<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 June 30, 2000

                                      OR

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

                 For the transition period from______to______

                       Commission File Number 000 27037

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


                  Delaware                                23-2832064
        (State or other jurisdiction                   (I.R.S. Employer
      of incorporation or organization)               Identification No.)


                     One Concord Farms, 490 Virginia Road
                         Concord, Massachusetts 01742
                   (Address of principal executive offices)


      Registrant's telephone number, including area code: (978) 929-2000
                                                          --------------

Indicate by check mark whether the Registrant (1) has filed all reports required
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 / /
<PAGE>

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

Class                                  Outstanding at August 9, 2000
-----                                  -----------------------------
Common Stock, $0.01 par value          15,151,330
<PAGE>

                            MOTHERNATURE.COM, INC.
                                   FORM 10-Q
                      FOR THE QUARTER ENDED JUNE 30, 2000
                                     INDEX

<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
<S>                                                                       <C>
PART I    FINANCIAL INFORMATION

Item 1.   A)  Balance Sheets at June 30, 2000 and
              December 31, 1999                                             1

          b)  Statements of Operations for the Three and
              Six Months Ended June 30, 2000 and 1999                       2

          c)  Statements of Cash Flows for the Six Months
              Ended June 30, 2000 and 1999                                  3

          d)  Notes to Financial Statements                                 4

Item 2.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations                              10

Item 3.   Quantitative and Qualitative Disclosure About Market Risk        30

PART II   OTHER INFORMATION

Item 1.   Legal Proceedings                                                31

Item 2.   Changes in Securities and use of Proceeds                        31

Item 4.   Submission of Matters to a Vote of Security Holders              32

Item 5.   Other Information                                                32

Item 6.   Exhibits and Reports on Form 8-K                                 34

Signatures
</TABLE>

<PAGE>

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements


                            MOTHERNATURE.COM, INC.
                                BALANCE SHEETS
               (in thousands, except share and per share data)


<TABLE>
<CAPTION>
                                                                          December 31,           June 30,
                                                                             1999                  2000
                                                                         -------------        -------------
                                                                                                (unaudited)
<S>                                                                      <C>                  <C>
     ASSETS
CURRENT ASSETS:
     Cash and cash equivalents                                            $   44,152            $   29,674
     Accounts receivable                                                         183                   337
     Inventories                                                               2,251                 1,518
     Prepaid advertising and other expenses                                    7,593                   732
                                                                          ----------            ----------
                   Total current assets                                       54,179                32,261

Property and equipment, net                                                    2,194                 1,735
Intangible assets                                                             14,908                11,591
Loan to Officer                                                                    -                   125
Other assets                                                                      93                    82
                                                                          ----------            ----------

                   Total assets                                           $   71,374            $   45,794
                                                                          ==========            ==========

     LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
     Accounts payable                                                     $    1,925            $      712
     Accrued expenses                                                          3,018                 2,650
     Accrued compensation                                                        364                 1,453
     Other current liabilities                                                    29                    52
     Current portion of capital lease obligations                                 68                    64
     Current portion of notes payable                                             16                     4
                                                                          ----------            ----------
                    Total current liabilities                                  5,420                 4,935

Long-term portion of capital lease obligations                                   226                   191
Other liabilities                                                                 32                    49

SHAREHOLDERS' EQUITY:
Common stock, $0.01 par value:
     Authorized 93,300,000 shares; issued and outstanding
     15,118,198 and 15,135,590 shares at December 31, 1999
     and June 30, 2000, respectively                                             151                   151
Additional paid-in-capital                                                   133,784               133,431
Deferred compensation                                                         (1,879)               (1,254)
Accumulated deficit                                                          (66,360)              (91,709)
                                                                          ----------            ----------

                    Total shareholders' equity                                65,696                40,619
                                                                          ----------            ----------

          Total liabilities and shareholders' equity                      $   71,374            $   45,794
                                                                          ==========            ==========
</TABLE>

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

                                       1
<PAGE>

                             MOTHERNATURE.COM,INC.
                           STATEMENTS OF OPERATIONS
          (in thousands, except share and per share date) (unaudited)


<TABLE>
<CAPTION>
                                                 Three Months         Three months          Six months            Six months
                                                 June 30, 1999        June 30, 2000        June 30, 1999        June 30, 2000
                                                 -------------        -------------        -------------        -------------
<S>                                              <C>                  <C>                  <C>                  <C>
Net sales                                         $       704          $     3,424          $      955          $      7,503
Cost of sales                                             621                2,390                 845                 5,301
                                                  -----------          -----------          ----------          ------------

     Gross profit                                          83                1,034                 110                 2,202
                                                  -----------          -----------          ----------          ------------
Operating expenses
     Selling and marketing                              7,833                6,144              10,386                19,787
     Product development                                1,675                1,828               2,555                 3,041
     General and administrative                         1,820                2,346               2,476                 5,601
                                                  -----------          -----------          ----------          ------------

     Total operating expenses                          11,328               10,318              15,417                28,429

     Operating loss                                   (11,245)              (9,284)            (15,307)              (26,227)
                                                  -----------          -----------          ----------          ------------

Interest income                                           271                  447                 380                   945
Interest expense                                          (36)                 (48)                (73)                  (67)
                                                  -----------          -----------          ----------          ------------

    Net loss                                      $   (11,010)         $    (8,885)         $  (15,000)         $    (25,349)
                                                  ===========          ===========          ==========          ============
Basic and diluted net loss per
     common share                                      (13.67)         $     (0.59)         $   (20.11)         $      (1.68)
                                                  ===========          ===========          ==========          ============
Shares used to compute basic
     and diluted net loss per common
     share                                            805,467           15,122,877             745,870            15,120,728
                                                  ===========          ===========          ==========          ============
Pro forma basic and diluted net loss
     per common share                             $     (1.32)         $     (0.59)         $    (1.97)         $      (1.68)
                                                  ===========          ===========          ==========          ============
Shares used to compute pro forma basic
     and diluted net loss per common
     share                                          8,342,448           15,122,877           7,622,405            15,120,728
                                                  ===========          ===========          ==========          ============
</TABLE>

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

                                       2
<PAGE>

                            MOTHERNATURE.COM, INC.
                           STATEMENTS OF CASH FLOWS
                                (in thousands)
                                  (unaudited)



<TABLE>
<CAPTION>
                                                                                                    Six Months Ended
                                                                                             ------------------------------
                                                                                             June 30, 1999     June 30,2000
                                                                                             -------------     ------------
<S>                                                                                          <C>               <C>
OPERATING ACTIVITIES:
Net loss                                                                                     $   (15,000)        $  (25,349)
Adjustments to reconcile net loss to net cash used in operating
  activities-
    Depreciation and amortization                                                                    219                639
    Loss on disposal of equipment                                                                      8                  2
    Compensation expense relating to common stock options and warrants                               225                 34
    Amortization of deferred compensation                                                             78                282
    Amortization of debt discount                                                                      3                  1
    Amortization of intangible assets                                                                  -              3,316
Changes in operating assets and liabilities-
       Accounts receivable                                                                          (105)              (154)
       Inventories                                                                                  (508)               734
       Prepaid expenses                                                                              (16)             6,861
       Other assets                                                                                  (63)                12
       Accounts payable                                                                              249             (1,213)
       Accrued expenses                                                                            1,333               (367)
       Accrued compensation                                                                          220              1,089
       Other current liabilities                                                                      (2)                23
       Other liabilities                                                                               -                 17
                                                                                             -----------         ----------
                    Net cash used in operating activities                                        (13,359)           (14,073)

INVESTING ACTIVITIES:
    Purchases of property and equipment                                                             (838)              (182)
    Loan to Officer                                                                                    -               (125)
                                                                                             -----------         ----------
                    Net cash used in investing activities                                           (838)              (307)

FINANCING ACTIVITIES:
    Repayments of capital lease obligations                                                          (10)               (40)
    Repayments of notes payable                                                                      (12)               (14)
    Proceeds from Series B preferred stock offering, net of issuance costs                         1,579                  -
    Proceeds from Series C preferred stock offering, net of issuance costs                        41,038                  -
    Proceeds from initial public offering, net of issuance costs                                       -                (55)
    Proceeds from exercise of common stock options and warrants                                       42                 11
                                                                                             -----------         ----------
                    Net cash provided by (used in) financing activities                           42,637                (98)
                                                                                             -----------         ----------

                              Net increase (decrease) in cash                                     28,440            (14,478)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                    11,243             44,152
CASH AND CASH EQUIVALENTS, END OF PERIOD                                                     $    39,683         $   29,674
                                                                                             ===========         ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
    Cash paid during the year for interest                                                   $         2         $       17
                                                                                             ===========         ==========
    Cash paid during the year for taxes                                                      $        30         $       67
                                                                                             ===========         ==========
</TABLE>

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

________________________________________________________________________________

                                       3
<PAGE>

                            MOTHERNATURE.COM, INC.

                         NOTES TO FINANCIAL STATEMENTS

                                 JUNE 30, 2000


(1) DESCRIPTION OF BUSINESS

  MotherNature.com, Inc. ("MotherNature.com" or the "Company"), is an online
retail store and information site for vitamins, supplements, minerals and other
natural and healthy living products. The Company currently offers more than
17,800 products on its site and can special order additional products through
its supplier relationships. MotherNature.com also provides educational and
authoritative news and information about its products and healthy living in
general.

  The Company intends to build upon its retail business strengths, including its
knowledge of the natural products industry, memorable brand name, wealth of
content, broad product assortment and warehousing and customer service
capabilities, to begin the expansion of its business strategy beyond the retail
market.

  Since its inception, the Company has incurred significant losses and as of
June 30, 2000 had an accumulated deficit of approximately $91.7 million. The
Company has incurred costs to develop and enhance its technology, to create,
introduce and enhance its Web site, to establish marketing and distribution
relationships and to build its administrative organization. The Company believes
that it will incur substantial operating losses for the foreseeable future; in
addition, there can be no assurance that the Company will be able to generate
sufficient revenues to achieve or sustain profitability in the future.

