged in the sale of new and used automobiles and light trucks and
related products and services.

On October 19, 1999, CarsDirect.com, Inc. ("CarsDirect.com") acquired from
the Company certain tangible and intangible assets and substantially all of the
business of the Company in exchange for common stock of CarsDirect.com. These
financial statements exclude any effect of the transaction.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH

Cash accounts that have book overdrafts are reclassified to current
liabilities in the financial statements.

REVENUE RECOGNITION

Revenues are recognized by the Company when vehicles are delivered to
consumers.

OTHER REVENUES

Other revenues include finance fee income, net of estimated chargebacks,
and extended warranty commissions, net of historical cancellation experience.

Finance fee income represents revenue earned by the Company for notes
placed with financial institutions in connection with customer vehicle
financing. Finance fee income is recognized as income upon acceptance of the
credit by the financial institution. The Company is charged back a portion of
these fees should the customer terminate or prepay the contracts prior to making
the first three payments to the financial institution. The estimated allowance
for these chargebacks ("chargeback reserve") is based upon the Company's
historical experience.

Extended warranty commissions represent commissions earned from third-party
extended warranty companies for the sale of third party extended warranty
policies to the Company's customers. The Company defers the commission revenue
received from the extended warranties, net of estimated cancellations,
and recognizes such amounts as revenue ratably over the lives of the
underlying contracts. Costs directly related to sales of these contracts are
deferred and charged to expense proportionately as revenues are recognized.

INVENTORIES

Inventories are valued at the lower of cost or market. The Company uses the
last-in, first-out ("LIFO") method for new vehicles and the specific
identification method for used vehicles.

F-142

POTAMKIN AUTO CENTER, LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation and amortization
are computed using the straight-line method over the respective lives of the
assets. The ranges of estimated useful lives are as follows:

Buildings.............................................................................................39 years

Furniture, fixtures, and equipment................................................................5 to 7 years

Leasehold improvements...........................Economic life or life of the lease term, whichever is shorter

When depreciable assets are sold or retired, the related cost and
accumulated depreciation are removed from the accounts. Any gains or losses are
included in selling, general and administrative expenses in the accompanying
statement of operations. Such amounts were not material for the years ended
December 31, 1997 and 1998 and the nine month periods ended September 30, 1998
(unaudited) and 1999, respectively. Major additions and betterments are
capitalized. Maintenance and repairs that do not materially improve or extend
the lives of the respective assets are charged to operating expenses as
incurred.

LONG-LIVED ASSETS

The Company reviews long-lived assets and certain related intangibles for
impairment whenever changes in circumstances indicate that the carrying amount
of the assets may not be fully recoverable.

ADVERTISING AND PROMOTIONAL COSTS

Advertising and promotional costs are expensed as incurred and are included
in selling, general, and administrative expenses in the accompanying statements
of operations. Advertising and promotional costs for the years ended December
31, 1997 and 1998 and the nine month periods ended September 30, 1998
(unaudited) and 1999 amounted to approximately $2,340,000, $2,777,000,
$1,744,000 and $2,177,000, respectively.

INCOME TAXES

The Company has elected to be taxed for federal income tax purposes under
the provisions of Subchapter S of the Internal Revenue Code by unanimous consent
of their shareholders. Under these provisions, the Company does not pay
corporate income taxes on its taxable income. Instead, the shareholders are
individually liable for the federal income taxes on the Company's income. The
Company periodically makes shareholder distributions to fund personal tax
liabilities resulting from the Company's taxable income. A provision for state
and local income taxes is included in the financial statements since S
Corporation elections are not recognized for state and local income tax
purposes.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of financial instruments is determined by reference to
various market data and other valuation techniques, as appropriate. Unless
otherwise disclosed, the fair value of financial instruments, including cash,
accounts receivable, floor plan notes payable, accounts payable and accrued
liabilities, approximates their recorded values due primarily to the short-term
nature of their maturities. Management believes that the fair value of the
Company's long-term debt approximates its recorded value based on the variable
nature of the related interest rates.

F-143

POTAMKIN AUTO CENTER, LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

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,
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.

