UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2001.

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

Commission File Number: 0-28133

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

|                                                    |                       
|--------------------------------------------------- | ----------------------
|DELAWARE                                            | 52-1990403            
|(State or other jurisdiction of                     | (I.R.S. Employer      
|incorporation or organization)                      | Identification Number)
|                                                   
|                                                   
|                                                   
|                                                   
|                                                   
|                                                   
|                                                   
|                                                   
|                                                   
|                                                   
|                                                   
|                                                   
|13530 Dulles Technology Dr., Suite 500, Herndon, VA | 20171                 
|(Address of principal executive offices)            | (Zip Code)            

REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE IS (703) 793-8210

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

The number of shares of the Registrants Common Stock outstanding as of August
11, 2001 was 26,616,609.





---



LIFEMINDERS, INC.

INDEX

|          |  |                                                                                       |  |          |    | 
|--------- |  | ------------------------------------------------------------------------------------- |  | -------- | -- | 
|          |  |                                                                                       |  | Page No.
|          |  |                                                                                       |  |         
|PART I-   |  | FINANCIAL INFORMATION                                                                 |  |          | 3  | 
|         
|         
|         
|         
|Item 1.   |  | Consolidated Financial Statements                                                     |  |          | 3  | 
|         
|         
|         
|         
|Item 2.   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  |          | 13 | 
|         
|         
|         
|         
|Item 3.   |  | Quantitative and Qualitative Disclosure about Market Risk                             |  |          | 19 | 
|         
|         
|         
|         
|PART II - |  | OTHER INFORMATION                                                                     |  |          | 26 | 
|         
|         
|         
|         
|Item 1.   |  | Legal Proceedings                                                                     |  |          | 26 | 
|         
|         
|         
|         
|Item 2.   |  | Change in Securities                                                                  |  |          | 26 | 
|         
|         
|         
|         
|Item 3.   |  | Defaults Upon Senior Securities                                                       |  |          | 26 | 
|         
|         
|         
|         
|Item 4.   |  | Submission of Matters to a Vote of Securities Holders                                 |  |          | 26 | 
|         
|         
|         
|         
|Item 5.   |  | Other Information                                                                     |  |          | 26 | 
|         
|         
|         
|         
|Item 6.   |  | Exhibits and Reports on Form 8-K                                                      |  |          | 26 | 





---



PART I FINANCIAL INFORMATION
      Item 1. Consolidated Financial Statements

LIFEMINDERS, INC.



CONSOLIDATED BALANCE SHEETS
( $ in thousands, except share data)



|                                                                                                                                                                                               |  |                                      |                                            |              |   |         |          |      |   |             |        | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------ | ------------------------------------------ | ------------ | - | ------- | -------- | ---- | - | ----------- | ------ | 
|December 31,                                                                                                                                                                                   |  | June 30,                            
|                                                                                                                                                                                               |  |                                      |                                            |              |   | 2000    |          | 2001
|                                                                                                                                                                                               |  |                                      |                                            |              |   |         |          |     
|                                                                                                                                                                                               |  |                                      |                                            |              |   |         |          |      |   | (Unaudited)
|                                                                                                                                                                                               |  | Assets                              
|Current assets:                                                                                                                                                                                |  |                                     
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Cash and cash equivalents                                                                                                                                                                      |  | $                                    | 42,771                                     |              |   | $       | 53,791   |     
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Marketable securities, held to maturity                                                                                                                                                        |  |                                      | 19,939                                     |              |   |         | 1,000    |     
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Accounts receivable, net of allowance for doubtful accounts of $1,678 and
$691 (unaudited)                                                                                                     |  |                                      | 9,090                                      |              |   |         | 1,165    |     
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Prepaid expenses and other current assets                                                                                                                                                      |  |                                      | 6,324                                      |              |   |         | 767      |     
|                                                                                                                                                                                               |  |                                      |                                            |              |   |         |          |     
|                                                                                                                                                                                               |  |                                      | Total current assets                       |              |   | 78,124  |          |      |   | 56,723      |       
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Property and equipment, net                                                                                                                                                                    |  |                                      | 23,806                                     |              |   |         | 2,517    |     
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Intangible assets, net                                                                                                                                                                         |  |                                      | 4,159                                      |              |   |         |         |     
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Restricted cash                                                                                                                                                                                |  |                                      | 7,700                                      |              |   |         | 100      |     
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Other assets                                                                                                                                                                                   |  |                                      | 747                                        |              |   |         | 595      |     
|                                                                                                                                                                                               |  |                                      |                                            |              |   |         |          |     
|                                                                                                                                                                                               |  |                                      |                                            | Total assets |   | $       | 114,536  |      |   | $           | 59,935 | 
|                                                                                                                                                                                               |  |                                      |                                            |              |   |         |          |     
|                                                                                                                                                                                               |  | Liabilities and
Stockholders Equity
|Current liabilities:                                                                                                                                                                           |  |                                     
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Accounts payable                                                                                                                                                                               |  | $                                    | 5,411                                      |              |   | $       | 792      |     
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Accrued expenses                                                                                                                                                                               |  |                                      | 2,804                                      |              |   |         | 4,306    |     
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Deferred revenue                                                                                                                                                                               |  |                                      | 288                                        |              |   |         | 64       |     
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Notes payable                                                                                                                                                                                  |  |                                      | 782                                        |              |   |         |         |     
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Capital lease obligations                                                                                                                                                                      |  |                                      | 1,370                                      |              |   |         | 1,069    |     
|                                                                                                                                                                                               |  |                                      |                                            |              |   |         |          |     
|                                                                                                                                                                                               |  |                                      | Total current liabilities                  |              |   | 10,655  |          |      |   | 6,231       |       
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Notes payable, net of current portion                                                                                                                                                          |  |                                      | 472                                        |              |   |         |         |     
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Capital lease obligations, net of current portion                                                                                                                                              |  |                                      | 197                                        |              |   |         |         |     
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Deferred rent                                                                                                                                                                                  |  |                                      | 43                                         |              |   |         | 50       |     
|                                                                                                                                                                                               |  |                                      |                                            |              |   |         |          |     
|                                                                                                                                                                                               |  |                                      | Total liabilities                          |              |   | 11,367  |          |      |   | 6,281       |       
|                                                                                                                                                                                               |  |                                      |                                            |              |   |         |          |     
|Commitments and contingencies                                                                                                                                                                 
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Stockholders equity:                                                                                                                                                                         
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Preferred
stock, $.01 par value; 9,665,240 shares authorized, no shares
     issued and outstanding                                                                                            |  |                                      |                                           |              |   |         |         |     
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Common stock, $.01 par value; 60,000,000 shares authorized; 25,932,217 and
     26,566,141 (unaudited) shares
issued and outstanding at December 31, 2000 and
     June 30, 2001, respectively |  |                                      | 259                                        |              |   |         | 266     
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                               |  |                                      |                                            |              |   |         |          |     
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Additional paid-in capital                                                                                                                                                                     |  |                                      | 251,393                                    |              |   |         | 248,735  |     
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Deferred compensation on employee stock options                                                                                                                                                |  |                                      | (4,904                                     | )            |   |         | (1,077   | )   
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|                                                                                                                                                                                              
|Accumulated deficit                                                                                                                                                                            |  |                                      | (143,579                                   | )            |   |         | (194,270 | )   
|                                                                                                                                                                                               |  |                                      |                                            |              |   |         |          |     
|                                                                                                                                                                                               |  |                                      | Total stockholders equity                 |              |   | 103,169 |          |      |   | 53,654      |       
|                                                                                                                                                                                               |  |                                      |                                            |              |   |         |          |     
|                                                                                                                                                                                               |  |                                      | Total liabilities and stockholders equity |              | $ | 114,536 |          |      | $ | 59,935      |       
|                                                                                                                                                                                               |  |                                      |                                            |              |   |         |          |     

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





---



LIFEMINDERS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
( $ in thousands, except share data)



|                                                                                 |                                 |   |                                    |         |                                  |   |             |         |             |   |            |         |      |  |  |  |  |   |            |         |  
|-------------------------------------------------------------------------------- | ------------------------------- | - | ---------------------------------- | ------- | -------------------------------- | - | ----------- | ------- | ----------- | - | ---------- | ------- | ---- |  |  |  |  | - | ---------- | ------- | -
|                                                                                 |                                 |   | For
the three monthsended June 30, |         | For
the six monthsended June 30,
|                                                                                 |                                 |   |                                    |         |                                 
|                                                                                 |                                 |   | 2000                               |         | 2001                             |   | 2000        |         |             |   |            |         | 2001
|                                                                                 |                                 |   |                                    |         |                                  |   |             |         |             |   |            |         |     
|                                                                                 |                                 |   | (Unaudited)                        |         | (Unaudited)                      |   | (Unaudited) |         | (Unaudited)
|Revenue:                                                                        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Advertising                     |   | $                                  | 12,756  |                                  |   | $           | 1,729   |             |   | $          | 20,582  |      |  |  |  |  |   | $          | 6,933   |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Opt-in                          |   |                                    | 1,915   |                                  |   |             | 115     |             |   |            | 5,093   |      |  |  |  |  |   |            | 414     |  
|                                                                                 |                                 |   |                                    |         |                                  |   |             |         |             |   |            |         |      |  |  |  |  |   |            |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Total revenue                                                                    |                                 |   | 14,671                             |         |                                  |   | 1,844       |         |             |   | 25,675     |         |      |  |  |  |  |   | 7,347      |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Cost of revenue                 |   | 1,495                              |         |                                  |   | 2,141       |         |             |   | 2,295      |         |      |  |  |  |  |   | 4,339      |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Impairment of long-lived assets |   |                                    |        |                                  |   |             | 2,497   |             |   |            |        |      |  |  |  |  |   |            | 2,497   |  
|                                                                                 |                                 |   |                                    |         |                                  |   |             |         |             |   |            |         |      |  |  |  |  |   |            |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Total cost of revenue                                                            |                                 |   | 1,495                              |         |                                  |   | 4,638       |         |             |   | 2,295      |         |      |  |  |  |  |   | 6,836      |        
|                                                                                 |                                 |   |                                    |         |                                  |   |             |         |             |   |            |         |      |  |  |  |  |   |            |        
|Gross margin (loss)                                                              |                                 |   | 13,176                             |         |                                  |   | (2,794      | )       |             |   | 23,380     |         |      |  |  |  |  |   | 511        |        
|                                                                                 |                                 |   |                                    |         |                                  |   |             |         |             |   |            |         |      |  |  |  |  |   |            |        
|Operating expenses:                                                             
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Sales and marketing             |   |                                    | 19,686  |                                  |   |             | 3,443   |             |   |            | 44,401  |      |  |  |  |  |   |            | 11,356  |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Research and development        |   |                                    | 1,862   |                                  |   |             | 760     |             |   |            | 3,277   |      |  |  |  |  |   |            | 2,607   |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | General and administrative      |   |                                    | 4,109   |                                  |   |             | 2,978   |             |   |            | 6,916   |      |  |  |  |  |   |            | 7,097   |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Amortization of goodwill        |   |                                    | 2,309   |                                  |   |             |        |             |   |            | 2,309   |      |  |  |  |  |   |            |        |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Depreciation and amortization   |   |                                    | 562     |                                  |   |             | 1,112   |             |   |            | 750     |      |  |  |  |  |   |            | 2,222   |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Impairment of long-lived assets |   |                                    |        |                                  |   |             | 15,526  |             |   |            |        |      |  |  |  |  |   |            | 15,526  |  
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Restructuring charge            |   |                                    |        |                                  |   |             | 11,703  |             |   |            |        |      |  |  |  |  |   |            | 14,248  |  
|                                                                                 |                                 |   |                                    |         |                                  |   |             |         |             |   |            |         |      |  |  |  |  |   |            |        
|Total operating expenses                                                         |                                 |   | 28,528                             |         |                                  |   | 35,522      |         |             |   | 57,653     |         |      |  |  |  |  |   | 53,056     |        
|                                                                                 |                                 |   |                                    |         |                                  |   |             |         |             |   |            |         |      |  |  |  |  |   |            |        
|                                                                                 | Loss from operations            |   |                                    | (15,352 | )                                |   |             | (38,316 | )           |   |            | (34,273 | )    |  |  |  |  |   |            | (52,545 | )
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Interest income, net                                                             |                                 |   | 1,606                              |         |                                  |   | 437         |         |             |   | 2,979      |         |      |  |  |  |  |   | 1,625      |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Gain on sale of assets                                                           |                                 |   |                                   |         |                                  |   | 229         |         |             |   |           |         |      |  |  |  |  |   | 229        |        
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Loss from investment in unconsolidated
entities                                  |                                 |   |                                   |         |                                  |   |            |         |             |   | (25        | )       |      |  |  |  |  |   |           |        
|                                                                                 |                                 |   |                                    |         |                                  |   |             |         |             |   |            |         |      |  |  |  |  |   |            |        
|Net loss                                                                         |                                 | $ | (13,746                            | )       |                                  | $ | (37,650     | )       |             | $ | (31,319    | )       |      |  |  |  |  | $ | (50,691    | )      
|                                                                                 |                                 |   |                                    |         |                                  |   |             |         |             |   |            |         |      |  |  |  |  |   |           
|Basic and diluted net loss per common
share                                      |                                 | $ | (0.58                              | )       |                                  | $ | (1.44       | )       |             | $ | (1.37      | )       |      |  |  |  |  | $ | (1.94      | )      
|                                                                                 |                                 |   |                                    |         |                                  |   |             |         |             |   |            |         |      |  |  |  |  |   |            |        
|Basic and diluted weighted average common
   shares and
common share equivalents |                                 |   | 23,698,834                         |         |                                  |   | 26,201,224  |         |             |   | 22,850,821 |         |      |  |  |  |  |   | 26,079,387 |        
|                                                                                 |                                 |   |                                    |         |                                  |   |             |         |             |   |            |         |      |  |  |  |  |   |            |        