  The Company has been funded principally from the issuance of preferred stock
in June/July 1998, December 1998/January 1999 and May 1999 (the Series A, B-1
and C Preferred Financings) with gross proceeds of $7.2 million, $12.0 million
and $42.0 million, respectively. In addition, on December 10, 1999,the Company
completed its initial public offering with gross proceeds of $53.3 million (see
Note 7).

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC) for reporting on Form 10-Q.
Accordingly, certain information and footnote disclosures required for complete
financial statements are not included herein. It is recommended that these
financial statements be read in conjunction with the consolidated financial
statements and related notes of MotherNature.com, Inc. as

________________________________________________________________________________

                                       4
<PAGE>

reported in the Company's Annual Report on Form 10-K for the year ended December
31, 1999. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation of the
financial position, results of operations, and cash flows at the dates and for
the periods presented have been included. The balance sheet presented as of
December 31, 1999 has been derived from the financial statements that have been
audited by the Company's independent public accountants. The results of
operations for the quarter ended and year to date as of June 30, 2000 may not be
indicative of the results that may be expected for the year ended December 31,
2000, or any other period.

Use of Estimates

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

Comprehensive Income

  Comprehensive income is defined as the change in net assets of a business
enterprise during a period from transactions generated from non owner sources.

  It includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners. The Company had no material
comprehensive income in any of the periods presented.

Segment Information

  The Company complies with the provisions of SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. The Company identifies its
operating segments based on business activities and management responsibility.

  The Company operates in a single business segment selling vitamins,
supplements, minerals and other natural and healthy living products online.
International sales were 9.6% and 6.6% of revenues for the second quarters of
1999 and 2000, respectively. Respective year to date international sales at June
30, 1999 and 2000 are 11.7% and 6.2%

(3) PRO FORMA NET LOSS PER SHARE

________________________________________________________________________________

                                       5
<PAGE>

        Pro forma net loss per share is computed using the weighted average
     number of common shares outstanding, including the pro forma effect of the
     automatic conversion of the Company's convertible preferred stock into
     shares of the Company's common stock.

        The weighted average common shares outstanding, including the dilutive
     effect of outstanding options and warrants, and the pro forma weighted
     average number of common shares outstanding for the years ended June 30,
     1999 and 2000 are as follows:

<TABLE>
<CAPTION>
                                                                      Three Months Ended June 30,        Six Months Ended June 30,
                                                                      ---------------------------        -------------------------
                                                                        1999               2000           1999              2000
                                                                        ----               ----           ----              ----
<S>                                                                <C>               <C>               <C>            <C>
     Weighted average common shares used in basic and
     diluted EPS calculation                                            805,467        15,122,877          745,870      15,120,728

     Weighted average convertible preferred shares
     assumed to convert to common shares                              7,536,981                 -        6,876,535               -

     Weighted average number of common shares used in pro forma
     basic and diluted EPS calculation                                8,342,448        15,122,877        7,622,405      15,120,728

     Shares under option plans, warrants and convertible preferred
     stock excluded in computation of diluted earnings per share
     due to antidilutive effects                                     10,054,601         1,430,102       10,054,601       1,430,102
</TABLE>


    (4) NEW ACCOUNTING PRONOUNCEMENTS

      In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
    No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS
    No. 133 establishes accounting and reporting standards for derivative
    instruments, including certain derivative instruments embedded in other
    contracts (collectively derivatives), and for hedging activities. As issued,
    SFAS No. 133 is effective for all fiscal quarters of all fiscal years
    beginning after June 15, 1999, with earlier application encouraged. In May
    1999, the FASB delayed the effective date of SFAS No. 133 for one year to
    fiscal years beginning after June 15, 2000. The Company does not currently
    nor does it intend in the future to issue derivative instruments and,
    therefore, does not expect that the adoption of SFAS No. 133 will have any
    impact on its financial position or results of operations.

      In December 1999, the Securities and Exchange Commission ("SEC") issued
    Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in
    Financial Statements, which provides guidance on the
________________________________________________________________________________

                                       6
<PAGE>

recognition, presentation, and disclosure of revenue in financial statements
filed with the SEC. The SEC deferred the effective date of this bulletin to the
fourth quarter of 2000. SAB 101 outlines the basic criteria that must be met to
recognize revenue and provides guidance for disclosure related to revenue
recognition policies. We believe that the impact of SAB 101 will not have a
material effect on our financial position or results of operations.

  In July 2000, the EITF reached a consensus on EITF Issue 00-10, "Accounting
for Shipping and Handling Fees and Costs." This consensus requires that all
amounts billed to a customer in a sale transaction related to shipping and
handling, if any, represent revenue and should be classified as revenue. The
Company already classifies shipping charges to customers as revenue. The EITF
did not reach a consensus with respect to the classification of costs related to
shipping and handling incurred by the seller. The Company classifies inbound and
outbound shipping costs as cost of sales. The Company does not currently impose
separate handling charges on customers. It classifies costs incurred in
operating and staffing distribution and customer service centers (including
costs attributable to receiving, inspecting and warehousing inventories;
picking, packaging and preparing customers' orders for shipment; and responding
to inquiries from customers) as sales and marketing expenses along with the cost
of tangible supplies used to package product for shipment to customers. Credit
card fees are charged to general and administrative expense.

(5) SIGNIFICANT SUPPLIERS

  The Company purchases a majority of its product from two suppliers. These
suppliers accounted for approximately 52% and 33%  of the Company's inventory
purchases in the second quarter of 1999 and 2000, respectively. The Company has
no long-term contracts or arrangements with any of its vendors that guarantee
the availability of merchandise, the continuation of particular payment terms or
the extension of credit limits. There can be no assurance that the Company's
current vendors will continue to sell merchandise to the Company on current
terms or that the Company will be able to establish new or extend current vendor
relationships to ensure acquisition of merchandise in a timely and efficient
manner and on acceptable credit terms.

(6) RELATED PARTY TRANSACTIONS

  The Company has, in the past, purchased inventory from a vendor which is owned
by a shareholder's relative. For the quarter and six months ended June 30, 1999,
the Company purchased $29,200 and $47,200, respectively of inventory from this
vendor. The Company did not purchase inventory from this vendor during the first
quarter of 2000 and purchased less than $1,000 during the second quarter of
2000.

  The Company has a Web site hosting agreement with Navisite, Inc. CMGI, Inc.
owns approximately 69% of the Navisite's outstanding common

________________________________________________________________________________

                                       7
<PAGE>

stock. During the quarters ended June 30, 1999 and 2000, the Company paid
service fees to Navisite, Inc. of $42,000 and $45,000, respectively. For the six
months ended June 30, 1999 and 2000, the Company paid service fees to Navisite,
Inc. of $52,000 And $89,000, respectively.

  On May 2, 2000, the Company loaned $125,000 to an officer, pursuant to a non-
recourse, promissory note that bears interest at 11% per year and is payable in
full on April 14, 2003.  Commencing on January 1, 2001, principal and interest
will be forgiven in equal monthly installments for services rendered through the
date of termination or the maturity date, whichever is earlier.

(7) INITIAL PUBLIC OFFERING

  In July 1999, the Company's Board of Directors authorized management to file
a registration statement with the Securities and Exchange Commission to permit
the Company to sell shares of its common stock to the public.

  Also in July 1999, the Company filed an amendment to its certificate of
incorporation increasing the number of shares of common stock into which each
share of Series C Preferred would automatically convert in connection with a
public offering of its equity securities from approximately 0.13 shares of
common stock to approximately 0.14 shares of common stock, subject to certain
conditions related to the offering. At the same time, holders of the series A
shares, series B-1 shares and series C shares agreed to automatic conversion of
their series A shares, series B-1 shares and series C shares, respectively,
into shares of the Company's common stock.

  In October 1999, the Company's Board of Directors approved, subject to
stockholder approval, an amendment to the Company's certificate of incorporation
increasing the number of shares of common stock into which each share of Series
C Preferred would automatically convert, in connection with a public offering of
its equity securities from approximately 0.14 shares of common stock to
approximately 0.15 shares of common stock, subject to certain conditions related
to the offering. This amendment to the Company's certificate of incorporation
also prevented any further adjustments to the number of shares of common stock
issuable upon conversion of the Series C Preferred.

  Pursuant to antidilution adjustments, upon exercise of the warrant issued to
an investment bank for services provided in connection with the Series C
Preferred Financing, an additional 6,320 shares of common stock will be

________________________________________________________________________________

                                       8
<PAGE>

issuable. Upon completion of the Company's initial public offering, the Series
A, Series B-1 and Series C Preferred converted into 9,055,392 shares of common
stock. Of the shares, the Series C Preferred stockholders received 379,889
additional shares of common stock that were issued as an inducement to convert
their shares at the consummation of the offering. The value of the shares,
approximately $4.9 million based upon the initial public offering price of
$13.00 per share, was treated similarly to a special dividend to the preferred
stockholders and accounted for at the time of the offering within equity through
the accumulated deficit and additional paid-in capital accounts.

  On December 9, 1999, the Company's registration statement on Form S-1 became
effective. The managing underwriters were Bear, Stearns & Co., Inc.; Hambrecht &
Quist; and Wit Capital Corporation.  The offering consisted of 4,100,000 shares
of the Company's common stock.  The aggregate gross proceeds from the shares
offered and sold was $53.3 million.  After deducting approximately $3.7 million
in underwriting discounts and commissions and approximately $1.2 million in
other expenses, the Company received net proceeds of $48.4 million.

