<PAGE>

                                 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 March 31, 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 May 8,
2001 was 25,978,405.
<PAGE>

                               LIFEMINDERS, INC.

                                     INDEX

<TABLE>
<CAPTION>
                                                                                                              Page No.
                                                                                                              --------
<S>                                                                                                           <C>
PART I -       FINANCIAL INFORMATION........................................................................         1

Item 1.        Consolidated Financial Statements............................................................         1

Item 2.        Management's Discussion and Analysis of Financial Condition and Results of
               Operations...................................................................................        18

Item 3.        Quantitative and Qualitative Disclosure about Market Risk....................................        27

PART II - OTHER INFORMATION                                                                                         42

Item 1.        Legal Proceedings............................................................................        42

Item 2.        Change in Securities.........................................................................        42

Item 3.        Defaults Upon Senior Securities..............................................................        42

Item 4.        Submission of Matters to a Vote of Securities Holders........................................        42

Item 5.        Other Information............................................................................        42

Item 6.        Exhibits and Reports on Form 8-K.............................................................        42
</TABLE>
<PAGE>

PART I - FINANCIAL INFORMATION
Item 1.  Consolidated Financial Statements

                               LIFEMINDERS, INC.

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

<TABLE>
<CAPTION>

                                                                                                      December 31,       March 31,
                                                                                                          2000             2001
                                                                                                          ----             ----
                                                                                                                         (Unaudited)
<S>                                                                                                   <C>                <C>
        Assets
Current assets:
Cash and cash equivalents........................................................................       $  42,771        $  60,073
Marketable securities, held to maturity..........................................................          19,939               --
Accounts receivable, net of allowance for doubtful accounts of $1,678 and $1,728
(unaudited)......................................................................................           9,090            2,776
Prepaid expenses and other current assets........................................................           6,324            3,194
                                                                                                        ---------        ---------
     Total current assets........................................................................          78,124           66,043
Property and equipment, net......................................................................          23,806           20,687
Intangible assets, net...........................................................................           4,159            3,777
Restricted cash..................................................................................           7,700            7,700
Other assets.....................................................................................             747              628
                                                                                                        ---------        ---------
     Total assets...............................................................................        $ 114,536        $  98,835
                                                                                                        =========        =========

       Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable.................................................................................       $   5,411        $   3,152
Accrued expenses.................................................................................           2,804            2,488
Deferred revenue.................................................................................             288              189
Notes payable....................................................................................             782              761
Capital lease obligations........................................................................           1,370            1,193
                                                                                                        ---------        ---------
     Total current liabilities...................................................................          10,655            7,783

Notes payable, net of current portion............................................................             472              295
Capital lease obligations, net of current portion................................................             197               16
Deferred rent....................................................................................              43              146
                                                                                                        ---------        ---------
     Total liabilities...........................................................................          11,367            8,240
                                                                                                        ---------        ---------
Commitments and contingencies

Stockholders' equity:
 Preferred stock, $.01 par value; 9,665,240 shares authorized,  no shares issued and
  outstanding at December 31, 2000 and March 31, 2001............................................              --               --
 Common stock, $.01 par value; 60,000,000 shares authorized; 25,932,217 and 25,975,291
  (unaudited) shares issued and outstanding at December 31, 2000 and March 31, 2001,
    respectively.................................................................................             259              260
Additional paid-in capital.......................................................................         251,393          249,436
Deferred compensation on employee stock options..................................................          (4,904)          (2,482)
Accumulated deficit..............................................................................        (143,579)        (156,619)
                                                                                                        ---------        ---------
     Total stockholders' equity..................................................................         103,169           90,595
                                                                                                        ---------        ---------
     Total liabilities and stockholders' equity..................................................       $ 114,536        $  98,835
                                                                                                        =========        =========
</TABLE>

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

                               LIFEMINDERS, INC.

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

<TABLE>
<CAPTION>
                                                                                 For the three months ended,
                                                                                          March 31,
                                                                                          ---------
                                                                              2000                          2001
                                                                              ----                          ----
                                                                           (Unaudited)                   (Unaudited)
<S>                                                                        <C>                           <C>
Revenue:
     Advertising......................................................     $     7,826                   $     5,203
     Opt-in...........................................................           3,178                           299
                                                                           -----------                   -----------
Total revenue.........................................................          11,004                         5,502

Cost of revenue (including stock-based compensation of $15 and $7,
  respectively).......................................................             800                         2,197
                                                                           -----------                   -----------
Gross margin..........................................................          10,204                         3,305

Operating expenses:
     Sales and marketing (including stock-based compensation of
       $170 and $150, respectively)...................................          24,715                         7,912
     Research and development (including stock-based compensation of
       $75 and $175, respectively)....................................           1,415                         1,848
     General and administrative (including stock-based compensation of
       $96 and $41, respectively).....................................           2,807                         4,119
     Depreciation and amortization....................................             188                         1,110
     Restructuring charge.............................................             ---                         2,544
                                                                           -----------                   -----------
Total operating expenses..............................................          29,125                        17,533

Loss from operations..................................................         (18,921)                      (14,228)
Interest income, net..................................................           1,373                         1,188
Loss from investment in unconsolidated entities.......................             (25)                           --
                                                                           -----------                   -----------
Net loss..............................................................     $   (17,573)                  $   (13,040)
                                                                           ===========                   ===========
Basic and diluted net loss per common share...........................     $     (0.80)                  $     (0.50)
                                                                           ===========                   ===========
Basic and diluted weighted average common shares and common share
  equivalents.........................................................      21,966,393                    25,957,071
                                                                           ===========                   ===========
</TABLE>

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

                               LIFEMINDERS, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                               ($ in thousands)

<TABLE>
<CAPTION>
                                                                                            For the three months ended,
                                                                                                    March 31,
                                                                                                    ---------
                                                                                             2000                2001
                                                                                             ----                ----
                                                                                          (Unaudited)         (Unaudited)
<S>                                                                                       <C>                 <C>

Cash flows from operating activities:
 Net loss..............................................................................   $    (17,573)       $   (13,040)
 Adjustments to reconcile net loss to net cash used in
   operating activities:
   Depreciation and amortization.......................................................            616              3,998
   Amortization of intangible assets...................................................             --                395
   Provision for doubtful accounts receivable..........................................            638                590
   Amortization of deferred compensation on employee stock options.....................            356                373
   Restructuring charge................................................................             --              1,042
   Loss from unconsolidated entities...................................................             25                 --
 Changes in assets and liabilities, net of effects for acquisitions:
   Accounts receivable.................................................................         (3,182)             5,724
   Prepaid expenses and other assets...................................................          1,669              2,207
   Accounts payable....................................................................          1,635             (2,259)
   Accrued expenses....................................................................           (272)              (316)
   Deferred revenue....................................................................           (129)               (99)
   Deferred rent.......................................................................              2                103
                                                                                          ------------        -----------
    Net cash used in operating activities..............................................        (16,215)            (1,282)
                                                                                          ------------        -----------
Cash flows from investing activities:
 Acquisition of property and equipment.................................................         (4,392)              (879)
 Purchase of marketable securities.....................................................        (49,650)                --
 Proceeds from maturities of marketable securities.....................................         21,000             19,939
 Investments in unconsolidated entities................................................         (3,764)                --
 Payments for business acquisitions, net of cash acquired..............................         (2,519)               (13)
                                                                                          ------------        -----------
 Net cash (used in) provided by investing activities...................................        (39,325)            19,047
                                                                                          ------------        -----------
Cash flows from financing activities:
 Borrowings under notes payable........................................................          1,415                 --
 Payments of notes payable.............................................................            (20)              (198)
 Repayment of principal on capital lease obligations...................................           (180)              (358)
 Proceeds from issuance of common stock, net of issuance costs.........................         85,899                 --
 Proceeds from issuance of common stock under ESPP.....................................             --                  7
 Exercise of stock options.............................................................            171                 86
                                                                                          ------------        -----------
 Net cash provided by (used in) financing activities...................................         87,285               (463)
                                                                                          ------------        -----------

