<PAGE>


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

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

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

                                    FORM 10-Q


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

     For the quarterly period ended March 31, 2002

                                       OR

[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934


                         Commission File Number: 0-23137

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

                                 AVENUE A, INC.
             (Exact name of registrant as specified in its charter)


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


       Washington                                        91-1819567
(State of Incorporation)                 (I.R.S. Employer Identification Number)


                          506 Second Avenue, 9th Floor
                            Seattle, Washington 98104
                    (Address of principal executive offices)


                                 (206) 816-8800
              (Registrant's telephone number, including area code)


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


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

     The number of shares of the registrant's Common Stock outstanding as of
April 23, 2002 was 58,601,900.

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

<PAGE>

                                 AVENUE A, INC.

                                    FORM 10-Q

                      FOR THE QUARTER ENDED MARCH 31, 2002

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
                          PART I. FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Financial Statements .....................    3

Item 2.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations .....................................   11

Item 3.  Quantitative and Qualitative Disclosures About Market Risk ......   26

                           PART II. OTHER INFORMATION

Item 1.  Legal Proceedings ...............................................   26

Item 2.  Changes in Securities and Use of Proceeds .......................   27

Item 6.  Exhibits and Reports on Form 8-K ................................   28

<PAGE>

                                 AVENUE A, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                     (in thousands except per share amounts)

<TABLE>
<CAPTION>
                                                                       March 31,   December 31,
                                                                         2002          2001
                                                                      -----------  ------------
                                                                      (unaudited)
<S>                                                                   <C>          <C>
                               Assets

Current assets:
   Cash and cash equivalents .......................................   $  29,040    $  30,821
   Short-term investments ..........................................      84,601       86,933
   Accounts receivable, net of allowance of $1,234 at March 31, 2002
    and December 31, 2001, respectively ............................      14,408       16,127
   Other receivables ...............................................         998        1,369
   Prepaid expenses and other current assets .......................         991          242
                                                                       ---------    ---------
Total current assets ...............................................     130,038      135,492

Property and equipment, net ........................................       5,576        6,664
Other assets .......................................................       1,069        1,325
Intangible assets, net .............................................        --          1,330
                                                                       ---------    ---------
Total assets .......................................................   $ 136,683    $ 144,811
                                                                       =========    =========

                 Liabilities and Shareholders' Equity

Current liabilities:
   Accounts payable ................................................   $  14,523    $  16,769
   Accrued expenses ................................................       6,830        8,679
   Notes payable, current portion ..................................       2,000        2,000
   Deferred revenue ................................................         459          488
                                                                       ---------    ---------
Total current liabilities ..........................................      23,812       27,936

Notes payable, less current portion ................................       1,056        1,555
                                                                       ---------    ---------
Total liabilities ..................................................      24,868       29,491
                                                                       ---------    ---------

Shareholders' equity:
   Common stock, $0.01 par value; 200,000 shares authorized; 58,523
    and 58,413 shares issued and outstanding at March 31, 2002 and
    December 31, 2001, respectively ................................         585          584
   Paid-in capital .................................................     216,934      216,884
   Deferred stock compensation .....................................      (3,212)      (4,063)
   Subscription receivable .........................................        (481)        (548)
   Accumulated deficit .............................................    (101,955)     (98,173)
   Accumulated other comprehensive (loss) income ...................         (56)         636
                                                                       ---------    ---------
Total shareholders' equity .........................................     111,815      115,320
                                                                       ---------    ---------
Total liabilities and shareholders' equity .........................   $ 136,683    $ 144,811
                                                                       =========    =========
</TABLE>

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


                                       3

<PAGE>

                                 AVENUE A, INC.
     CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                     (in thousands except per share amounts)
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                                      Quarter Ended
                                                                                         March 31,
                                                                                   --------------------
                                                                                     2002        2001
                                                                                   --------    --------

<S>                                                                                <C>         <C>
Revenue ........................................................................   $ 23,534    $ 24,172
Expenses:
  Cost of revenue ..............................................................     16,719      18,491
  Client support (excluding amortization of deferred stock compensation of
    $422 and $1,860, respectively) .............................................      3,338       4,270
  Product development (excluding amortization of deferred stock
    compensation of $202 and $1,248, respectively) .............................      1,732       3,507
  Selling, general, and administrative (excluding amortization of deferred
    stock compensation of $148 and $728, respectively) .........................      3,627       6,027
  Depreciation and amortization of property and equipment ......................      1,161       1,462
  Amortization of deferred stock compensation ..................................        772       3,836
  Amortization of intangible assets ............................................       --           502
  Corporate restructuring charges ..............................................       --         1,500
                                                                                   --------    --------

    Total expenses .............................................................     27,349      39,595
                                                                                   --------    --------

Loss from operations ...........................................................     (3,815)    (15,423)

Interest income, net ...........................................................      1,249       1,943
                                                                                   --------    --------

Net loss before cumulative effect of change in accounting principle ............     (2,566)    (13,480)

Cumulative effect of change in accounting principle ............................     (1,330)       --
                                                                                   --------    --------

Net loss .......................................................................   $ (3,896)   $(13,480)
                                                                                   ========    ========

Basic and diluted net loss per share before change in accounting principle .....   $  (0.04)   $  (0.24)

Cumulative effect of change in accounting principle ............................      (0.02)       --
                                                                                   --------    --------

Basic and diluted net loss per share ...........................................   $  (0.06)   $  (0.24)
                                                                                   ========    ========

Shares used in computing basic and diluted net loss per share ..................     58,130      56,728
                                                                                   ========    ========
Comprehensive loss:
  Net loss .....................................................................   $ (3,896)   $(13,480)
  Items of comprehensive income (loss) .........................................       (692)        320
                                                                                   --------    --------
    Comprehensive loss .........................................................   $ (4,588)   $(13,160)
                                                                                   ========    ========
</TABLE>

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


                                       4

<PAGE>

                                 AVENUE A, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                            Three Months Ended
                                                                                 March 31,
                                                                           ---------------------
                                                                             2002        2001
                                                                           ---------   ---------
<S>                                                                        <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss ............................................................   $ (3,896)   $(13,480)
      Adjustments to reconcile net loss to net cash used
       in operating activities:
         Depreciation and amortization .................................      1,933       5,800
         Impairment of intangible assets ...............................      1,330        --
         Non-cash compensation .........................................         67        --
         Changes in assets and liabilities:
            Accounts receivable ........................................      1,718      19,253
            Other receivables, prepaid expenses and other current assets       (377)       (120)
            Other assets ...............................................        262         263
            Accounts payable ...........................................     (2,246)    (22,714)
            Accrued expenses ...........................................     (1,848)      1,997
            Deferred revenue ...........................................        (30)       (252)
                                                                           --------    --------
         Net cash used in operating activities .........................     (3,087)     (9,253)
                                                                           --------    --------


CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property and equipment .................................        (78)       (562)
   Sales of marketable securities, net .................................      1,753      15,978
                                                                           --------    --------
         Net cash provided by investing activities .....................      1,675      15,416
                                                                           --------    --------


CASH FLOWS FROM FINANCING ACTIVITIES:
   Payment of notes payable ............................................       (500)       (500)
   Proceeds from issuance of common stock and exercises of
    common stock options, net ..........................................        131         337
                                                                           --------    --------
                  Net cash used in financing activities ................       (369)       (163)
                                                                           --------    --------

Net (decrease) increase in cash and cash equivalents ...................     (1,781)      6,000
Cash and cash equivalents, beginning of period .........................     30,821      38,888
                                                                           --------    --------
Cash and cash equivalents, end of period ...............................   $ 29,040    $ 44,888
                                                                           ========    ========
</TABLE>

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


                                       5

<PAGE>

                                 AVENUE A, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2002
                (in thousands except share and per share amounts)
                                   (unaudited)

1.   Organization and Operations of the Company

     Avenue A, Inc. (the Company) and its subsidiaries, including Avenue A/NYC
LLC, provides digital marketing services and technology to businesses. The
Company was founded on July 1, 1997 and incorporated on February 27, 1998 in
Washington State. The Company's headquarters are located in Seattle.

     In 2000, the Company commenced international operations and opened offices
in Europe. As part of restructuring programs initiated during January 2001 and
May 2001, the Company terminated employees in international offices and
substantially completed the closure of international offices as of December 31,
2001.

     Effective January 1, 2001, the Company established two operating divisions:
Avenue A and Atlas DMT. Avenue A is an interactive advertising agency that
provides clients with a service and technology offering that includes web
advertising, email services, strategic portal relationships, affiliate programs,
customer targeting, analytical services, and search engine optimization. Atlas
DMT provides the Atlas Digital Marketing Suite, a digital marketing management
system, to traditional and interactive agencies, as well as in-house media
buyers.

     The Company is subject to a number of risks similar to other companies in a
comparable stage of development including the need for continued growth of the
Internet advertising market, reliance on key personnel, competition from other
companies with greater financial, technical and marketing resources, and the
risks relating to the ability to secure adequate financing.

2.   Summary of Significant Accounting Policies

     Basis of Presentation: The accompanying unaudited condensed consolidated
financial statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.

     These statements reflect all adjustments, consisting only of normal,
recurring adjustments that, in the opinion of the Company's management, are
necessary for a fair presentation of the results of operations for the periods
presented. Operating results for the quarter ended March 31, 2002 are not
necessarily indicative of the results that may be expected for any subsequent
quarter or for the year ending December 31, 2002. Certain information and
footnote disclosures normally included in financial statements prepared in
conformity with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC).