GEOGRAPHIC CONCENTRATION

The diversity of the Company's customers and suppliers reduces the risk
that a severe impact will occur in the near term as a result of changes in its
customer base, competition or sources of supply. The Company's operations
currently are concentrated in the northeastern United States. A severe economic
downturn in the northeastern United States could negatively impact the Company's
operating results. Due to the Company's geographic concentration, management
cannot assure that unanticipated events will not have a negative impact on the
Company.

INTERIM FINANCIAL STATEMENTS

The unaudited financial statements presented herein have been prepared by
the Company without audit and, in the opinion of management, contain all
adjustments, consisting of only normal recurring adjustments necessary to
present the results of its operations and cash flows for the nine month period
ended September 30, 1998 (unaudited) fairly and on a basis consistent with the
financial statements for the year ended December 31, 1998 and the nine month
period ended September 30, 1999.

3. ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

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

Contracts in transit............................................ $ 3,765,686 $ 3,066,967
Finance income and other receivables............................ 223,681 370,150
--------------------- ----------------------
Total........................................................ 3,989,367 3,437,117
Less finance income chargebacks reserve......................... (50,000) (50,000)
--------------------- ----------------------
$ 3,939,367 $ 3,387,117
===================== ======================

Contracts in transit primarily represent receivables from financial
institutions that provide funding for customer vehicle financing. These
receivables are normally collected within 30 days of the sale of the related
vehicle. Finance income receivables represent amounts due from financial
institutions earned from arranging financing with the Company's customers.
Concentrations of credit risk with respect to contracts in transit and finance
income receivables are limited primarily to financial institutions.

F-144

POTAMKIN AUTO CENTER, LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

4. INVENTORIES

Inventories consist of the following:

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

New vehicles..................................................... $ 4,921,856 $ 3,835,319
Used vehicles.................................................... 5,634,606 4,255,443
------------------ -------------------
Total before LIFO reserve..................................... 10,556,462 8,090,762
Less LIFO reserve................................................ (165,106) (140,878)
------------------ -------------------
Net inventories.................................................. $ 10,391,356 $ 7,949,884
================== ===================

As previously noted, inventories are valued at the lower of cost or market.
The Company uses the last-in, first-out ("LIFO") method for new vehicles and the
specific identification method for used vehicles.

During 1998 and 1999, inventory quantities were reduced, which resulted in
liquidations of LIFO inventory layers carried at lower costs which prevailed in
the prior years. The effect of the liquidations was not significant to any of
the periods presented.

5. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

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

Land............................................................. $ 3,847,826 $ 3,847,826
Buildings and leasehold improvements............................. 3,324,970 3,324,970
Furniture, fixture and equipment................................. 537,183 545,734
------------------ --------------------
Total......................................................... 7,709,979 7,718,530
Less accumulated depreciation and amortization................... (700,126) (802,787 )
------------------ --------------------
$ 7,009,853 $ 6,915,743
================== ====================

6. FLOOR PLAN NOTES PAYABLE

The Company's floor plan agreements are with Chrysler Financial Corporation
and provide financing for purchases of substantially all new and certain used
vehicles.

Floor plan notes payable reflect amounts for the purchase of specific
vehicle inventory and consist of the following:

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

Chrysler Financial Corporation with interest at LIBOR plus 2.25%
at December 31, 1998 and LIBOR plus 1.75% at September 30, 1999 $ 10,027,706 $ 8,377,902
================== ====================

The floor plan agreements grant the lender a collateral interest in the
specific inventory and certain other assets of the Company, and generally
require the repayment of debt upon the sale of the vehicle. At December 31, 1998
and September 30, 1999, new and used vehicle inventory financed under floor plan
agreements are pledged as collateral under these agreements.

F-145

POTAMKIN AUTO CENTER, LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

The weighted average annual interest rate on the floor plan borrowings was
7.9% and 7.8% for the year ended December 31, 1998 and for the nine month period
ended September 30, 1999, respectively.