(8) STOCK COMPENSATION PLANS

   On May 1, 2000, the Company's Board of Directors authorized a re-pricing of
certain outstanding stock options.  As a result, the Company replaced 684,963
stock options granted at prices between $2.99 and $22.39, with 684,963 options
at an exercise price of $2.6875, the fair market value of the Company's common
stock at the date of the re-pricing.  The vesting periods remain unchanged from
the original option grants.  The Company will account for this re-pricing under
FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation - an Interpretation of APB Opinion No. 25.  The interpretation
states that the re-pricing results in variable plan accounting commencing at
July 1, 2000, the effective date of the interpretation.  The Company measured
the value of the repriced options on May 1, 2000.  This amount has been deferred
and will be amortized over the periods in which the awards vest. During each
subsequent period, the Company will record additional compensation expense
relating to the vested portion of the repriced options to the extent that the
fair market value of the Company's common stock exceeds $1.20 per share.

(9) SUBSEQUENT EVENTS

   In March 2000, the Company's Board of Directors authorized an employee
retention bonus plan. Employees who are eligible on March 2, 2000 will receive
retention bonus payments as of June 30, 2000 and September 30, 2000 if they
remain continuously employed by the Company on those dates. The June 30 bonus
payout was paid in early July 2000.

________________________________________________________________________________

                                       9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Overview

  We are an online retail store and information site for vitamins, supplements,
minerals and other natural and healthy living products. By offering over 17,800
products on our site, we provide one-stop shopping for customers, 24 hours a
day, seven days a week. Our online store, www.MotherNature.com, offers
educational and authoritative information, broad product selection, a high level
of customer service, competitive pricing and easy-to-use navigation and search
capabilities. We have continued to focus on building our organization,
developing our technology infrastructure, further developing and upgrading our
Web site, driving profitable customer traffic, expanding our product assortment,
promoting our brand and enhancing our fulfillment and customer service
operations. We continue to devote resources to our business diversification
effort. Our business diversification strategy involves three principal goals:
build our direct-to-customer business; develop our health channel; and build our
capabilities to service businesses as an application service provider. During
1999 and the first quarter of 2000, we invested in an aggressive, offline
advertising campaign, supplemented by online advertising, business incentive
programs, direct marketing and a public relations campaign. Although we believe
our offline advertising campaign was successful in increasing consumer awareness
of our site, acquiring new customers, and generating sales revenues, we believe
the campaign has accomplished our objectives and plan to limit our offline
advertising in order to reduce marketing costs. In the future, we will continue
to focus our advertising efforts using what we believe are more cost-effective
methods for customer acquisition, including online advertising, targeted email
solicitations and other direct marketing initiatives, and business incentive
programs.

  Quarterly revenues increased from $704,000 in the second quarter of 1999 to
$3.4 million in the second quarter of 2000. In order to manage the increase in
our site traffic and revenues, we expanded and continue to upgrade our site,
order fulfillment operations, distribution center management systems and
organizational infrastructure. This expansion to date includes enhancing the
features and functions on our site, adding server and database capacity,
building our internally developed order fulfillment and logistics system and
moving our order fulfillment center to a 25,000 square foot facility in
Springfield, Massachusetts. The $655,000 decrease in revenue from the first
quarter of 2000 ($4.1 million) to the second quarter of 2000 ($3.4 million) is a
direct result of our decreased marketing and offline media expenses. Despite the
growth in our year over year revenues, we continue to incur significant net
losses. We have not achieved profitability and expect to incur operating losses
for the foreseeable future.

  We intend to build upon our business strengths, including our knowledge of
the natural products industry, memorable brand name, wealth of content, broad
product assortment, commercial channel solutions and warehousing and customer
service capabilities, to:

 . offer the broadest selection of natural, earth-friendly products,
 . operate as a solution-based retailer and wholesaler by integrating content and
  commercial capabilities,
 . own our fulfillment and customer service operations, and
 . expand our business beyond the retail market to address the needs of natural
  and healthy living product retailers and manufacturers.

________________________________________________________________________________

                                      10
<PAGE>

  We recognize revenue at the time of shipment. Cash is generally collected in
less than a week as substantially all of our sales are paid for by credit card.
Advertising expenditures are expensed as incurred.

RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1999

  Net Sales. Net sales consist of product sales to customers net of product
returns, promotional discounts and coupons, and include shipping and handling
charges. Net sales increased approximately 5 times to $ 3.42 million for the
three months ended June 30, 2000 from $704,000 for the three months ended June
30, 1999. This reflects the increase of orders received during the quarter ended
June 30, 2000, to approximately 114,000 as compared to 30,000 in the second
quarter of 1999.  This increase in orders was driven by an increase in our
customer base. We added 69,000 new customers in the second quarter of 2000,
bringing the cumulative customer count to approximately 419,000 compared to
30,000 customers at the end of the second quarter in 1999.  We also raised our
freight charges to more accurately  reflect actual cost which minimizes the
freight subsidy we incur.

  Cost of Sales. Cost of sales consists primarily of the costs of merchandise,
including outbound shipping costs. Cost of sales does not include the cost of
products associated with promotional discounts and coupons used for new customer
purchases, which are included in selling and marketing expense, but does include
the cost of their shipments.  Cost of sales increased to $2.4 million for the
quarter ended June 30, 2000 from $621,000 for the quarter ended June 30, 1999,
reflecting increased sales volume. Our gross margin increased to 30% of net
sales for the three months ended June 30, 2000 from 12% of net sales for the
three months ended June 30, 1999. This increase was primarily due to a shift in
our mix of new to existing customers and improvements in our fulfillment
operations and increased freight revenue.  With regard to our customer mix, new
customers accounted for only 42% of sales in the in the second quarter of 2000,
as compared to 62% in the second quarter of 1999. These lower margin new
customer sales exerted a significant downward pressure on margins in the second
quarter of 1999. The shift in the second quarter of 2000 toward higher margin
existing customer orders increased our merchandise margins to approximately 37%
from approximately 30%, in the second quarters of 2000 and 1999, respectively.
In addition, we increased shipping charges and eliminated our free freight
promotion which also resulted in improved gross margin.  We anticipate that we
may provide minimal freight subsidies to our customers in the future.

  Selling and Marketing Expense. Selling and marketing expense consists
primarily of advertising and promotional expenditures, including the cost of
products associated with promotional discounts and coupons used for new customer
purchases, Web content expenditures, fulfillment facility and customer service
expenses and payroll and related expenses for personnel engaged in marketing,
content, order fulfillment and customer service operations. Selling and
marketing expenses decreased to $6.1 million for the quarter ended June 30, 2000

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                                      11
<PAGE>

from $7.8 million for the corresponding quarter in 1999. This decrease was
attributable primarily to expenditures for offline and online advertising to
promote brand awareness. Customer acquisition costs, which include our costs of
media, marketing and promotional discounts and goods used to incent new customer
purchases fell to approximately $42 per customer in the second quarter of 2000
from approximately $261 per customer in the second quarter of 1999, reflecting
the effectiveness of the Company's promotions and advertising campaigns.
Content development costs included $1.7 million of non-cash charges for
amortization of the intangible assets acquired in the Rodale alliance in
September, 1999. We expect selling and marketing expense to decrease in future
periods as we reduce our advertising expenditures by limiting offline
advertising and focusing on what we believe are more cost-effective advertising
methods such as online advertising, direct email solicitations and our business
incentive programs.

  Product Development Expense. Product development expense consists primarily
of payroll and related expenses for merchandising, Web site development, Web
design and information technology personnel and related infrastructure. Product
development expenses increased to $1.8 million for the three months ended June
30, 2000 from $1.7 for the three months ended June 30, 1999. This increase was
attributable primarily to the timing of development and infrastructure project
costs.  We believe that continued investment in product development is critical
to attaining our strategic objectives and, therefore, we expect product
development costs to remain consistent in future periods.

  General and Administrative Expense. General and administrative expense
consists of payroll and related expenses for executive and administrative
personnel, recruiting, depreciation and other general corporate expenses.
General and administrative expenses increased to  $2.3 million for the second
quarter of 2000 from $1.8 for the corresponding quarter in 1999.  The increase
reflects higher compensation costs, higher depreciation and insurance charges
and increased professional service fees. We expect general and administrative
expenses will remain consistent in future periods.

  Interest Income.  Interest income consists of income earned on our cash
balances in money market accounts.  Interest income increased to $448,000 for
the second quarter of 2000 from $271,000 for the second quarter of 1999.  This
increase reflects earnings on higher average cash and cash equivalent balances
during the second quarter of 2000 compared to the second quarter of 1999.

  Interest expense.  Interest expense is attributable to capital lease
obligations, and original issue discount related to notes payable. Interest
expense increased to $48,000 for the three months ended June 30, 2000 from
$37,000 for the corresponding period in 1999.

  Provision for Income Taxes. We have had net operating losses for every period
through December 31, 1999. We may not be able to utilize all or any of these tax
loss carry-forwards as a result of our initial public offering and prior
financings. We have not recognized a provision for

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                                      12
<PAGE>

income taxes due to the uncertainty surrounding the realization of the favorable
tax attributes in future tax returns and we have placed a valuation allowance
against our net deferred tax assets.

  Net Loss. As a result of the foregoing factors, we incurred a net loss to
common shareholders of $8.88 million for the second quarter of 2000 compared to
$11.01 million for the second quarter of 1999.

RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999

  Net Sales. Net sales consist of product sales to customers net of product
returns, promotional discounts and coupons. Net sales include shipping and
handling charges. Net sales increased more than 8 times to $7.5 million for the
six months ended June 30, 2000 from $955,000 for the six months ended June 30,
1999. This reflects the increase of orders received during the six months ended
June 30, 2000, to approximately 261,000 as compared to 40,000 in the same period
of 1999.  This increase in orders was driven by an increase in our customer
base. We added 171,000 new customers in the first six months of 2000, bringing
the cumulative customer count to approximately 419,000 compared to 30,000
customers at the end of the second quarter in 1999.