     These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes
included in the Company's audited financial statements and the accompanying
notes for the years ended December 31, 2001, 2000, and 1999, as included in the
Company's Annual Report on Form 10-K filed with the SEC.

     Reclassifications: Certain prior year amounts have been reclassified to
conform to the current year presentation.


                                       6

<PAGE>

                                 AVENUE A, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2002
                (in thousands except share and per share amounts)
                                   (unaudited)

     Revenue Recognition: The Company generates revenue by providing
technology-based Internet advertising services to businesses. The Company's core
services include media planning and buying, ad serving, campaign analysis,
optimization and data collection and aggregation. The Company also generates
revenue through the Strategic Partnership Program which manages longer term
exclusive or complex partnerships between the Company's clients and Web sites or
advertising networks; the Customer Insight Group which develops and maintains an
evolving suite of proprietary analytical tools, fed by Avenue A data, that lend
insight into how customers and prospective customers are likely to behave in the
future; LifeCycle E-mail Service which delivers targeted emails to specific
customer segments; and the Customer Targeting Program which delivers tailored
advertisements to the browsers of users which have previously visited clients'
Web sites.

     The Company follows Staff Accounting Bulletin 101, "Revenue Recognition in
Financial Statements." This pronouncement summarizes certain of the SEC staff's
views in applying generally accepted accounting principles to revenue
recognition and was effective for the quarter ended December 31, 2000. In
addition, the Company follows the final consensus reached by the Emerging Issues
Task Force (EITF) in July 2000 on EITF 99-19 "Reporting Revenue Gross as a
Principal versus Net as an Agent."

     In accordance with EITF 99-19, the majority of the Company's revenue is
recognized under the gross method, which consists of the gross value of the
Company's billings to the Company's clients and includes the price of the
advertising space that the Company purchases from Web sites to resell to its
clients. To generate revenue under gross method contracts, the Company purchases
advertising space from publisher Web sites and sells the purchased space to the
Company's clients and is ultimately responsible for payment to Web sites for the
cost of space the Company purchases. The Company also recognizes revenue for
certain contracts under the net method. To generate revenue under net method
contracts, the Company buys advertising space from publisher Web sites on behalf
of its clients and earns fees based on the dollar amount of advertising space
the Company purchases. Under net method contracts, the Company's client that is
party to the contract is ultimately responsible for payment to the publisher Web
sites for the cost of the advertising space purchased. All such revenue is
recognized over the period that the related advertising is delivered, which
includes the Company's core services, the Strategic Partnership Program, and
Customer Targeting. The LifeCycle E-mail and Search Engine Optimization Programs
are volume based, and revenue is generally recognized when impressions are
delivered. Vital Signs is a monthly subscription-based service, and revenue is
recognized for each month that the subscription is provided. Revenue is
generally recognized for our Customer Insight services under the percentage of
completion method of accounting. It is the Company's policy to recognize any
loss on services as soon as management estimates indicate a loss will occur
consistent with the guidance in Statement of Position (SOP) 81-1 "Accounting for
Performance of Construction-Type and Certain Production-Type Contracts." In
addition, the Company recognizes revenue for the Atlas Digital Marketing Suite
based on usage of the system. Revenue recognized under gross and net method
contracts for the three months ended March 31, 2002 and March 31, 2001 are as
follows:

                                                   Three Months Ended
                                                        March 31,
                                                  ---------------------
                                                    2002         2001
                                                  --------     --------

          Gross revenue ........................   $20,384      $23,201
          Net revenue ..........................     3,150          971
                                                   -------      -------
          Total revenue ........................   $23,534      $24,172
                                                   =======      =======

                                       7

<PAGE>

                                 AVENUE A, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2002
                (in thousands except share and per share amounts)
                                   (unaudited)

     Revenue is deferred in cases where the Company has not yet earned
advertising revenue due to billing the customer or receiving payment from the
customer prior to providing the services. Revenue is recognized only when
collection of the resulting receivable is reasonably assured.

     Revenue also includes any reimbursements received from our clients related
to expenses incurred by our employees in servicing our clients. Such expenses
include airfare, mileage, meals and hotel stays.

     Computation of Basic and Diluted Net Loss Per Share: Historical net loss
per share has been calculated under Statement of Financial Accounting Standards
(SFAS) No. 128 "Earnings per Share." Basic net loss per share on a historical
basis is computed using the weighted average number of shares of common stock
outstanding. Unvested outstanding shares subject to repurchase rights are
excluded from the calculation. No diluted loss per share information has been
presented in the accompanying consolidated statements of operations since
potential common shares issued upon exercise of common stock options and
warrants are antidilutive.

     Intangible Assets: In June 2001, the Financial Accounting Standards Board
(FASB) issued SFAS No. 142, "Goodwill and Other Intangible Assets," which
provides accounting and reporting standards for acquired intangible assets.
Under SFAS No. 142, goodwill and other intangible assets with indefinite useful
lives are no longer amortized but tested for impairment at least annually. The
Company adopted SFAS No. 142 on January 1, 2002 and completed a transitional
impairment test for the intangible assets recorded in connection with the
purchase of Avenue A/NYC LLC during September 1999. As a result, the Company
recorded an impairment charge of $1.3 million that has been recognized as a
cumulative effect of a change in accounting principle in the accompanying
condensed consolidated financial statements.

     Recent Accounting Pronouncements: In June 2001, the FASB issued SFAS No.
143, "Accounting for Asset Retirement Obligations," which addresses financial
accounting and reporting for legal obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. SFAS No.
143 is effective for fiscal years beginning after June 15, 2002. The Company is
in the process of evaluating the financial statement impact of adoption of SFAS
No. 143.

3.   Earnings Per Share

     The following is a reconciliation of the numerators and denominators used
in computing basic and diluted earnings per share:

<TABLE>
<CAPTION>
                                                                  Three Months Ended
                                                                       March 31,
                                                             ----------------------------
                                                                 2002            2001
                                                             ------------    ------------
<S>                                                           <C>            <C>
Net Loss (numerator for basic and diluted): ..............   $     (3,896)   $    (13,480)
                                                             ============    ============
Shares (denominator for basic and diluted):
   Gross weighted average common shares outstanding ......     58,477,767      58,110,482
      Less:
      Weighted average common shares subject to
         repurchase ......................................        347,891       1,382,384
                                                             ------------    ------------
Shares used in computation ...............................     58,129,876      56,728,098
                                                             ============    ============
Basic and diluted net loss per share .....................   $       (.06)   $       (.24)
                                                             ============    ============
</TABLE>



                                       8

<PAGE>

                                 AVENUE A, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2002
                (in thousands except share and per share amounts)
                                   (unaudited)

4.   Segment Reporting

     In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" (SFAS 131). SFAS 131 requires companies
to report selected segment information in interim financial reports to
shareholders.

     The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The segment information provided
reflects the two distinct business models of the Company's organizational
structure established on January 1, 2001: Avenue A and Atlas DMT.

     During the quarter ended March 31, 2002, segment income (loss) from
operations includes an allocation of a portion of the Company's corporate
expenses and excludes amortization expenses as it is centrally managed at the
corporate level and not reviewed by the Company's chief operating decision
maker. During the quarter ended March 31, 2001, segment income (loss) from
operations has no allocation of the Company's corporate expenses and excludes
amortization expenses and corporate restructuring charges as these items are
centrally managed at the corporate level and not reviewed by the Company's chief
operating decision maker.

     Reconciling items include the elimination of intersegment revenue, as Atlas
DMT provides the Atlas Digital Marketing Suite to Avenue A, and corporate
expense and other non-recurring items not allocated to segments. Segment
information for the quarter ended March 31, 2002 and 2001 is as follows:


                                              Three Months Ended
                                                    March 31,
                                             --------------------
                                               2002        2001
                                             --------    --------
Revenue:
   Avenue A ..............................   $ 23,478    $ 24,172
   Atlas DMT .............................      2,695       3,554
   Intersegment eliminations .............     (2,639)     (3,554)
                                             --------    --------
     Total revenue .......................   $ 23,534    $ 24,172
                                             ========    ========
Income (loss) from operations:
   Avenue A ..............................   $    414    $ (2,043)
   Atlas DMT .............................     (2,130)     (3,252)
   Reconciling amounts ...................     (2,099)    (10,128)
                                             --------    --------
     Total income (loss) from operations..   $ (3,815)   $(15,423)
                                             ========    ========

     The Company had no significant sales to international customers.

     Pursuant to SFAS 131, total segment assets have not been disclosed as this
information is not reported to or used by the chief operating decision maker.
Additionally, substantially all of the Company's assets are located in the
United States as of March 31, 2002.


                                       9

<PAGE>

                                 AVENUE A, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2002
                (in thousands except share and per share amounts)
                                   (unaudited)

5.   Corporate Restructuring Charges

     During January 2001, the Company initiated a cost reduction program that
resulted in the termination of approximately 70 employees. The Company
recognized restructuring charges of $1,500, which included $1,100 relating to
employee severance and benefits for terminated employees, all of which has been
paid as of December 31, 2001, and $400 related to existing lease agreements for
office space that is no longer in use and other liabilities for which there is a
contractual obligation, of which $298 has been paid as of March 31, 2002. The
remaining amounts are included in the accrued liabilities in the accompanying
consolidated balance sheet.