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





---



LIFEMINDERS, INC

CONSOLIDATED STATEMENTS OF CASH FLOWS
( $ in thousands)

|                                                                                    |                                                                             |                                                                          |                                                                 |         |                           |        |             |         |       |        |  
|----------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ------------------------------------------------------------------------ | --------------------------------------------------------------- | ------- | ------------------------- | ------ | ----------- | ------- | ----- | ------ | -
|                                                                                    |                                                                             |                                                                          |                                                                 |         | For the six months ended,
|                                                                                    |                                                                             |                                                                          |                                                                 |         | June 30,                 
|                                                                                    |                                                                             |                                                                          |                                                                 |         |                          
|                                                                                    |                                                                             |                                                                          |                                                                 |         | 2000                      |        | 2001       
|                                                                                    |                                                                             |                                                                          |                                                                 |         |                           |        |            
|                                                                                    |                                                                             |                                                                          |                                                                 |         | (Unaudited)               |        | (Unaudited)
|Cash flows from operating activities:                                              
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Net loss                                                                    |                                                                          | $                                                               | (31,319 | )                         |        | $           | (50,691 | )    
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Adjustments to reconcile net loss to net cash used in operating activities:
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    |                                                                             |                                                                          | Impairment of long-lived assets                                 |         |                           |       |             |         |       | 18,023 |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    |                                                                             |                                                                          | Depreciation and amortization                                   |         |                           | 1,735  |             |         |       | 8,117  |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    |                                                                             |                                                                          | Amortization of intangible assets and goodwill                  |         |                           | 2,846  |             |         |       | 658    |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    |                                                                             |                                                                          | Provision for doubtful accounts receivable                      |         |                           | 1,153  |             |         |       | 628    |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    |                                                                             |                                                                          | Amortization of deferred compensation on employee stock options |         |                           | 713    |             |         |       | 673    |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    |                                                                             |                                                                          | Loss from unconsolidated entities                               |         |                           | 25     |             |         |       |       |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Changes in assets and liabilities, net of effects for acquisitions:        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    |                                                                             |                                                                          | Accounts receivable                                             |         |                           | (7,828 | )           |         |       | 7,297  |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    |                                                                             |                                                                          | Prepaid expenses and other assets                               |         |                           | 3,892  |             |         |       | 3,828  |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    |                                                                             |                                                                          | Accounts payable                                                |         |                           | 9,061  |             |         |       | (4,619 | )
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    |                                                                             |                                                                          | Accrued expenses                                                |         |                           | (115   | )           |         |       | 1,501  |  
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    |                                                                             |                                                                          | Deferred revenue                                                |         |                           | 30     |             |         |       | (224   | )
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    |                                                                             |                                                                          | Deferred rent                                                   |         |                           | 3      |             |         |       | 7      |  
|                                                                                    |                                                                             |                                                                          |                                                                 |         |                           |        |             |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Net cash used in operating activities                                       |                                                                          |                                                                 | (19,804 | )                         |        |             | (14,802 | )    
|                                                                                    |                                                                             |                                                                          |                                                                 |         |                           |        |             |        
|Cash flows from investing activities:                                              
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Acquisition of property and equipment                                       |                                                                          |                                                                 | (11,496 | )                         |        |             | (905    | )    
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Purchase of marketable securities                                           |                                                                          |                                                                 | (44,698 | )                         |        |             | (1,000  | )    
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Proceeds from maturities of marketable securities                           |                                                                          |                                                                 | 11,971  |                           |        |             | 19,939  |      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Payment of collateral for letter of credit                                  |                                                                          |                                                                 | (7,600  | )                         |        |             |        |      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Decrease in restricted cash related to draw on letter of credit             |                                                                          |                                                                 |        |                           |        |             | 7,600   |      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Investments in unconsolidated entities                                      |                                                                          |                                                                 | (4,890  | )                         |        |             |        |      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Advances made under notes receivable                                        |                                                                          |                                                                 | (250    | )                         |        |             |        |      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Repayments of notes receivable                                              |                                                                          |                                                                 |        |                           |        |             | 1,450   |      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Payments for business acquisitions, net of cash acquired                    |                                                                          |                                                                 | (3,841  | )                         |        |             | (13     | )    
|                                                                                    |                                                                             |                                                                          |                                                                 |         |                           |        |             |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Net cash (used in) provided by investing activities                         |                                                                          |                                                                 | (60,804 | )                         |        |             | 27,071  |      
|                                                                                    |                                                                             |                                                                          |                                                                 |         |                           |        |             |        
|Cash flows from financing activities:                                              
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Borrowings under notes payable                                              |                                                                          |                                                                 | 1,728   |                           |        |             |        |      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Payments of notes payable                                                   |                                                                          |                                                                 | (360    | )                         |        |             | (1,254  | )    
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Repayment of principal on capital lease obligations                         |                                                                          |                                                                 | (540    | )                         |        |             | (498    | )    
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Proceeds from issuance of common stock, net of issuance costs               |                                                                          |                                                                 | 85,898  |                           |        |             |        |      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Proceeds from issuance of common stock under ESPP                           |                                                                          |                                                                 |        |                           |        |             | 10      |      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Exercise of stock options                                                   |                                                                          |                                                                 | 463     |                           |        |             | 493     |      
|                                                                                    |                                                                             |                                                                          |                                                                 |         |                           |        |             |        
|                                                                                    | Net cash provided by (used in) financing activities                         |                                                                          |                                                                 | 87,189  |                           |        |             | (1,249  | )    
|                                                                                    |                                                                             |                                                                          |                                                                 |         |                           |        |             |        
|Net increase in cash and cash equivalents                                           |                                                                             |                                                                          | 6,581                                                           |         |                           |        | 11,020      |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|Cash and cash equivalents, beginning of period                                      |                                                                             |                                                                          | 55,524                                                          |         |                           |        | 42,771      |        
|                                                                                    |                                                                             |                                                                          |                                                                 |         |                           |        |             |        
|Cash and cash equivalents, end of period                                            |                                                                             | $                                                                        | 62,105                                                          |         |                           | $      | 53,791      |        
|                                                                                    |                                                                             |                                                                          |                                                                 |         |                           |        |             |        
|Supplemental cash flow disclosures and non-cash investing and financing
activities:
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    |                                                                             | Cash paid for interest                                                   |                                                                 | $       |                          |        |             | $       | 5     |       
|                                                                                    |                                                                             |                                                                          |                                                                 |         |                           |        |             |        
|                                                                                    |                                                                             | Adjustment of deferred compensation for unvested stock options forfeited |                                                                 | $       |                          |        |             | $       | 3,154 |       
|                                                                                    |                                                                             |                                                                          |                                                                 |         |                           |        |             |        

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





---



LIFEMINDERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Business

LifeMinders is an online direct marketing company that sends personalized email
messages to a permission-based membership comprised of more than 20 million
members. LifeMinders sends to its members personalized email messages, or
newsletters, in lifestyle-based interest categories, garnered from member
information obtained during the registration process as well as from behavioral
information through member interaction within its emails. LifeMinders email
messages contain helpful reminders and tips directed toward its members
interests and hobbies and personal events like birthdays and anniversaries.

The Company was incorporated in Maryland on August 9, 1996 (Date of Inception)
under the name of MinderSoft, Inc. In January 1999, the Company changed its
name to LifeMinders.com, Inc. and reincorporated in Delaware in July 1999. In
June 2000, the Company changed its name to LifeMinders, Inc.

The Company believes that existing cash and cash equivalents will be sufficient
to meet anticipated cash needs for working capital, investment or acquisition
related expenditures, capital expenditures and any costs associated with the
scaling back of its operations for the foreseeable future.

In May 2001, the Company announced it was significantly scaling back its
business operations and reducing its work force while it evaluated strategic
alternatives. This decision was based on the continued decline of revenue from
online advertising historically and for the foreseeable future. In addition,
opportunities for online advertising revenue will decline since the Company is
producing and delivering a substantially lower number of emails and does not
expect to develop any new email products at this time. Since May, the Company
has maintained selected email products. During the six months ended June 30,
2001, the Company undertook a restructuring plan to reduce costs and focus its
efforts on reducing operating losses while evaluating strategic alternatives.
Accordingly, restructuring charges totaling $14,248,000 were recorded during
the period. During the six months ended June 30, 2001, the Company terminated
approximately 85% of its workforce as of December 31, 2000. In addition, the
Company negotiated separation and termination agreements with the remaining
employees. Of the total restructuring charges, approximately $3,824,000
related to employee and contract termination benefits, $9,263,000 related to
the early termination of the Companys multi-year lease for its headquarters,
and approximately $1,161,000 related to early termination of various vendor
service agreements. Approximately $1,042,000 of this charge was recorded as
prepaid expenses and other current assets, $7,600,000 was recorded as restricted
cash as of December 31, 2000, and approximately $3,526,000 was paid in the six months
ended June 30, 2001. The Company expects to pay the remainder during 2001.

Prior to June 30, 2001, the Company began negotiations to merge with Cross
Media Marketing Corporation (Cross Media). In late May of 2001, representatives of
Cross Media contacted the Company to discuss a possible merger. On June 21,
2001, Cross Media and the Company executed a letter of intent and term sheet
for the merger transaction, which was subsequently modified as of June 27,
2001. On July 18, 2001, the Company and Cross Media entered into a merger
agreement and, on July 19, 2001, the Company publicly announced its intention
to merge with Cross Media. Cross Media is a direct marketing company that
integrates sophisticated marketing skills with new technologies for the sale of
multi-magazine subscription packages, discount buying club memberships and
telecommunications services. In the proposed merger transaction, Cross
Media will pay cash and issue common stock constituting total aggregate nominal
cash and stock consideration of $68.1 million (based on the average last sales
price of Cross Media common stock for the 20 trading days immediately preceding
the date of the merger agreement), subject to reduction under certain
circumstances, for all of the outstanding equity interests in the Company.
Based on the value of the proposed merger transaction, the Company determined that
the carrying value of its long-lived assets as of June 30, 2001, exceeded their
fair value. The Company performed an impairment analysis and recorded an impairment charge of $18,023,000,
of which $2,497,000 is recorded in cost of revenue. (See Note 4.)

2. Summary of Significant Accounting Policies

Basis of Presentation

The interim consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. In the opinion of management,
consolidated financial statements included in this report reflect all normal
recurring adjustments that the Company considers necessary for the fair
presentation of the





---



results of operations for the interim periods covered, and of the financial
position of the Company at the date of the interim consolidated balance sheet.
Certain information and footnote disclosures normally included in the annual
consolidated financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations. However, the
Company believes that the disclosures are adequate to understand the
information presented. The operating results for interim periods are not
necessarily indicative of the operating results for the entire year. These
consolidated financial statements should be read in conjunction with the
Companys Form 10-K/A annual report for the year ended December 31, 2000.

Use of Estimates

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

Cash and Cash Equivalents

Highly liquid investments having original maturities of 90 days or less at the
date of acquisition are classified as cash equivalents. The carrying values of
cash equivalents approximate their fair value.

Marketable Securities

Marketable securities include investments in commercial paper and U.S.
government securities for which the original maturity dates exceed 90 days.
All marketable securities mature within one year from the balance sheet date.
Marketable securities are classified as held-to-maturity and are accounted for
at amortized cost, which approximates fair value. No marketable securities were
sold prior to maturity.

Accounts Receivable, Net

The Company estimates an allowance for doubtful accounts based on a periodic
review of aged customer balances as well as general economic conditions
impacting the Companys customers.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, generally
three to five years. When property and equipment are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from the
accounts and the resulting gain or loss is included in operations. The
carrying amounts of long-lived assets are reviewed if facts or changes in
circumstances suggest that they may be impaired. If this review indicates that
the carrying amounts of long-lived assets will not be recoverable, the carrying
amounts of the long-lived assets are reduced accordingly based on the
difference between the carrying value and estimated fair value. Fair value is
estimated using discounted cash flows or other methods. During the three
months ended June 30, 2001, the Company recorded an impairment of its
long-lived assets (see Note 4).