  Cost of Sales. Cost of sales consists primarily of the costs of merchandise,
including outbound shipping costs. Cost of sales does not include the cost of
products associated with promotional discounts and coupons used for new customer
purchases, which are included in selling and marketing expense, but does include
the cost of their shipments.  Cost of sales increased to $5.3 million for the
six months ended June 30, 2000 from $844,000 for the same period in 1999,
reflecting increased sales volume. For the six months ended June 30, 2000 and
1999, respectively, our gross margin increased to 29.3% of net sales from 11.6%
of net sales. This increase was due to a shift in our mix of new to existing
customers and changes to our shipping policy.  With regard to our customer mix,
new customers accounted for  47% of sales in the first six months of 2000, as
compared to 62% in the first six months of 1999. These lower margin new customer
sales exerted a significant downward pressure on margins in the first six months
of 1999. The shift in activity during the first six months of 2000 toward higher
margin existing customer orders increased our merchandise margins to
approximately 39% in the first six months of 2000 from approximately 27% in the
first six months.  The elimination of our free shipping promotion in the first
six months of 2000 also favorably improved margins.  For the six months ended
June 30, 1999, freight margins were 162% as compared to 133% in the first six
months of 2000.

  Selling and Marketing Expense. Selling and marketing expense consists
primarily of advertising and promotional expenditures, including the cost of
products associated with promotional discounts and coupons used for new customer
purchases, Web content expenditures, fulfillment facility and customer service
expenses and payroll and related expenses for personnel engaged in marketing,
content, order fulfillment and customer service operations. Selling and
marketing

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                                      13
<PAGE>

expenses increased to $19.8 million for the six months ended June 30, 2000 from
$10.4 million for the corresponding period in 1999. This increase was
attributable primarily to expenditures for offline and online advertising to
promote brand awareness. The increase was also attributable to promotional
discounts we offered to attract new customers. Customer acquisition costs, which
include our costs of media, marketing and promotional discounts and goods used
to incent new customer purchases fell to approximately $70 per customer in the
first six months of 2000 from approximately $268 per customer in the same period
of 1999, reflecting the effectiveness of the Company's promotions and
advertising campaigns. Content development costs included $3.3 million of non-
cash charges for amortization of the intangible assets acquired in the Rodale
alliance in September, 1999. We expect selling and marketing expense to continue
to decrease in future periods as we reduce our advertising expenditures by
limiting offline advertising and focusing on what we believe are more cost-
effective advertising methods such as online advertising, direct email
solicitations and our business incentive programs.

  Product Development Expense. Product development expense consists primarily
of payroll and related expenses for merchandising, Web site development, Web
design and information technology personnel and related infrastructure. Product
development expenses increased to $3.0 million for the six months ended June 30,
2000 from $2.6 million for the six months ended June 30, 1999. This increase was
attributable primarily to expansion of our technical staff.  We believe that
continued investment in product development is critical to attaining our
strategic objectives and, therefore, we expect product development expense to
remain consistent.

  General and Administrative Expense. General and administrative expense
consists of payroll and related expenses for executive and administrative
personnel, recruiting, depreciation and other general corporate expenses.
General and administrative expenses increased to $5.6 million for the second
quarter of 2000 from $2.5 million for the corresponding quarter in 1999. The
increase reflects increased personnel costs, higher compensation charges
associated with employee stock options, higher depreciation charges and
professional service costs as well as the reclassification of certain corporate
technology costs. We expect general and administrative expenses will remain
consistent in future periods.

  Interest Income.  Interest income consists of income earned on our cash
balances in money market accounts. Interest income increased to $945,000 for
the first and second quarters of 2000 from $380,000 for the same period of 1999.
This increase reflects earnings on higher average cash and cash equivalent
balances during this timeframe.

  Interest expense.  Interest expense is attributable to capital lease
obligations and original issue discount related to notes payable. Interest
expense amounted to $67,000 for the six months ended June 30, 2000 from $73,000
for the corresponding period in 1999.

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                                      14
<PAGE>

  Provision for Income Taxes. We have had net operating losses for every period
through December 31, 1999. We may not be able to utilize all or any of these tax
loss carry-forwards as a result of our initial public offering and prior
financings. We have not recognized a provision for income taxes due to the
uncertainty surrounding the realization of the favorable tax attributes in
future tax returns and we have placed a valuation allowance against our net
deferred tax assets.

  Net Loss. As a result of the foregoing factors, we incurred a net loss to
common shareholders of  $25.3 million compared to $15.0 million six months ended
June 30, 2000 and 1999, respectively.

LIQUIDITY AND CAPITAL RESOURCES.

  Net cash used in operating activities was $14.1 million for the six months
ended June 30, 2000, as compared to $13.4 million for the same period of 1999.
The reduction in cash was primarily driven by funding operating losses for the
six months ended June 30, 2000.  Additional cash was generated by a $6.9 million
reduction in our prepaid expenses, which represented amounts paid in prior
periods to secure offline media which ran during the first and second quarters
of 2000.

  Net cash used in investing activities was $307,600 for the six months ended
June 30, 2000 compared to $838,000 for the six months ended June 30, 1999.  The
activity during both periods relates to purchases of property and equipment as
well as a loan to an officer in 2000, noted in footnote 6 to the financial
statements.

  Net cash used by financing activities was $97,200 for the six months ended
June 30, 2000, as compared to net cash provided by financing activities of $42.6
million for the corresponding six months ended June 30, 1999. The net proceeds
included $1.6 million receivable from a Series B preferred stock offering and
$41 million from a Series C preferred stock offering.

  As of June 30, 2000, we had $29.7 million of cash and cash equivalents. As of
that date, our principal commitments consisted of obligations outstanding under
capital leases in the amount of $255,000. Although we currently have no other
material commitments, we anticipate that our business model will require us to
commit resources to expand our product and service offerings in our direct-to-
consumer business and our health and commercial channels. We intend to continue
to enhance our infrastructure and improve our distribution center operations.

  We believe that our current cash and cash equivalents will be sufficient to
meet our anticipated needs for working capital and capital expenditures through
at least the next 9 months. We anticipate that we are likely to need additional
financing to execute our business model after that 9-month period, or sooner if
we need to respond to business contingencies, such as funding additional
advertising expenditures, developing new or enhancing existing content, features
or services, enhancing our operating infrastructure, responding to competitive
pressures, or acquiring complementary businesses or technologies. If we raise
additional funds through the issuance of equity, or convertible debt securities,
the percentage ownership of our

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                                      15
<PAGE>

stockholders will be reduced, and these newly-issued securities may have rights,
preferences or privileges senior to those of existing stockholders. We cannot be
certain that additional financing will be available to us on favorable terms
when required, or at all.

                                 RISK FACTORS

  We do not provide forecasts of our future financial performance. However, from
time to time, information we provide or statements we make may contain "forward
looking" information that involves risks and uncertainties. In particular,
statements contained in this Quarterly Report on Form 10-Q that are not
historical facts (including, but not limited to statements contained in "Item 2:
Management's Discussion and Analysis of Financial Condition and Results of
Operations") may constitute forward looking statements and are made under the
safe harbor provisions of The Private Securities Litigation Reform Act of 1995.
Our actual results of operations and financial condition have varied and may in
the future vary significantly from those stated in any forward looking
statements. Factors that may cause such differences include, without limitation,
the risks, uncertainties and other information discussed below and within this
Quarterly Report on Form 10-Q, as well as the accuracy of our internal estimates
of revenue and operating expense levels. The following discussion of our risk
factors should be read in conjunction with the financial statements and related
notes thereto. Such factors, among others, may have a material adverse effect
upon our business, results of operations and financial condition.

RISKS RELATED TO OUR BUSINESS

OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE WE HAVE A LIMITED OPERATING
HISTORY UNDER OUR CURRENT BUSINESS MODEL.

  We were organized in 1995; our current management team joined us after June
1998.  An investor in our common stock must consider the challenges, risks and
uncertainties frequently encountered by early-stage companies using new and
unproven business models in new and rapidly evolving markets.  These challenges
include our ability to:

  .  execute on our revised business model;

  .  increase brand recognition;

  .  manage growth in our operations;

  .  expand our customer base cost-effectively;

  .  retain customers;

  .  manage inventory levels effectively;

  .  upgrade and enhance our Web site, transaction-processing systems, order
     fulfillment capabilities and inventory management systems;

  .  access additional capital when required;

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                                      16
<PAGE>

  .  develop and renew strategic relationships with companies in the vitamins,
     supplements, minerals and natural and healthy living products industry,
     such as suppliers and content providers; and

  .  attract and retain key personnel.

WE CANNOT BE CERTAIN THAT OUR BUSINESS MODEL WILL BE SUCCESSFUL OR THAT WE WILL
SUCCESSFULLY ADDRESS THESE AND OTHER CHALLENGES, RISKS AND UNCERTAINTIES.

  We have expanded our business model beyond the consumer retail market to
address smaller natural and healthy living product retailers and manufacturers.
This change requires us to build upon our knowledge of the natural and healthy
living products industry, leverage our distribution facility capabilities and
develop new products and services to address this new market. Our prospects must
be considered in light of the risks, expenses and difficulties frequently
encountered by companies expanding their business model to address an emerging
and rapidly evolving market. Because of our limited experience in this new
market, we cannot assure you that our strategy for operating in that market or
selling our products and services will be successful. You should not rely on our
historical results of operations as indications of future performance.

CONSUMERS OF VITAMINS, SUPPLEMENTS, MINERALS AND OTHER NATURAL AND HEALTHY
LIVING PRODUCTS MAY NOT PURCHASE PRODUCTS FROM OUR SITE, WHICH WOULD REDUCE OUR
REVENUES AND PREVENT US FROM BECOMING PROFITABLE.