7. LONG-TERM DEBT

Long-term debt consists of the following:

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

Mortgage, 7.72% (adjustable every fifth year), monthly interest
and principal payment of $36,700, matures January 1, 2015..... $ 4,067,374 $ 3,973,702
Mortgage, 7.72 (adjustable every fifth year), monthly interest
and principal payment of $14,040, matures January 1, 2015..... 1,555,548 1,519,725
------------------- -------------------
Total long-term debt.......................................... 5,622,922 5,493,427
Less current maturities of long-term debt........................ (181,448) (192,296)
------------------- -------------------
Long-term debt, excluding current maturities..................... $ 5,441,474 $ 5,301,131
=================== ===================

The mortgages described above are collateralized by certain land and
buildings with a net book value of approximately $6,700,000 and $6,600,000 at
December 31, 1998 and September 30, 1999, respectively.

Scheduled maturities of long-term are as follows:

YEAR ENDING DECEMBER 31,
- --------------------------

1999................................................................................... $ 46,747
2000................................................................................... 195,962
2001................................................................................... 211,437
2002................................................................................... 228,566
2003................................................................................... 246,849
2004................................................................................... 266,595
Thereafter............................................................................. 4,297,271
-------------------
$ 5,493,427
===================

8. EMPLOYEE BENEFIT PLAN

The Company provides medical benefits to its employees after the first
ninety days of employment. Medical benefit coverage for family members and
dental coverage for employees and their family members are paid by the employee.
The Company's total costs for medical benefits were approximately $232,000,
$329,000, $259,000 and $333,000 for the the years ended December 31, 1997 and
1998 and the nine month periods ended September 30, 1998 (unaudited) and 1999,
respectively.

9. RELATED PARTY TRANSACTIONS

The Company has several demand notes payable to its shareholders in
aggregate amounts of $500,000 at September 30, 1999. As these notes are payable
on demand, they have been classified as current liabilities on the accompanying
balance sheet. Interest on these notes accrues at rates generally consistent
with the floor plan note interest rate. Interest expense recorded by the Company
related to these notes was approximately $15,000 for the nine month period ended
September 30, 1999.

The Company participates in a casualty insurance program (coverage for
property damage, loss from theft and umbrella liability coverage) administered
by the Potamkin Companies. The total costs of

F-146

POTAMKIN AUTO CENTER, LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

this program are allocated to the participating companies based upon various
methodologies depending upon the type of coverage, including historical claims,
value of property and number of employees and net revenue. The Company's total
costs for this program were $181,000, $196,000, $158,000 and $86,000 for the
years ended December 31, 1997 and 1998 and the nine month periods ended
September 30, 1998 (unaudited) and 1999, respectively.

The Company has vehicle purchases and sales with related parties, which are
as follows:

YEAR ENDED NINE MONTHS ENDED
---------------------------------- -----------------------------------
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1998 1999
--------------- --------------- ---------------- ----------------
(UNAUDITED)

Purchases........................ $ 18,756,000 $ 9,844,000 $ 7,930,000 $ 5,269,000
Sales............................ $ 3,063,000 $ 318,000 $ 240,000 $ 131,000

The statements of operations include the costs of certain administrative
and other services provided by the Potamkin Companies. These services include
accounting, treasury, tax, human resources, legal, information systems and other
related costs. These costs are allocated to the Company based upon the estimated
percentage of the personnel time spent on Company matters. The amounts of such
costs allocated were $148,000, $144,000, $114,000 and $185,000 for the years
ended December 31, 1997 and 1998 and the nine month periods ended September 30,
1998 (unaudited) and 1999, respectively. In addition to these amounts,
commencing in 1998, the Potamkin Companies have charged the Company a general
management fee amounting to approximately $85,000, $151,000, and $113,000 for
the year ended December 31, 1998 and the nine month periods ended September 30,
1998 (unaudited) and 1999, respectively.

10. COMMITMENTS

The Company leases certain of the land and building where its dealership
operations are located under operating lease agreements with related parties.
The property leases are noncancelable and generally have renewal options in
series of five-year renewals subject to renewal under essentially the same terms
and conditions as the original lease.