     During May 2001, the Company initiated a cost reduction program that
resulted in the termination of approximately an additional 75 employees. The
Company recognized restructuring charges of $2,166, which included $1,877
relating to employee severance and benefits for terminated employees, of which
$1,829 had been paid as of December 31, 2001, and $114 related to existing lease
agreements for office space that is no longer in use and other liabilities for
which there is a contractual obligation, all of which has been paid as of
December 31, 2001. The remaining amounts are included in the accrued liabilities
in the accompanying consolidated balance sheet. The restructuring charge also
included the write-down to fair value of certain impaired fixed assets of $174
pursuant to SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of" (SFAS 121).

6.   Stock Repurchase Program

     In April 2002, the Company announced that its Board of Directors had
authorized a stock repurchase program, under which up to $15,000,000 of the
Company's common stock could be repurchased from time to time with available
funds. The primary purpose of the stock repurchase program is to allow the
Company the flexibility to repurchase its common stock to potentially reduce
stock dilution and seek to improve its long-term earnings per share. Repurchases
may be made in the open market or in privately negotiated transactions, subject
to regulatory considerations, and may be discontinued at any time. The number of
shares of common stock actually acquired, if any, by the Company will depend on
subsequent developments, corporate needs and market conditions.

7.   Legal Proceedings

     The Company is currently the subject of lawsuits concerning the collection
and use of Internet user information and a consolidated lawsuit alleging
violations of the federal securities laws in connection with disclosures
contained in the Company's prospectus dated February 28, 2000, for its initial
public offering of common stock. The Company believes all of these lawsuits are
without merit and is vigorously defending against them. The Company may be
subject to additional suits in the future regarding its collection and use of
Internet user information or regarding alleged violations of the federal
securities laws. Furthermore, several Internet-related companies, including some
in the Internet advertising industry, have had claims brought against them
before the Federal Trade Commission, regarding the collection and use of
Internet user information, and the Company may be subject to similar claims. The
pending class action lawsuits could seriously harm the Company's business. In
addition, any future claim by a government entity or other third party against
the Company regarding its collection and use of Internet user information or
regarding alleged violations of the federal securities laws could seriously harm
the Company's business.


                                       10

<PAGE>

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

     The following discussion and analysis should be read in conjunction with
the financial statements and related notes thereto included elsewhere in this
quarterly report on Form 10-Q. The discussion in this report contains
forward-looking statements that involve risks and uncertainties, such as our
objectives, expectations and intentions. Our actual results could differ
materially from results that may be anticipated by such forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed in the section entitled "Additional
Factors that May Affect Our Business, Future Operating Results and Financial
Condition", included elsewhere in this report. When used in this document, the
words "believes," "expects," "anticipates," "intends," "plans" and similar
expressions, are intended to identify certain of these forward-looking
statements. However, these words are not the exclusive means of identifying such
statements. In addition, any statements that refer to expectations, projections
or other characterizations of future events or circumstances are forward-looking
statements. The cautionary statements made in this document should be read as
being applicable to all related forward-looking statements wherever they appear
in this document. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this report. We
undertake no obligation to revise any forward-looking statements in order to
reflect events or circumstances that may subsequently arise. Readers are urged
to carefully review and consider the various disclosures made in this report and
in our other reports filed with the Securities and Exchange Commission that
attempt to advise interested parties of the risks and factors that may affect
our business, prospects and results of operations.

Overview

     We are a digital marketing services and technology company that helps
marketers acquire, retain, and grow customers across digital media. We are
organized into two operating units, Atlas DMT and Avenue A.

     Through our Atlas DMT operating unit, we provide our proprietary digital
marketing management system known as the Atlas Digital Market Suite. This system
provides large traditional advertising agencies, specialty interactive
advertising agencies, and large advertisers who buy media directly with the
ability to manage online media planning, buying, ad delivery and analysis.

     Avenue A is an interactive advertising agency that offers advertisers a
suite of services that enables those advertisers to increase the effectiveness
and return on investment of their Internet advertising campaigns. Our core
services include media planning and buying, ad serving, campaign analysis,
optimization and data collection and aggregation. We also generate revenue
through our Strategic Partnership Program, in which we manage longer term
exclusive or complex partnerships between our clients and Web sites or
advertising networks, our Customer Targeting Program, in which we deliver
tailored advertisements to the browsers of users that have previously visited
our clients' Web sites, our LifeCycle E-mail Program, in which we deliver
targeted emails to specific customer segments, our Customer Insight Group, in
which we develop and maintain an evolving suite of proprietary analytical tools,
fed by Avenue A data, that lend insight into how customers and prospective
customers are likely to behave in the future, Search Engine Optimization, which
enables our clients to improve their rankings on Internet search engines, and
Vital Signs, which provides our clients with the ability to gain insight on how
their customers interact with the client's Web site and respond to their
marketing initiatives.

     We believe that our operating results will continue to be subject to
seasonal fluctuations because retail advertisers generally purchase
substantially more advertising space during the fourth calendar quarter of each
year than during other quarters, particularly the first calendar quarter.

     Additionally, we believe that the overall advertising market, including
online advertising, will continue to be depressed this year. While there are
some indications of an improving advertising market later in the year, it does
not appear that an improvement, if any, will be significant.


                                       11

<PAGE>

Critical Accounting Policies

     Our critical accounting policies are as follows:

     .    Recognizing revenue under gross and net method contracts;

     .    Capitalizing software for internal use;

     .    Recording stock-based compensation charges; and

     .    Recording impairment charges under Statement of Financial Accounting
          Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets."

     The majority of our revenue in 2002 and 2001 has been recognized on a gross
basis in accordance with the final consensus reached by the Emerging Issues Task
Force (EITF) in July 2000 on EITF 99-19 "Reporting Revenue Gross as a Principal
versus Net as an Agent." Revenue generated under gross method contracts, which
consists of the gross value of our billings to our clients, includes the price
of the advertising space that we purchase from Web sites to resell to our
clients. To generate revenue under these contracts, we purchase advertising
space from publisher Web sites and sell the purchased space to our clients and
are ultimately responsible for payment to Web sites for the cost of space we
purchase. We also recognize revenue for certain contracts with clients under the
net method. To generate revenue under net method contracts, we buy advertising
space from publisher Web sites on behalf of our clients and earn fees based on
the dollar amount of advertising space we purchase. Under net method contracts,
our clients are ultimately responsible for payment to the publisher Web sites
for the cost of the advertising space purchased. All such revenue, including
revenue from our core services, the Strategic Partnership Program, and Customer
Targeting, is recognized over the period that the related advertising is
delivered. Our LifeCycle E-mail and Search Engine Optimization Programs are
volume based, and revenue is generally recognized when impressions are
delivered. Vital Signs is a monthly subscription based service, and revenue is
recognized for each month that the subscription is provided. Revenue is
generally recognized for our Customer Insight services under the
percentage-of-completion method of accounting. It is our policy to recognize any
loss on services as soon as management estimates indicate a loss will occur
consistent with the guidance in Statement of Position (SOP) 81-1 "Accounting for
Performance of Construction-Type and Certain Production-Type Contracts." In
addition, we recognize revenue for our Atlas Digital Marketing Suite based on
usage of the system.

     Revenue also includes any reimbursements received from our clients related
to expenses incurred by our employees in servicing our clients. Such expenses
include airfare, mileage, meals and hotel stays.

     We follow the provisions outlined in Statement of Position 98-1 "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use"
related to the treatment of software costs. In situations where our internal use
software is complete and a decision to market the software is subsequently made,
proceeds received from the license of such software, net of direct incremental
costs of marketing, would be applied against the carrying amount of the software
until the basis of the software has been reduced to zero. Subsequent proceeds
would be recognized as revenue when earned. Any subsequent development of
internal software would be subject to the provisions of SFAS No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed"
which requires capitalization of software development costs upon establishment
of technological feasibility of the product.

     In connection with the grant of certain stock options to employees and
consultants, we recorded stock-based compensation charges representing the
difference between the fair value of the common stock for accounting purposes
and the option exercise price of such options at the date of grant. Such amount
is presented as a reduction of shareholders' equity and amortized, in accordance
with Financial Accounting Standards Board Interpretation No. 28, on an
accelerated basis over the vesting period of the applicable options (generally
four years). Under this method, approximately 52% of the Deferred Stock
Compensation is recognized in the first 12 months, 27% in the second 12 months,
15% in the third 12 months and 6% in the fourth 12 months.


                                       12

<PAGE>


     In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 142, which provides accounting and reporting standards for acquired
intangible assets. Under SFAS No. 142, goodwill and other intangible assets with
indefinite useful lives are no longer amortized but tested for impairment at
least annually. We adopted SFAS No. 142 on January 1, 2002 and completed a
transitional impairment test for the intangible assets recorded in connection
with the purchase of Avenue A/NYC LLC in September 1999. As a result, we
recorded an impairment charge of $1.3 million that has been recognized as a
cumulative effect of a change in accounting principle.

Results of Operations

     The following table presents, in dollars and as a percentage of revenue,
statements of operations data for the three months ended March 31, 2002 and
March 31, 2001. The results of any period are not necessarily indicative of
results for any future period.