  Due to our limited operating history, we have not proven an ability to attract
and retain a high volume of online customers. We may not be able to convert a
large number of customers from traditional shopping methods to online shopping
for vitamins, supplements, minerals and other natural and healthy living
products. Even if we are successful at attracting online customers, we expect it
will take several years to build a critical mass of repeat customers. If we do
not attract and retain a high volume of online customers at a reasonable cost,
we will not be able to increase our revenues or achieve profitability. Specific
factors that could prevent widespread customer acceptance of our store include:

  .  failure to continue our aggressive offline advertising campaign and invest
     heavily in advertising and marketing efforts;

  .  lack of consumer awareness of our online store because of our relatively
     short market presence under our current business model;

  .  customer concern about the privacy of personal health information;

  .  pricing that does not meet customer expectations as we expand our product
     offerings and enhance our marketing efforts;

  .  incorrectly filled orders or damaged products resulting from our transition
     to new order fulfillment systems; and

  .  delayed response to customer service requests if we fail to adequately
     increase our customer service staff.

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                                      17
<PAGE>

IF OUR BRAND DOES NOT RAPIDLY ACHIEVE BROAD RECOGNITION, WE MAY LOSE THE
OPPORTUNITY TO BUILD A CRITICAL MASS OF CUSTOMERS NECESSARY TO ACHIEVE INCREASED
SALES AND MARKET SHARE.

     We believe that we must achieve increased sales and market share to become
profitable. Accordingly, we have spent significant amounts on an aggressive
brand-enhancement strategy, which includes advertising, promotional programs and
public relations activities; however, we have significantly reduced our
advertising spending and expect that our advertising spending will remain at
these reduced levels or be further reduced in the future. Our brand promotion
efforts may not be successful or may not sufficiently increase our revenues to
enable us to increase our advertising and promotional expenses. In addition,
even if our brand recognition increases, the number of new users or transactions
in our online store may not increase. Furthermore, our reduction in advertising
spending may adversely impact our revenues.

WE ANTICIPATE OUR HISTORY OF LOSSES WILL CONTINUE, WHICH MAY DECREASE THE VALUE
OF OUR STOCK.

     We believe that we will continue to incur operating losses for the
foreseeable future. As of June 30, 2000, we had an accumulated deficit of
approximately $91.7 million, and we have not achieved profitability. We incurred
net losses of approximately $15.0 and $25.3 million for the six months ended
June 30, 1999 and June 30, 2000, respectively. Specifically, we expect to incur
substantial costs and operating expenses related to:

     .    providing promotional benefits to our customers, such as product
          discounts;

     .    expanding our existing sales and distribution channels to address
          natural and healthy living products retailers and manufacturers;

     .    establishing and maintaining strategic relationships with primary care
          physicians, alternative health providers, corporate health plans, HMOs
          and physician networks, wellness centers and health clubs;

     .    expanding our product offerings and Web site content;

     .    upgrading our Web site, transaction-processing systems, order
          fulfillment capabilities and inventory management systems; and

     .    developing and renewing strategic relationships with companies in the
          vitamins, supplements, minerals and natural and healthy living
          products industry, such as content providers and vendors.

     Because we will spend these amounts before we receive any incremental
revenues from these efforts, our losses will be greater than the losses we would
incur if we developed our business more slowly. In addition, we may find that
these efforts are more expensive than we currently anticipate, which would
further increase our losses.

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                                      18
<PAGE>

DISAPPOINTING QUARTERLY REVENUE OR OPERATING RESULTS COULD CAUSE OUR STOCK PRICE
TO FALL.

     Our quarterly revenue and operating results have fluctuated significantly
year over year and may fluctuate significantly in future quarters due to a
variety of factors, including:

     .    fluctuations in the number of visitors to our Web site as a result of
          the relative successes or failures of our advertising campaign and our
          ability to convert visitors into customers;

     .    demand for our products;

     .    our use of advertising, discount pricing and promotions;

     .    amount and timing of our operating costs and capital expenditures,
          which are currently difficult to predict;

     .    introductions by our competitors of new or enhanced Web sites,
          products or services;

     .    fluctuations in shipping costs or delivery times based on changes in
          the market for distribution services;

     .    management of our inventory levels and fulfillment operations as we
          introduce new inventory and order fulfillment staff and systems;

     .    price competition and fluctuations in the wholesale prices of the
          products we sell as market demand for our products and competition
          increase;

     .    changes in the mix of products we sell in response to changes in
          customer demand;

     .    shifts in research findings, media publicity and consumer perception
          regarding vitamins, supplements and minerals;

     .    expenses related to potential strategic relationships or acquisitions
          of content, technology or businesses;

     .    changes in or enforcement of government regulations affecting our
          business;

     .    changes in our management team and key personnel; and

     .    continuing fluctuations in general economic conditions and economic
          conditions specific to the Internet, electronic commerce and the
          vitamins, supplements, minerals and natural and healthy living
          products industries as use and visibility of vitamins, supplements and
          minerals increase.

     Our limited operating history makes it difficult to assess the impact of
these factors on our operating results.

CURRENT AND FUTURE EXTENSIVE FEDERAL, STATE AND LOCAL GOVERNMENT REGULATIONS MAY
RESTRICT THE WAY WE SELL OUR PRODUCTS, RESULTING IN RESTRICTIONS ON THE PRODUCTS
AND CONTENT WE OFFER OUR CUSTOMERS AND SIGNIFICANT ADDITIONAL EXPENSES.

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                                      19
<PAGE>

     The laws, regulations and enforcement policies governing our dietary
supplement products are relatively new and still evolving and we cannot predict
what enforcement positions the FDA or other governmental agencies may take with
respect to our selling methods. In general, the dietary supplement industry has
adopted more aggressive interpretations of these laws than have the relevant
regulatory agencies. We cannot be certain that our attempts, or those of our
suppliers, to comply with laws and regulations in this area are or will be
deemed sufficient by the appropriate regulatory agencies. Enforcement actions by
any of these agencies can result in civil and criminal penalties, an injunction
to stop or modify certain selling methods, seizure of our products, adverse
publicity or voluntary recalls and labeling changes. If the FDA, FTC or other
federal or state governmental agency were to undertake an enforcement action
against us, it could cause an immediate decrease in our revenues, cause us to
incur significant additional expenses and result in a decrease in our stock
price. State professional licensing bodies also may object to the provision of
health-related information or advice on our site. Our efforts to comply with
existing laws and regulations may be costly, may force us to change our selling
strategy and may not be successful. We cannot assure you that we will be able to
comply with any existing or future laws, regulations, interpretations or
applications without incurring significant costs or adjusting our business
model.

WE MAY FAIL TO COMPETE EFFECTIVELY IN OUR MARKET, WHICH COULD RESULT IN LOWER
REVENUES OR LOSS OF MARKET SHARE.

     The electronic commerce industry is new, rapidly evolving and intensely
competitive, and we expect competition to intensify in the future. If we fail to
attract and retain a large customer base and our competitors establish a market
position more prominent than ours, we could experience declines in our revenue
and a loss of market share. Barriers to entry are minimal and current and new
competitors can launch sites at a relatively low cost. In addition, the
vitamins, supplements, minerals and natural and healthy living products market
is very competitive and highly fragmented, with no clear dominant leader and
increasing public and commercial attention. We compete with a variety of other
companies, including traditional vitamins, supplements, minerals and natural and
healthy living products retailers, the online retail initiatives of several such
traditional retailers and numerous other companies.

IF WE ARE UNABLE TO ADAPT TO RAPID TECHNOLOGICAL CHANGE, OUR CUSTOMERS MAY CEASE
BUYING OUR PRODUCTS OR FOREGO THE USE OF OUR SERVICES AND USE THOSE OF OUR
COMPETITORS.

     To remain competitive, we must continue to enhance and improve the
functionality and features of our online store. If our competitors introduce new
products and services embodying new technologies, or if new industry standards
and practices emerge, our existing Web site and proprietary technology and
systems may be rendered obsolete. Our future success will depend on our ability
to:

     .    enhance our existing services;

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                                      20
<PAGE>

     .    internally develop and/or license from third parties new services and
          technologies; and

     .    respond to technological advances and emerging industry standards and
          practices on a cost-effective and timely basis.

     Moreover, we may use new technologies ineffectively or fail to adapt our
Web site, transaction-processing systems, order fulfillment infrastructure and
inventory management systems to customer requirements or emerging industry
standards.

IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY ADEQUATELY, WE COULD LOSE
OUR COMPETITIVE ADVANTAGE IN THE VITAMINS, SUPPLEMENTS AND MINERALS AND NATURAL
AND HEALTHY LIVING PRODUCTS MARKET.

     Our trademarks, service marks, copyrights, trade dress, which is the
appearance and packaging of our products, trade secrets and similar intellectual
property are critical to our success. The unauthorized reproduction or other
misappropriation of our trademarks or other intellectual property could diminish
the value of our proprietary rights or goodwill. We rely upon a combination of
trademark and copyright law, trade secret protection and confidentiality or
license agreements with our employees, affiliates and others to protect our
proprietary rights. We have submitted trademark and service mark applications
for our name combined with our logo, and these applications are pending.
Effective trademark, service mark, copyright and trade secret protection may not
be available, and the steps we have taken and may take in the future to protect
our proprietary rights may not be adequate. For instance, we may not be able to
register our name combined with our logo as a federal trademark because there
are other companies using the words "mother nature" who may have prior rights in
those words. In addition, we may not be able to prevent other people from using
the words "mother nature" in their businesses. It is possible that others could
use the words "mother nature" in such a way as to damage the goodwill associated
with our business or try to prevent the use of our name or trademark. In
addition, we license our trademarks and other intellectual property to third
parties, and we cannot be certain that such licensees will not take actions that
harm the value of our proprietary rights.

IF WE ARE UNABLE TO PREVENT THIRD PARTIES FROM ACQUIRING DOMAIN NAMES THAT ARE
SIMILAR TO, INFRINGE UPON OR OTHERWISE DECREASE THE VALUE OF OUR DOMAIN NAMES,
WE COULD LOSE OUR COMPETITIVE ADVANTAGE IN THE VITAMINS, SUPPLEMENTS AND
MINERALS AND NATURAL AND HEALTHY LIVING PRODUCTS MARKET.