Net increase in cash and cash equivalents..............................................         31,745             17,302
Cash and cash equivalents, beginning of period.........................................         55,524             42,771
                                                                                          ------------        -----------

Cash and cash equivalents, end of period...............................................   $     87,269        $    60,073
                                                                                          ============        ===========
Supplemental cash flow disclosures and non-cash investing and financing
activities:
Cash paid for interest.................................................................   $         90        $        79
                                                                                          ============        ===========
Purchase of computer equipment through capital lease...................................   $        531        $        --
                                                                                          ============        ===========
Liabilities assumed in acquisitions of businesses......................................   $        224        $        --
                                                                                          ============        ===========
Adjustment of deferred compensation for unvested stock options
 forfeited.............................................................................   $         --        $     2,049
                                                                                          ============        ===========
Issuance of common stock and assumption of stock options in business acquisitions......   $     28,499        $        --
                                                                                          ============        ===========
</TABLE>

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

                               LIFEMINDERS, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  Nature of Business

LifeMinders, Inc. (the Company) is an online direct marketing company that
provides personalized content and advertisements via email to a community of
members. Email messages contain reminders and tips that are designed to enable
the Company's members to better organize and manage their lives. Proprietary
member information and targeting capabilities provide advertising partners the
opportunity to more effectively reach their target audiences.

The Company's outsourcing business unit was launched late in the second quarter
of 2000. The outsourcing product enables other companies to deliver targeted
marketing messages to their own customers via email, thereby enhancing
communication with their customers, driving increased revenue opportunities and
heightening loyalty for their brands.

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, cash equivalents and available credit
facilities 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
forseeable future.

On May 10, 2001, the Company announced that it is scaling back its business
operations and has further reduced its work force to a team of approximately
30-35 employees that will maintain the Company's email products while it
continues to evalute strategic alternatives. Possible alternatives range from a
sale of the Company to a merger with one or more other companies to liquidation.
Associated with this announcement, 78 employees were terminated and the Company
recorded a restructuring charge of approximately $1.2 million in May 2001. The
Company expects to pay all severance for all of these terminated employees
during 2001. These actions were taken because the Company's revenue base has
continued to deteriorate during the first and second quarters of 2001.

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 generally accepted
accounting principles 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 annual report for the year ended December 31, 2000.

Use of Estimates

The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the 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.
<PAGE>

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.

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 three
months ended March 31, 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 that 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 fair value. Fair value is determined using discounted cash flow or
other methods. Based on management's assessment as of March 31, 2001, the
Company has determined that no impairment of intangible assets exists.

Impairment of Long-Lived Assets

The Company evaluates the carrying amounts of long-lived assets when 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, 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.   Based on management's
assessment as of March 31, 2001, the Company has determined that no impairment
of long-lived assets exists.

Restricted Cash

Restricted cash consists of amounts held as collateral to secure letters of
credit required in lieu of deposits for office leases. Subsequent to March 31,
2001, one of the Company's landlords called its letter of credit in the amount
of $7.6 million, which collateralizes one of the Company's operating lease
obligations.

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 three months ended March 31, 2001 and 2000.

Opt-in
<PAGE>

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 months ended March 31, 2000, revenue was recorded net of $630,000
for estimated duplicate member responses to the Company's opt-in partners'
newsletters and other promotions.   For the three months ended March 31, 2001,
no reserve 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
five 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. Two customers accounted
for approximately 18% and 11% of the revenue for the three months ended
March 31, 2001. No one customer exceeded 10% of the Company's revenue and
accounts receivable at March 31, 2000.

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 March 31,
2001 and 2000 were $2,963,000 and $17,802,000, respectively. At March 31, 2001
and 2000, $0 and $2,300,000, 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 and, as a result, $1,042,000 of prepaid
expenses were written off and included in the restructuring charge in the
accompanying financial statements.

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.
<PAGE>

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 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 fair value is measured on the
date that the commitment for performance by the counterparty has been reached or
the counterparty's performance is complete. The fair value of the equity
instrument is charged directly to compensation expense and additional paid-in
capital. No options or warrants have been issued to non-employees during the
three months ended March 31, 2001 and 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 months ended March 31, 2001, the
Company reduced deferred compensation by $2,049,000 for unvested, forfeited
stock options.

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.

3.  Restructuring Charge

During the three months ended March 31, 2001, the Company undertook a
restructuring plan to reduce costs and focus its efforts on reducing operating
losses.  Accordingly, a restructuring charge of $2,544,000 was recorded during
the period.  During the first quarter of 2001, the Company terminated 50
employees or 24% of its workforce as of December 31, 2000.  Of the total
restructuring charge, $1,420,000 relates to employee and contractor termination
benefits and $1,124,000 related to early termination of various vendor service
agreements. Approximately $1,042,000 of the charge was prepaid at December 31,
2000. During the three months ended March 31, 2001, the Company paid $1,209,000
of the restructuring charge; the remaining $293,000 is included in current
liabilities in the accompanying financial statements and is expected to be paid
during 2001.

<PAGE>

4.  Marketable Securities

At December 31, 2000, 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):

<TABLE>
<CAPTION>
                                             December 31, 2000  March 31, 2001
                                             -----------------  --------------
<S>                                          <C>                <C>
Commercial paper                                       $11,939         $    --
U.S. government securities                               8,000              --
                                                       -------         -------
     Total                                             $19,939         $    --
                                                       =======         =======
</TABLE>

All marketable securities held by the Company on December 31, 2000 matured
during the three months ended March 31, 2001.

5.  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):

<TABLE>
<CAPTION>
                                                          Three Months Ended
                                                               March 31,
                                                               ---------
                                                           2000         2001
                                                           ----         ----
<S>                                                    <C>          <C>
Net loss available to common stockholders............  $   (17,573) $   (13,040)
                                                       ===========  ===========

Weighted-average shares of common stock outstanding..   21,966,393   25,957,071
                                                       ===========  ===========

Basic and diluted net loss per common share..........  $     (0.80) $     (0.50)
                                                       ===========  ===========
</TABLE>

For the three month periods ended March 31, 2001 and 2000, options to purchase
5,933,056 and 2,470,052 shares of common stock at weighted average exercise
prices of $7.53 and $8.13 per share, respectively, are not included in the
computation of diluted earnings per share as they are antidilutive.