The aggregate minimum rental commitments for all noncancelable operating
leases are as follows:

YEAR ENDING DECEMBER 31, AMOUNT
- --------------------------- ----------------

1999 (three months)................................................................ $ 247,010
2000............................................................................... 1,021,004
2001............................................................................... 1,048,300
2002............................................................................... 1,083,529
2003............................................................................... 1,112,909
2004............................................................................... 975,957
Thereafter......................................................................... 505,914
----------------
$ 5,994,623
================

Rent expense under all operating leases approximated $949,000, $968,000,
$725,000 and $734,000 for for the years ended December 31, 1997 and 1998 and the
nine month periods ended September 30, 1998 (unaudited) and 1999, respectively.

The Company has guaranteed certain leases between related parties and third
parties.

The Company has guaranteed the floor plan notes payable between a related
party and a third party. The floor plan notes payable is used to provide
financing for the purchase of vehicles.

F-147

POTAMKIN AUTO CENTER, LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

11. OTHER

In April 1999, the Company closed its Nanuet, NY sales office. Included in
selling, general and administrative expenses is approximately $214,800 to
provide for the portion of the Company's lease commitment related to the closed
sales office which management estimates will not be recouped through sub-lease
to a third party. For the years ended December 31, 1997 and 1998 and the nine
month periods ended September 30, 1998 (unaudited) and 1999, this sales office
had total revenues of approximately $7,828,000, $5,819,000, $4,364,000 and
$2,078,000 and gross profit of approximately $515,000, $376,000, $275,000 and
$130,000, respectively.

12. SUBSEQUENT EVENT

As previously noted, on October 19, 1999 CarsDirect.com acquired from the
Company certain tangible and intangible assets and substantially all of the
business of the Company in exchange for common stock of CarsDirect.com.

F-148

[Set forth on the inside back cover is a picture of the opening screen from
idealab!'s web page.]

======================================================= ========================================================

No dealer, salesperson or any other person is
authorized to give any information or to represent
anything not contained in this prospectus. You must
not rely on any unauthorized information or
representations. This prospectus is an offer to sell Shares
only the shares offered hereby, and only under
circumstances and in jurisdictions where it is lawful
to do so. The information contained in this prospectus [LOGO]
is current only as of its date.

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

TABLE OF CONTENTS Common Stock

PAGE
Prospectus Summary.............................. 3
Risk Factors.................................... 7 ----------
Use of Proceeds................................. 21
Dividend Policy................................. 21 PROSPECTUS
Capitalization.................................. 22
Dilution........................................ 23 ----------
Selected Consolidated Financial Data............ 24
Management's Discussion and Analysis of Financial
Condition and Results
of Operations................................ 26
Business........................................ 40 GOLDMAN, SACHS & CO.
Management...................................... 55 DONALDSON, LUFKIN & JENRETTE
Related Party Transactions...................... 70 MERRILL LYNCH & CO.
Principal Stockholders.......................... 74 ROBERTSON STEPHENS
Description of Capital Stock.................... 76 THOMAS WEISEL PARTNERS LLC
Shares Eligible for Future Sale................. 80
Underwriting.................................... 82 Representatives of the Underwriters
Legal Matters................................... 84
Experts......................................... 84
Additional Information.......................... 85
Index to Financial Statements................... F-1

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

Through and including ________________ , 2000
(the 25th day after the date of this prospectus), all
dealers effecting transactions in these securities,
whether or not participating in the underwritten offering,
may be required to deliver a prospectus. This is in
addition to a dealer's obligation to deliver a prospectus
when acting as an underwriter and with respect to an
unsold allotment or subscription.

======================================================= =======================================================

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by idealab! in connection with
the sale of common stock being registered. All amounts are estimates except the
SEC registration fee and the NASD filing fee.