Internal-use Software and Website Development Costs

Internal use software and web site development costs are capitalized in
accordance with Statement of Position (SOP) No. 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use, and Emerging
Issues Task Force (EITF) Issue No. 00-02, Accounting for Web Site Development
Costs. Qualifying costs incurred during the application development stage,
which consist primarily of outside services and consultants, are capitalized
and amortized over the estimated useful life of the asset. All other costs are
expensed as incurred. No costs qualified for capitalization for the six months
ended June 30, 2001 and 2000. Amortization is computed using the straight-line
method over the estimated useful lives of the assets, generally three years.

Intangible Assets

The cost of business acquisitions accounted for using the purchase method is
allocated first to identifiable assets and liabilities based on estimated fair
values. The excess of cost over identifiable assets and liabilities is recorded
as goodwill. Identifiable intangible assets are amortized on a straight-line
basis over the expected useful lives of the assets, generally one to four
years. The carrying amounts of intangible assets and goodwill are reviewed if
facts or changes in circumstances suggest that they may be impaired. If this
review indicates the carrying amounts of intangible assets and goodwill will
not be recoverable, as determined based on estimated undiscounted future cash
flows of the acquired assets, the carrying amounts of the intangible assets and
goodwill are reduced accordingly based on the difference between the carrying
value and estimated fair value. Fair value is estimated using discounted cash
flow or other methods. During the three months ended June 30, 2001, the Company
recorded an impairment of its intangible assets





---



(see Note 4).

Restricted Cash

Restricted cash consisted of amounts held as collateral to secure a letter of
credit required in lieu of a deposit for a new office lease. During the
quarter, the Company terminated the multi-year lease for its
headquarters prior to maturity, which resulted in a reduction in Restricted Cash of $7,600,000
(see Note 3) and the immediate recognition of expense related to the lease
termination.

Revenue Recognition

The Company recognizes revenue when persuasive evidence of an arrangement
exists, terms are fixed or determinable, services are performed or products are
delivered, and collection is probable. Revenue was generated primarily by
delivery of advertisements within emails to the Companys members and delivery
of names to its opt-in partners.

Advertising

Advertising arrangements consist primarily of advertisements that are displayed
within the Companys emails. Generally, advertisers pay the Company and the
Company recognizes revenue on a per email basis, based on the number of emails
delivered to the Companys members in which the advertisements are displayed.
From time to time, the Company may guarantee a minimum number of emails to be
delivered containing an advertisement directed at a specific member group.
Under these contracts, the Company is not required to forfeit fees received for
emails previously delivered and the Company has historically fulfilled the
guaranteed minimum number of emails; therefore, revenue is recognized as emails
are delivered. The Company may also guarantee a minimum number of sales orders
for the advertiser based on the emails delivered. Under these contracts the
Company defers all revenue until notification is received from the advertiser
that the minimum number of sales orders have been achieved by the advertiser.
In addition, the Company may provide advertisers the opportunity for the
exclusive right to sponsor advertisements within a specific email category for
a specified period of time for a fixed fee. Under these contracts the Company
recognizes revenue ratably during the period the advertisement is displayed in
the Companys emails since there is no obligation to provide a minimum number
of emails for that individual advertiser during the specific period. The
Companys advertising contracts generally have average terms ranging from one
to six months.

Periodically, the Company enters into barter/reciprocal transactions, where it
exchanges advertising space within its emails for reciprocal advertising space
or traffic on other Web sites. Revenue from barter transactions is recognized
in accordance with APB Opinion No. 29, Accounting for Nonmonetary Transactions
(APB No. 29), and EITF Issue No. 99-17, Accounting for Advertising Barter
Transactions, during the period in which the advertisements are displayed in
the Companys emails. In the absence of sufficient evidence of fair value, the
acquired assets are recorded at the book value of the surrendered assets. No
gain or loss is recorded from barter transactions as the revenue recognized
equals the advertising costs incurred. The Company did not enter into any
barter transactions during the six months ended June 30, 2001 and 2000.

Opt-in

Revenue is recognized as affirmative member responses to advertisers
newsletters and other promotions offered during the Companys sign up process
are delivered to the Companys opt-in partners. The Company derives opt-in
revenue through fees that its opt-in advertising partners pay for member
registrations. The Company records revenue net of estimated duplicate member
responses to its opt-in partners newsletters and other promotions. Duplicate
member responses are names, generally in the form of email addresses, that the
Company provides to opt-in advertising partners for which the Companys members
have previously registered either through the Companys sign up process or with
the Companys opt-in advertising partners directly. Historically, opt-in
partners have immediately notified the Company of duplicate member responses
upon receipt of member registration information, which is transmitted to opt-in
partners twice a week. The Company issues credits upon notification of
duplicate member responses and, therefore, has not experienced significant
differences between the actual and estimated amounts of duplicate member
responses. Opt-in partners pay a fixed rate per registration and, upon delivery
of the registrations, the Company has no further obligation under the
agreements. The Company does not currently anticipate any significant change in
the nature of the fees it charges its opt-in partners or in its customer base
and believes its historical experience with its opt-in product is predictive of
future estimates. For the three and six months ended June 30, 2000, revenue was
recorded net of $639,000 and $1,269,000, respectively, for estimated duplicate
member responses to the Companys opt-in partners newsletters and other
promotions. For the three and six months ended June 30, 2001, no allowance
was necessary as the Company recorded revenue net of actual duplicate member
responses.

Cash received from customers in advance is recorded as deferred revenue.
Advertising and opt-in revenue is recognized as emails and affirmative member
responses, respectively, are delivered.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of
credit risk consist of cash and cash equivalents,





---



marketable securities and accounts receivable. The Companys cash and cash
equivalents are maintained at six U.S. financial institutions. Deposits held
with banks may exceed the amount of insurance provided on such deposits. The
majority of the Companys cash equivalents are invested in short-term
commercial paper. No one customer exceeded 10% of the Companys revenue and
accounts receivable at June 30, 2001 and for the three months then ended.

Advertising Costs

Advertising costs are charged to sales and marketing expense as the contractual
terms of the advertising contracts are fulfilled. Cash paid in advance of
advertising services received is recorded as prepaid expenses that are
amortized as services are received. Advertising costs for the three months
ended June 30, 2001 and 2000 were $0 and $15,313,000, respectively.
Advertising costs for the six months ended June 30, 2001 and 2000 were
$2,793,000 and $33,115,000, respectively. At June 30, 2001 and 2000, $0 and
$889,000, respectively, of prepaid advertising expense is included in prepaid
expenses and other current assets. In conjunction with the Companys
restructuring plan (see Note 3), the Company terminated an agreement for future
distribution services in the first quarter of 2001 and, as a result, $1,042,000
of prepaid expenses was written off and included in the restructuring charge in
the accompanying consolidated financial statements for the six months ended June 30, 2001.

Research and Development Costs

Research and development costs are expensed as incurred and include expenses
for the development of new or improved technologies designed to enhance the
performance of our service, including the salaries, stock-based compensation
and related expenses for our engineering department, as well as costs for
contracted services and co-location facilities and depreciation on equipment.

Income Taxes

The Company accounts for income taxes under the asset and liability method,
which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the carrying
amounts and tax bases of assets and liabilities. The Company provides a
valuation allowance on net deferred tax assets when it is more likely than not
that such assets will not be realized.

Stock-Based Compensation

The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock-Based Compensation, and related Interpretations, in
accounting for its employee and non-employee directors stock options and
complies with the disclosure requirements of Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation.
Accordingly, the Company measures compensation expense for its employee
stock-based compensation using the intrinsic value method and provides
pro-forma disclosures of net loss as if the fair value method had been applied
in measuring compensation expense. Under the intrinsic value method of
accounting for stock-based compensation, when the exercise price of options
granted to employees is less than the estimated fair value of the underlying
stock on the date of grant, deferred compensation is recognized and is
amortized to compensation expense over the applicable vesting period.

The Company measures compensation expense for its non-employee stock-based
compensation awards in accordance with SFAS No. 123 and EITF 96-18, Accounting
for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
or in Conjunction with Selling Goods or Services. The estimated fair value of
the options and warrants issued is used to measure the transaction when it is
more reliable than the fair value of the services received. The estimated fair
value is measured on the date the commitment for performance by the
counterparty has been reached or the counterpartys performance is complete.
The estimated fair value of the equity instrument is charged directly to
compensation expense and additional paid-in capital. A total of 100,000 options
were granted to a non-employee during the three months ended June 30, 2001. No
options or warrants were issued to non-employees during the three months ended
June 30, 2000.

The Company follows FASB Interpretation No. 44 (FIN 44), Accounting for
Certain Transactions Involving Stock Compensation  an Interpretation of APB
Opinion No. 25, effective July 1, 2000, to account for exchanges of stock
options and awards in purchase business combinations. Accordingly, the fair
value of vested stock options and awards issued in exchange for vested stock
options and awards of the acquiree is included as part of the purchase price.
The fair value of unvested options or awards issued in exchange for unvested
options and awards of the acquiree is accounted for as part of the purchase
price, and an amount equal to the portion of the intrinsic value of the
unvested options or awards related to future vesting is allocated to deferred
compensation and recognized over the remaining vesting period. During the
three and six months ended June 30, 2001, the Company reduced deferred
compensation by $1,105,000 and $3,154,000, respectively, for unvested,
forfeited stock options.

Impairment of Long-Lived Assets

The Company evaluates the carrying amounts of long-lived assets when facts or
changes in circumstances suggest they may be impaired. If this review indicates
the carrying amounts of long-lived assets will not be recoverable, as
determined based on estimated





---



undiscounted future cash flows of the acquired assets, the Company will measure
the amount of such impairment based on the present value of estimated future
cash flows using a discount rate commensurate with the risks involved or other
methods. On July 18, 2001, the
Company and Cross Media entered into a merger agreement and, on July 19, 2001,
the Company publicly announced its intention to merge with Cross Media.
Under the proposed merger transaction, Cross Media will pay cash and issue
common stock constituting total combined nominal cash and stock consideration
of $68.1 million (based on the average last sales price of Cross Media common
stock for the 20 trading days immediately preceding the date of the merger
agreement), subject to reduction under certain circumstances, for all of the
outstanding equity interests in the Company. Based on the value of the
proposed merger transaction, the Company determined the carrying value of its
long-lived assets as of June 30, 2001, exceeded their fair value. The
Company performed an impairment analysis and recorded an impairment charge
of $18,023,000, of which $2,497,000 is
recorded in cost of revenue (see Note 4).

Basic and Diluted Net Loss per Common Share

Basic net loss per common share is based on the weighted average number of
shares of common stock outstanding during each year. Diluted net loss per
common share is based on the weighted average number of shares of common stock
outstanding during each year, adjusted for the effect of common stock
equivalents arising from the assumed exercise of stock options, if dilutive.
Common stock equivalents have been excluded from the net loss per share
calculation because their effect would be antidilutive.

Certain Risks and Uncertainties

The Company is subject to all the risks inherent in an early stage business in
the technology industry. The risks include, but are not limited to, limited
operating history, successful integration of acquired businesses, dependence on
the Internet and related security risks and the changing nature of the Internet
industry.

Segment Reporting

The Company adopted SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information. SFAS No. 131 replaces the industry segment approach
with the management approach to reporting financial information about an
enterprises segments. The management approach designates the internal
organization that is used by management for allocating resources and assessing
performance as the source of the Companys reportable segments. SFAS No. 131
also requires disclosures about products and services, geographic areas, and
major customers.

Comprehensive Income

During the periods presented, the Company has not had any significant
transactions that are required to be reported in comprehensive income.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) approved
Statements of Financial Accounting Standards (SFAS) No. 141, Business
Combinations and No. 142, Goodwill and Other Intangible Assets. SFAS No.
141 addresses financial accounting and reporting for business combinations.
All business combinations in the scope of this Statement will be accounted for
using the purchase method of accounting. The provisions of SFAS No. 141 apply
to all business combinations initiated after June 30, 2001, and business
combinations accounted for by the purchase method for which the date of
acquisition is July 1, 2001, or later. SFAS No. 142 addresses financial
accounting and reporting for acquired goodwill and other intangible assets.
Under this Statement, goodwill will no longer be amortized but will be tested
for impairment at least annually at the reporting unit level. Goodwill will be
tested for impairment on an interim basis if an event occurs or circumstances
change that would more-likely-than-not reduce the fair value of a reporting
unit below its carrying value. Intangible assets which remain subject to
amortization will be reviewed for impairment in accordance with SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of. The provisions of SFAS No. 142 are required to be applied
starting with fiscal years beginning after December 15, 2001.