6.  Segment Information

The Company currently operates 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 three months ended March 31, 2001
follows:

<TABLE>
<CAPTION>
                                                  Consumer       Outsourcing    Corporate        Total
                                                  --------       -----------    ---------        -----
          <S>                                     <C>            <C>            <C>              <C>
          Revenue                                   $4,980           $   522      $    --        $  5,502
          Restructuring charge                          --                --       (2,544)         (2,544)
          Operating loss                            (1,609)           (2,818)      (8,613)        (13,040)
          Total assets                               7,593             2,477       88,765          98,835
          Depreciation and amortization              1,917               884        1,592           4,393
</TABLE>

Prior to the third quarter of 2000, the Company operated in one segment: the
Internet and related services.

7.  Subsequent Event

On May 10, 2001, the Company announced that it is scaling back its business
operations and has further reduced its work force to a team of approximately 30-
35 employees that will maintain the Company's email products while it continues
to evaluate strategic
<PAGE>

alternatives. Possible alternatives range from a sale of the Company to a merger
with one or more other companies to liquidation. Associated with this
announcement, 78 employees were terminated and the Company recorded a
restructuring charge of approximately $1.2 million in May 2001. The Company
expects to pay all severance for all of these terminated employees during 2001.

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 provide online direct marketing opportunities to our partners by delivering
personalized email messages to our members. Our email messages contain helpful
reminders and tips that are directed toward our members' interests and hobbies.
Our proprietary information about our members and highly precise targeting
capabilities provide our advertising partners the opportunity to more
effectively reach their target audiences.

Our outsourcing business unit was launched late in the second quarter of 2000.
Our outsourcing unit enables other companies to deliver targeted marketing
messages to their own customers via email, thereby creating opportunities to
enhance communication with their customers, increase revenue opportunities and
heighten loyalty for their brands.

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

During the three months ended March 31, 2001, we undertook a restructuring plan
to reduce costs and focus our efforts on reducing operating losses.
Accordingly, a restructuring charge of $2,544,000 was recorded during the
period.  During the first quarter, we terminated 50 employees or 24% of our
workforce as of December 31, 2000. Of the total restructuring charge, $1,420,000
relates to employee and contractor termination benefits and $1,124,000 related
to early termination of various vendor service agreements. Approximately
$1,042,000 of the charge was prepaid at December 31, 2000. During the three
months ended March 31, 2001, we paid $1,209,000 of the restructuring charge; the
remaining $293,000 is included in current liabilities in the accompanying
financial statements and is expected to be paid during 2001.

Recent Developments

As we announced on May 10, 2001, subsequent to the end of the first quarter, our
Board of Directors determined to scale back our business operations. We also
announced that we had further reduced our workforce to approximately 30 to 35
employees, down approximately 76% from 127 employees at the end of the first
quarter of 2001 and approximately 85% from 203 employees at the end of the
fourth quarter of 2000 including attrition. In connection with this latest round
of employee layoffs, we took a charge of approximately $1.2 million in the
second quarter of 2001. Our reduced staff will maintain our email products while
we evaluate strategic alternatives for the company.

These actions were taken because our revenue base has continued to deteriorate
during the first and second quarters of 2001.  The Board of Directors determined
that, while we maintain strong core assets - a large membership base, a
scaleable infrastructure and approximately $60 million in cash and cash
equivalents - our prospects for growth and profitability as a standalone company
are not strong.  For that reason, we also announced on May 10, 2001, that we
would continue to identify and evaluate strategic alternatives for the company.
Possible alternatives range from a sale of the company or our assets to a merger
with one or more other companies to liquidation.

We may not be able to identify or complete any merger or sale of the company
that our Board of Directors finds to be in the stockholder's best interests.
Even if we are successful in identifying and completing a merger or sale of the
company, we cannot provide any assurance about the timing of any such
transaction or that any individual stockholder will determine that the
transaction is in his, her or its best interests.  If, in the near future, we
are unable to conclude that a sale or a merger would be in the best interests of
our stockholders, our Board of Directors may determine that the best alternative
is to liquidate and distribute net proceeds to stockholders.  The amount and
timing of any such distribution to stockholders cannot be determined because
they would depend on a variety of factors, including the amount of proceeds
received from any asset sales, the time and amount required to satisfy
outstanding obligations and the amount of any reserves for future contingencies.
We urge you to read the "Risk Factors" later in this section for more
information about the risks associated with our business, the scaling back of
our operations and our consideration of strategic alternatives.

Results of Operations


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.
<PAGE>

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 three
months ended March 31, 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 months ended March 31, 2000,
revenue was recorded net of $630,000 for estimated duplicate member responses to
our opt-in partners' newsletters and other promotions. For the three months
ended March 31, 2001, no reserve 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.

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. Beginning in May 2001,
these efforts were curtailed in connection with the scaling back of our
operations. We therefore expect to significantly reduce 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. In connection with the scaling back of our
operations, we expect a significant decline in research and development costs in
2001.

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
are expected to decrease in absolute dollars, in part due to reductions in
workforce and associated expenses in the first quarter 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
<PAGE>

$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 months ended March 31, 2001,
we reduced deferred compensation by $2,049,000 for unvested, forfeited stock
options.

For the three months ended March 31, 2001 and 2000, $7,000 and $15,000 of
amortization of deferred compensation, respectively, was included in cost of
sales, $150,000 and $170,000, respectively, was included in sales and marketing
expense, $175,000 and $75,000, respectively, was included in research and
development expense, and $41,000 and $96,000, 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.

Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000

Revenue. Revenue was $5,502,000 for the three months ended March 31, 2001, which
represents a decrease of 50% when compared with the corresponding period in
2000. Advertising revenue was $5,203,000 for the three months ended March 31,
2001, which represents a decrease of 34%, when compared with the corresponding
period in 2000. The decrease in advertising revenue is due to the significant
deterioration of the online advertising market.  Opt-in revenue was $299,000 for
the three months ended March 31, 2001, which represents a decrease of 91% when
compared with the corresponding period in 2000. Opt-in revenue is largely
derived as new members register for our service.  In an effort to reach
profitability, we have significantly reduced advertising expenditures and, as a
result, have experienced a decline in new member growth:  we added approximately
285,000 new members for the three months ended March 31, 2001, as compared to
approximately 2,459,000 for the comparable period in 2000.  The decline in opt-
in revenue is directly attributable to reduced new member growth.

Cost of revenue. Cost of revenue was $2,197,000, or 40% of total revenue, for
the three months ended March 31, 2001. Cost of revenue was $800,000, or 7% of
total revenue, for the comparable period in 2000. Our cost of revenue for the
three months ended March 31, 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. Of the
$1,397,000 increase for the three months ended March 31, 2001 as compared to the
comparable period in 2000, 87% is due to an increase in the housing and
depreciation of additional computer equipment which was acquired principally in
the third and fourth quarters of 2000 to support our then rapidly growing
membership base and 3% comprises the amortization of eCoupons technology
acquired.  Additionally, 7% resulted from an increase in the personnel in our
Member Experience department, which is responsible for identifying, composing
and editing the content delivered in our emails:  as of March 31, 2001, we
employed 17 people in our Member Experience department, as compared to 13
employees as of March 31, 2000.