     We currently hold several Web domain names relating to our brand, including
"MotherNature.com". The acquisition and maintenance of domain names generally is
regulated by governmental agencies and their designees. The regulation of domain
names in the United States and abroad is expected to change in the near future.
Governing bodies may establish additional top-level domains, appoint additional
domain name registrars or modify the requirements for holding domain names. As a
result, we may be unable to acquire or maintain relevant domain names in all
countries in which we conduct business and other parties may use domain names
similar to ours. Furthermore, the relationship between

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                                      21
<PAGE>

regulations governing domain names and laws protecting trademarks and similar
proprietary rights is unclear.

IF WE DO NOT SUCCESSFULLY EXPAND OUR DISTRIBUTION OPERATIONS, WEB SITE AND
RELATED INFORMATION SYSTEMS TO ACCOMMODATE INCREASES IN CUSTOMER DEMAND, OUR
REVENUES MAY FALL BELOW EXPECTATIONS.

     If we do not successfully expand our distribution operations to accommodate
increases in customer demand, we may not be able to increase our revenues in
accordance with the anticipated expectations of securities analysts and
investors. Due to significant increases in orders, we have recently experienced
delays in processing shipments. If we do not effectively manage the operation of
our new distribution center, we could lose customers.

     Moreover, our future success will depend in part on our ability to rapidly
expand our Web site, transaction-processing systems, order fulfillment
infrastructure and inventory management systems without systems interruptions in
order to accommodate increased traffic and demand. We are currently implementing
new technical and operational systems, including a new order processing,
inventory management, shipping and billing software package to accommodate
anticipated increases in customer traffic and order demand. In addition, we are
currently in the process of integrating our accounting and financial reporting
system with our other information systems. Any inability to scale our systems
may cause unanticipated system disruptions, slower response times, degradation
in customer service levels, impaired quality and speed of order fulfillment or
delays in reporting accurate financial information. We are not certain that we
will be able to project the rate or timing of increases, if any, in the use of
our Web site accurately or promptly enough to permit us to effectively upgrade
and expand our transaction-processing systems or to integrate smoothly any newly
developed or purchased modules with our existing systems.

EXPANDING THE BREADTH AND DEPTH OF OUR PRODUCT AND SERVICE OFFERINGS IS
EXPENSIVE AND DIFFICULT, AND THESE EFFORTS MAY NOT BE PROFITABLE OR RESULT IN
INCREASED SALES.

     We intend to continue to expand the number of products we offer on our site
by promoting new or complementary products or services. We cannot be certain
that we will be able to expand our product and service offerings in a cost-
effective or timely manner. Furthermore, any new product or service offering
that is not favorably received by consumers could damage the reputation of our
brand. The lack of market acceptance of our efforts to expand offerings or our
inability to generate satisfactory revenues from such expanded offerings could
result in decreased revenues, price reductions, reduced margins and loss of
market share. In addition, expansion of our offerings could strain our
management, financial and operational resources. For example, we may need to
incur significant marketing expenses, develop relationships with new fulfillment
partners or manufacturers or comply with new regulations.

IF WE FAIL TO PROPERLY MANAGE THE GROWTH OF OUR INVENTORY LEVELS, WE MAY BE
UNABLE TO KEEP PACE WITH CUSTOMER DEMAND OR TO SELL OUR EXCESS INVENTORY.

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                                      22
<PAGE>

     We have increased the number and range of products that we stock in
inventory in order to ensure that we can promptly deliver products to our
customers. Many of our products have a limited shelf life, and we may be unable
to sell inventory that we have stored for an extended period of time. In the
event that one or more of the products we stock do not achieve widespread
consumer acceptance, we may be required to take inventory markdowns. In
addition, the market for nutritional supplements is characterized by sudden
changes in consumer tastes. We must accurately predict these trends and stock
sufficient quantities of popular vitamins, supplements, minerals and other
products and not overstock unpopular products.

IF OUR EXISTING TECHNICAL AND OPERATIONAL SYSTEMS FAIL, WE COULD EXPERIENCE
INTERRUPTIONS OR DELAYS IN OUR SERVICE OR DATA LOSS, AND COULD BE UNABLE TO
ACCEPT AND FULFILL CUSTOMER ORDERS.

     We have experienced periodic systems interruptions which we believe may
continue to occur. Our systems and operations, including our fulfillment
operations, are vulnerable to damage or interruption from fire, flood,
earthquake, power loss, telecommunications failure, break-ins, vandalism and
similar events. Substantially all of our product development and information
management systems are in facilities we lease in Massachusetts. All of our
inventory is stored in facilities we lease in Massachusetts. In addition,
substantially all of our computer and communications hardware systems are
located at a third-party facility in Massachusetts. We have no formal disaster
recovery plans, and our insurance may not adequately compensate us for losses
that may occur. The occurrence of a natural disaster or other unanticipated
problems at our facilities in Massachusetts, or at the third-party facility in
Massachusetts, could cause interruptions or delays in our service or data loss,
or could render us unable to accept and fulfill customer orders. In addition,
any failure by the third-party facility to provide the data communications
capacity we require could result in interruptions in our service.

OUR ABILITY TO INCREASE OUR CUSTOMER BASE AND OUR SALES DEPENDS ON THE
CONTINUING CONTRIBUTION OF OUR KEY PERSONNEL AND OUR ABILITY TO ATTRACT AND
RETAIN OTHER QUALIFIED EMPLOYEES IN THE FUTURE.

     We may be unable to retain our key employees or attract and retain other
highly qualified employees in the future due to the intense competition for
qualified personnel among Internet related businesses. If we were to lose the
services of Michael L. Barach, our President, Chief Executive Officer and a
director, and Donald J. Pettini, our Chief Technology Officer or any of our
other executive officers or key employees, many of whom joined us since June
1998, we might not be able to increase our customer base and our sales. Any
officer or employee can terminate his or her relationship with us at any time.
We also do not have "key person" life insurance policies covering any of our
employees. Competition for personnel is intense, and qualified technical
personnel are likely to remain a limited resource for the foreseeable future.
Locating candidates with the appropriate qualifications, particularly in the
desired geographic location, can be costly and difficult. We may not be able to
hire the necessary personnel to implement our business strategy, or we may need
to provide higher compensation to such personnel than we currently

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                                      23
<PAGE>

anticipate. If we fail to attract and retain sufficient numbers of highly
skilled employees, we may be unable to attract customers and increase our sales.

THE LOSS OF THIRD-PARTY CONTENT PROVIDERS COULD DECREASE REVENUES, INCREASE OUR
EXPENSES AND RESULT IN A DECREASE IN OUR STOCK PRICE.

     We believe that consumers become interested in purchasing our products in
part because of the information we include on our Web site regarding health
conditions, herbal and homeopathic remedies, drug interactions and our products,
much of which is licensed from third parties, such as Healthnotes, Inc., and
Rodale. The loss of this content could require us to develop similar content or
to obtain content that is of lower quality or at a higher cost. In addition, we
cannot be certain that we will be able to license additional content on
favorable terms or at all.

WE DEPEND ON A LIMITED NUMBER OF THIRD-PARTY SUPPLIERS FOR THE PRODUCTS WE
REQUIRE TO MEET CUSTOMER DEMANDS AND IF WE FAIL TO DEVELOP OR MAINTAIN OUR
RELATIONSHIPS WITH THESE OR OUR OTHER VENDORS, THE PRODUCTS WE OFFER COULD CEASE
TO BE AVAILABLE TO US OR COULD BE AVAILABLE ONLY AT HIGHER COST OR AFTER A LONG
DELAY.

     We do not have long-term contracts with any of our suppliers. We cannot
assure you that in the future we will be able to procure sufficient quantities
of our products on acceptable commercial terms. In the second quarter of 2000,
two suppliers, Reliance Vitamin Company and Super Nutrition Distributors,
accounted for 33% of our inventory purchases, and in the corresponding quarter
of 1999, accounted for 52% of the inventory we purchased. Furthermore, we
purchase nearly all of our private label products through one supplier, Reliance
Vitamin Company.

THE FAILURE OF THIRD-PARTY DELIVERY SERVICES TO PROMPTLY DELIVER PRODUCTS WOULD
IMPAIR OUR ABILITY TO MAINTAIN GOOD RELATIONSHIPS WITH EXISTING CUSTOMERS,
ATTRACT NEW CUSTOMERS AND GENERATE SALES.

     We rely on third-party carriers, such as the United States Postal Service,
UPS and Federal Express, for product shipments, including shipments to and from
our order fulfillment facility. We are therefore subject to the risks, including
employee strikes and delays due to inclement weather, associated with these
carriers' ability to provide delivery services to meet our shipping needs.

PRODUCT LIABILITY CLAIMS AGAINST US COULD RESULT IN ADVERSE PUBLICITY AND
POTENTIALLY SIGNIFICANT MONETARY DAMAGES.

     Like other retailers, distributors and manufacturers of products that are
invested, we face an inherent risk of exposure to product liability claims in
the event that the use of the products we sell results in injury. We may be
subjected to various product liability claims, including claims that the
products we sell contain contaminants, are improperly labeled or include
inadequate instructions as to use or inadequate warnings concerning side effects
and interactions with other substances. We cannot predict whether product
liability claims will be brought against us in the future or the effect of any
resulting adverse publicity on our business. Moreover, we may

________________________________________________________________________________

                                      24
<PAGE>

not have adequate resources in the event of a successful claim against us. We do
not maintain product liability insurance and do not have formal indemnification
arrangements with the third-party vendors from which we source our products.
Further, our general liability insurance may not cover product liability claims.
If our insurance protection is inadequate and we are not indemnified by our
third-party vendors, the successful assertion of product liability claims
against us could result in potentially significant monetary damages.