<TABLE>
<CAPTION>
                                                                            Three Months Ended March 31,
                                                                      ----------------------------------------
                                                                             2002                  2001
                                                                      ------------------    ------------------
                                                                       (in thousands except percentage amounts)
<S>                                                                   <C>         <C>       <C>         <C>
Revenue ...........................................................   $ 23,534    100.0%    $ 24,172    100.0%
Expenses:
  Cost of revenue .................................................     16,719     71.0%      18,491     76.5%
  Client support ..................................................      3,338     14.2%       4,270     17.7%
  Product development .............................................      1,732      7.4%       3,507     14.5%
  Selling, general and administrative .............................      3,627     15.4%       6,027     24.9%
  Depreciation and amortization of property and equipment .........      1,161      4.9%       1,462      6.0%
  Amortization of deferred stock compensation .....................        772      3.3%       3,836     15.9%
  Amortization of intangible assets ...............................       --       --  %         502      2.1%
  Corporate restructuring charges .................................       --       --  %       1,500      6.2%
                                                                      --------    -----     --------    -----
    Total expenses ................................................     27,349    116.2%      39,595    163.8%
                                                                      --------    -----     --------    -----
Loss from operations ..............................................     (3,815)   (16.2)%    (15,423)   (63.8)%
Interest income, net ..............................................      1,249      5.3%       1,943      8.0%
                                                                      --------    -----     --------    -----
Net loss before cumulative effect of change in accounting principle     (2,566)   (10.9)%    (13,480)   (55.8)%

Cumulative effect of change in accounting principle ...............     (1,330)    (5.6)%       --       --  %
                                                                      --------    -----     --------    -----
Net loss ..........................................................   $ (3,896)   (16.5)%   $(13,480)   (55.8)%
                                                                      ========    =====     ========    =====
</TABLE>

     Revenue. Revenue decreased to $23.5 million for the quarter ended March 31,
2002 from $24.2 million for the quarter ended March 31, 2001. The decrease in
total revenue was primarily due to the decrease in revenue from exclusively
Internet-based clients as many of these companies discontinued operations or
reduced advertising spending to conserve cash after the first quarter of 2001.
This decrease was partially offset by an increase in spending from select
clients during the first quarter of 2002.

     Cost of revenue. Cost of revenue consists mainly of the costs of
advertising space that we purchase from publishers' Web sites and the variable
costs of delivering the advertisements over the Internet. It also consists of
costs paid to third parties for email delivery and search engine optimization.
Cost of revenue decreased to $16.7 million, or 71% of revenue, for the quarter
ended March 31, 2002 from $18.5 million, or 76.5% of revenue, for the quarter
ended March 31, 2001. The dollar decrease in cost of revenue was primarily due
to decreases in the volume of advertising space we purchased. The percentage
decrease in cost of revenue was primarily due to an increase in revenue
generated under net method contracts and increased revenue contribution from
higher margin products.


                                       13

<PAGE>

     Client support. Client support expenses consist primarily of salaries and
related expenses for client support personnel. These include employees within
our Agency Client Service teams as well as employees who support other functions
such as the Strategic Partnership Program and Customer Insight Group. Client
support expenses also include client service employees within our Atlas DMT
division. Client support expenses decreased to $3.3 million, or 14.2% of
revenue, for the quarter ended March 31, 2002 from $4.3 million, or 17.7% of
revenue, for the quarter ended March 31, 2001. The decrease in client support
expenses was primarily due to the reductions in workforce completed during 2001
and decreases in rent and professional services expenses.

     Product development. Product development expenses consist of salaries and
related expenses for product development as well as research and development
personnel. In addition, product development expenses include the costs of
software development. Product development expenses decreased to $1.7 million, or
7.4% of revenue, for the quarter ended March 31 2002, from $3.5 million, or
14.5% of revenue, for the quarter ended March 31, 2001. The decrease in product
development expenses was primarily due to the reductions in workforce completed
during 2001 and reduction in expenses related to the development of the Atlas
Digital Marketing Suite, which we launched in 2001.

     Selling, general and administrative. Selling, general and administrative
expenses consist primarily of salaries and related expenses for executive,
sales, finance, marketing, human resource and administrative personnel and other
general corporate expenses including rent. In addition, these expenses include
marketing costs such as trade shows and the costs of advertising our services in
trade publications. Selling, general and administrative expenses decreased to
$3.6 million, or 15.4% of revenue, for the quarter ended March 31, 2002, from
$6.0 million, or 24.9% of revenue, for the quarter ended March 31, 2001. The
decrease in selling, general and administrative expenses was primarily due to a
decrease in personnel expenses as a result of the reductions in workforce
completed during 2001 and decreases in rent, marketing, and professional
services expenses.

     Depreciation and amortization of property and equipment. Depreciation and
amortization of property and equipment consists primarily of depreciation
expense on computer equipment, furniture and fixtures, and software costs and
amortization expense of leasehold improvements. Depreciation and amortization of
property and equipment decreased to $1.2 million, or 4.9% of revenue, for the
quarter ended March 31, 2002 from $1.5 million, or 6.0% of revenue, for the
quarter ended March 31, 2001. The decrease in depreciation and amortization of
property and equipment was primarily due to the decrease in fixed assets as a
result of the impairment that we recognized during 2001.

     Amortization of deferred stock compensation. Amortization of deferred stock
compensation consists of expenses related to employee stock option grants with
option exercise prices below the fair value of our common stock as of the date
of grant. Deferred stock compensation is being amortized on an accelerated basis
over the four-year vesting period of the applicable options. Amortization of
deferred stock compensation decreased to $772,000, or 3.3% of revenue, for the
quarter ended March 31, 2002 from $3.8 million, or 15.9% of revenue, for the
quarter ended March 31, 2001. The dollar decreases were primarily related to the
decrease in deferred stock compensation due to our use of the accelerated method
of amortization for our employee stock compensation arrangements plus the
reversal of balances of unamortized stock-based compensation as a result of
employee terminations.

     Amortization of intangible assets. Amortization of intangible assets
relates to the customer base and workforce assets recorded in connection with
the purchase of Avenue A/NYC LLC in September 1999. In June 2001, the FASB
issued SFAS No. 142, "Goodwill and Other Intangible Assets," which became
effective for us on January 1, 2002. As a result of SFAS No. 142, we no longer
amortize intangible assets related to the Avenue A/NYC LLC acquisition.

     Corporate restructuring charges. Corporate restructuring charges consist of
severance costs and other expenses associated with our cost reduction programs
completed during 2001.


                                       14

<PAGE>

     Interest income, net. Net interest income consists of earnings on our cash,
cash equivalents, and short-term investments. Net interest income decreased to
$1.2 million, or 5.3% of revenue, for the quarter ended March 31, 2002 from $1.9
million, or 8.0% of revenue, for the quarter ended March 31, 2001. The decrease
in net interest income was due to lower invested balances as a result of cash
used and lower returns on our invested funds.

Liquidity and Capital Resources

     Since our inception, we have financed our operations primarily through the
net proceeds from private sales of equity securities, which raised $30.4 million
through December 31, 1999, and our initial public offering of common stock,
which raised $132.5 million during the first quarter of 2000.

     As of March 31, 2002, we had cash and cash equivalents of $29.0 million and
short-term investments of $84.6 million. We have a $6.0 million equipment term
loan facility with a bank, of which $3.1 million is outstanding as of March 31,
2002.

     Net cash used in operating activities was $3.1 million and $9.3 million for
the three months ended March 31, 2002 and 2001, respectively.

     Net cash provided by investing activities was $1.7 million and $15.4
million for the three months ended March 31, 2002 and 2001, respectively. Net
cash provided by investing activities was primarily related to net proceeds from
the sale of marketable securities, offset by purchases of equipment.

     Net cash used in financing activities was $369,000 and $163,000 for the
three months ended March 31, 2002 and 2001, respectively. Net cash used in
financing activities was primarily related to payments on our equipment loan
offset by proceeds from sales of securities.

     As of March 31, 2002, we had no material commitments other than obligations
under operating leases for office space and office equipment, of which some
commitments extend through 2006, and a note payable to a bank, which requires
monthly payments through 2003. This note is secured by the equipment purchased
with the proceeds from the note.

     In April 2002, we announced that our Board of Directors had authorized a
stock repurchase program, under which up to $15,000,000 of our common stock
could be repurchased from time to time with available funds. The primary purpose
of the stock repurchase program is to allow us the flexibility to repurchase our
common stock to potentially reduce stock dilution and seek to improve our
long-term earnings per share. Repurchases may be made in the open market or in
privately negotiated transactions, subject to regulatory considerations, and may
be discontinued at any time. The number of shares of common stock actually
acquired, if any, by us will depend on subsequent developments, corporate needs
and market conditions.

     We currently anticipate that we will continue to experience some growth in
our operating expenses and that such expenses will be a material use of our cash
resources. We believe that our current cash, cash equivalents and short-term
investments will be sufficient to meet our anticipated cash needs for working
capital and capital expenditures for at least the next 12 months.

Recent Accounting Pronouncements

     In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which addresses financial accounting and reporting for
legal obligations associated with the retirement of tangible long-lived assets
and the associated asset retirement costs. SFAS No. 143 is effective for fiscal
years beginning after June 15, 2002. We are in the process of evaluating the
financial statement impact of adoption of SFAS No. 143.