Sales and marketing. Sales and marketing expenses were $7,912,000, or 144% of
total revenue, for the three months ended March 31, 2001. Sales and marketing
expenses were $24,715,000 or 225% of total revenue, for the comparable period in
2000. Of the $16,803,000 decrease for the three months ended March 31, 2001 as
compared to the comparable period in 2000, 88% 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 our decision not to repeat a high-profile television campaign as was done in
the comparable period in 2000.

Research and development. Research and development expenses were $1,848,000, or
34% of total revenue, for the three months ended March 31, 2001. Research and
development expenses were $1,415,000, or 13% of total revenue, respectively, for
the comparable period in 2000.  The $433,000 increase for the three months ended
March 31, 2001 as compared to the comparable period in 2000, was due primarily
to an expansion of our technical staff, including bringing previously outsourced
tasks in-house:  after the reduction in workforce, we employed 53 people in our
technical department as of March 31, 2001, as compared to 26 employees as of
March 31, 2000.

General and administrative. General and administrative expenses were $4,119,000,
or 75% of total revenue, for the three months ended March 31, 2001. General and
administrative expenses were $2,807,000, or 26% of total revenue, for the
comparable period in 2000. Of the $1,312,000 increase for the three months ended
March 31, 2001, as compared to the comparable period in 2000, 40% is the result
of our rapid growth and expansion throughout last year, which required
additional personnel and related fringe benefit expenses, while another 54% is
attributable to increases in facilities expense associated with the new
headquarters facility we occupied in November 2000.  After the reduction in
workforce, salaries and fringe benefits of 34 employees were charged to general
and administrative expense as of March 31, 2001, as compared to 20 employees as
of March 31, 2000.
<PAGE>

Depreciation and amortization. Depreciation and amortization expenses were
$1,110,000, or 20% of total revenue, for the three months ended March 31, 2001.
Depreciation and amortization expenses were $188,000, or 2% total revenues, for
the comparable period in 2000.   Of the $922,000 increase for the three months
ended March 31, 2001 as compared to the comparable period in 2000, 38% resulted
from an increase in the amortization of intangible assets acquired in the
acquisition of eCoupons in December 2000, 28% was attributable to an increase in
amortization of software, and 21% was due to increased depreciation expense
associated with office computing equipment.

Restructuring Charge.  During the three months ended March 31, 2001, we
undertook a restructuring plan to reduce costs and focus our efforts on reducing
operating losses.  Accordingly, a restructuring charge of $2,544,000 was
recorded during the period.  During the first quarter, we terminated 50
employees or 24% of our workforce as of December 31, 2000.  Of the total
restructuring charge, $1,420,000 relates to employee and contractor termination
benefits and $1,124,000 related to early termination of various vendor service
agreements. Approximately $1,042,000 of the charge was prepaid at December 31,
2000. During the three months ended March 31, 2001, we paid $1,209,000 of the
restructuring charge; the remaining $293,000 is included in current liabilities
in the accompanying financial statements and is expected to be paid during 2001.

Interest income, net. Interest income was $1,266,000 or 23% of total revenue,
for the three months ended March 31, 2001.  For the comparable periods in 2000,
interest income was $1,467,000, or 13% of total revenue. This decrease was due
primarily to a lower average funds balance available for investment in short-
term investments.  Interest expense, primarily on notes and leases used to
finance equipment purchases, for the three months ended March 31, 2001 and 2000,
was $78,000 and $94,000, respectively.

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
March 31, 2001 and 2000.

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 March 31, 2001, we had $60,073,000 of cash
and cash equivalents. Outstanding equipment financing, comprising both notes
payable and capital leases, totaled $2,265,000 at March 31, 2001. The
outstanding principal balances of the various equipment financings must be
repaid in equal monthly installments through August 2002. Additionally, the
Company has outstanding commitments to lease office and computer warehouse space
totaling $40,613,000 as of March 31, 2001. The commitments have various terms
expiring through January 2011. As of May 8, 2001, we have sublet 66,000
square feet of the office space to unrelated third parties and are actively
seeking subtenants for the balance of our excess office space.  We believe that
this existing space will meet our requirements for the near future.

Net cash used in operating activities was $1,282,000 for the three months ended
March 31, 2001. Cash used in operating activities for the three months ended
March 31, 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 $19,047,000 for the three months
ended March 31, 2001. Cash provided by investing activities for the three months
ended March 31, 2001 was related to maturities of marketable securities.

Net cash used in financing activities was $463,000 for the three months ended
March 31, 2001. Cash used in financing activities for the three months ended
March 31, 2001 resulted from repayments of notes payable and capital lease
obligations.

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 internal software systems and the hardware to support and service our member
database. Given our announced scaling back of operations, we do not currently
plan to continue the same level of activity in 2001. Also, given our announced
scaling back of operations, 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. We terminated 50 employees, or approximately
24% of our total workforce as of December 31, 2000, in the first quarter of
2001. Subsequent to March 31, 2001, we further reduced our workforce to
approximately 30 to 35 employees down approximately 76% from 127 employees at
the end of the first quarter of 2001. These reductions are expected to have a
significant impact on future results of operations because approximately 17% of
our total expenses in 2000, including cost of sales but excluding impairment of
long-lived assets, related to salaries and related benefits, including stock-
based compensation.

<PAGE>

In connection with our evaluation of strategic alternatives, we may continue to
evaluate possible acquisitions of companies and investments in businesses, which
may require the use of cash. We believe that our existing cash, cash equivalents
and available credit facilities 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.

<PAGE>

                                 RISK FACTORS

In addition to the other information in this Form 10-Q, the following factors
should be carefully considered in evaluating us and our business. The risks and
uncertainties described below are not the only ones facing our company and there
may be additional risks that we do not presently know of or that we currently
deem immaterial. All of these risks and uncertainties and actual results may
differ materially from the results we discuss in the forward-looking statements.
If any of the following risks actually occur, our business, financial condition,
cash flow or results of operations could be materially adversely affected. In
such case, the trading price of our common stock could decline.

Risks Related to the Scaling Down of Our Business Operations and Our Evaluation
of Strategic Alternatives

We are scaling back our business operations and we have significantly reduced
-----------------------------------------------------------------------------
our work force.  We expect that these actions, coupled with continuing weakness
-------------------------------------------------------------------------------
in the online advertising market, will significantly reduce our future
----------------------------------------------------------------------
revenues.
--------

As announced on May 10, 2001, our Board of Directors has determined to
significantly scale back our business operations and we have significantly
reduced our work force.  We believe that our revenues from online advertising
and our other existing lines of business for the foreseeable future will
continue to decline substantially from that reported in prior periods. We expect
this decline because, among other reasons, we believe that the market for
online advertising will continue to decline significantly, we expect that we
will be producing and delivering a substantially fewer number of emails which
will reduce the opportunity for online advertising revenues, we do not expect to
develop any new email products during this period and our management and other
key employees will continue to spend a significant portion of their time
identifying and evaluating strategic alternatives. In addition, our existing
advertising customers may choose not to place online advertising with our
company as a result of concerns about the future of our business operations.