3. Restructuring Charge

During the three and six months ended June 30, 2001, the Company undertook a
restructuring plan to reduce costs and focus its efforts on reducing operating
losses while evaluating strategic alternatives. Accordingly, restructuring
charges totaling $11,703,000 and $14,248,000, respectively, were recorded
during the three and six months ended June 30, 2001.
During the six months ended June 30, 2001, the Company
terminated approximately 85% of its workforce as of December 31, 2000. In
addition, the Company negotiated separation and termination agreements with the
remaining employees. Of the total restructuring charges for the three and six
months ended June 30, 2001,





---



$2,404,000 and $3,824,000, respectively, related to employee and
contract termination benefits, $9,263,000 related to the early termination of
the Companys multi-year lease for its headquarters, and $37,000
and $1,161,000, respectively, related to early termination of various vendor
service agreements. Approximately $1,042,000 of this charge was recorded as
prepaid expenses and other current assets, and $7,600,000 was recorded as restricted
cash as of December 31, 2000, and approximately
$3,526,000  was paid in the six months
ended June 30, 2001. LifeMinders expects to pay the remainder during 2001.

4. Impairment Charge

Prior to June 30, 2001, the Company began negotiations to merge with Cross
Media. In late May of 2001, representatives of Cross Media contacted the
Company to discuss a possible merger. On June 21, 2001, Cross Media and the
Company executed a letter of intent and term sheet for the merger transaction,
which was subsequently modified as of June 27, 2001. On July 18, 2001, the
Company and Cross Media entered into a merger agreement and, on July 19, 2001,
the Company publicly announced its intention to merge with Cross Media. In
the proposed merger transaction, Cross Media will pay cash and issue
common stock constituting total aggregate nominal cash and stock consideration
of $68.1 million (based on the average last sales price of Cross Media common
stock for the 20 trading days immediately preceding the date of the merger
agreement), subject to reduction under certain circumstances, for all of the
outstanding equity interests in the Company. Based on the value of the
proposed merger transaction, the Company determined that the carrying value of its
long-lived assets as of June 30, 2001, exceeded their fair value. The
Company performed an impairment analysis and recorded an impairment charge of $18,023,000,
of which $2,497,000 is
recorded in cost of revenue. The major components of the impairment charge
are as follows (in thousands):

|                                       |  |   |        | 
|-------------------------------------- |  | - | ------ | 
|Property and equipment                 |  | $ | 14,079 | 
|                                      
|                                      
|                                      
|                                      
|Identifiable intangible assets         |  |   | 3,259  | 
|                                      
|                                      
|                                      
|                                      
|Investments in unconsolidated entities |  |   | 685    | 
|                                       |  |   |        | 
|                                       |  | $ | 18,023 | 
|                                       |  |   |        | 

5. Marketable Securities

At December 31, 2000 and June 30, 2001, all marketable debt securities were
classified as held-to-maturity and carried at amortized cost, which
approximates their fair value. Investments consisted of the following (in
thousands):

|                           |       |   |                   |        |               |   |       |       | 
|-------------------------- | ----- | - | ----------------- | ------ | ------------- | - | ----- | ----- | 
|                           |       |   | December 31, 2000 |        | June 30, 2001
|                           |       |   |                   |        |              
|Commercial paper           |       | $ | 11,939            |        |               | $ |      |      
|                          
|                          
|                          
|                          
|U.S. government securities |       |   | 8,000             |        |               |   | 1,000 |      
|                           |       |   |                   |        |               |   |       |      
|                           | Total |   | $                 | 19,939 |               |   | $     | 1,000 | 
|                           |       |   |                   |        |               |   |       |      

All marketable securities held by the Company on December 31, 2000 matured
during the six months ended June 30, 2001.

6. Basic and Diluted Loss per Common Share

The following is a reconciliation of the numerators and denominators of the
basic and diluted loss per common share computations.

Basic and diluted net loss per common share (in thousands, except share and per
share data):

|                                              |  |                             |            |                           |  |      |            |      |  |   |            |   |  |   |            |  
|--------------------------------------------- |  | --------------------------- | ---------- | ------------------------- |  | ---- | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                              |  | For the three months ended, |            | For the six months ended,
|                                              |  | June 30,                    |            | June 30,                 
|                                              |  |                             |            |                          
|                                              |  | 2000                        |            | 2001                      |  | 2000 |            | 2001
|                                             
|                                             
|                                             
|                                             
|Net loss available to common stockholders     |  | $                           | (13,746    | )                         |  | $    | (37,650    | )    |  | $ | (31,319    | ) |  | $ | (50,691    | )
|                                              |  |                             |            |                           |  |      |            |      |  |   |            |   |  |   |            |  
|Weighted-average shares of common outstanding |  |                             | 23,698,834 |                           |  |      | 26,201,224 |      |  |   | 22,850,821 |   |  |   | 26,079,387 |  
|                                              |  |                             |            |                           |  |      |            |      |  |   |            |   |  |   |            |  
|Basic and diluted net loss per common share   |  | $                           | (0.58      | )                         |  | $    | (1.44      | )    |  | $ | (1.37      | ) |  | $ | (1.94      | )
|                                              |  |                             |            |                           |  |      |            |      |  |   |            |   |  |   |            |  





---



7. Segment Information

Through June 30, 2001, the Company operated within two business units: business
to consumer marketing and business-to-business marketing (outsourcing). The
reportable segments derive revenue from the sale of advertising within each
units corresponding medium. The segment operating loss is revenue less direct
and allocable expenses. Segment identifiable assets are those that are directly
used in or identified to segment operations.

For financial reporting purposes, we have two revenue streams: delivery of
advertisements within emails to our members and delivery of opt-in names to our
registration partners.

Financial information by segment for the six months ended June 30, 2001
follows:

|                              |  |          |        |             |  |           |        |       |  |   |         |   |  |   |         |  
|----------------------------- |  | -------- | ------ | ----------- |  | --------- | ------ | ----- |  | - | ------- | - |  | - | ------- | -
|                              |  | Consumer |        | Outsourcing |  | Corporate |        | Total
|                              |  |          |        |             |  |           |        |      
|Revenue                       |  | $        | 1,479  |             |  | $         | 365    |       |  | $ |        |   |  | $ | 1,844   |  
|                             
|                             
|                             
|                             
|Impairment charge             |  |          | (4,928 | )           |  |           | (2,393 | )     |  |   | (10,702 | ) |  |   | (18,023 | )
|                             
|                             
|                             
|                             
|Restructuring charge          |  |          |       |             |  |           |       |       |  |   | (11,703 | ) |  |   | (11,703 | )
|                             
|                             
|                             
|                             
|Operating loss                |  |          | (6,892 | )           |  |           | (3,802 | )     |  |   | (27,622 | ) |  |   | (38,316 | )
|                             
|                             
|                             
|                             
|Total assets                  |  |          | 1,665  |             |  |           | 658    |       |  |   | 57,612  |   |  |   | 59,935  |  
|                             
|                             
|                             
|                             
|Depreciation and amortization |  |          | 1,534  |             |  |           | 745    |       |  |   | 2,103   |   |  |   | 4,382   |  

Prior to the third quarter of 2000, the Company operated in one segment: the
Internet and related services. Subsequent to June 30, 2001, the Company ceased
operations of its outsourcing unit.

8. Subsequent Event

On July 27, 2001, the Company repaid its outstanding capital lease obligations
and purchased the associated equipment for $1,149,000.





---



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

The following discussion should be read in conjunction with the unaudited
consolidated financial statements and related notes, which appear in Item 1 of
this Form 10-Q. The following discussion contains forward-looking statements
that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those discussed below and in the section
entitled Risk Factors of this Form 10-Q.

Overview

We are an online direct marketing company that sends personalized email
messages to a permission-based membership comprised of more than 20 million
members. We send to our members personalized email messages, or newsletters,
in lifestyle-based interest categories, garnered from member information
obtained during the registration process as well as from behavioral information
through member interaction within our emails. Our email messages contain
helpful reminders and tips directed toward our members interests and hobbies
and personal events like birthdays and anniversaries.

We were incorporated in Maryland on August 9, 1996 under the name of
MinderSoft, Inc. In January 1999, we changed our name to LifeMinders.com, Inc.
and reincorporated in Delaware on July 2, 1999. In June 2000, we changed our
name to LifeMinders, Inc.

Comparability of Results  Restructuring Charge

In May 2001, we announced that we were significantly scaling back our business
operations and reducing our work force while we evaluated strategic
alternatives. This decision was based on the continued decline in revenue from
online advertising historically and for the foreseeable future. In addition, we believe that
opportunities for online advertising revenue will continue to decline since we are
producing and delivering a substantially lower number of emails and do not
expect to develop any new email products at this time. Since May, we have
maintained selected email products. During the six months ended June 30, 2001,
we undertook a restructuring plan to reduce costs and focus our efforts on
reducing operating losses while evaluating strategic alternatives.
Accordingly, restructuring charges totaling $14,248,000 were recorded during
the period. During the six months ended June 30, 2001, we terminated
approximately 85% of our workforce as of December 31, 2000. In addition, we
negotiated separation and termination agreements with our remaining employees.
Of the total restructuring charges, approximately $3,824,000 related to
employee and contract termination benefits, $9,263,000 related to the early
termination of our multi-year lease for our headquarters, and approximately
$1,161,000 related to early termination of various vendor service agreements.
Approximately $1,042,000 of this charge was recorded as prepaid expenses and
other current assets, $7,600,000 was recorded as restricted cash as of December 31, 2000,
and approximately $3,526,000 was paid in the six months ended June 30, 2001. We
expect to pay the remainder during 2001.

Recent Developments

Prior to June 30, 2001, we began negotiations with Cross Media Marketing
Corporation, a Delaware corporation. On July 18, 2001, we entered into
a merger agreement with Cross Media and, on July 19, 2001, we
publicly announced our proposed merger with Cross Media. Cross Media is a direct marketing company that
integrates sophisticated marketing skills with new technologies for the sale of
multi-magazine subscription packages, discount buying club memberships and
telecommunications services. In the proposed merger transaction, Cross
Media will pay cash and issue common stock constituting total aggregate nominal
cash and stock consideration of $68.1 million (based on the average last sale
price of Cross Media common stock for the 20 trading days immediately preceding
the date of the merger agreement), subject to reduction under certain
circumstances, for all of our outstanding equity interests. Based on the value
of the proposed merger transaction, we determined the carrying value of our
long-lived assets as of June 30, 2001, exceeded their fair value. We performed an
impairment analysis and recorded an impairment charge of $18,023,000, of which $2,497,000 is recorded
in cost of revenue. The major components of the impairment charge are as
follows (in thousands):

|                                       |  |   |        | 
|-------------------------------------- |  | - | ------ | 
|Property and equipment                 |  | $ | 14,079 | 
|                                      
|                                      
|                                      
|                                      
|Identifiable intangible assets         |  |   | 3,259  | 
|                                      
|                                      
|                                      
|                                      
|Investments in unconsolidated entities |  |   | 685    | 
|                                       |  |   |        | 
|                                       |  | $ | 18,023 | 
|                                       |  |   |        | 

Revenue

We recognize revenue when persuasive evidence of an arrangement exists, terms
are fixed or determinable, services are performed or products are delivered,
and collection is probable. Since the beginning of calendar year 1999, we have
generated revenue primarily through advertising services and our opt-in
product. Our advertising revenue is subject to the effects of cyclicality and
may be subject to seasonality. If purchasing patterns or timing of purchasing
by advertisers were to change, our operations and quarter-to-quarter
comparisons could be materially affected.





---



Advertising

Advertising arrangements consist primarily of advertisements that are displayed
within our emails. Generally, advertisers pay us and we recognize revenue on a
per email basis, based on the number of emails delivered to our members in
which the advertisements are displayed. From time to time, we may guarantee a
minimum number of emails to be delivered containing an advertisement directed
at a specific member group. Under these contracts, we are not required to
forfeit fees received for emails previously delivered and we have historically
fulfilled the guaranteed minimum number of emails; therefore, revenue is
recognized as e- mails are delivered. We may also guarantee a minimum number of
sales orders for the advertiser based on the emails delivered. Under these
contracts we defer all revenue until notification is received from the
advertiser that the minimum number of sales orders have been achieved by the
advertiser. In addition, we may provide advertisers the opportunity for the
exclusive right to sponsor advertisements within a specific email category for
a specified period of time for a fixed fee. Under these contracts we recognize
revenue ratably during the period the advertisement is displayed in our emails
since there is no obligation to provide a minimum number of emails for that
individual advertiser during the specific period. Our advertising contracts
generally have average terms ranging from one to six months.