AMOUNT TO
BE PAID
---------
SEC registration fee ....................... $ 79,200
NASD filing fee ............................ 30,500
Nasdaq National Market listing fee ......... *
Printing and engraving expenses............. *
Legal fees and expenses .................... *
Accounting fees and expenses ............... *
Blue Sky qualification fees and expenses ... *
Transfer agent and registrar fees .......... *
Miscellaneous fees ......................... *
---------
Total ................................. $ *
=========
- ---------
* To be supplied by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Sections 78.7502 and 78.751 of the Nevada General Corporation Law provide
for the indemnification of officers, directors and other corporate agents in
terms sufficiently broad to indemnify such persons under some circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Securities Act"). Article _____________
of our articles of incorporation (Exhibit 3.1(b) hereto) provides for
indemnification of our directors, officers, employees and other agents to the
extent and under the circumstances permitted by Sections 78.7502 and 78.751 of
the Nevada General Corporation Law. We have also entered into agreements with
our directors and officers that will require us, among other things, to
indemnify them against liabilities that may arise by reason of their status or
service as directors or officers to the fullest extent permitted by law.

The Underwriting Agreement (Exhibit 1.1) provides for indemnification by
ourselves, our underwriters and our directors and officers of the underwriters,
for certain liabilities, including liabilities arising under the Securities Act,
and affords rights of contribution with respect thereto.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

From January 31, 1997 through the date of this Registration Statement,
the registrant has issued and sold the following securities:

(a) From May 1997 through June 1998 the registrant issued and sold an
aggregate of 5,717,305 shares of Series B preferred stock to 28 purchasers. The
aggregate consideration for the issuance of the shares was $9,719,419.

(b) Between February and May 1999 the registrant issued and sold an
aggregate of 6,000,000 shares of Series C preferred stock to 7 purchasers. The
aggregate consideration for the issuance of the shares was $18,000,000.

(c) In April and May 1999, the registrant issued and sold 11,500,000
shares of common stock to three of its executives pursuant to restricted stock
purchase agreements. The aggregate consideration for the issuance of the shares
was $3,727,500.

II-1

(d) Between December 1999 and March 2000, the registrant issued and sold
an aggregate of 10,006,950 shares of Series D preferred stock to 111 purchasers.
The aggregate consideration for the issuance of the shares consisted of
$765,559,500 in cash, $234,135,500 in securities of other public and private
companies and $1,000,000 in other forms of non-cash consideration.

(e) In January 2000, the registrant issued and sold 663,917 shares of our
common stock to seven purchasers in exchange for 2,213,065 shares of
Firstlook.com, Inc. common stock.

(f) In February 2000, the registrant issued and sold 1,730,000 shares of
common stock to one purchaser in exchange for certain intellectual property
assets associated with Metasearch.com.

(g) In March 2000, the registrant issued and sold 200,000 shares of
common stock to one purchaser in exchange for certain intellectual property
assets associated with Big.com.

(h) In March 2000, the registrant issued and sold 365,846 shares of
common stock to 22 purchasers in exchange for 483,000 shares of HomePage.com,
Inc. common stock.

(i) As of January 31, 2000, an aggregate of 131,127,250 shares of common
stock had been issued upon exercise of options under the registrant's 1996 Stock
Plan and 20,127,500 shares of common stock had been issued upon exercise of
options under the registrant's 1999 Employee Stock Plan.

The issuances of the securities described in (a)-(h) above were deemed to
be exempt from registration under the Securities Act of 1933, as amended, in
reliance on Regulation D under the Securities Act and/or Section 4(2) of the
Securities Act as transactions by an issuer not involving any public offering.
The issuances of the securities described in (i) above were deemed to be exempt
from registration under the Securities Act in reliance on Rule 701 under the
Securities Act as transactions by an issuer in compensatory circumstances. All
of the securities were acquired by the recipients for investment and with no
view toward the resale or distribution thereof. In each instance, the recipients
were sophisticated investors or employees of ours, the offer and sales were made
without any public solicitation and the stock certificates bear restrictive
legends. No underwriter was involved in the transactions and no commissions were
paid. All recipients had adequate access, through their relationships with the
registrant, to information about the registrant.