We have incurred significant losses, we expect losses for the foreseeable
-------------------------------------------------------------------------
future, and we may never become profitable.
------------------------------------------

We have never achieved profitability and expect to continue to incur operating
losses for the foreseeable future. As of March 31, 2001, we had an accumulated
deficit of $156.6 million. We incurred net losses of $13.0 million for the three
months ended March 31, 2001, and $109.5 million for the year ended December 31,
2000. We cannot be certain that we will ever be able to generate sufficient
revenue to achieve profitability. If our future revenue is lower than we
anticipate, or our operating expenses exceed our estimates, we would incur
greater losses than we had anticipated and we would be required to further
reduce our cash balance to support our continued operations. Such circumstances
may make us less desirable as an acquisition candidate, may reduce our value in
any sale or merger transaction, and would reduce the amount of proceeds
available to our stockholders in the event of a liquidation.

We may not be able to identify or  complete a sale or merger of the company.
---------------------------------------------------------------------------
<PAGE>

As announced on May 10, 2001, we are continuing to identify and evaluate
strategic alternatives for the company.  Possible alternatives range from a sale
of the company or our assets to a merger with one or more other companies to
liquidation. We may not be able to identify or complete any merger or sale of
the company that our Board of Directors finds to be in the stockholders' best
interests. Even if we are successful in identifying and completing a merger or
sale of the company, we cannot provide any assurance about the timing of any
such transaction or that any individual stockholder will determine that the
transaction is in his, her or its best interests.

If we are unable to conclude that a sale or a merger would be in the best
-------------------------------------------------------------------------
interests of our stockholders, our Board of Directors may determine that the
----------------------------------------------------------------------------
best alternative is to liquidate and distribute the net proceeds of such
------------------------------------------------------------------------
liquidation to stockholders.
---------------------------

As also announced on May 10, 2001, if we are unable to conclude that a sale or a
merger would be in the best interests of our stockholders, our Board of
Directors may determine that the best alternative is to liquidate and distribute
the net proceeds of such liquidation to our stockholders. In a liquidation, we
would be dissolved, sell or otherwise dispose of our  remaining assets, pay our
existing liabilities, set aside reserves for contingent obligations and
distribute any net proceeds  to our stockholders in one or more liquidating
distributions.  In a liquidation, we may not receive any material amounts for
the sale or other disposition of our assets.  Further, in a liquidation, we will
have significant obligations, including real estate, co-location, equipment
leases and other obligations, that will need to be resolved.  Additionally, if
we do not generate sufficient revenue to support our continued operations, we
will be required to reduce our cash balance to support our continued operations
and the amount of any liquidation proceeds available for distribution to our
stockholders would be reduced.  Accordingly,  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.

Our ability to continue to operate our scaled down business and to identify,
----------------------------------------------------------------------------
evaluate and complete any strategic alternative are dependent on our ability to
------------------------------------------------------------------------------
retain our remaining management and other key employees, and we may not be able
-------------------------------------------------------------------------------
to do so.
--------

Since the fourth quarter of 2000, we have laid off approximately 85% of our
workforce. We may have difficulty retaining our remaining management and
other key employees on whom we will depend to continue to operate our scaled
down business and to assist in identifying, evaluating and completing any
strategic alternative. If we are unable to retain our management and other key
employees through this process, our continued business operations and our
ability to identify, evaluate and complete a strategic alternative could  be
materially and adversely affected.
<PAGE>

The market price of our common stock has been declining and may decline further
-------------------------------------------------------------------------------
as a result of our determination to scale back business operations and evaluate
----------------------------------------------------------------------------
strategic alternatives, or as a result of and fluctuations in our quarterly
-------------------------------------------------------------------------------
results of operations.
-------------------------------------------------------------------------------

The market price of our 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 May 8,
2001, the closing price per share of our common stock as reported on The Nasdaq
National Market was $1.40 per share.  We believe that the market price of our
common stock has been significantly and adversely affected by the sharp decline
in the online advertising market.  We also believe that our common stock price
may decline in the future as a result of our decision to scale back operations
and evaluate strategic alternatives, and because of the significantly lower
revenues reported in our quarterly results of operations for the quarters ended
December 31, 2000 and March 31, 2001, and our announced expectations for
revenues in the quarter ending June 30, 2001. In addition, we believe that in
the future, fluctuations in our quarterly results and the negative online
advertising market, as well as many of the other risk factors listed in this
report, may negatively affect our quarterly operating results and contribute to
fluctuations in our common stock price.

A further decline in our common stock price may adversely affect our ability to
-------------------------------------------------------------------------------
complete a strategic alternative involving a stock transaction.
--------------------------------------------------------------

We are continuing to identify and evaluate potential strategic alternatives,
including a potential sale or merger of our company. However, our ability to
complete a sale or merger transaction involving the company may be adversely
affected by a further decline in our stock price.

If the price of our 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 our shares.
----------------------------------

There are several requirements for continued listing on the Nasdaq National
Market including, but not limited to, maintaining a minimum stock price of $1.00
per share.  We may fail to meet these continued listing requirements, with the
result being that our common stock might be delisted.  If that were to occur, we
may apply for listing on the Nasdaq Smallcap Market, subject to Nasdaq's
approval.  If our stock were to be delisted from the Nasdaq National Market, and
we were unable to list our stock on the Nasdaq Smallcap Market, it is likely
that public trading, if any, in our common stock would thereafter be conducted
in the over-the-counter market in the so-called "pink sheets," or on the NASD's
"Electronic Bulletin Board." In addition, our stock would become subject to the
penny stock rules of the Securities and Exchange Commission, which generally are
applicable to equity securities with a price of less than $5.00 (other than
securities registered on certain national securities exchanges or quoted on the
Nasdaq system, provided that current price and volume information with respect
to transactions in such securities is provided by the exchange or system). The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document prepared by the SEC that provides information about penny
stocks and the nature and level of risks in the penny stock market. The broker-
dealer also must provide the customer with bid and offer quotations for the
penny stock, the compensation of the broker-dealer and its salesperson in the
transaction, and monthly account statements showing the market value of each
penny stock held in the customer's account. In addition, the penny stock rules
<PAGE>

require that prior to executing a transaction in a penny stock, not otherwise
exempt from such rules, the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction.  These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules. If our common stock were to be delisted and become subject to the
penny stock rules, investors may find it more difficult to sell their shares or
to obtain quotations as to the price of our stock. Delisting could also have a
long-term negative impact on our ability to raise future capital through a sale
of common stock.