Periodically, we enter into barter/reciprocal transactions, where we exchange
advertising space within our emails for reciprocal advertising space or traffic
on other Web sites. Revenue from barter transactions is recognized in
accordance with APB Opinion No. 29, Accounting for Nonmonetary Transactions
(APB No. 29), and EITF Issue No. 99-17, Accounting for Advertising Barter
Transactions, during the period in which the advertisements are displayed in
our emails. In the absence of sufficient evidence of fair value, the acquired
assets are recorded at the book value of the surrendered assets. No gain or
loss is recorded from barter transactions as the revenue recognized equals the
advertising costs incurred. For the six months ended June 30, 2001 and 2000, we
did not enter into any barter agreements.

Opt-in

Revenue is recognized as affirmative member responses to advertisers
newsletters and other promotions offered during our registration program are
delivered to our opt-in partners. We derive opt-in revenue through fees that
our opt-in advertising partners pay for member registrations. We record revenue
net of estimated duplicate member responses to our opt-in partners newsletters
and other promotions. Duplicate member responses are names, generally in the
form of email addresses, that we provide to opt-in advertising partners for
which our members have previously registered either through our sign up process
or with our opt-in advertising partners directly. Historically, opt-in partners
have immediately notified us of duplicate member responses upon receipt of
member registration information, which is transmitted to opt-in partners twice
a week. We issue credits upon notification of duplicate member responses and,
therefore, we have not experienced significant differences between the actual
and estimated amounts of duplicate member responses. Opt-in partners pay a
fixed rate per registration and, upon delivery of the registrations, we have no
further obligation under the agreements. We do not currently anticipate any
significant change in the nature of the fees we charge our opt-in partners or
in our customer base and believe our historical experience with our opt-in
product is predictive of future estimates. For the three and six months ended
June 30, 2000, revenue was recorded net of $639,000 and $1,269,000,
respectively, for estimated duplicate member responses to our opt-in partners
newsletters and other promotions. For the three and six months ended June 30,
2001, no allowance was necessary as we recorded revenue net of actual duplicate
member responses.

Cash received from customers in advance is recorded as deferred revenue.
Advertising and opt-in revenue is recognized as emails and affirmative member
responses, respectively, are delivered.

Expenses

Cost of Revenue

Cost of revenue consists of salaries, stock-based compensation, employee
benefits and related expenses of our Member Experience personnel, fees paid to
freelance writers of our content and depreciation of and co-location costs
associated with the computer equipment necessary to run our operations.

Sales and Marketing

Sales and marketing expenses include advertising and promotional expenses,
salaries, sales commissions, employee benefits, stock-based compensation,
travel and related expenses of our direct sales force, marketing, and sales
support functions. Prior to the fourth quarter of 2000, our primary focus was
to increase our revenue through rapid growth in our member base and brand
awareness. As a result, our largest expense related to banner-type advertising
campaigns on portals and websites. Beginning in the fourth quarter of 2000, we
redirected our advertising efforts and budget toward obtaining highly engaged
members through performance-based advertising campaigns. Accordingly, we have
significantly reduced our member acquisition costs in 2001. Marketing costs
associated with increasing our member base are expensed in the period incurred.

Research and Development





---



Research and development costs include expenses for the development of new or
improved technologies designed to enhance the performance of our offerings,
including the salaries, stock-based compensation and related expenses for our
engineering department, as well as costs for contracted services and
co-location facilities and depreciation on equipment. In 2000, we incurred
significant costs associated with the development and expansion of our systems
infrastructure to support our rapid member growth. During 2001, we have seen a
significant decrease in research and development costs as a result of the scaling back
or our operations.

General and Administrative

General and administrative expenses include salaries, stock-based compensation
and employee benefits for our executive, finance, legal and human resources
personnel. In addition, general and administrative expenses include fees for
professional services and occupancy costs. General and administrative expenses
have decreased in absolute dollars, in part due to reductions in workforce and
associated expenses in the first and second quarters of 2001 (see discussion of
restructuring charge above).

Stock-Based Compensation

In connection with the grant of stock options to employees during the year
ended December 31, 1999, deferred compensation of $5,702,000 was recorded as a
reduction to stockholders equity. This deferred compensation represented the
difference between the estimated fair value of our common stock and the
exercise price of these options at the date of grant prior to our initial
public offering. Additionally, in accordance with FIN 44, effective July 1,
2000, $2,624,000 and $622,000 of deferred compensation was recognized upon the
assumption of outstanding options that are exercisable to acquire our common
stock associated with the acquisition of smartRay Networks and eCoupons,
respectively. Deferred compensation is amortized over the vesting periods of
the applicable options. During the three and six months ended June 30, 2001,
we reduced deferred compensation by $1,105,000 and $3,154,000, respectively,
for unvested, forfeited stock options.

For the three months ended June 30, 2001 and 2000, $5,000 and $14,000 of
amortization of deferred compensation, respectively, was included in cost of
sales, $57,000 and $171,000, respectively, was included in sales and marketing
expense, $186,000 and $75,000, respectively, was included in research and
development expense, and $52,000 and $97,000, respectively, was included in
general and administrative expense. For the six months ended June 30, 2001 and
2000, $12,000 and $29,000 of amortization of deferred compensation,
respectively, was included in cost of sales, $207,000 and $341,000,
respectively, was included in sales and marketing expense, $361,000 and
$150,000, respectively, was included in research and development expense, and
$93,000 and $193,000, respectively, was included in general and administrative
expense.

Inflation

We do not currently anticipate that inflation will have a material impact on
our cash flows, results of operations or financial position.

Results of Operations

Revenue. Revenue was $1,844,000 and $7,347,000 for the three and six months
ended June 30, 2001, respectively, which represents a decrease of 87% and 71%,
respectively, when compared with the corresponding periods in 2000. Advertising
revenue was $1,729,000 and $6,933,000, respectively, for the three and six
months ended June 30, 2001, respectively, which represents decreases of 86% and
66%, respectively, when compared with the corresponding periods in 2000. The
decrease in advertising revenue is due to the scaling back of our business
operations and the continuing significant deterioration of the online
advertising market. Opt-in revenue was $115,000 and $414,000 for the three and
six months ended June 30, 2001, respectively, which represents decreases of 94%
and 92%, respectively, when compared with the corresponding periods in 2000.
Opt-in revenue is largely derived as new members register for our service. In
connection with the scaling back of our business operations, we have
significantly reduced advertising expenditures and, as a result, have
experienced a decline in new member registrations. The decline in opt-in
revenue is directly attributable to reduced new member registrations.

Cost of revenue. Cost of revenue was $4,638,000 and $6,836,000, or 252% and 93%
of total revenue, for the three and six months ended June 30, 2001,
respectively. Cost of revenue for the three and six months ended June 30,
2001, included an impairment charge of $2,497,000, or 135% and 34% of revenues,
respectively, related to the impairment of certain long-lived assets. Cost of
revenue excluding the impairment charge was $2,141,000 and $4,339,000, or 116%
and 59% of total revenue, for the three and six months ended June 30, 2001,
respectively. Cost of revenue was $1,495,000 and $2,295,000, or 10% and 9% of
total revenue, for the three and six months ended June 30, 2000, respectively.
Our cost of revenue excluding impairment charges for the three months ended
June 30, 2001 primarily consisted of expenses related to the production of our
email content by our editorial and production staff, maintenance of existing
member profiles and housing fees associated with and depreciation of the
computer systems necessary to operate our service. The increase in cost of
revenue for the three and six months ended June 30, 2001 as compared to the
comparable periods in 2000, was $646,000 and $2,044,000, respectively. Of
these increases, 196% and 122%, respectively, were attributable to increased
costs associated with housing fees and depreciation costs of additional
computer equipment which was acquired principally in the third and fourth
quarters of 2000 to support our then rapidly growing membership base. These
increases were partially offset by a





---



68% and 19% decrease, respectively, associated with the discontinuance of our
wireless business in December 2000. Remaining offsetting decreases are
principally comprised of reductions in work force associated with the
termination of editorial and production staff responsible for the production of
our email content.

Sales and marketing. Sales and marketing expenses were $3,443,000 and
$11,356,000, or 187% and 155% of total revenue, for the three and six months
ended June, 2001, respectively. Sales and marketing expenses were $19,686,000
and $44,401,000, or 134% and 173%, for the three and six months ended June
2000, respectively. Of the $16,243,000 decrease for the three months ended
June 30, 2001 as compared to the comparable period in 2000, 96% resulted from a
reduction in advertising costs paid to acquire new members through the purchase
of banner advertisements and similar services on the Web. Of the $33,045,000
decrease for the six months ended June 30, 2001 as compared to the comparable
period in 2000, 92% resulted from a reduction in advertising costs paid to
acquire new members through the purchase of banner advertisements and similar
services on the Web. The remaining decrease was due to a reduction in expenses
resulting from cost cutting efforts.

Research and development. Research and development expenses were $760,000 and
$2,607,000, or 41% and 35% of total revenue, for the three and six months ended
June 30, 2001, respectively. Research and development expenses were $1,862,000
and $3,277,000, or 13% and 13% of total revenue, for the three and six months
ended June 30, 2000, respectively. The $1,102,000 decrease for the three
months ended March 31, 2001 as compared to the comparable period in 2000, was
due primarily to a downsizing of our technical staff and associated cost
savings. The $670,000 decrease for the six months ended June 30, 2001 as
compared to the comparable period in 2000, was likewise due to the downsizing
of our technical staff and associated cost savings.

General and administrative. General and administrative expenses were $2,978,000
and $7,097,000, or 161% and 97% of total revenue, for the three and six months
ended June 30, 2001, respectively. General and administrative expenses were
$4,109,000 and $6,916,000, or 28% and 27% of total revenue, for the three and
six months ended June 30, 2000, respectively. Of the $1,131,000 decrease for
the three months ended June 30, 2001, as compared to the comparable period in
2000, 37% is the result of decreased doubtful accounts expense due to a
decreasing sales volume. Another 54% is attributable to decreases in
employment related expenses due to staff downsizing. The remaining net 9%
decrease is due to a variety of miscellaneous general and administrative
expense reductions, which offset a 59% increase in general and administrative
expenses related to increased occupancy costs associated with the new
headquarters facility we occupied in November 2000. The $122,000 increase in
general and administrative expense for the six months ended June 30, 2001, as
compared to the comparable period in 2000, reflects the fact that cost cutting
efforts on a number of general and administrative expense fronts as well as a
significant sales volume-related decrease in doubtful accounts nearly offset
certain expense increases, most notably an increase in occupancy expense
associated with the new headquarters facility.

Depreciation and amortization. Depreciation and amortization expenses were
$1,112,000 and $2,222,000, or 60% and 30% of total revenue, for the three
months and six months ended June 30, 2001, respectively. Depreciation and
amortization expenses were $562,000 and $750,000, or 4% and 3% of total
revenues, for the comparable period in 2000. Of the $550,000 increase for the
three months ended June, 2001 as compared to the comparable period in 2000, 91%
resulted from an increase in the depreciation of computers and software
acquired to support our membership growth in 2000. The remaining 9% was a
combination of various depreciation and amortization increasing and decreasing
items, with the largest of these being increased depreciation associated with
furniture for the new headquarters facility. Of the $1,472,000 increase for
the six months ended June, 2001 as compared to the comparable period in 2000,
65% resulted from an increase in the depreciation of computers and software
acquired to support our actual and anticipated membership growth. An
additional 21% resulted from an increase in intangibles amortization associated
with corporate acquisitions. The remaining 14% resulted from a combination of
various depreciation and amortization increasing and decreasing items, with the
largest of these being increased depreciation associated with furniture for the
new headquarters facility.

Impairment Charge. Prior to June 30, 2001, we began negotiations to merge with
Cross Media. In late May of 2001, representatives of Cross Media contacted us
to discuss a possible merger. On June 21, 2001, Cross Media and we executed a
letter of intent and term sheet for the merger transaction, which was
subsequently modified as of June 27, 2001. On July 18, 2001, Cross Media and we
entered into a merger agreement and, on July 19, 2001, we publicly announced
our intention to merge with Cross Media. Under the proposed merger
transaction, Cross Media will pay cash and issue common stock constituting
total combined nominal cash and stock consideration of $68.1 million (based on
the average last sales price of Cross Media common stock for the 20 trading
days immediately preceding the date of the merger agreement), subject to
reduction under certain circumstances, for all of our outstanding equity
interests. Based on the value of the proposed merger transaction, we
determined the carrying value of our long-lived assets as of June 30, 2001,
exceeded their fair value. We performed an impairment analysis and recorded an impairment charge of
$18,023,000, of which $2,497,000 is recorded in cost of revenue.