                                       15

<PAGE>

Additional Factors That May Affect Our Business, Future Operating Results and
Financial Condition

     You should carefully consider the following factors that may affect our
business, future operating results and financial condition, as well as other
information included in this quarterly report on Form 10-Q. The risks and
uncertainties described below are not the only ones we face. Additional risks
and uncertainties not presently known to us or that we currently deem immaterial
also may impair our business operations. If any of the following risks actually
occur, our business, financial condition and operating results could be
materially adversely affected.

     We are subject to risks frequently encountered by companies in the Internet
     advertising market

     Our prospects for financial and operational success must be considered in
light of the risks frequently encountered by companies in the Internet
advertising industry. These risks include the need to:

     .    attract new clients and maintain current client relationships;

     .    achieve effective advertising campaign results for our clients;

     .    continue to develop and upgrade our technologies to keep pace with the
          growth of the Internet advertising market and changes in technology;

     .    continue to expand the number of services we offer;

     .    successfully implement our business model, which is evolving;

     .    maintain our reputation and build trust with our clients; and

     .    identify, attract, retain and motivate qualified personnel.

     If we do not successfully address these risks, our business could suffer.

     We have a history of losses and may not achieve profitability

     We incurred net losses of $98.8 million for the period from our inception
on July 1, 1997 through December 31, 2001, and a net loss of $3.9 million for
the three months ended March 31, 2002. As of March 31, 2002, our accumulated
deficit was $102.0 million. We expect to continue to make operating and capital
expenditures and, as a result, we will need to generate significant additional
revenue to achieve profitability. We cannot assure you that we will generate
sufficient revenue to achieve profitability. Even if we do achieve
profitability, we cannot assure you that we can sustain or increase
profitability on a quarterly or annual basis in the future. If our revenue grows
more slowly than we anticipate or declines, or if our operating expenses exceed
our expectations or cannot be reduced, we may be unable to achieve or maintain
profitability.

     Our quarterly operating results are subject to fluctuations that may cause
     our stock price to decline

     Our quarterly operating results have fluctuated in the past and are likely
to continue to do so in the future. It is possible that in the future our
operating results in a particular quarter or quarters will not meet the
expectations of securities analysts, investors or us. If our operating results
fail to meet these expectations, the market price of our common stock could
decline. We believe that quarter-to-quarter comparisons of our operating results
are not a good indication of our future performance and should not be relied
upon to predict the future performance of our stock price.


                                       16

<PAGE>

     Our revenue, expenses and operating results could vary significantly from
quarter to quarter for several reasons, including:

     .    fluctuating demand for our advertising services and technologies and
          changes in the mix of advertisements placed and services provided;

     .    addition of new clients or loss of current clients;

     .    seasonal fluctuations in advertising spending;

     .    timing variations on the part of advertisers to implement advertising
          campaigns;

     .    changes in the availability and pricing of advertising space;

     .    timing and amount of our costs; and

     .    costs related to any possible future acquisitions of technologies or
          businesses.

     Our current and future expense estimates are based, in large part, on
estimates of future revenue, which is difficult to predict. If our expenses are
not accompanied by sufficient revenue in the same quarter, our quarterly
operating results could be harmed.

     The Internet advertising market may deteriorate, or develop more slowly
     than expected, which could harm our business

     If the market for Internet advertising deteriorates, or develops more
slowly than we expect, our business could suffer. Our future success is highly
dependent on an increase in the use of the Internet, the commitment of
advertisers to the Internet as an advertising medium, the willingness of our
potential clients to outsource their Internet advertising and marketing needs,
and our ability to sell technology services to advertising agencies. The
Internet advertising market is relatively new and rapidly evolving. As a result,
demand and market acceptance for Internet advertising services is uncertain.
Many of our current or potential clients have little or no experience using the
Internet for advertising purposes and have allocated only a limited portion of
their advertising budgets to Internet advertising. Also, we must compete with
traditional advertising media, including television, radio, cable and print, for
a share of our clients' total advertising budgets. Our current and potential
clients may find Internet advertising to be less effective than traditional
advertising media for promoting their products and services, and therefore the
market for Internet advertising services may deteriorate or develop more slowly
than expected. In addition, "filter" software programs are available that limit
or prevent advertising from being delivered to an Internet user's computer. The
widespread adoption of such software could significantly undermine the
commercial viability of Internet advertising.

     We rely on a limited number of clients, and the loss of a major client or a
     reduction in a major client's Internet advertising budget could
     significantly reduce our revenue

     Our business would be harmed by the loss of any of our major clients, a
reduction in the Internet advertising budgets of any of these clients or any
significant reduction in revenue generated from these clients. Current clients
may decide not to continue purchasing advertising services from us or may
significantly reduce their advertising spending, and we may not be able to
successfully attract additional clients. In addition, the non-payment of amounts
due to us from one or more of our significant clients could harm our business.


                                       17

<PAGE>

     Our business may be seriously harmed by third-party litigation against us
     relating to the collection and use of Internet user information

     We are a defendant in pending class action lawsuits alleging, among other
things, that our collection and use of Internet user information violates
federal and state laws. We may be subject to additional suits in the future
regarding our collection and use of Internet user information. Class action
litigation is often expensive and time-consuming, and the outcome of such
litigation is often uncertain. Such lawsuits, regardless of their outcome, may
cause us to incur significant expenses and divert the attention of our
management and key personnel from our business operations. In addition, such
lawsuits may require us to pay substantial damages, be prevented from conducting
targeted advertising and aggregating data from our clients' advertising
campaigns, and otherwise seriously harm our business. Furthermore, several
Internet-related companies, including some in the Internet advertising industry,
have had claims brought against them before the Federal Trade Commission
regarding the collection and use of Internet user information, and we may be
subject to similar claims. Such claims and any other claim by a government
entity or other third party against us regarding our collection and use of
Internet user information could seriously harm our business.

     Privacy concerns could lead to legislative and other limitations on our
     ability to collect personal data from Internet users, including limitations
     on our use of cookie or action tag technology and user profiling

     Privacy concerns could lead to legislative and other limitations on our
ability to conduct targeted advertising campaigns and compile data that we use
to formulate campaign strategies for our clients. Our systems use "cookies" and
"action tags" to track Internet users and their online behavior to build
anonymous user profiles. A cookie is a small file of information stored on a
user's computer that allows us to recognize that user's browser when we serve
advertisements. An action tag functions similarly to a banner ad, except that
the action tag is not visible. Our action tags may be placed on specific pages
of our clients' or prospective clients' Web sites and some LifeCycle E-mails.
This enables our measurement of an advertising campaign's effectiveness to drive
consumers to specific actions. We are substantially dependent on cookie and
action tag technology to target our clients' advertising campaigns and measure
their effectiveness. Any reduction in our ability to use cookies or action tags
or other means to build anonymous user profiles could harm our business.
Governmental bodies concerned with the privacy of Internet users have suggested
limiting or eliminating the use of cookies, action tags or user profiling. Bills
aimed at regulating the collection and use of personal data from Internet users
are currently pending in Congress and many state legislatures. Also, the Federal
Trade Commission and the Department of Commerce have conducted hearings
regarding user profiling, the collection of non-personally identifiable
information and online privacy. In addition, privacy concerns have led to legal
and technical limitations on the use of cookies, action tags and user profiling
in some jurisdictions. For example, the European Union has adopted a directive
addressing data privacy that limits the collection, disclosure and use of
information regarding European Internet users. Germany has imposed its own laws
limiting the use of user profiling, and other countries may impose similar
limitations. The European Parliament is considering provisions to an electronic
communications directive that, if adopted by the European Union, would limit the
use of cookies without the prior and explicit consent of users. In addition,
users may limit or eliminate the placement of cookies on their computers by
using third-party software that blocks cookies, or by disabling the cookie
functions of their Internet browser software. Also, Internet browser software
upgrades may result in limitations on the use of cookies or action tags.
Furthermore, third parties have brought class action lawsuits against us
relating to our use of cookies, and we may be subject to similar lawsuits in the
future. If our ability to use cookies or action tags or to build user profiles
were substantially restricted by technology, government regulation or any other
means, or as a result of litigation, we would likely have to use other
technology or methods that allow the gathering of user profile data in other
ways in order to provide our services to our clients. This change in technology
or methods could require significant reengineering time and resources, and might
not be done in time to avoid negative consequences to our business. In addition,
alternative technology or methods might not be available on commercially
reasonable terms, if at all.


                                       18

<PAGE>

     Our business may be seriously harmed by litigation alleging violations of
     federal securities laws

     We, some of our officers and directors, a former officer, and some of the
underwriters of our initial public offering of common stock in February 2000 are
defendants in a pending consolidated class action lawsuit that alleges
violations of federal securities laws in connection with our initial public
offering. The claims in the lawsuit include, among other things, allegations of
misrepresentations or failures to disclose alleged facts relating to the
defendant underwriters' compensation and commissions in connection with our
initial public offering and alleged agreements between the underwriters and
their customers relating to future purchases of our stock. Class action
litigation is often expensive and time-consuming, and the outcome of such
litigation is often uncertain. Such lawsuits, regardless of their outcome, may
cause us to incur significant expenses and divert the attention of our
management and key personnel from our business operations. In addition, such
lawsuits may result in the payment by us of substantial damages and the
rescission of the sale of shares in the initial public offering, and may
otherwise seriously harm our business.