Risks Related to Our Company that Could Affect the Ongoing Operation of Our
Business

If we are unsuccessful in addressing certain risks and uncertainties associated
-------------------------------------------------------------------------------
with the continued operation of our business, we may not be able to generate
----------------------------------------------------------------------------
sufficient revenues and we would be required to reduce our cash balance to
--------------------------------------------------------------------------
support our continued operations.
--------------------------------

We have only a limited operating history upon which to evaluate our business and
prospects and the online direct marketing industry is relatively new and rapidly
evolving.  This presents many risks and uncertainties including our:

  .  ability to compete effectively against other companies;

  .  need to retain and motivate qualified personnel;

  .  ability to anticipate and adapt to the changing market;

  .  ability to develop and introduce new products and services and continue to
     develop and upgrade technology; and

  .  need to attract and retain a large number of customers from a variety of
     industries.

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

We cannot assure you that we will successfully address these risks and
uncertainties. If we are unsuccessful in addressing these risks and
uncertainties, we may not be able to generate sufficient revenue to fund our
operations. In that event, we would be required to reduce our cash balance,
which could make us less desirable as an acquisition candidate or reduce our
value in any sale or merger transaction, and would reduce the amount of proceeds
available for distribution to our stockholders in the event of a liquidation of
our company.

We may not be able to generate sufficient revenue to support our continued
--------------------------------------------------------------------------
operations if the acceptance of online advertising, which is new and
--------------------------------------------------------------------
unpredictable, does not develop and expand.
------------------------------------------
<PAGE>

We have historically derived a substantial portion of our 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, our
email and Web-based programs may not generate sufficient user traffic with
demographic characteristics attractive to our advertisers. We are also affected
by general industry conditions governing the supply and demand of Internet
advertising. For example, the market for email advertising in general is
vulnerable to the negative public perception associated with unsolicited email,
known as "spam." Public perception, press reports or governmental action related
to spam could reduce the overall demand for email advertising in general. Our
results of operations have been adversely affected in recent quarters as a
result of a significantly declining market for online advertising, and we expect
that those adverse market conditions will continue. If the market for online
advertising fails to improve or deteriorates more than we expect, we may not be
able to generate sufficient revenue to support our continued operations. In that
event, we would be required to reduce our cash balance, which could make us less
desirable as an acquisition candidate or reduce our value in any sale or merger
transaction, and would reduce the amount of proceeds available for distribution
to our stockholders in the event of a liquidation of our company.

<PAGE>

Our advertising customers and the companies with which we have other business
-----------------------------------------------------------------------------
relationships may experience adverse business conditions that could adversely
-----------------------------------------------------------------------------
affect our business.
-------------------

Some of our customers may experience difficulty in supporting their current
operations and implementing their business plans. These customers may reduce
their spending on our products and services, or may not be able to discharge
their payment and other obligations to us. The non-payment or late payment of
amounts due to us from a significant customer would negatively impact our
financial condition. These circumstances are influenced by general economic and
industry conditions, and could have a material adverse impact on our 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. Our 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 our system. Other companies in the Internet industry have depleted
their available capital, and could cease operations or file for bankruptcy
protection. If the current environment for Internet advertising does not
improve, our business, results of operations and financial condition could be
materially adversely affected.

If we do not maintain an engaged member base, we may not be able to compete
---------------------------------------------------------------------------
effectively for advertisers and our business could be adversely affected.
-------------------------------------------------------------------------

Our revenue has been derived primarily from advertisers seeking an engaged,
targeted audience for their advertisements. Although we intend to continue to
produce and distribute emails to our members, we are scaling back our business
operations and intend to reduce the number of emails that we send to members and
we do not expect to develop new products in the near future.  If we are unable
to maintain an engaged member base by keeping our current members active (i.e.,
opening our email newsletters and responding to the advertisements contained in
those newsletters) , advertisers could find our audience less attractive and
effective for promoting their products and services.  We currently expect that
we will experience difficulty retaining our existing advertisers and attracting
additional advertisers, which will likely reduce our future revenues from online
advertising and opt-in advertising, which represent a majority of our revenues
to date.

We could also experience difficulty retaining our existing advertisers and
attracting additional advertisers if a significant number of our current members
stopped using our service. Members may discontinue using our service if they
object to having their online activities tracked or they do not find our content
useful. Members may also discontinue using our service if they have been
saturated by our email newsletters or advertisements or other advertisements or
promotions in their emails or on the Internet. Our service allows our members to
easily unsubscribe at any time by clicking through a link appearing at the
bottom of our email newsletters and selecting the particular categories from
which they want to unsubscribe.
<PAGE>

To date, we have relied on referral-based marketing activities to attract a
portion of our members.  However, we expect to discontinue these marketing
activities in the near future. Accordingly, we do not expect growth in our
member base. A significant portion of our revenue has historically been
derived from performance-based and revenue sharing arrangements.  Under these
arrangements, our advertisers pay us in part based on member responses to
advertisements and promotions placed in our email newsletters.  If our members
do not respond to advertisements and promotions placed in our email newsletters,
our revenue could be materially and adversely affected.  Further, we expect to
reduce the number of future email newsletters to our members, and we expect that
this could also materially and adversely affect our future revenue.

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

We face intense competition from both traditional and online advertising and
direct marketing businesses.  Our scaled back operations may make it more
difficult for us to compete effectively with our competitors.  If we are not
able to compete effectively, we may not be able to retain current advertisers or
attract new advertisers.  This would reduce our revenues and we would be
required to reduce our cash balance to support our continued operations which
could make us less desirable as an acquisition candidate or reduce our value in
any sale or merger transaction, and would reduce the amount of proceeds
available for distribution to our stockholders in the event of a liquidation of
our company. Moreover, we expect that competition will increase due to the lack
of significant barriers to entry in the online advertising market and the
attention the Internet continues to receive as a means of advertising and direct
marketing. We face 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
our consumer products, including coolsavings.com, MyPoints.com, NetCreations
(affiliated with SEAT Pagine Gialle SpA), YesMail.com (affiliated with CMGI,
Inc.), Digital Impact and Exactis.com (affiliated with 24/7 Media Inc.).
Principal competitors to our outsourcing business include providers of
eMarketing solutions such as Exactis.com, FloNetwork (proposed to be acquired by
Doubleclick), MessageMedia, Responsys.com, and Netcentives Inc. Additionally,
traditional advertising agencies and direct marketing companies may seek to
offer online products or services that compete with ours.

We believe that our ability to compete depends on many factors both within and
beyond our control, including the following:

  .  the timing and acceptance of new solutions and enhancements to existing
     solutions developed either by us or our competitors;

  .  customer service and support efforts;

  .  our ability to adapt and scale our technology, and develop and introduce
     new technologies, as customer needs change and grow;

  .  sales and marketing efforts;
<PAGE>

  .  the features, ease of use, performance, price and reliability of solutions
     developed either by us or our competitors; and

  .  the relative impact of general economic and industry conditions on either
     our competitors or us.