     Although many of the ingredients in our products are vitamins, minerals,
herbs and other substances for which there is a long history of human
consumption, some of our products contain innovative ingredients or combinations
of ingredients. There is little long-term experience with human consumption of
some of these innovative product ingredients or combinations in concentrated
form. In addition, interactions of these products with other similar products,
prescription medicines and over-the-counter drugs have not been fully explored.
Although the manufacturer may perform research and tests in connection with the
formulation and production of the products that we sell, there are no conclusive
clinical studies regarding many of our products.

WE MAY BE LIABLE FOR CONTENT WE PROVIDE ON OUR WEB SITE OR WHICH IS ACCESSED
FROM OUR WEB SITE, WHICH COULD EXPOSE US TO POTENTIALLY SIGNIFICANT MONETARY
DAMAGES.

     As a publisher of Internet content, we face potential liability for
negligence, copyright, patent or trademark infringement, defamation or other
claims based on the nature and content of materials that we publish or
distribute. In the past, plaintiffs have brought such claims and sometimes
successfully litigated them against online services. Although we carry general
liability insurance, our insurance may not cover claims of these types or may be
inadequate to indemnify us for all liability imposed on us. We could be exposed
to potentially significant monetary damages if we were held liable based on our
Internet content.

IF THERE IS UNFAVORABLE PUBLICITY REGARDING NUTRITIONAL SUPPLEMENTS, OUR
SALES WILL LIKELY DECLINE.

     We believe the vitamins, supplements and minerals market is affected by
national media attention regarding the consumption of nutritional supplements.
Future research reports or publicity that are perceived as less favorable or
that question earlier research or publicity could result in a decline in our
sales. Because of our dependence upon consumer perceptions, adverse publicity
associated with illness or other undesirable effects resulting from the
consumption of the products we sell or any similar products distributed by other
companies, whether or not accurate, also could damage the trust our customers
have in our products and could result in a decline in our sales. Unfavorable
publicity could arise even if the adverse effects associated with products
resulted from consumers' failure to consume such products appropriately.

ANY FUTURE ACQUISITIONS OF COMPANIES OR TECHNOLOGIES MAY RESULT IN DISTRACTION
OF OUR MANAGEMENT AND DISRUPTIONS TO OUR BUSINESS.

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                                      25
<PAGE>

     We may acquire or make investments in complementary businesses,
technologies, services or products if appropriate opportunities arise. From time
to time we may engage in discussions and negotiations with companies regarding
our acquiring or investing in those companies' businesses, products, services or
technologies. We cannot make assurances that we will be able to identify future
suitable acquisition or investment candidates, or if we do identify suitable
candidates, that we will be able to make the acquisitions or investments on
commercially acceptable terms or at all. If we acquire or invest in another
company, we could have difficulty assimilating that company's personnel,
operations, technology or product and service offerings. In addition, certain
changes in our management could occur and the key personnel of the acquired
company may decide not to work for us. These difficulties could disrupt our
ongoing business, distract our management and employees, increase our expenses
and adversely affect our results of operations. The issuance of equity
securities could be dilutive to our existing shareholders. As of the date of
this Quarterly Report on Form 10-Q, we have no agreement to enter into any
material investment or acquisition transaction.

WE DO NOT EXPECT TO PAY DIVIDENDS.

     We have never declared or paid any cash dividends on our capital stock. We
presently intend to retain future earnings, if any, to finance the expansion of
our business and do not expect to pay any cash dividends in the foreseeable
future.

WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS IN OUR CHARTER, BY-LAWS AND DELAWARE
LAW THAT COULD DELAY OR PREVENT AN ACQUISITION OF OUR COMPANY, EVEN IF THE
ACQUISITION WOULD BE BENEFICIAL TO OUR STOCKHOLDERS.

     Certain provisions of our certificate of incorporation, our by-laws and
Delaware law could make it more difficult for a third party to acquire us, even
if doing so would be beneficial to our stockholders.

                   RISKS OF DOING BUSINESS OVER THE INTERNET

IF USE OF THE INTERNET AND GROWTH OF THE ONLINE VITAMINS, SUPPLEMENTS, MINERALS
AND OTHER NATURAL AND HEALTHY LIVING PRODUCTS MARKET DO NOT CONTINUE, WE MAY NOT
ACHIEVE THE CRITICAL MASS OF CUSTOMERS NECESSARY FOR SUSTAINING REVENUES AND
ACHIEVING PROFITABLE OPERATIONS.

     Our future revenues and profits, if any, substantially depend upon the
widespread acceptance and use of the Internet as an effective medium of business
and communication by our target consumers. Rapid growth in the use of and
interest in the Internet has occurred only recently. As a result, acceptance and
use may not continue to develop at historical rates, and a sufficiently broad
base of consumers may not use the Internet and other online services as a medium
of commerce. In addition, the Internet may not be accepted as a viable long-term
commercial marketplace for a number of reasons, including potentially inadequate
development of the necessary network infrastructure or delayed development of
enabling technologies and performance improvements. Our continued growth will
depend, in large part, upon third parties maintaining the Internet
infrastructure to provide a

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                                      26
<PAGE>

reliable network backbone with the speed, data capacity, security and hardware
necessary for reliable Internet access-and services.

     Further, the online market for vitamins, supplements, minerals and other
natural and healthy living products is in its infancy. The market is
significantly less developed than the online market for books, auctions, music,
software and numerous other consumer products. Even if use of the Internet and
electronic commerce continues to increase, the rate of growth, if any, of the
online vitamins, supplements, minerals and other natural and healthy living
products market could be significantly less than the online market for other
products. Our rate of revenue growth and prospects for profitability could
therefore be significantly less than that of other online merchants.

IF WE FAIL TO PROVIDE ADEQUATE ELECTRONIC COMMERCE SECURITY OR FAIL TO CONTROL
CREDIT CARD FRAUD, WE COULD BE SUBJECT TO INCREASED OPERATING COSTS, AS WELL AS
CLAIMS, LITIGATION OR OTHER POTENTIAL LIABILITY.

     Since nearly all of our revenues are derived from credit card transactions,
consumer concerns regarding the security of transactions conducted on our site
and users' privacy may inhibit the growth of use of our site. To transmit
confidential information securely, such as customer credit card numbers, we rely
on encryption and authentication technology that we license from third parties.
We cannot predict whether we will experience compromises or breaches of the
technologies we use to protect customer transaction data. Furthermore, our
servers may be vulnerable to computer viruses, physical or electronic break-ins
and similar disruptions. We may need to expend significant additional capital
and other resources to protect against security breaches or alleviate problems
caused by any such breaches. We cannot guarantee that security breaches will not
occur. Any penetration of our network security or misappropriation of our users'
personal or credit card information could subject us to liability. We may be
liable for claims based on unauthorized purchases with credit card information,
impersonation or other similar fraud claims. Claims also could be based on other
misuse of personal information, including use for unauthorized marketing
purposes. These claims could result in costly litigation.

     Under current credit card practices, merchants are liable for fraudulent
credit card transactions where, as is the case with the transactions we process,
the merchant does not obtain a cardholder's signature. A failure to adequately
control fraudulent credit card transactions could result in increased operating
costs, as well as claims, litigation and other potential liability.

PRIVACY CONCERNS MAY LIMIT THE INFORMATION WE CAN GATHER, WHICH COULD LIMIT THE
EFFECTIVENESS OF OUR SALES AND MARKETING EFFORTS AND CAUSE US TO INCUR
SIGNIFICANT ADDITIONAL EXPENSES.

     Web sites typically place "cookies" on a user's hard drive without the
user's knowledge or consent. Although some companies refuse to use cookies, we
use them for a variety of reasons, including the collection of data derived from
the user's Internet activity. We use this data to better target our sales and
marketing efforts to our current and prospective customer base. Accordingly, any
reduction or

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                                      27
<PAGE>

limitation in the use of cookies could limit the effectiveness of our sales and
marketing efforts. Most currently available Web browsers allow users to remove
cookies at any time or to prevent cookies from being stored on their hard
drives. In addition, some commentators, privacy advocates and governmental
bodies have suggested limiting or eliminating the use of cookies. For example,
the European Union recently adopted a directive addressing data privacy that may
limit the collection and use of certain information regarding Internet users.
This directive may limit our ability to target advertising or collect and use
information in certain European countries. In addition, the FTC and several
states have investigated the use by certain Internet companies of personal
information. We could incur significant additional expenses if new regulations
regarding the use of personal information are introduced or if our privacy
practices are investigated.

OUR BUSINESS IS SUBJECT TO GOVERNMENT REGULATION OF THE INTERNET AND OTHER LEGAL
UNCERTAINTIES WHICH COULD PREVENT OUR BUSINESS FROM GROWING OR EXPOSE US TO
UNANTICIPATED LIABILITIES.

     Existing or future legislation could limit growth in use of the Internet,
which would curtail our revenue growth. Statutes and regulations directly
applicable to Internet communications, commerce and advertising are becoming
more prevalent. The law remains largely unsettled, however, even in areas where
there has been legislative action. It may take years to determine whether and
how existing laws governing intellectual property, privacy, libel and taxation
apply to the Internet, electronic commerce and online advertising. In addition,
the growth and development of electronic commerce may prompt calls for more
stringent consumer protection laws, both in the United States and abroad.
Congress recently passed laws regarding online children's privacy, copyrights
and taxation. In addition, we do not currently collect sales or other similar
taxes for physical shipments of goods into states other than Massachusetts and
Pennsylvania. However, local, state or foreign jurisdictions may seek to impose
sales tax collection obligations on us. If one or more states or any foreign
country successfully asserts that we should collect sales or other taxes on the
sale of our products, it could also prevent our business from growing or expose
us to unanticipated liabilities.

             RISKS ASSOCIATED WITH THE MARKET FOR OUR COMMON STOCK

OUR OFFICERS AND DIRECTORS CONTROL 27% OF OUR COMMON STOCK AND MAY BE ABLE TO
SIGNIFICANTLY INFLUENCE CORPORATE ACTIONS.