II-2

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

EXHIBIT
NO. DESCRIPTION
- ------------ -----------------------------------------------------------------------------------------------

1.1* Form of Underwriting Agreement
3.1* Form of Articles of Incorporation of registrant
3.2* Form of Bylaws of registrant
4.1* Specimen common stock certificate
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
10.1 1996 Stock Plan
10.2 1999 Employee Stock Plan
10.3 1999 Executive Stock Plan
10.4 Restricted Stock Purchase Agreement dated as of April 19, 1999 by and between Lawrence Gross
and the registrant
10.5 Stock Option Agreement dated as of January 1, 1999 by and between Robert Kavner and the
registrant
10.6 Stock Option Agreement dated as of January 1, 1999 by and between Howard Morgan and the
registrant
10.7 Promissory Note dated March 10, 2000 by and between Bill Gross
and the registrant
10.8 Security Agreement dated March 10, 2000 by and between Bill Gross
and the registrant
10.9 Investor Rights Agreement dated January 28, 2000 among registrant and purchasers of
registrant's Series D preferred stock
10.10 First Amendment to Lease dated August 7, 1997 by and between Typecraft, Inc. and registrant
for premises located at 130 and 132 W. Union Street in Pasadena, CA
10.11 Lease dated March 3, 1997 by and between Typecraft, Inc. and registrant for premises located
at 130 and 132 W. Union Street in Pasadena, CA
10.12 Lease dated January 24, 1998 by and between Typecraft, Inc. and registrant for premises
located at 140 W. Union Street in Pasadena, CA
10.13 First Amendment to Lease Abstract for premises located at 2nd, 3rd and 8th floors of 74 N.
Pasadena Avenue in Pasadena, CA
10.14 Sub-Sublease Agreement dated as of September 15, 1999 by and between Countrywide Home Loans,
Inc. and registrant for premises located at 55 South Lake Avenue in Pasadena, CA
10.15 Lease Agreement dated June 17, 1999 by and between Parsons Information & Technology Group
Inc. and registrant for premises located at 74 North Pasadena Avenue in Pasadena, CA
10.16 Assignment and Assumption of Lease Agreement dated as of January 7, 2000 by and between
Tellme Networks, Inc. and registrant for premises located at 380 Portage Avenue in Palo Alto,
CA
10.17 Sublease Agreement dated December 23, 1999 by and between 675 Ownership LLC and registrant
for premises located at 675 Sixth Avenue, New York, NY
10.18 Office Building Lease by and between Eastwest Property Fund, L.P., as Landlord and registrant
as Tenant
21.1 List of subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of PricewaterhouseCoopers LLP
23.4 Consent of PricewaterhouseCoopers LLP
23.5 Consent of PricewaterhouseCoopers LLP
23.6 Consent of PricewaterhouseCoopers LLP
23.7 Consent of PricewaterhouseCoopers LLP
23.8* Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in
Exhibit 5.1)
23.9 Consent of Ernst & Young LLP
23.10 Consent of Ernst & Young LLP

II-3

24.1 Power of Attorney (included on page II-5)
27.1 Financial data schedule
- --------
*To be filed by amendment.

(b) Financial Statement Schedules

Schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the financial statements or notes
thereto.

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification by the Registrant for liabilities arising
under the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by a director,
officer or controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.

II-4

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PASADENA,
STATE OF CALIFORNIA, ON THE 17TH DAY OF APRIL, 2000.

IDEALAB!

By: /s/ BILL GROSS
-------------------------------------
Bill Gross
CHIEF EXECUTIVE OFFICER

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints, jointly and severally, Bill Gross
and Bradley Ramberg, each of them acting individually, as his or her
attorney-in-fact, each with full power of substitution, for him or her any and
all capacities, to sign any and all amendments (including, without limitation,
post-effective Amendments and any amendments or abbreviated registration
statements increasing the amount of securities for which registration is being
sought) to this Registration Statement, with all exhibits and any and all
documents required to be filed with respect thereto, with the Securities and
Exchange Commission or any regulatory authority, granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
order to effectuate the same as fully to all intents and purposes as he or she
might or could do if personally present, hereby ratifying and confirming all
that such attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED BELOW.