Many of our 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 us. These factors may allow them to respond more quickly than we
can to new or emerging technologies and changes in customer requirements. It may
also allow them to devote greater resources than we can to the development,
promotion and sale of their products and services. These competitors may also
engage in more extensive research and development, undertake more far-reaching
marketing campaigns, adopt more aggressive pricing policies and make more
attractive offers to existing and potential employees, strategic partners,
advertisers and direct marketers. We cannot assure you that our competitors will
not develop products or services that are equal or superior to ours or that
achieve greater acceptance than ours. In addition, current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to increase the ability of their products or
services to address the needs of our current or prospective members or
advertising customers. As a result, it is possible that new competitors may
emerge and rapidly acquire significant market share. Increased competition is
likely to result in price reductions, reduced gross margins and loss of market
share. With the scaling back of our operations, we do not expect to devote
material resources to address the factors affecting our ability to compete.
Accordingly, we cannot assure you that we will be able to compete successfully
or that competitive pressures will not materially and adversely affect our
business, results of operations or financial condition.

We may not compete successfully with traditional advertising media for
----------------------------------------------------------------------
advertising dollars.
-------------------

Companies doing business on the Internet, including ours, must also compete with
television, radio, cable and print (traditional advertising media) for a share
of advertisers' total advertising budgets. Advertisers may be reluctant to
devote a significant portion of their advertising budget to Internet advertising
if they perceive the Internet to be a limited or ineffective advertising medium.
In addition, in response to adverse economic or business conditions, many
advertisers reduce their advertising and marketing spending. These circumstances
would increase the competition we face to sell our products and services, and
could materially and adversely affect our business, results of operations or
financial condition.


We rely heavily on our intellectual property rights and other proprietary
-------------------------------------------------------------------------
information, and any failure to protect and maintain these rights and
---------------------------------------------------------------------
information could prevent us from competing effectively.
-------------------------------------------------------

Our success and ability to compete are substantially dependent on our internally
developed technologies and trademarks, which we seek to protect through a
combination of patent,
<PAGE>

copyright, trade secret and trademark law, as well as confidentiality or license
agreements with our employees, consultants, and corporate and strategic
partners. If we are unable to prevent the unauthorized use of our proprietary
information or if our competitors are able to develop similar technologies
independently, the competitive benefits of our technologies, intellectual
property rights and proprietary information will be diminished. These
circumstances could also make us less desirable as an acquisition candidate or
reduce our value in any sale or merger transaction.

We depend heavily on our network infrastructure and if this fails it could
--------------------------------------------------------------------------
result in unanticipated expenses and prevent our members from effectively
-------------------------------------------------------------------------
utilizing our services, which could negatively impact our ability to attract and
--------------------------------------------------------------------------------
retain members and advertisers.
------------------------------


Our ability to successfully create and deliver our email newsletters depends in
large part on the capacity, reliability and security of our networking hardware,
software and telecommunications infrastructure. Failures of our network
infrastructure could result in unanticipated expenses to address such failures
and could prevent our members from effectively utilizing our services, which
could prevent us from retaining and attracting members and advertisers.   We do
not currently have fully redundant systems or a formal disaster recovery plan.
Our 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 our systems.
Our insurance policies may not adequately compensate us for any losses that may
occur due to any damages or interruptions in our systems. Accordingly, we could
be required to make capital expenditures in the event of unanticipated damage.

In addition, our members depend on Internet service providers, or ISPs, for
access to our 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 our systems.
These problems could harm our business by preventing our members from
effectively utilizing our services.

Our current management team has only worked together for a short period of time
-------------------------------------------------------------------------------
and the inability of our management team to function effectively could seriously
--------------------------------------------------------------------------------
harm our business.
-----------------

Many of our executive officers, including our Chief Executive Officer,
President, and Chief Technology Officer have joined our company only recently.
We may not successfully assimilate our recently hired officers, which could
seriously harm our business by impairing our ability to implement our business
strategy and operate our business. Our business is largely dependent on the
personal efforts and abilities of our senior management and other key personnel.
Our officers or employees can terminate their respective employment relationship
at any time. The loss of these key employees  could seriously harm our business.

Our quarterly results of operations may fluctuate in future periods and we may
------------------------------------------------------------------------------
be subject to seasonal and cyclical patterns that may negatively impact our
---------------------------------------------------------------------------
stock price.
-----------

We believe that our business may be subject to seasonal fluctuations.
Advertisers historically have placed fewer advertisements during the first and
third calendar quarters of each year.
<PAGE>

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.
Our revenue has in the past been, and may in the future be, materially affected
by a decline in the economic prospects of our customers or in the economy in
general, which could alter our current or prospective customers' spending
priorities or budget cycles or extend our sales cycle. Due to these and other
factors, our revenues and operating results may vary significantly from quarter-
to-quarter.

We may have to obtain additional capital to operate our business, which could
-----------------------------------------------------------------------------
result in significant costs and dilution that could adversely affect our stock
------------------------------------------------------------------------------
price.
-----

Operating  our business, even with the scaling back of our operations, will
require significant cash expenditures. If our cash on hand, cash generated from
operations and existing loan and credit arrangements are not sufficient to meet
our cash requirements, we would need to seek additional capital, which could
result in significant costs and dilute the ownership interest of our
stockholders and thereby adversely affect our stock price.  Additional financing
may not be available on terms favorable to us, or at all, which could result in
significant costs to obtain the necessary capital and limit our ability to
maintain and expand our member base and number of advertisers, or otherwise
respond to competitive pressures. In addition, if we raise additional funds
through the issuance of equity or equity-linked securities, the percentage
ownership of our current stockholders would be reduced. These securities may
have rights, preferences or privileges senior to those of our stockholders. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" for a discussion of working capital
and capital expenditures.

The content contained in our emails may subject us to significant liability for
-------------------------------------------------------------------------------
negligence, copyright or trademark infringement or other matters.
----------------------------------------------------------------

If any of the content that we create and deliver to our members or any content
that is accessible from our emails through links to other Web sites contains
errors, third parties could make claims against us for losses incurred in
reliance on such information. In addition, the content contained in or
accessible from our emails could include material that is defamatory, violates
the copyright or trademark rights of third parties, or subjects us to liability
for other types of claims. Our general liability insurance may not cover claims
of these types or may not be adequate to indemnify us 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 our reputation.

We also enter into agreements with certain e-commerce partners under which we
may be entitled to receive a share of certain revenue generated from the
purchase of goods and services through direct links to our e-commerce partners
from our emails. These agreements may expose us to additional legal risks and
uncertainties, including potential liabilities to consumers of those products
and services by virtue of our involvement in providing access to those products
or services, even if we do not provide those products or services. Any
indemnification provided to us in our agreements with these parties, if
available, may not adequately protect us.
<PAGE>

Concerns about, or breaches of, the security of our member database could result
--------------------------------------------------------------------------------
in significant expenses to prevent breaches, and subject us to liability for
----------------------------------------------------------------------------
failing to protect our members' information.
-------------------------------------------

We maintain a database containing information on our members. Unauthorized users
accessing our systems remotely may access our database.   As a result of these
security and privacy concerns, we may incur significant costs to protect against
the threat of security breaches or to alleviate problems caused by security
breaches, and we 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 our system and alter or destroy information in our
database. Also, any public perception that we engaged in the unauthorized
release of member information, whether or not correct, would adversely affect
our ability to retain members.