     Our client contracts have short terms, and the loss of a significant number
     of these contracts in a short period of time could harm our business

     We derive substantially all of our revenue from the sale of advertising
services under short-term advertising campaign services contracts, all of which
are cancelable upon 90 days' or less notice. In addition, these contracts
generally do not contain penalty provisions for cancellation before the end of
the contract term. The non-renewal, cancellation or deferral of a significant
number of these contracts in any one period could cause an immediate and
significant decline in our revenue and harm our business.

     Some of our competitors have obtained patents and have sued other parties
     to enforce their rights under these patents, and we may also be subject to
     patent infringement claims, including claims that our ad serving
     technologies, processes or methods infringe these or other patents

     Other parties have been issued patents that may cover some of the
technologies, processes or methods that we use in our ad serving systems. We
cannot assure you that we would be able to distinguish our technologies,
processes or methods from those covered under any of these third-party patents
or that these patents would be invalidated if challenged. The patent field
covering Internet-related technologies is rapidly evolving and surrounded by a
great deal of uncertainty, and other patents or patent applications relating to
the delivery of Internet advertising may exist of which we are unaware.

     In addition, other parties may claim that our technologies, processes or
methods infringe their patents. For example, in November 2001, we received
correspondence from counsel for 24/7 Media, Inc. alleging that we infringe
claims of U.S. Patent No. 6,026,368. We recently filed a lawsuit against 24/7
Media seeking a declaratory judgment that we are not infringing any claims of
this patent and/or that the claims of this patent are invalid. Several companies
in the Internet advertising field have brought patent infringement suits against
competitors in connection with patents relating to ad serving technologies, and
we expect this type of litigation to increase in the future. Any patent
infringement claims brought against us may cause us to incur significant
expenses and, if successfully asserted against us, may cause us to pay
substantial damages and limit our ability to use the intellectual property
subject to these claims. Even if we were to prevail, any litigation would likely
be costly and time-consuming and divert the attention of our management and key
personnel from our business operations. Furthermore, as a result of a patent
infringement suit, we may be prevented from providing some of our services,
including our core ad serving services, unless we enter into royalty or license
agreements. We may not be able to obtain royalty or license agreements on terms
acceptable to us, if at all.


                                       19

<PAGE>

     In addition to patent infringement claims, third parties may assert other
     intellectual property claims, which may cause us to incur significant
     expenses, pay substantial damages and be prevented from providing our
     services

     In addition to patent infringement claims, third parties may claim that we
are infringing or violating their other intellectual property rights, including
their copyrights, trademarks and trade secrets, which may cause us to incur
significant expenses and, if successfully asserted against us, pay substantial
damages and be prevented from providing our services, which would substantially
harm our business. Even if we were to prevail, any litigation regarding our
intellectual property could be costly and time-consuming and divert the
attention of our management and key personnel from our business operations.
Furthermore, as a result of an intellectual property infringement suit, we may
be prevented from providing some of our services or using some of the service
marks for which we have sought service mark protection unless we enter into
royalty, license or coexistence agreements. We may not be able to obtain
royalty, license or coexistence agreements on terms acceptable to us, if at all.

     Our use of the name "Avenue A" may result in infringement claims and other
     legal challenges, which could cause us to incur significant expenses, pay
     substantial damages and be prevented from using this name

     Our use of the name "Avenue A" may result in infringement claims and other
legal challenges, which could cause us to incur significant expenses, pay
substantial damages and be prevented from using this name. We are aware of third
parties that use marks or names, including Internet domain names, that contain
the words "Avenue," "Avenue A" or similar words, one of which is a Canadian
advertising agency. There may be other third parties using names similar to ours
of whom we are unaware. We may be subject to challenges or trademark
infringement claims by third parties as a result of our use of the name "Avenue
A." As a result of such infringement claims or challenges, we may incur
significant expenses, pay substantial damages and be prevented from using the
name "Avenue A" unless we enter into royalty, license or coexistence agreements.
We may not be able to obtain royalty, license or coexistence agreements on terms
acceptable to us, if at all. Use of the name "Avenue A" or similar names by
third parties may also cause confusion to our clients and confusion in the
market, which could decrease the value of our brand and harm our reputation.

     Failure of our services to perform properly or improper use of our services
     by our clients could give rise to legal claims against us or damage our
     reputation

     If our technology-based services fail to perform properly for our clients,
we may be exposed to liability to our clients or to their customers for whom our
clients used our services. In addition, our clients may use our technology-based
services in a manner that fails to comply with applicable laws, including but
not limited to laws and regulations surrounding the Internet. For example,
because our services may be used by clients to transmit information over the
Internet, our services might be used by clients to transmit information that
violates laws or regulations, or to transmit negative messages, unauthorized
reproduction of copyrighted material, inaccurate data, harmful applications or
computer viruses to end-users in the course of delivery. Any claims made against
us arising in connection with our clients' use of our services, regardless of
their outcome, may cause us to incur significant expenses and divert the
attention of our management and key personnel from business operations. In
addition, such claims may require us to pay substantial damages, modify or
discontinue some of our services and otherwise seriously harm our business and
damage our reputation.

     The loss of key personnel or any inability to attract and retain additional
     personnel could impair our ability to maintain or expand our business

     The loss of the services of members of our management team or other key
personnel could harm our business. Our future success depends to a significant
extent on the continued service of our key management, client service, product
development, sales and technical personnel. We do not maintain key person life


                                       20

<PAGE>

insurance on any of our executive officers and do not intend to purchase any in
the future. Although we generally enter into non-competition agreements with our
employees, our business could be harmed if one or more of our officers or key
employees decided to join a competitor or otherwise compete with us.

     Our future success also depends on our ability to attract, retain and
motivate highly skilled personnel. If we fail to hire and retain a sufficient
number of client service, product development, sales and technical personnel, we
may not be able to maintain or expand our business.

     Some of our clients have limited operating histories, are unprofitable and
     may not be able to pay for our services

     If any of our current or future clients is unable to pay for our services,
our business could suffer. Some of our clients have limited operating histories
and have not achieved profitability. In the past we have lost clients, or have
had difficulty collecting payments from clients, who could not pay for our
services because they were unable to secure ongoing funding. The ability of many
of our clients to meet their payment obligations is affected by the risks and
difficulties encountered by companies with limited operating histories,
particularly in the evolving Internet market.

     We may not be able to compete successfully in the market for Internet
     advertising

     The market for Internet advertising is relatively new, yet competitive. We
compete most directly with Internet media buyers that integrate ad serving
technology and Internet media buying. We also compete with interactive
advertising agencies, enabling online advertising technology providers, such as
DoubleClick Inc., advertising networks, targeted email service providers and
traditional advertising agencies that perform Internet advertising and marketing
as part of their services to clients. In addition, we compete with other
traditional advertising agencies that use traditional advertising media, and in
general we compete with television, radio, cable and print media for a share of
advertisers' budgets.

     Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
client bases and significantly greater financial, technical and marketing
resources than we have. Also, many of our current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties. In addition, several of our competitors have combined or may
combine in the future with larger companies with greater resources than ours.
These competitors may engage in more extensive research and development,
undertake more far-reaching marketing campaigns and make more attractive offers
to existing and potential employees and clients than we do. They could also
adopt more aggressive pricing policies and may even provide services similar to
ours at no additional cost by bundling them with their other product and service
offerings. They may also develop services that are equal or superior to our
services or that achieve greater market acceptance than our services. In
addition, our competitors may develop databases that are larger than or
otherwise superior to our databases. Increased competition is likely to result
in price reductions, reduced gross margins and loss of market share. We cannot
assure you that we will be able to compete successfully, and competitive
pressures may harm our business.

     Consolidation in the Internet industry may impair our ability to retain our
     clients

     Some of our clients may be affected by consolidation in the Internet
industry. Our business would suffer if we were to lose a substantial number of
clients or any of our significant clients as a result of consolidation. These
clients may be required to use the advertising services of the companies that
acquire them or of other advertising service providers, or may use the
advertising services of companies that they acquire.


                                       21

<PAGE>

     Consolidation of Internet advertising networks and large Internet portals
     may impair our ability to serve advertisements, to acquire advertising
     space at favorable rates and to collect campaign data

     The consolidation of Internet advertising networks and large Internet
portals could harm our business. This type of consolidation could eventually
lead to a concentration of desirable advertising space on a very small number of
networks and large Web sites. This type of concentration could substantially
impair our ability to serve advertisements if these networks or large Web sites
decide not to permit us to serve advertisements on their Web sites or if they
develop ad placement systems that are not compatible with our ad serving
systems. These networks or Web sites could also use their greater bargaining
power to increase their rates for advertising space or prohibit or limit our
aggregation of advertising campaign data. In addition, concentration of
desirable advertising space in a small number of networks and Web sites could
diminish the value of our advertising campaign databases, as the value of these
databases depends on the continuous aggregation of data from advertising
campaigns on a variety of different Web sites and advertising networks.

     Sustained or repeated system failures could significantly impair our
     operations and lead to client dissatisfaction

     Sustained or repeated system failures could significantly impair our
operations and reduce the attractiveness of our services to our current and
potential clients. The continuous and uninterrupted performance of our systems
is critical to our success. Our operations depend on our ability to protect
these systems against damage from fire, power loss, water damage, earthquakes,
telecommunications failures, viruses, vandalism and other malicious acts, and
similar unexpected adverse events. Clients may become dissatisfied by any system
failure that interrupts our ability to provide our services to them. In
particular, the failure of our ad serving systems, including failures that delay
or prevent the delivery of targeted advertisements to Web sites and advertising
networks, could reduce client satisfaction and damage our reputation.