---



Restructuring Charge. In May 2001, we announced that we were significantly
scaling back our business operations and reducing our work force while we
evaluated strategic alternatives. This decision was based on the continued
decline of revenue from online advertising historically and for the foreseeable
future. In addition, opportunities for online advertising revenue will decline
since we are producing and delivering a substantially lower number of emails
and do not expect to develop any new email products at this time. Since May 2001,
we have maintained selected email products. During the six months ended June
30, 2001, we undertook a restructuring plan to reduce costs and focus our
efforts on reducing operating losses while evaluating strategic alternatives.
Accordingly, restructuring charges totaling $14,248,000 were recorded during
the period. During the six months ended June 30, 2001, we terminated
approximately 85% of our workforce as of December 31, 2000. In addition, we
negotiated separation and termination agreements with our remaining employees.
Of the total restructuring charges, approximately $3,824,000 related to
employee and contract termination benefits, $9,263,000 related to the early
termination of our multi-year lease for our headquarters, and approximately
$1,161,000 related to early termination of various vendor service agreements.
Approximately $1,042,000 of this charge was recorded as prepaid expenses and
other current assets, $7,600,000 was recorded as restricted cash as of December 31, 2000,
and approximately $3,526,000 was paid in the six months ended June 30, 2001. We
expect to pay the remainder during 2001.

Interest income, net. Interest income was $437,000 and $1,625,000, or 24% and
22% of total revenue, for the three and six months ended June 30, 2001,
respectively. For the comparable periods in 2000, interest income was
$1,606,000 and $2,979,000, or 11% and 12% of total revenue, respectively. This
decrease from year 2000 to 2001 for the comparable three and six month periods,
was due primarily to a lower average funds balance available for investment in
short-term investments and lower prevailing interest rates. Interest expense,
primarily on notes and leases used to finance equipment purchases, for the
three and six months ended June 30, 2001, was $44,000 and $122,000,
respectively. Interest expense for the three and six months ended June 30,
2000, was $167,000 and $262,000. The decrease in interest expense from year
2000 to 2001 reflects the fact that loans and lease balances were being paid
down, with no additional borrowing occurring during the six months ended June
30, 2001.

Income taxes. No income tax provision or benefit has been recorded for any of
the periods presented since we have not generated taxable income to date. A
valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Management
believes it is more likely than not that we will not have sufficient taxable
income in the years over which the majority of temporary differences will
reverse to realize the deferred tax assets. As a result, we recorded a full
valuation allowance in the accompanying consolidated financial statements as of
June 30, 2001.

Seasonality and Quarterly Fluctuations in Operating Results

We believe that our revenue may be subject to seasonal fluctuations as a result
of general patterns of retail advertising and marketing and consumer
purchasing. In addition, expenditures by advertisers and marketers tend to be
cyclical, reflecting overall economic conditions and consumer buying patterns.
Due to these and other factors, we believe that quarter-to-quarter comparisons
of our
operating results may not be meaningful and you should not rely upon them as an
indication of our future performance.

Liquidity and Capital Resources

In November 1999, we raised $61,715,000 in net proceeds from our initial public
offering. In February 2000, we completed a follow-on offering that raised
$85,899,000 in net proceeds. As of June 30, 2001, we had $54,791,000 of cash
and cash equivalents and marketable securities. Outstanding equipment
financing, comprising capital leases, totaled $1,069,000 at June 30, 2001. All
notes payable balances were retired during the second quarter. The outstanding
capital lease obligations were repaid subsequent to June 30, 2001 out of
existing cash and cash equivalents. We negotiated an early termination of our
headquarters office lease during the second quarter of 2001 for $9,263,000.
Of this amount, $7,600,000 was drawn and paid from a letter of credit secured
by restricted cash of $7,600,000. The balance of the settlement obligation was
paid from existing cash and cash equivalents subsequent to June 30, 2001.

Net cash used in operating activities was $14,802,000 for the six months ended
June 30, 2001. Cash used in operating activities for the six months ended June
30, 2001 resulted primarily from net losses, which were partially offset by
noncash items and collections of accounts receivable.

Net cash provided by investing activities was $27,071,000 for the six months
ended June 30, 2001. Cash provided by investing activities for the six months
ended June 30, 2001 was related to maturities of marketable securities,
redemption of restricted cash associated with the drawing of a letter of credit
securing our office lease and repayment of a note receivable.

Net cash used in financing activities was $1,249,000 for the six months ended
June 30, 2001. Cash used in financing activities for the six months ended June
30, 2001 resulted from repayments of notes payable and capital lease
obligations totaling $1,752,000. These repayments were partially offset by
cash receipts of $493,000 from the exercise of stock of stock options and
$10,000 in receipts from an employee stock purchase plan.





---



During 2000, our focus was on growing our member base and enhancing the
infrastructure associated with a rapidly expanding membership, resulting in
significant advertising expenditures and costs associated with the development
of use software systems and the hardware to support and service our member
database. Given our announced scaling back of operations and our intention to
merge with Cross Media, we have not continued and do not currently plan to
continue the same level of activity in 2001. Also, given our announced scaling
back of operations and our intention to merge with Cross Media, we do not
anticipate that we will continue to experience significant capital expenditures
nor do we expect significant growth in our operating expenses for 2001. As of
June 30, 2001, we terminated approximately 85% of our total workforce as of
December 31, 2000. In addition, we negotiated separation and termination
agreements with the remaining employees. These reductions will have a
significant impact on future results of operations because approximately 17% of
our total expenses in 2000, including costs of sales but excluding impairment
of long-lived assets, related to salaries and related benefits, including
stock-based compensation.

On July 18, 2001, we entered into a merger agreement with
Cross Media and, on
July 19, 2001, we announced our intention to merge with Cross
Media. In the
proposed merger transaction, Cross Media would pay cash and issue common stock
constituting total aggregate nominal cash and stock consideration of $68.1
million (based on the average last sales price of Cross Media common stock for
the 20 trading days immediately preceding the date of the merger agreement),
subject to reduction under certain circumstances, for all of our outstanding
equity interests. If the merger is not consummated for any reason, we may continue to evaluate
possible acquisitions of companies and investments in businesses, which may
require the use of cash. In addition, we will have incurred substantial costs
associated with the Cross Media merger, which will be payable regardless of
whether the merger is consummated. In certain circumstances, we are obligated to
pay Cross Media a fee of $2.8 million if the merger is
terminated, which would further
reduce our cash balances. If we are unable to consummate the
proposed Cross Media merger, and our board of directors does not
determine that another sale or
merger transaction would be in the best interests of our stockholders, the
board of directors may determine the best alternative is to discontinue
operations, sell our remaining noncash assets and, after repayment of all
obligations, distribute the net proceeds to our stockholders. In the
event of a liquidation, the amount and
timing of any distributions to stockholders cannot be currently determined. We
believe that our existing cash and cash equivalents will be sufficient to meet anticipated cash needs for working
capital, investment or acquisition related expenditures, capital expenditures
and any costs associated with the scaling back of our operations for the
foreseeable future. The consummation of the merger transaction with Cross Media is subject to a
number of conditions precedent, including the receipt of the approval of both
the LifeMinders and Cross Media stockholders, and many of these conditions are
beyond our control. We cannot assure you that we will be able to satisfy all
of these conditions. Further, the proposed merger with Cross Media may be
terminated under certain circumstances. Accordingly, we cannot assure you that
we will be able to consummate the proposed merger with Cross Media or an
alternative merger or acquisition transaction.





---



Risk Factors

We may not be able to consummate the proposed merger with Cross Media, or any
alternative merger or acquisition transaction.

The consummation of the merger transaction with Cross Media is subject to a
number of conditions precedent, including the receipt of the approval of both
the LifeMinders and Cross Media stockholders. Many of these conditions
precedent are beyond our control. We cannot assure you that all of these
conditions precedent will be satisfied or waived, and that we will consummate
the merger with Cross Media. Further, the proposed merger with Cross Media may
be terminated by either Cross Media or by LifeMinders under certain
circumstances. Accordingly, we cannot assure you that we will be able to
consummate the proposed merger with Cross Media or an alternative merger or
acquisition transaction. If the proposed merger with Cross Media is not
consummated, our board of directors currently intends to consider and pursue
alternative strategic transactions, including other possible mergers or
acquisitions involving LifeMinders, or a liquidation of LifeMinders. We do not
currently have any such alternative mergers or acquisitions and we cannot
assure you that we will be able to identify or negotiate any such alternative
transactions, the timing of completing any such transaction if any are
identified, or the terms of any such transaction that we are able to identify.

If we consummate the proposed merger with Cross Media, our
stockholders may not realize the expected benefits of the proposed merger.

The proposed merger has several terms that may prevent LifeMinders
stockholders from realizing the financial benefits that were anticipated from
the merger at the time that the merger agreement was signed.
In the merger agreement with Cross Media, Cross Media would pay cash and stock
consideration to LifeMinders stockholders with a nominal aggregate value of
$68.1 million (based on the average last sale price of Cross Media common stock
for the 20 trading days immediately preceding the date of the merger
agreement), subject to reduction in the event of a cash shortfall.
The actual value of the aggregate merger consideration received by each LifeMinders
stockholder will be affected by:



| |  | the market value of shares of Cross Media common stock on the date
the merger is completed, which may be different from the value of Cross
Media common stock on July 18, 2001, the date the merger agreement was
signed; and                                                                                                                            
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the amount of the cash portion of the merger consideration available for
distribution to each stockholder of LifeMinders on the date on which the merger
is consummated. This amount may change as a result of, among other things, the cash
shortfall adjustment and the number of stockholders electing a cash
only payout of the merger consideration.

In addition, if the merger
fails to qualify as a reorganization for
federal income tax purposes, LifeMinders stockholders receiving
Cross Media common stock in the merger in exchange for their LifeMinders
common stock may not be able to defer tax on all or a portion of any gain realized on
the exchange.

We may be obligated to pay Cross Media a $2.8 million termination fee if we
terminate the merger agreement for certain reasons.

LifeMinders and Cross Media also have the right to terminate the merger agreement in certain circumstances.
Among other reasons, LifeMinders has the right
to terminate the merger agreement if the volume weighted average closing price
of Cross Media common stock over any 10 consecutive trading days between July
18, 2001 and the closing date of the merger is less than $1.0915 per share.
Under certain circumstances, if LifeMinders or Cross Media terminates
the merger agreement, LifeMinders
may be required to pay to Cross Media a termination fee of up to $2.8 million.

Failure to complete the merger could negatively impact LifeMinders' future operations.

If the merger is not completed for any reason, LifeMinders may be subject to a
number of material risks, including the following:



| |  | LifeMinders may be required, under certain circumstances, to pay to
Cross Media a termination fee of up to $2.8 million;                                                       
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | LifeMinders may experience a negative reaction, from both the
financial markets and customers, to termination of the merger; and                                               
| 
| |  | LifeMinders must pay the costs related to the merger, such as amounts
payable to legal and financial advisors and independent accountants,
even if the merger is not completed.

If we do not complete the proposed merger with Cross Media, the market price of
our common stock could be negatively affected.

If the merger is not completed, LifeMinders may discontinue its operations and
liquidate.

If the merger is not completed and LifeMinders is unable to conclude that
another sale or merger transaction would be in the best interests of its
stockholders, the board of directors may determine that the best alternative is
to discontinue operations, sell its remaining non-cash assets and, after
payment of all obligations, distribute the net proceeds to its stockholders.
The amount and timing of any distributions to stockholders in a liquidation
cannot be determined because they would depend on a variety of factors,
including the amount of proceeds received from any asset sales or dispositions,
the time and amount required to resolve outstanding obligations and the amount
of any reserves for future contingencies. In addition, LifeMinders will have
incurred substantial costs associated with the merger, which will be payable
regardless of whether the merger is consummated. Payment of these costs will
reduce LifeMinders remaining cash balances and the amount that would otherwise
be distributable to LifeMinders stockholders in a liquidation. In certain
circumstances, LifeMinders is obligated to pay Cross Media a fee of $2.8
million if the merger agreement is terminated, which would further reduce
LifeMinders cash balances.

LifeMinders has scaled back its business operations and has significantly
reduced its work force. LifeMinders expects that these actions, coupled with
continuing weakness in the online advertising market, will significantly reduce
 any future revenues.

As announced on May 10, 2001, the LifeMinders board of directors decided to
significantly scale back its business operations and reduce its work force.
LifeMinders believes that its revenues from online advertising and other
existing lines of business for the foreseeable future will continue to decline
substantially from that reported in prior periods. LifeMinders expects this
decline because, among other reasons, it believes that:



| |  | the market for online advertising will continue to decline
significantly;                                                                              
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | opportunities for online advertising revenues will decline because
LifeMinders will be producing and delivering a substantially lower
number of emails;
| 
| |  | LifeMinders will not engage in active marketing, sales and advertising activities in the event the merger is not completed;                            





---





| |  | LifeMinders does not expect to develop any new email products during this period; and                                                                                                                                   
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | LifeMinders management and other key employees will spend a
significant portion of their time completing the merger, or in the event
the merger is not completed, in identifying and evaluating strategic
alternatives.

In addition, LifeMinders existing advertising customers may choose not to
place online advertising with LifeMinders as a result of concerns about the
future of its business operations.

LifeMinders has incurred significant losses and, if the merger is not
completed, expects continued losses for the foreseeable future.