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

/s/ BILL GROSS Chief Executive Officer and Director(Principal April 17, 2000
- ------------------------------- Executive Officer)
Bill Gross

/s/ BRADLEY RAMBERG Vice President and Chief Financial Officer April 17, 2000
- ------------------------------- (Principal Financial and Accounting Officer)
Bradley Ramberg

/s/ MARCIA GOODSTEIN Director April 17, 2000
- -------------------------------
Marcia Goodstein

/s/ LAWRENCE GROSS Director April 17, 2000
- -------------------------------
Lawrence Gross

/s/ ROBERT M. KAVNER Director April 17, 2000
- -------------------------------
Robert M. Kavner

/s/ HOWARD MORGAN Director April 17, 2000
- -------------------------------
Howard Morgan

/s/ BENJAMIN M. ROSEN Director April 17, 2000
- -------------------------------
Benjamin M. Rosen

/s/ JOHN F. WELCH, JR. Director April 17, 2000
- -------------------------------
John F. Welch, Jr.

II-5

EXHIBIT INDEX

EXHIBIT
NO. DESCRIPTION
- ------------ -----------------------------------------------------------------------------------------------

1.1* Form of Underwriting Agreement
3.1* Form of Articles of Incorporation of registrant
3.2* Form of Bylaws of registrant
4.1* Specimen common stock certificate
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
10.1 1996 Stock Plan
10.2 1999 Employee Stock Plan
10.3 1999 Executive Stock Plan
10.4 Restricted Stock Purchase Agreement dated as of April 19, 1999 by and between Lawrence Gross
and the registrant
10.5 Stock Option Agreement dated as of January 1, 1999 by and between Robert Kavner and the
registrant
10.6 Stock Option Agreement dated as of January 1, 1999 by and between Howard Morgan and the
registrant
10.7 Promissory Note dated March 10, 2000 by and between Bill Gross and the registrant
10.8 Security Agreement dated March 10, 2000 by and between Bill Gross and the registrant
10.9 Investor Rights Agreement dated January 28, 2000 among registrant and purchasers of
registrant's Series D preferred stock
10.10 First Amendment to Lease dated August 7, 1997 by and between Typecraft, Inc. and registrant
for premises located at 130 and 132 W. Union Street in Pasadena, CA
10.11 Lease dated March 3, 1997 by and between Typecraft, Inc. and registrant for premises located
at 130 and 132 W. Union Street in Pasadena, CA
10.12 Lease dated January 24, 1998 by and between Typecraft, Inc. and registrant for premises
located at 140 W. Union Street in Pasadena, CA
10.13 First Amendment to Lease Abstract for premises located at 2nd, 3rd and 8th floors of 74 N.
Pasadena Avenue in Pasadena, CA
10.14 Sub-Sublease Agreement dated as of September 15, 1999 by and between Countrywide Home Loans,
Inc. and registrant for premises located at 55 South Lake Avenue in Pasadena, CA
10.15 Lease Agreement dated June 17, 1999 by and between Parsons Information & Technology Group
Inc. and registrant for premises located at 74 North Pasadena Avenue in Pasadena, CA
10.16 Assignment and Assumption of Lease Agreement dated as of January 7, 2000 by and between
Tellme Networks, Inc. and registrant for premises located at 380 Portage Avenue in Palo Alto,
CA
10.17 Sublease Agreement dated December 23, 1999 by and between 675 Ownership LLC and registrant
for premises located at 675 Sixth Avenue, New York, NY
10.18 Office Building Lease by and between Eastwest Property Fund, L.P., as Landlord and registrant
as Tenant
21.1 List of subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of PricewaterhouseCoopers LLP
23.4 Consent of PricewaterhouseCoopers LLP
23.5 Consent of PricewaterhouseCoopers LLP
23.6 Consent of PricewaterhouseCoopers LLP
23.7 Consent of PricewaterhouseCoopers LLP
23.8* Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in
Exhibit 5.1)
23.9 Consent of Ernst & Young LLP
23.10 Consent of Ernst & Young LLP

24.1 Power of Attorney (included on page II-5)
27.1 Financial data schedule
- --------
*To be filed by amendment.