     Our services are substantially dependent on certain systems provided by
third parties, over whom we have little control. Interruptions in our services
could result from the failure of telecommunications providers and other third
parties to provide the necessary data communications capacity in the time frame
required. Our ad serving systems and computer hardware are primarily located in
the Seattle, Washington metropolitan area at facilities operated by Exodus
Communications, Inc. and InterNAP Network Services Corporation. We depend on
these third-party providers of Internet communication services to provide
continuous and uninterrupted service. We also depend upon Internet service
providers that provide access to our services. In the past, we have occasionally
experienced significant difficulties delivering advertisements to Web sites and
advertising networks due to system failures unrelated to our own systems. For
example, power outages at one of our co-location facilities, including one
outage that lasted for approximately five hours, have prevented us from serving
advertisements, tracking user responses and providing performance reports to our
clients. Any disruption in the Internet access provided by third-party providers
or any failure of third-party providers to handle higher volumes of user traffic
could impair our ability to deliver advertisements and harm our business.

     Our operations may be adversely affected by earthquakes, power outages or
     increased energy costs in the Pacific Northwest

     Our corporate headquarters and a significant portion of our operations are
located in the Pacific Northwest. The Pacific Northwest has from time to time
experienced earthquakes and experienced an earthquake in February 2001 that
caused significant damage in the region. We do not know the ultimate impact on
our operations of being located near major earthquake faults, but an earthquake
could harm our operating results. In addition, the Pacific Northwest may
experience power shortages or outages and has experienced increased energy
costs. Power shortages or outages could cause disruptions to our operations,
which in turn may result in a material decrease in our revenues and earnings and
harm our business. Power shortages or increased energy costs in the Northwest
could adversely affect the region's economy and decrease regional demand for our
services, which could reduce our revenues. Our insurance coverage may not be
adequate to cover the losses and interruptions caused by earthquakes or power
outages.


                                       22

<PAGE>

     Our operations may be adversely affected by the economic impact of
     terrorist attacks and potential terrorist activities

     The success of our business depends on the overall demand for our services
and the growth of the Internet advertising industry. Advertising in general is
sensitive to general economic conditions and consumer confidence. The terrorist
attacks against the United States on September 11, 2001 and other terrorist
activities have created significant economic and political uncertainties in an
already weakened national economy. These increased uncertainties may have an
adverse effect on the advertising industry, result in the reduction of our
clients' advertising budgets, weaken demand for our services and result in a
decrease in our revenues.

     There may be risks related to our use of Arthur Andersen LLP as our
     independent auditors

     Arthur Andersen LLP provides us with services, including auditing services.
Arthur Andersen is the subject of litigation and was indicted with respect to
its activities in connection with Enron Corporation. Arthur Andersen may fail,
may merge with or have its assets sold to a third party, or may lose critical
personnel. In addition, it is possible that the Securities and Exchange
Commission may cease accepting financial statements audited by Arthur Andersen,
or that Arthur Andersen may become unable to make required representations to
us. If it is necessary for us to engage new independent auditors because of any
of these events, or for any other reason, such a change could disrupt our
operations and divert the attention of our management from other business
matters, and we could experience additional cost or delay in completing our
periodic reports required to be filed with the SEC.

     Acquisitions or investments may be unsuccessful and may divert our
     management's attention and consume significant resources

     We may in the future acquire or make investments in other businesses, or
acquire products and technologies, to complement our current business. Any
future acquisition or investment may require us to use significant amounts of
cash, make potentially dilutive issuances of equity securities and incur debt.
In addition, acquisitions involve numerous risks, any of which could harm our
business, including:

     .    difficulties in integrating the operations, technologies, services and
          personnel of acquired businesses;

     .    ineffectiveness or incompatibility of acquired technologies or
          services;

     .    diversion of management's attention from other business concerns;

     .    unavailability of favorable financing for future acquisitions;

     .    potential loss of key employees of acquired businesses;

     .    inability to maintain the key business relationships and the
          reputations of acquired businesses;

     .    responsibility for liabilities of acquired businesses;

     .    inability to maintain our standards, controls, procedures and
          policies; and

     .    increased fixed costs.


                                       23

<PAGE>

     Clients may attempt to prohibit us from providing services to their
     competitors, limiting our business opportunities

     To use our services more effectively, clients often provide us with
confidential business and marketing information. Many companies are wary of
third parties having access to this information, because access by third parties
increases the risk that confidential business and marketing information may
become known, even if unintentionally, to these companies' competitors. These
confidentiality concerns may prompt our clients to attempt to contractually
prohibit us from managing the Internet advertising campaigns of their
competitors. Limitation of our client base in a particular industry in this
manner could limit the growth of our business.

     Our business does not generate the cash needed to finance our operations,
     and we may need additional financing in the future, which we may be unable
     to obtain

     Our business does not currently generate the cash needed to finance our
operations. We may need additional funds to finance our operations, as well as
to enhance our services, respond to competitive pressures or acquire
complementary businesses or technologies. We may be unable to obtain financing
on terms favorable to us, if at all. Poor financial results, unanticipated
expenses or unanticipated opportunities that require financial commitments could
give rise to additional financing requirements sooner than we expect. If we
raise additional funds through the issuance of equity or convertible debt
securities, this may reduce the percentage ownership of our existing
shareholders, and these securities might have rights, preferences or privileges
senior to those of our common stock. If adequate funds are not available or are
not available on acceptable terms, our ability to enhance our services, respond
to competitive pressures or take advantage of business opportunities would be
significantly limited, and we might need to significantly restrict our
operations.

     Legislation or regulations may be adopted that could impair our ability to
     provide our services to clients

     Legislation or regulations may be adopted that could impair our ability to
provide our services to clients. The legal and regulatory environment governing
the Internet is uncertain and may change. Laws and regulations may be adopted
covering issues such as privacy, pricing, acceptable content, taxation, consumer
protection and quality of products and services on the Internet. These laws and
regulations could dampen the growth in use of the Internet generally and
decrease the acceptance of the Internet as an advertising medium. In addition,
due to the global nature of the Internet, it is possible that multiple federal,
state or foreign jurisdictions might inconsistently regulate our activities or
the activities of advertising networks or Web sites. Any of these developments
could harm our business.

     Our service offering includes email advertising and marketing services. The
market for email advertising and marketing in general is vulnerable to the
negative public perception associated with unsolicited email. Various states
have enacted legislation and several bills have been introduced in Congress that
limit or prohibit the use of unsolicited email. Government action, public
perception or press reports related to solicited or unsolicited email could
reduce the overall demand for email advertising and marketing in general and our
email services in particular.

     We may not be able to adapt to rapidly changing Internet technology trends
     and evolving industry standards

     The Internet and Internet advertising markets are characterized by rapidly
changing technologies, evolving industry standards, frequent new product and
service introductions, and changing client demands. The introduction of new
products and services embodying new technologies and the emergence of new
industry


                                       24

<PAGE>

standards may render our services obsolete. Our future success will depend on
our ability to adapt to rapidly changing technologies, enhance our existing
Internet advertising services and develop and introduce a variety of new
services to address our clients' changing demands. We may experience
difficulties that could delay or prevent the successful design, development,
introduction or marketing of our services. In addition, any new services or
enhancements must meet the requirements of our current clients and must achieve
market acceptance. Material delays in introducing new services and enhancements
may cause clients to discontinue use of our services and use the services of our
competitors.

     We cannot assure you that our common stock will continue to be listed on
     the Nasdaq National Market, and delisting could further depress our stock
     price and make it more difficult for us to raise capital

     Our common stock is currently listed on the Nasdaq National Market. To
maintain such listing, we must continue to satisfy ongoing listing requirements,
including consistently maintaining a minimum bid price for the common stock of
$1.00 per share or more. Our common stock has traded below the $1.00 minimum bid
requirement at certain times. If our common stock were to trade below the $1.00
minimum bid requirement for a period of 30 consecutive business days or more, or
if we were to otherwise fail to meet Nasdaq's ongoing listing criteria, Nasdaq
could initiate delisting procedures at any time. If we were to lose our Nasdaq
National Market status, we would likely seek listing of our common stock in the
over-the-counter market, which is viewed by many investors as a less liquid
marketplace. Among other things, our common stock may then constitute "penny
stock," which would place increased regulatory burden upon brokers, making them
less likely to make a market in our stock. Loss of our Nasdaq National Market
status could also make it more difficult for us to raise capital or complete
acquisitions and would also complicate compliance with state "blue sky" laws.

     Our stock price has been and may continue to be volatile

     The trading price of our common stock has been and is likely to continue to
be highly volatile. For example, during the 57-week period ended April 19, 2002,
the closing price of our common stock ranged from $0.68 to $3.49 per share. The
market price of our common stock may fluctuate significantly in response to a
number of factors, including:

     .    quarterly variations in our operating results;

     .    announcements by us or our competitors of new products or services,
          significant contracts, acquisitions or business relationships with
          other companies;

     .    publicity about our company, our services, our competitors, or
          Internet advertising in general;

     .    additions or departures of key personnel;

     .    any future sales of our common stock or other securities; and

     .    stock market price and volume fluctuations of other publicly traded
          companies and, in particular, those that are Internet-related.