Our business may be adversely affected by the refusal of one or more electronic
-------------------------------------------------------------------------------
email delivery providers to deliver our, or our customers', messages.
--------------------------------------------------------------------

Our 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.  We cannot assure you
that the number of domains which establish policies against their users, receipt
of commercial deliveries as consideration for receiving service will not become
increasingly more popular, thereby diminishing the reach of our service, or the
service of our customers.

Our business may be adversely affected by products offered by third parties.
---------------------------------------------------------------------------

Our business may be adversely affected by the adoption by computer users of
technologies that harm the performance of our products and services. For
example, our business may be adversely affected by the increased use of
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. We 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 our, or our customer's, services. In the
case that one or more of these technologies are widely adopted, our business,
financial condition and results of operations could be materially and adversely
affected.

Sweepstakes regulation may limit our ability to conduct sweepstakes and other
-----------------------------------------------------------------------------
contests, which could negatively impact our ability to attract and 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 our ability to offer contests and sweepstakes in some
geographic areas or altogether. Any restrictions on these promotions could
adversely affect our ability to attract and retain members.
<PAGE>

If our stock price remains volatile, we may become subject to securities
------------------------------------------------------------------------
litigation, which is expensive and could divert our 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 our industry have been subject to this type of litigation. Our
stock price has been volatile since our initial public offering in November
1999. If the market value of our stock continues to experience adverse
fluctuations, and we become involved in this type of litigation, regardless of
the outcome, we could incur substantial legal costs and our management's
attention could be diverted, causing our business to suffer.

Our executive officers and directors have and may continue to have substantial
------------------------------------------------------------------------------
voting control, which will allow them to influence the outcome of matters
-------------------------------------------------------------------------
submitted to stockholders for approval in a manner that may be adverse to your
------------------------------------------------------------------------------
interests.
---------

Our executive officers, our directors and entities affiliated with them, in the
aggregate, beneficially own approximately 27% of our outstanding common stock as
of February 28, 2001. As a result, these stockholders will retain substantial
control over matters requiring approval by our stockholders, including the
election of directors and approval of significant corporate transactions. This
concentration of ownership may also have the effect of delaying or preventing a
change in control, which could have an adverse affect on our stock price.

Anti-takeover provisions in our charter documents and Delaware law could prevent
--------------------------------------------------------------------------------
or delay a change in control of our company, which could adversely affect our
-----------------------------------------------------------------------------
stock price.
-----------

Our Restated Certificate of Incorporation and Bylaws may discourage, delay or
prevent a merger or acquisition that a stockholder may consider favorable by
authorizing the issuance of "blank check" preferred stock and providing for a
classified board of directors with staggered, three-year terms. Certain
provisions of Delaware law may also discourage, delay or prevent someone from
acquiring or merging with us. These anti-takeover provisions could adversely
affect our stock price.


Risks Related to Our Industry that Could Affect the Ongoing Operation of Our
Business

Our 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 our current or potential 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
<PAGE>

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.
We cannot assure you that current or potential 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. Our results of operations have been adversely affected in recent
quarters as a result of a significantly declining market for online advertising,
and we expect that these adverse market conditions will continue. If the market
for online advertising fails to improve or deteriorates more than we expect,
then our 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. Our advertising customers may challenge or refuse to accept
our or a third-party's measurements of advertisement delivery results. Our
customers may not accept any errors in such measurements. 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 our database, like any database, may contain inaccuracies
that our customers may not accept.

A significant portion of our revenue is 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 we are unable to
deliver the features or measuring capabilities requested by advertisers, the
long-term growth of our online advertising business could be limited and our
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 our 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 we transmit over
--------------------------------------------------------------------------------
public networks could adversely affect our ability to retain members.
--------------------------------------------------------------------

Our members transmit confidential information to us over public networks and the
unauthorized access of such information by third parties could harm our
reputation and significantly hinder our efforts to  retain members. We rely 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 us 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
-------------------------------------------------------------------------------
we offer our members and advertisers.
------------------------------------
<PAGE>

We depend significantly on the Internet infrastructure to deliver attractive,
reliable and timely email newsletters to our 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 our products and
services to our members and undermine our advertising partners' and our 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.

We may have to litigate to protect our intellectual property and other
----------------------------------------------------------------------
proprietary rights or to defend claims of third parties, and such litigation may
--------------------------------------------------------------------------------
subject us to significant liability and be time consuming and expensive.
-----------------------------------------------------------------------

There is a substantial risk of litigation regarding intellectual property rights
in Internet-related businesses and legal standards relating to the validity,
enforceability and scope of protection of certain proprietary rights in
Internet-related businesses are uncertain and still evolving. We may have to
litigate in the future to enforce our intellectual property rights, protect our
trade secrets or defend ourselves against claims of violating the proprietary
rights of third parties. This litigation may subject us to significant liability
for damages, result in invalidation of our proprietary rights, 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 our
business operations, financial results, condition and cash flows.

Changes in government regulation could decrease our revenue and increase our
----------------------------------------------------------------------------
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 our 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
our collection and use of certain kinds of information about our users.

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.

Our business, results of operations and financial condition could be materially
and adversely affected by the adoption or modification of laws or regulations
relating to our businesses.
<PAGE>

Changes in laws relating to data collection and use practices and the privacy of
--------------------------------------------------------------------------------
Internet users and other individuals could harm our 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. We are 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, we cannot yet determine the impact these may have on our businesses. In
addition, it is possible that changes to existing law, including new
interpretations of existing law, could have a material and adverse impact on our
business, financial condition and results of operations.

The following are examples of proposals currently being considered in the United
States and internationally:

Certain data protection officials in European countries are lobbying for the
notion that an IP address is personally identifiable information. In those
countries in which this opinion may prevail, the applicable national data
protection law could be interpreted to subject us to a more restrictive
regulatory regime. The cost of such compliance could be material, and we may not
be able to comply with the applicable national regulations in a timely or cost-
effective manner.

Legislation has been proposed to prohibit the sending of 'unsolicited commercial
email' or 'spam.' With respect to our own permission-based email service, we
believe we should not, as a matter of policy, be affected by this kind of
legislation. However, it is possible that some of the customer's for whom we
deliver emails on their behalf may be affected by this kind of legislation and
we may be prohibited from continuing their service. And depending on the final
form and substance of any legislation passed, we may be required to change our
current practices or suffer an increase in the possibility of legal liability
for our practices.

These and other circumstances leading to changes in the existing law could have
a material and adverse impact on our business, financial condition and results
of operations.
<PAGE>

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

   3.1 Amendment to By-laws adopted February 20, 2001.

b. Reports on form 8-K.

     Form 8-K was filed with the SEC on February 9, 2001 attaching a press
release announcing the Company's results for the fourth quarter and fiscal year
ended December 31, 2000, the resignation of the Company's Chairman and Chief
Executive Officer and the appointment of a new Chairman and Chief Executive
Officer of the Company.

<PAGE>

                               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)

 May 15, 2001              /s/ Joseph S. Grabias
 ------------              ---------------------

       Date                   (Signature)**

                             Joseph S. Grabias
                             Chief Financial Officer
                             (Principal accounting officer and
                             duly authorized officer)
<PAGE>

                                   EXHIBITS

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

  3.1               Amendment to By-laws dated February 20, 2001