Online shopping has established itself as a large and rapidly growing channel for consumers and merchants to buy and sell goods and services. According to Jupiter Research in October 2003, the U.S. online buyer population, which consisted of 49 million individuals in 2000, grew to an estimated 97 million in 2003, and is expected to grow to more than 150 million in 2008. The value of U.S. online retail sales, which was $42 billion in 2000, grew to an estimated $96 billion in 2003, and is expected to grow to $230 billion in 2008, or 10% of all U.S. retail sales, according to Forrester Research. Researching products online has become the most popular online activity after email and search, with 62% of online users surveyed using the Internet to research purchases, as reported by Jupiter Research in June 2003. Jupiter also estimated in October 2003 that 15% of all U.S. retail sales were influenced by online research in 2003, and that this figure will grow to 29% by 2008.

Consumers with broadband connections are at least 50% more likely to complete an online purchase than those with narrowband connections, according to comScore Networks research. Jupiter Research estimated in January 2003 that U.S. households with broadband connections will increase from 22 million in 2003 to 46 million in 2008.

Consumers can search or browse to find items on the Company’s service. The Company prominently displays a search box at the top of every webpage. To search, consumers simply type in product names or a combination. Consumers can also browse through the Company’s product catalog by clicking on one of the Company’s 18 top-level product and service categories and following through to one or more of the Company’s 500 specific subcategories.

Consumers use the Company’s website’s Product Finder functionality to narrow down product choices by the specific criteria that match their needs. The Product Finder enables narrowing by price range, brand and various category-specific attributes such as comparing strollers by weight, comparing digital cameras by megapixel resolution and comparing video games by platform.

The Epinions community is comprised of consumers who have chosen to become members of the Company’s website and share their shopping experiences in the form of product and store reviews.

To assist in store selection, shoppers can access the Company’s consumer-generated store ratings. Stores are rated on overall satisfaction, on-time delivery and customer service levels. Each store rating also includes a description of that reviewer’s shopping experience with the merchant and indicates whether or not the reviewer would buy from the store again.

The Company’s technologies for merchant enrollment, product submission, pricing and results tracking, coupled with the Company’s customer service program, make it easy for merchants to advertise their products on the Company’s website.

The Company sets minimum prices-per-lead referral by category and subcategory, which currently range from $0.05 to $0.30 per lead referral. Merchants may choose to increase the amount they are willing to pay in order to heighten the prominence of their listings. The Company allows merchants to set the maximum cost-per-lead referral they are willing to pay in a subcategory, yet pay no more than $0.01 over the bid of the next highest merchant in that subcategory. At any time, merchants can change their cost-per-lead referral on the Company’s Merchant Center , with changes taking effect within minutes.

Banner and sponsorship advertising revenues increased from $1.0 million in 2001 to $2.0 million in 2002 and $4.5 million in 2003, but have decreased as a percentage of total revenues from 7.6% in 2001 to 6.9% in 2002 and to 6.7% in 2003.

Revenues from international operations were approximately $1.3 million, or 10.2% of total revenues, in 2001, $2.6 million, or 8.8% of total revenues, in 2002, and $7.4 million, or 11.0% of total revenues, in 2003.

Cost of revenues was $6.4 million in 2001, $3.7 million in 2002 and $3.3 million in 2003.