     In the past, companies that have experienced volatility in the market price
of their stock have been subject to securities class action litigation. We are
currently the target of several securities class action lawsuits and may be the
target of additional lawsuits in the future. This litigation and any future
securities litigation against us could result in substantial costs and divert
our management's attention from business concerns, which could harm our
business.


                                       25

<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our exposure to market risk is limited to interest income sensitivity,
which is affected by changes in the general level of U.S. interest rates,
particularly because the majority of our investments are in short-term,
investment-grade debt securities issued by corporations. We place our
investments with high-quality issuers and limit the amount of credit exposure to
any one issuer. Due to the nature of our short-term investments, we believe that
we are not subject to any material market risk exposure. We do not have any
foreign currency or other derivative financial instruments.

                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     We are currently the subject of three lawsuits concerning our collection
and use of Internet user information. In Chance et al. v. Avenue A, Inc.,
plaintiffs, on behalf of themselves and all others similarly situated throughout
the nation, filed a class action complaint against us on or about November 20,
2000 in the United States District Court for the Western District of Washington.
Plaintiffs in two separate suits -- Werber v. Avenue A, Inc., and Bowles v.
Avenue A, Inc. -- agreed to join the Chance case as plaintiffs rather than
pursue their own individual cases against us. Accordingly, on or about May 29,
2001, plaintiffs filed a First Amended Consolidated Class Action Complaint in
the Chance case adding Werber and Bowles as plaintiffs. The complaint contains
the following purported claims relating to our collection and use of Internet
user information: (1) violation of 18 U.S.C. section 2510 et seq. (the
Wiretap/Interception section of the Electronic Communications Privacy Act), (2)
violation of 18 U.S.C. section 2701 et seq. (the Access to Stored Information
section of the Electronic Communications Privacy Act), (3) violation of 18
U.S.C. section 1030 et seq. (the Computer Fraud and Abuse Act), (4) violation of
RCW section 9.73.030 et seq. (the Washington State Wiretap/Interception
statute), (5) common law trespass to personal property and conversion, (6)
common law invasion of privacy, (7) unjust enrichment, (8) violation of state
consumer protection and deceptive practices statutes, and (9) declaratory
judgment. On September 17, 2001, the Court granted our motion for summary
judgment and entered judgment in our favor. On October 15, 2001, plaintiffs
filed a notice of appeal.

     In Werber v. Avenue A, Inc., the plaintiff, on behalf of himself and all
others similarly situated throughout the nation, filed a class action complaint
against us on or about November 30, 2000 in the United States District Court for
the Western District of Washington. The district court ordered the Werber case
to be consolidated with the Chance case.

     In Bowles v. Avenue A, Inc., the plaintiff, on behalf of himself and all
others similarly situated throughout the nation, filed a class action complaint
against us on or about December 27, 2000 in the United States District Court for
the Northern District of Illinois. On or about May 10, 2001, the district court
granted plaintiff's motion for voluntary dismissal of the case.

     In Lopez v. Avenue A, Inc., the plaintiff, on behalf of himself and all
others similarly situated in the State of Texas, filed a class action complaint
against us on or about February 13, 2001, in the District Court of Cameron
County, Texas. The complaint contains the following claims relating to our
collection and use of Internet user information: (1) common law invasion of
privacy, and (2) unjust enrichment. The plaintiff seeks declaratory and
injunctive relief as well as monetary damages and disgorgement of profits that
we have received in connection with the alleged illegal practices. On or about
February 13, 2001, we filed a notice of removal in federal district court,
thereby removing the case to federal court. Plaintiff has filed a motion to
remand to state court and that motion is pending.

     In Garcia v. Avenue A, Inc., the plaintiff, on behalf of herself and all
others similarly situated in the State of California, filed a class action
complaint against us on or about October 9, 2001, in the Superior Court for San
Bernardino County, California. The complaint contains the following claims
relating to our collection and use of Internet user information: (1) invasion of
privacy in violation of article I, section 1 of the California


                                       26

<PAGE>

Constitution, (2) common law invasion of privacy, (3) violation of California
Penal Code ss.ss. 631 et seq. (the California wiretapping and eavesdropping
statutes), (4) violation of California Business & Professions Code ss.ss. 17200
et seq. (the California unfair competition statute), and (5) unjust enrichment.
The plaintiff seeks declaratory and injunctive relief as well as monetary
damages.

     We have been named as a defendant in a consolidated amended class action
complaint filed in the United States District Court for the Southern District of
New York and captioned In re Avenue A, Inc. Initial Public Offering Securities
Litigation, 01 Civ. 5446 (SAS) (RMB). Class certification has not been granted,
discovery has not yet commenced, and a trial date has not been set. Plaintiffs
filed the suit on behalf of themselves and all others who acquired our common
stock between February 28, 2000 and December 6, 2000, pursuant or traceable to
our prospectus dated February 28, 2000. The complaint also names as defendants
Morgan Stanley & Co., Salomon Smith Barney, Inc., Thomas Weisel Partners, LLC,
and RBC Dain Rauscher, Inc., certain of the underwriters of our initial public
offering; Brian P. McAndrews, our President and Chief Executive Officer; Nicolas
Hanauer, our Chairman of the Board; and Robert Littauer, our former Chief
Financial Officer. The complaint contains the following purported claims against
all defendants: (1) violation of 15 U.S.C. section 77k (section 11 of the
Securities Act of 1933), and (2) violation of 15 U.S.C. section 78j(b) (section
10(b) of the Securities Exchange Act of 1934) and 17 C.F.R. section 240.10b-5
(Securities and Exchange Commission Rule 10b-5). The complaint contains the
following purported claims against the individual defendants alone: (1)
violation of 15 U.S.C. section 77o (section 15 of the Securities Act of 1933),
and (2) violation of 15 U.S.C. section 78t(a) (section 20(a) of the Securities
Exchange Act of 1934). Plaintiffs seek monetary damages. The complaint alleges
violations of federal securities laws in connection with disclosures contained
in our prospectus dated February 28, 2000, for our initial public offering of
common stock. The complaint alleges incorrect disclosure or omissions in our
prospectus relating generally to commissions to be earned by the underwriters
and certain allegedly improper agreements between the underwriters and certain
purchasers of our common stock. It also alleges that the Securities and Exchange
Commission and/or other regulatory authorities are investigating underwriting
practices similar to those alleged in the complaint. We have no knowledge as to
whether Avenue A or our initial public offering is the subject of any such
investigation.

     This consolidated complaint is among over 300 similar consolidated class
action lawsuits filed in the United States District Court for the Southern
District of New York against underwriters and other issuers of stock in initial
public offerings. The court has coordinated the cases under a single case number
for pretrial proceedings.

     On or about April 19, 2002, we filed a lawsuit against 24/7 Media, Inc. in
the United States District Court for the Western District of Washington seeking
a declaratory judgment that Avenue A is not infringing any claims of U.S. patent
no. 6,026,368 and/or that the claims of the patent are invalid.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

     (d)  Use of Proceeds

     On February 28, 2000, the Securities and Exchange Commission declared
effective our registration statement on Form S-1 as filed with the Commission in
connection with our initial public offering of common stock, par value $0.01 per
share. The offering was co-managed by Morgan Stanley & Co. Incorporated, Salomon
Smith Barney Inc. and Thomas Weisel Partners LLC. Pursuant to the registration
statement, we registered and sold an aggregate of 6,037,500 shares of common
stock for a gross aggregate offering price of $144.9 million. In connection with
the offering, we incurred total expenses of approximately $12.4 million,
including underwriting discounts and commissions of approximately $10.1 million.
All of these expenses were direct or indirect payments to others and not
payments to our directors or officers (or their associates) or to our affiliates
or 10% shareholders.


                                       27

<PAGE>

     As of March 31, 2002, we have used approximately $18.8 million of the net
proceeds of the public offering primarily for general corporate purposes,
including working capital and capital expenditures. The remaining proceeds have
been placed in temporary investments consisting of cash, cash equivalents and
short-term investments. None of the proceeds was used as payments to our
directors or officers (or their associates), or to our affiliates or 10%
shareholders.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits Required by Item 601 of Regulation S-K

          10.1  Separation and General Release agreement between Avenue A, Inc.
                and Rebecca DeLozier Clements, dated March 8, 2002

          10.2  Network Services Agreement between Avenue A, Inc. and Speedera
                Networks, Inc., dated February 20, 2002

          10.3  Assignment of Avenue A (UK) Limited lease, dated January 25,
                2002

     (b)  Reports on Form 8-K

     No reports on Form 8-K were filed during the quarter ended March 31, 2002.


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<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on April 25, 2002.

                                   AVENUE A, INC.


                                   By:            /s/ MICHAEL VERNON
                                      ------------------------------------------
                                                     Michael Vernon
                                                Chief Financial Officer
                                                (Authorized Officer and
                                              Principal Financial Officer)

<PAGE>

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number                                Description
------                                -----------
<C>     <S>
 10.1   Separation and General Release agreement between Avenue A, Inc. and
          Rebecca DeLozier Clements, dated March 8, 2002

 10.2   Network Services Agreement between Avenue A, Inc. and Speedera Networks, Inc.,
          dated February 20, 2002

 10.3   Assignment of Avenue A (UK) Limited lease, dated January 25, 2002
</TABLE>