LifeMinders has never achieved profitability and, if the merger is not
completed and LifeMinders continues its operations, expects to continue to
incur operating losses for the foreseeable future. As of June 30, 2001,
LifeMinders had an accumulated deficit of $194,270,000. LifeMinders incurred
net losses of $50,691,000 for the six months ended June 30, 2001, and
$109,508,000 for the year ended December 31, 2000. LifeMinders cannot be
certain that, if the merger is not completed and the company decides to
continue its operations, it will ever generate sufficient revenue to achieve
profitability. If LifeMinders future revenue is lower than currently
anticipated, or its operating expenses exceed its estimates, it would incur
greater losses than anticipated and LifeMinders would be required to further
reduce its cash balance to support its continued operations. Such
circumstances could make LifeMinders less desirable as an acquisition
candidate, reduce its value in any sale or merger transaction, and reduce the
amount of proceeds available to LifeMinders stockholders in the event of a
liquidation. If the merger is not completed, there is no guarantee that
LifeMinders will be able to identify or successfully complete a sale or merger
of LifeMinders.

LifeMinders common stock has experienced a sharp decline in value. If the
merger is not completed, LifeMinders stock price may continue to decline.

The market price of LifeMinders common stock has experienced a decline and, if
the merger is not completed, may decline further as a result of LifeMinders
decision to scale back business operations, or as a result of fluctuations in
its quarterly results of operations. The market price of LifeMinders common
stock has declined from a high of $91.00 per common share at March 9, 2000 to a
low of $0.53 at April 3, 2001. On August 10, 2001, the closing price per share
of LifeMinders common stock as reported on The Nasdaq National Market was $1.54
per share. LifeMinders believes that the market price of its common stock has
been significantly and adversely affected by the sharp decline in the online
advertising market. LifeMinders also believes that, if the merger is not
completed, its common stock price may decline further in the future as a result
of LifeMinders decision to scale back operations and because of the
significantly lower revenues reported in its quarterly results of operations
for the quarters ended December 31, 2000 and March 31, 2001. In addition,
LifeMinders believes that in the future, fluctuations in its quarterly results
and the negative online advertising market, as well as many of the other risk
factors pertaining to LifeMinders, may negatively affect LifeMinders quarterly
operating results and contribute to fluctuations in its common stock price.

If the merger is not completed, LifeMinders may continue to seek and evaluate
potential strategic alternatives, including a potential sale or merger of
LifeMinders. A further decline in the price of LifeMinders common stock may
adversely affect LifeMinders ability to complete an alternative transaction
involving stock as all or part of the consideration.

In addition, if the price of LifeMinders common stock remains low, it may be
delisted by Nasdaq and become subject to special rules applicable to low priced
stocks, which may reduce the liquidity of the shares.

LifeMinders ability to continue to operate its scaled down business and to
identify, evaluate and if the merger is not completed, complete alternative
transactions, is dependent upon its ability to retain the remaining members of
management and other key employees.

Since the fourth quarter of 2000, LifeMinders has laid off approximately 85% of
its workforce. LifeMinders may have difficulty retaining the remaining members
of its management team and other key employees on whom it will depend to
continue to operate its scaled down business and complete this merger, and, if
the merger is not completed, to assist in identifying, evaluating and
completing any alternative transactions or the liquidation of the company. If
LifeMinders is unable to retain its management and other key employees through
this process, continuation of its business operations and its ability, if
necessary, to identify, evaluate and complete an alternative transaction could
be materially and adversely affected. LifeMinders has agreed to pay bonuses to
certain employees that are key to LifeMinders continued operations if such
employees remained until August 31, 2001. The merger will not be complete by
this date, and LifeMinders cannot be certain that these key employees will
remain with LifeMinders until the completion of the merger or, if the merger is
not completed, until it can identify, evaluate and complete an alternative
transaction.

LifeMinders has only a limited operating history upon which to evaluate its
business and prospects.

LifeMinders has only a limited operating history upon which to evaluate its
business and prospects and the online direct marketing industry is relatively
new and rapidly evolving. This has historically presented many risks and
uncertainties including:





---





| |  | the ability to compete effectively against other companies;                                                       
|- |  | ------------------------------------------------------------------------------------------------------------------
| 
| |  | the need to retain and motivate qualified personnel;                                                              
| 
| |  | the ability to anticipate and adapt to the changing market;                                                       
| 
| |  | the ability to develop and introduce new products and services and continue to develop and upgrade technology; and
| 
| |  | the need to attract and retain a large number of customers from a variety of industries.                          

LifeMinders has also historically depended on the growing use of the Internet
for advertising, commerce and communications, and on general economic
conditions.

LifeMinders cannot assure you that, in the event the merger is not completed
and it continues to operate its business, it will successfully address these
risks and uncertainties, particularly because of its recent scaling back of
operations. If the merger is not completed, and LifeMinders is unsuccessful in
addressing these risks and uncertainties, it may not be able to generate
sufficient revenue to fund its continued operations. In that event,
LifeMinders would be required to reduce its cash balances to fund operations,
which could make it less desirable as an acquisition candidate or reduce its
value in any sale or merger transaction, and would reduce the amount of
proceeds available for distribution to LifeMinders stockholders in the event of
a liquidation of LifeMinders.

If the merger is not completed, LifeMinders may not be able to generate
sufficient revenue to support its continued operations if the acceptance of
online advertising, which is new and unpredictable, does not develop and
expand.

LifeMinders has historically derived a substantial portion of its revenue from
online advertising and direct marketing, including both email and Web-based
programs. The profit potential for this business model is unproven. The
Internet has not existed long enough as an advertising medium to demonstrate
its effectiveness relative to traditional advertising. Advertisers and
advertising agencies that have historically relied on traditional advertising
may be reluctant or slow to adopt online advertising. Many potential
advertisers have limited or no experience using email or the Web as an
advertising medium. They may have allocated only a limited portion of their
advertising budgets to online advertising, or may find online advertising to be
less effective for promoting their products and services than traditional
advertising media. Further, LifeMinders email and Web-based programs may not
generate sufficient user traffic with demographic characteristics attractive to
advertisers. LifeMinders is also affected by general industry conditions
governing the supply and demand of Internet advertising.

LifeMinders results of operations have been adversely affected in recent
quarters as a result of a significantly declining market for online
advertising, and LifeMinders expects that those adverse market conditions will
continue. If the market for online advertising fails to improve or
deteriorates more than LifeMinders expects and the merger is not completed,
LifeMinders may not be able to generate sufficient revenue to support its
continued operations. In that event, LifeMinders would be required to reduce
its cash balance, which could make it less desirable as an acquisition
candidate or reduce its value in any sale or merger transaction, and would
reduce the amount of proceeds available for distribution to its stockholders in
the event of a liquidation of LifeMinders.

LifeMinders advertising customers and the companies with which it has other
business relationships may experience adverse business conditions that could
adversely affect LifeMinders business.

Some of LifeMinders customers may experience difficulty in supporting their
current operations and implementing their business plans. These customers may
reduce their spending on LifeMinders products and services, or may not be able
to discharge their payment and other obligations to LifeMinders. The
non-payment or late payment of amounts due to LifeMinders from a significant
customer would negatively impact LifeMinders financial condition. These
circumstances are influenced by general economic and industry conditions, and
could have a material adverse impact on LifeMinders business, financial
condition and results of operations. In addition to intense competition, the
overall market for Internet advertising has been characterized in recent
quarters by increasing softness of demand, the reduction or cancellation of
advertising contracts, an increased risk of uncollectible receivables from
advertisers, and the reduction of Internet advertising budgets, especially by
Internet-related companies. LifeMinders customers may experience difficulty
in raising capital, or may be anticipating such difficulties, and therefore may
elect to scale back the resources they devote to advertising, including on
LifeMinders system. Other companies in the Internet industry have depleted
their available capital, and could cease operations or file for bankruptcy
protection. If the merger is not completed and the current environment for
Internet advertising does not improve, LifeMinders business, results of
operations and financial condition could be materially adversely affected.

If LifeMinders does not maintain an engaged member base, it may not be able to
compete effectively for, or maintain, advertisers and its business could be
adversely affected.

LifeMinders revenue has been derived primarily from advertisers seeking an
engaged, targeted audience for their advertisements. Although LifeMinders
intends to continue to produce and distribute emails to its members, it has
scaled back its business operations and has reduced the number of emails it
sends to members. LifeMinders has discontinued most of its member related
marketing activities. Accordingly, LifeMinders does not expect growth in its
member base, nor does it expect to develop new products.

A significant portion of LifeMinders revenue has historically been derived
from performance-based and revenue sharing arrangements. Under these
arrangements, advertisers pay LifeMinders in part based on member responses to
advertisements and





---



promotions placed in email newsletters. If LifeMinders members do not respond
to advertisements and promotions placed in email newsletters, the companys
revenue could be materially and adversely affected.

If LifeMinders is unable to maintain an engaged member base by keeping its
current members active (i.e., opening email newsletters and responding to the
advertisements contained in those newsletters), advertisers could find
LifeMinders audience less attractive and effective for promoting their
products and services. LifeMinders currently expects that it will experience
difficulty retaining its existing advertisers, and has ceased its efforts to
solicit additional advertisers, which will likely reduce its future revenues
from online advertising and opt-in advertising, which represent a majority of
LifeMinders revenues to date.

Competition in the online advertising market industry is intense, and
LifeMinders scaled back operations may make it more difficult for it to
compete effectively and may reduce its ability to retain and attract
advertisers.

If the merger is not completed and LifeMinders continues operations, it will
continue to face intense competition from both traditional and online
advertising and direct marketing businesses. LifeMinders scaled-back
operations may make it more difficult to compete effectively with its
competitors. If it is not able to compete effectively, LifeMinders may not be
able to retain current advertisers or attract new advertisers. This would
reduce LifeMinders revenues and it would need to reduce its cash balance to
support its continued operations, which could make LifeMinders less desirable
for an alternative transaction and would reduce the amount of proceeds
available for distribution to stockholders in the event of a liquidation.
LifeMinders faces competition for marketing dollars from online portals and
community Web sites such as AOL, Yahoo!, and CNET Networks, Inc. In addition,
several other companies offer competitive email direct marketing services for
LifeMinders consumer products, including coolsavings.com, MyPoints.com,
NetCreations, YesMail.com and Digital Impact. Additionally, traditional
advertising agencies and direct marketing companies may seek to offer online
products or services that compete with those offered by LifeMinders.

Many of LifeMinders existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than LifeMinders. LifeMinders competitors will most likely continue
to develop and market new technologies and products and to conduct research
allowing them to identify and respond to changes in customer requirements. In
addition, these competitors will continue to aggressively market and sell their
products and services. LifeMinders has scaled back its operations, resulting
in a lack of material resources being committed to marketing and sales
activities by LifeMinders. As a result, it is unlikely that, if the merger is
not completed, LifeMinders will be able to effectively compete in the market
for a long period of time, and its business, results of operations or financial
condition will be materially and adversely affected.

LifeMinders relies heavily on its intellectual property rights and other
proprietary information, and any failure to protect and maintain these rights
and information could prevent LifeMinders from competing effectively.

LifeMinders ability to continue operations in the event the merger is not
completed is substantially dependent on its internally developed technologies
and trademarks, which LifeMinders seeks to protect through a combination of
patent, copyright, trade secret and trademark law, as well as confidentiality
or license agreements with employees, consultants, and corporate and strategic
partners. If LifeMinders is unable to prevent the unauthorized use of its
proprietary information or if its competitors are able to develop similar
technologies independently, the competitive benefits of LifeMinders
technologies, intellectual property rights and proprietary information will be
diminished. These circumstances could also make the company less desirable in
an alternative transaction.

LifeMinders depends heavily on its network infrastructure and if this fails it
could result in unanticipated expenses, as well as prevent LifeMinders members
from effectively utilizing LifeMinders services. This could negatively impact
LifeMinders ability to retain members and advertisers.

LifeMinders ability to successfully create and deliver its email newsletters
depends in large part on the capacity, reliability and security of its
networking hardware, software and telecommunications infrastructure. Failures
of the network infrastructure could result in unanticipated expenses to address
such failures and could prevent LifeMinders members from effectively utilizing
its services, which could prevent LifeMinders from retaining members and
advertisers. LifeMinders does not have fully redundant systems or a formal
disaster recovery plan. The system is susceptible to natural and man-made
disasters, including earthquakes, fires, floods, power loss and vandalism.
Further, telecommunications failures, computer viruses, electronic break-ins or
other similar disruptive problems could adversely affect the operation of the
systems. LifeMinders insurance policies may not adequately compensate it for
any losses that may occur due to any damages or interruptions in the systems.
Accordingly, LifeMinders could be required to make capital expenditures in the
event of unanticipated damage.