     As of June 30, 2000, our executive officers, directors and entities
affiliated with them controlled approximately 27% of our common stock. As a
result, these stockholders, acting together, maybe able to significantly
influence all matters requiring approval by our stockholders, including the
election of directors and the approval of mergers or other business combination
transactions.

WE ARE LIKELY TO REQUIRE ADDITIONAL FINANCING AND MAY NOT BE ABLE TO RAISE
ADDITIONAL FINANCING ON FAVORABLE TERMS OR AT ALL.

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                                      28
<PAGE>

     We anticipate that we are likely to need additional financing to execute on
our business model within the next nine months or sooner if we need to respond
to business contingencies. Such contingencies may include the need to:

     .        fund additional advertising expenditures;

     .        develop new or enhance existing site content, features or
              services;

     .        enhance out operating infrastructure;

     .        respond to competitive pressures; or

     .        acquire complementary businesses or necessary technologies.

     If we raise additional funds through the issuance of equity or convertible
debt securities, the percentage ownership of our stockholders will be reduced,
and these newly-issued securities may have, preferences or privileges senior to
those of existing stockholders. We cannot assure you that additional financing
will be available on terms favorable to us, or at all. If adequate funds are not
available or are not available on acceptable terms, our ability to fund our
operations, take advantage of unanticipated opportunities, develop or enhance
our site content, features or services, or otherwise respond to competitive
pressures would be significantly limited. For a further discussion, please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operation--Liquidity and Capital Resources."

MARKET PRICES OF EMERGING INTERNET COMPANIES HAVE BEEN HIGHLY VOLATILE AND
SUBJECT TO SIGNIFICANT DECLINES, AND THE MARKET PRICE OF OUR STOCK MAY EXHIBIT
VOLATILITY OR EXTREME DECLINES AS WELL.

     The stock market has experienced significant price and trading volume
fluctuations, and the market prices of technology companies, particularly
Internet companies, have been extremely volatile. As is frequently the case with
the stocks of such Internet companies, the market price of our common stock has
been, and may continue to be, volatile. Factors such as quarterly fluctuations
in results of operations, variations in levels of advertising spending, the
introduction of new products by us or our competitors, increased competition,
expenses or other difficulties associated with assimilating companies we
acquire, changes in the mix of sales channels, and macroeconomic conditions
generally, may have a significant impact on the market price of our stock. Any
shortfall in revenue or earnings from the levels anticipated by securities
analysts could have an immediate and significant adverse effect on the market
price of our common stock in any given period. In addition, the stock market has
from time to time experienced extreme price and volume fluctuations, which have
particularly affected the market price for many Internet companies and which, on
occasion, have appeared to be unrelated to the operating performance of such
companies. In the past, following periods of volatility in the market price of a
public company's securities, securities class action litigation has often been
instituted against that company. Such litigation could result in substantial
costs and a diversion of management's attention and resources.

     In addition, similar to other Internet companies in the
business-to-consumer space, our stock price has dropped significantly over the
past several months and has remained substantially below our initial public
offering price since shares of our common stock began trading. If the price of
our common stock does not increase, we may be unable to meet some of the listing
requirements of the Nasdaq National Market on which shares of our common stock
are traded and may become unable to maintain our listing there.
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                                      29
<PAGE>

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Derivative Financial Instruments, Other Financial Instruments, and Derivative
Commodity Instruments.

At June 30, 2000, we did not participate in any derivative financial
instruments. The Company's financial instruments include cash and cash
equivalents, accounts receivable, notes payable, capital lease obligations, and
accounts payable, and are carried at cost or carrying value. These amounts were
not materially different from their fair values. The Company uses a discounted
cash flows methodology to calculate the fair value of the notes payable and
capital leases. We hold no investment securities that would require disclosure
of market risk.

Primary Market Risk Exposure.

Our primary market risk exposure is in the area of interest rate risk. Our
available cash balances are invested in short-term interest bearing securities.
We believe that our exposure to interest rate fluctuations will continue to be
modest.

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                                      30
<PAGE>

                                     PART II

ITEM 1.    Legal Proceedings.

    On October 8, 1999, a civil complaint was filed as Joseph Reiners d/b/a
Mother Natures Vitamins v. MotherNature.com, Inc., in the United States District
Court for the District of Minnesota, Civil Action No. 99-CV-1531 DSD/JMM. In the
lawsuit, the plaintiff alleged that the Company's use of the MOTHERNATURE.COM &
Design logo is likely to cause confusion as to source or association between the
Company's goods and services and those offered by the plaintiff. The Company has
asserted counterclaims alleging, among other things, that the plaintiff has
violated unfair competition laws. The parties currently are engaged in
settlement discussions.

    On June 30, 1999, a civil complaint was filed as Ross A. Love v.
MotherNature.com, Inc., MotherNature's General Store, Inc. and Michael Barach,
individually, in the Superior Court of Suffolk County, Massachusetts, Case No.
99-3087C. An amended complaint was filed on August 19, 1999 as Ross A. Love v.
                                                               ---------------
MotherNature.com, Inc. and Michael Barach., individually. In the lawsuit, the
-----------------------------------------
plaintiff, a founder and former officer and director of the Company, alleges
causes of action including economic duress and breach of fiduciary duty. Mr.
Love, among other things, alleges that he was compelled under economic duress to
sign an agreement in connection with his termination of employment. In addition,
Mr. Love claims that we breached our fiduciary duty to him as a stockholder by
allegedly failing to provide him with certain information in connection with our
May 1999 preferred stock financing. On or about February 10, 2000, Mr. Love
stipulated to the dismissal without prejudice of all claims seeking damages
resulting from Mr. Love's lack of participation in the May 1999 preferred stock
financing and the dismissal without prejudice of certain claims asserted against
Michael Barach, individually. On or about April 7, 2000, the court entered
summary judgment in the Company's favor as to Mr. Love's economic duress claim.
Mr. Love seeks recovery of actual damages which he alleges to be in excess of
$100,000,000. We believe that the remaining claims made by Mr. Love are without
merit and intend to defend this lawsuit vigorously.

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

ITEM 2.    Changes in Securities and Use of Proceeds.

    Our registration statement of Form S-1 under the Securities Act of 1933, as
amended, for our initial public offering became effective on December 9, 1999.
The managing underwriters were Bear, Stearns & Co,. Inc., Hambrecht & Quist, and
Wit Capital Corporation. Of 4,100,000 shares of common stock offered, all shares
were sold by us and no shares were included by selling security holders. The
initial public offering closed on December 15, 1999. The aggregate offering
price of


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                                      31
<PAGE>

our initial public offering was approximately $53.3 million with proceeds to us,
after deducting offering expenses of $4.9 million, of $48.4 million. During the
six months ended June 30, 2000 we used approximately $14.1 million of the net
offering proceeds for operating activities of the business, primarily working
capital and offline advertising expenditures. During the first and second
quarters we made capital investments of $182,600, primarily for computer
equipment and software. We also loaned $125,000 to an officer of the Company.
Our financing activities included $52,800 of capital lease payments and the
repayment of our note payable. We also paid approximately $56,000 for issuance
costs of our initial public offering. We have not used any of the net offering
proceeds for construction of plant, building or facilities, purchases of real
estate, acquisition of other businesses. Except for the officer's loan, none of
the net offering proceeds were paid directly or indirectly to our directors,
officers or their associates, persons owning 10% or more of any class of our
securities or of our affiliates. The use of the proceeds from the offering does
not represent a material change in the use of proceeds described in the
registration statement.

ITEM 4.    Submission of matters to a Vote of Security Holders.

         A.     The annual meeting of stockholders of MotherNature.com was held
on June 15, 2000.

         B.     The directors elected at the meeting are Michael I. Barach,
Keith M. Kerman, Brent R. Knudsen and Marc D. Poirier.

         C.     A vote was proposed to elect 4 members of the Board of Directors
to serve for the ensuing year or until their respective successors have been
duly elected and qualified or until their earlier resignation or removal:

Nominee                   Votes for Nominee        Votes Withheld
-------                   -----------------        --------------
Michael I. Barach             11,264,466               423,355
Keith M. Kerman               11,630,562                57,259
Brent R. Knudsen              11,629,372                58,449
Marc D. Poirier               11,630,322                57,499

     A proposal to approve an increase in the number of shares of Common Stock,
$.01 par value, available for issuance under the MotherNature.com, Inc. 1999
Stock Plan from 118,473 to 865,00 shares was approved and adopted with
10,855,072 shares voting in favor, 786,594 voting against, and 16,115
abstaining.


ITEM 5.         Other Information.

  On April 27, 2000 Mr. Jason Olim resigned from the Company's Board of
Directors.

  On June 9, 2000, Mr. Placido Corpora resigned from the Company's Board of
Directors and did not stand for re-election at the Company's annual meeting.


________________________________________________________________________________

                                      32
<PAGE>

  On June 14, 2000, Mr. Michael A. Greeley resigned from the Company's Board of
Directors and did not stand for re-election at the Company's annual meeting.

  On June 15, 2000, the Company's Board of Directors elected John G. Berylson to
serve as a member of the Board of Directors to serve for the ensuing year or
until his successor has been duly elected and qualified or until his earlier
resignation or removal.


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                                      33
<PAGE>
ITEM 6.

A. Exhibits

Exhibit No.          Description

   27.1       Financial Date Schedule (filed herewith).



B. Reports on Form 8-K.

         We did not file any Current Reports on Form 8-K during the quarterly
period ended June 30, 2000.


________________________________________________________________________________

                                      34
<PAGE>

                                   SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) 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.

                                MOTHERNATURE.COM, INC.
Date: August 14, 2000

                                By: /s/ Michael L. Bayer
                                   ------------------------------------
                                   Michael L. Bayer
                                   Vice President of Finance,
                                   Chief Financial Officer and Treasurer
                                   (Principal Financial Officer and
                                   Chief Accounting Officer)


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