In addition, LifeMinders members depend on Internet service providers, or
ISPs, for access to the LifeMinders Web site. Due to the rapid growth of the
Internet, ISPs and Web sites have experienced significant system failures and
could experience outages, delays and other difficulties due to system failures
unrelated to LifeMinders systems. These problems could harm LifeMinders
business by preventing its members from effectively utilizing its services.





---



LifeMinders quarterly results of operations may fluctuate in future periods
and it may be subject to seasonal and cyclical
patterns that may negatively impact its stock price.

LifeMinders believes that its business may be subject to seasonal fluctuations.
Advertisers historically have placed fewer advertisements during the first and
third calendar quarters of each year.

Further, Internet user traffic typically drops during the summer months, which
potentially could reduce the amount of advertising placed during that period.
Expenditures by advertisers and direct marketers tend to vary in cycles that
reflect overall economic conditions as well as budgeting and buying patterns.
LifeMinders revenue has in the past been, and may in the future be, materially
affected by a decline in the economic prospects of customers or in the economy
in general, which could alter the companys customers spending priorities or
budget cycles. Because of these and other factors, LifeMinders revenues and
operating results may vary significantly from quarter-to-quarter.

The content contained in LifeMinders emails may subject it to significant
liability for negligence, copyright or trademark infringement or other matters.

If any of the content that LifeMinders creates and delivers to its members or
any content that is accessible from its emails through links to other Web sites
contains errors, third parties could make claims against LifeMinders for losses
incurred in reliance on such information. In addition, the content contained
in or accessible from LifeMinders emails could include material that is
defamatory, violates the copyright or trademark rights of third parties, or
subjects it to liability for other types of claims. LifeMinders general
liability insurance may not cover claims of these types or may not be adequate
to indemnify it for all liability that may be imposed. Any imposition of
liability, particularly liability that is not covered by insurance or is in
excess of insurance coverage, could result in significant costs and expenses
and damage LifeMinders reputation.

LifeMinders has also entered into agreements with certain e-commerce partners
under which LifeMinders may be entitled to receive a share of certain revenue
generated from the purchase of goods and services through direct links to
LifeMinders e-commerce partners from the emails sent by LifeMinders. These
agreements may expose LifeMinders to additional legal risks and uncertainties,
including potential liabilities to consumers of those products and services by
virtue of its involvement in providing access to those products or services,
even if LifeMinders itself does not provide those products or services. Any
indemnification provided to LifeMinders in its agreements with these parties,
if available, may not adequately protect it.

Concerns about, or breaches of, the security of LifeMinders member database
could result in significant expenses to prevent breaches, and subject the
company to liability for failing to protect the members information.

LifeMinders maintains a database containing information about its members.
Unauthorized users accessing LifeMinders systems remotely may access its
database or authorized users may make unauthorized copies of all or part of the
database for their own use in violation of specific agreements to the contrary.
As a result of these security and privacy concerns, LifeMinders may incur
significant costs to protect against the threat of security breaches or to
alleviate problems caused by security breaches, and it may be unable to
effectively target direct marketing offers to members or may be subject to
legal claims of members if unauthorized third parties gain access to
LifeMinders system and alter or destroy information in its database. Also,
any public perception that LifeMinders engaged in the unauthorized release of
member information, whether or not correct, would adversely affect its ability
to retain members.

LifeMinders business may be adversely affected by the refusal of one or more
electronic email delivery providers to deliver LifeMinders, or its customers,
messages.

LifeMinders business may be adversely affected by the unilateral election of
certain domain administrators to block, filter or otherwise prevent the
delivery of Internet advertising or commercial emails to their users.
LifeMinders cannot assure you that the number of domains which establish
policies restricting their users receipt of commercial deliveries as
consideration for receiving service will not become increasingly more popular,
thereby diminishing the reach of LifeMinders service, or the service of its
customers.

LifeMinders business may be adversely affected by products offered by third
parties.

LifeMinders ability to continue operating its business may be adversely
affected by the adoption by computer users of technologies that harm the
performance of its products and services, such as technologies that allow
domain administrators on the aggregate level, or individual users managing
their own electronic email accounts, to block, filter or otherwise prevent the
delivery of Internet advertising or commercial emails, or to block access to
any services that use cookies or other tracking technologies. LifeMinders
cannot assure you that the number of domains or individual computer users who
employ these or other similar technologies will not increase, thereby
diminishing the efficacy of LifeMinders, or its customers, services.
LifeMinders business, financial condition and results of operations could be
materially and adversely affected if one or more of these technologies is
widely accepted.





---



Sweepstakes regulation may limit LifeMinders ability to conduct sweepstakes
and other contests, which could negatively impact its ability to retain
members.

The conduct of sweepstakes, lotteries and similar contests, including by means
of the Internet, is subject to extensive federal, state and local regulation,
which may restrict LifeMinders ability to offer contests and sweepstakes in
some geographic areas or altogether. Any restrictions on these promotions
could adversely affect LifeMinders ability to retain members.

If the price of LifeMinders stock remains volatile, LifeMinders may become
subject to securities litigation, which is expensive and could divert its
resources.

In the past, following periods of market volatility in the price of a companys
securities, security holders have instituted class action litigation. Many
companies in the industry in which LifeMinders operates have been subject to
this type of litigation. LifeMinders stock price has been volatile since the
companys initial public offering in November 1999. If the market value of
LifeMinders stock continues to experience adverse fluctuations, and LifeMinders
becomes involved in this type of litigation, regardless of the outcome,
LifeMinders could incur substantial legal costs and managements attention
could be diverted, causing the business to suffer.

LifeMinders business may be adversely affected if demand for Internet
advertising fails to grow as predicted or diminishes.

The Internet advertising industry is new and rapidly evolving, and it cannot
yet be compared with traditional advertising media to gauge its effectiveness.
As a result, demand and acceptance for Internet advertising solutions is
uncertain. Many of LifeMinders advertising customers have limited experience
using the Internet for advertising purposes and they have allocated only a
limited portion of their advertising budgets to Internet advertising. The
adoption of Internet advertising, particularly by those entities that have
historically relied upon traditional media for advertising, requires the
acceptance of a new way of conducting business, exchanging information and
advertising products and services. These customers may find Internet
advertising to be less effective for promoting their products and services
relative to traditional advertising media. LifeMinders cannot assure you that
its advertising customers will continue to allocate a portion of their
advertising budget to Internet advertising or that the demand for Internet
advertising will continue to develop to sufficiently support Internet
advertising as a significant advertising medium. LifeMinders results of
operations have been adversely affected in recent quarters as a result of a
significantly declining market for online advertising, and the company expects
that these adverse market conditions will continue. If the market for online
advertising fails to improve or deteriorates more than expected, LifeMinders
business, results of operations and financial condition could be materially and
adversely affected.

There are currently no generally accepted standards or tools for the
measurement of the effectiveness of Internet advertising or the planning of
advertising purchases, and generally accepted standard measurements and tools
may need to be developed to support and promote Internet advertising as a
significant advertising medium. LifeMinders advertising customers may
challenge or refuse to accept the measurements of advertisement delivery
results developed by LifeMinders or a third party. In addition, the accuracy
of database information used to target advertisements is essential to the
effectiveness of Internet advertising that may be developed in the future. The
information in LifeMinders database, like any database, may contain
inaccuracies that its customers may not accept.

A significant portion of LifeMinders revenue has historically been derived
from the delivery of advertisements, which are designed to contain the features
and measuring capabilities requested by advertisers. If advertisers determine
that those ads are ineffective or unattractive as an advertising medium or if
LifeMinders is unable to deliver the features or measuring capabilities
requested by advertisers, the long-term growth of its online advertising
business could be limited and revenue levels could decline. There are also
filter software programs that limit or prevent advertising from being
delivered to a users computer. The commercial viability of Internet
advertising, and LifeMinders business, results of operations and financial
condition, would be materially and adversely affected by Web users widespread
adoption of this software.

The unauthorized access of confidential member information that LifeMinders
transmits over public networks could adversely affect its ability to retain
members.

Members transmit confidential information to LifeMinders over public networks
and the unauthorized access of such information by third parties could harm
LifeMinders reputation and significantly hinder its efforts to retain members.
LifeMinders relies on a variety of security techniques and authentication
technology licensed from third parties to provide the security and
authentication technology to effect secure transmission of confidential
information, including customer credit card numbers. Advances in computer
capabilities, new discoveries in the field of cryptography or other
developments may result in a compromise or breach of the technology used by
LifeMinders to protect customer transaction data.

Problems with the performance and reliability of the Internet infrastructure
could adversely affect the quality and reliability of the products and services
LifeMinders offers its members and advertisers.

LifeMinders depends on the Internet infrastructure to deliver attractive,
reliable and timely email newsletters to its members. If Internet usage grows,
the Internet infrastructure may not be able to support the demands placed on it
by this growth, and its performance and reliability may decline. Among other
things, continued development of the Internet infrastructure will require a
reliable network backbone with necessary speed, data capacity and security.
Currently, there are regular failures of the Internet





---



network infrastructure, including outages and delays, and the frequency of
these failures may increase in the future. These failures may reduce the
benefits of LifeMinders products and services to its members and undermine the
companys advertising partners and members confidence in the Internet as a
viable commercial medium. In addition, the Internet could lose its viability
as a commercial medium due to delays in the development or adoption of new
technology required to accommodate increased levels of Internet activity or due
to government regulation.

LifeMinders may have to litigate to protect its intellectual property and other
proprietary rights or to defend claims of third parties, and such litigation
may subject it to significant liability and expense.

There is a substantial risk of litigation regarding intellectual property
rights in Internet-related businesses. Legal standards relating to the
validity, enforceability and scope of protection of certain proprietary rights
in Internet-related businesses are uncertain and still evolving. LifeMinders
may have to litigate in the future to enforce its intellectual property rights,
protect its trade secrets or defend itself against claims of violating the
proprietary rights of third parties. This litigation may subject LifeMinders
to significant liability for damages and result in invalidation of proprietary
rights. In addition, such litigation could be time-consuming and expensive to
defend, even if not meritorious, and result in the diversion of management time
and attention. Any of these factors could adversely affect LifeMinders
business operations, financial results, condition and cash flows.

Changes in government regulation could decrease LifeMinders revenue and
increase its costs.

Laws applicable to Internet communications, on-line privacy, digital
advertising, data protection and direct marketing are becoming more prevalent.
Any legislation enacted or regulation issued could dampen the growth and
acceptance of the digital marketing industry in general and of LifeMinders
offerings in particular. Existing and proposed legislation in the United
States, Europe (following the directive of the European Union) and Canada may
impose limits on LifeMinders collection and use of certain kinds of information
about its members.

Moreover, the laws governing the Internet remain largely unsettled, even in
areas where there has been some legislative action. It may take years to
determine whether, and how, existing laws such as those governing intellectual
property, data protection, libel and taxation apply to the Internet and
Internet advertising. In addition, the growth and development of Internet
commerce may prompt calls for more stringent consumer protection laws, both in
the United States and abroad, that may impose additional burdens on companies
conducting business over the Internet.

Changes in laws relating to data collection and use practices and the privacy
of Internet users and other individuals could harm LifeMinders business.

New limitations on the collection and use of information relating to Internet
users are currently being considered by legislatures and regulatory agencies in
the United States and internationally. LifeMinders is unable to predict
whether any particular proposal will pass, or the nature of the limitations in
those proposals that do pass. Since many of the proposals are in their
developmental stages, LifeMinders is unable to determine the impact these may
have on its business. In addition, it is possible that changes to existing
law, including new interpretations of existing law, could have a material and
adverse impact on LifeMinders business, financial condition and results of
operations.





---



PART II  OTHER INFORMATION

Item 1. Legal Proceedings.

In the normal course of business, the Company is at times subject to pending
and threatened legal actions and proceedings. After reviewing pending and
threatened actions and proceedings with counsel, management believes that the
outcome of such actions or proceedings is not expected to have a material
adverse effect on the financial position, results of operations or cash flows
of the Company.

Item 2. Changes in Securities and Use of Proceeds.

(a) None.

(b) None.

(c) None.

(d) None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Securities Holders.

None.

Item 5. Other Information.

None.

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

a. Exhibits

b. Reports on Form 8-K.

Form 8-K was filed with the SEC on May 11, 2001 attaching a press release
in which the Company announced its results for first quarter 2001 and that the
Company was scaling back its business operations and continuing to evaluate
strategic alternatives.





---



LIFEMINDERS, INC.
SIGNATURES*

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

LifeMinders, Inc.
(Registrant)

|                |  |                                                                                                     
|--------------- |  | ----------------------------------------------------------------------------------------------------
|August 14, 2001 |  | /s/ Joseph S. Grabias                                                                               
|               
|Date            |  | (Signature)**                                                                                       
|               
|                |  | Joseph S. Grabias
Chief Financial Officer
(Principal accounting officer and
duly authorized officer)





---



EXHIBITS

|         |  |            
|-------- |  | -----------
|Item No. |  | Description