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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------


                                AMENDMENT NO. 1



                                       TO

                                   FORM 10-K
                            ------------------------

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

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                                       OR

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

         FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .

                        COMMISSION FILE NUMBER 000-27065

                                 APTIMUS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                                 <C>
                    WASHINGTON                                          91-1809146
          (JURISDICTION OF INCORPORATION)                  (I.R.S. EMPLOYER IDENTIFICATION NO.)
</TABLE>

                            95 SOUTH JACKSON STREET
                                   SUITE 300
                           SEATTLE, WASHINGTON 98104
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                 REGISTRANT'S TELEPHONE NUMBER: (206) 441-9100

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<CAPTION>
                                                                   NAME OF EACH EXCHANGE
                TITLE OF EACH CLASS                                 ON WHICH REGISTERED
                -------------------                                ---------------------
<S>                                                 <C>
                       None                                               NASDAQ
</TABLE>

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                           COMMON STOCK, NO PAR VALUE
                                (TITLE OF CLASS)

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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [X]

     Aggregate market value of the registrant's Common Stock held by
non-affiliates as of March 28, 2001 was approximately $5,052,495. The number of
shares of the registrant's Common Stock outstanding as of March 28, 2001 was
15,319,411.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the definitive Proxy Statement to be delivered to shareholders
in connection with the Annual Meeting of Shareholders to be held on June 12,
2001 are incorporated by reference into Part III.

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                           FORWARD LOOKING STATEMENTS

     Certain statements in this Annual Report constitute forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934. Forward-looking statements can often be identified by terminology such as
may, will, should, expect, plan, intend, anticipate, believe, estimate, predict,
potential or continue, the negative of such terms or other comparable
terminology. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of Aptimus, Inc. ("Aptimus" or the "Company"), or developments
in the Company's industry, to differ materially from the anticipated results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include the risks and uncertainties described under
"Business -- Risk Factors" in Part I of this Annual Report. Certain of the
forward-looking statements contained in this Report are identified with
cross-references to this section and/or to specific risks identified under
"Business -- Risk Factors."

                                     PART I

ITEM 1: BUSINESS

OVERVIEW

     Aptimus is building a powerful online direct marketing network. Aptimus
provides a single-source online marketing solution that enables marketers to
reach targeted audiences with specific promotional offers throughout the
Internet. Aptimus began as Freeshop.com, an online direct marketing Company
focused on connecting marketers and consumers via our Website, FreeShop.com. The
concept was to leverage the unique qualities of the Internet to change the
direct marketing paradigm and allow consumers to pick and choose the promotional
offers they actually want from direct marketers.

     This site-centric approach led to the Company's growth through our initial
public offering in 1999 and into 2000. The core of our business model was the
lead generation business, a decades-old two-step marketing process where
marketers offer a free trial, sample or information as a first step to acquiring
a new customer. By the year 2000, our lead generation business was surrounded by
advertising and sponsorship opportunities, which grew to 65% of our revenues in
the second quarter of 2000.

     During the year 2000, funding for Internet companies slowed and stock
prices generally declined. Lack of funding, combined with an increased focus
among Internet companies on profitability over growth objectives, resulted in
reduced marketing spending by Internet companies, most notably in the second
half of 2000. This drop in spending has had significant repercussions throughout
the industry and materially affected our advertising and sponsorship businesses.

     In the second half of 2000, a large number of Internet companies went out
of business, resulting in further reductions in marketing spending and a
significant increase in bad debt provisions.

     While Aptimus has faced major challenges in 2000 and our results have
suffered, we have tried to maintain our aggressive posture and focus on what we
know best -- online direct marketing. Toward this end, we undertook an
evaluation of all aspects of how we do business, beginning in June 2000. Through
this effort, we made a number of determinations and commitments that formed the
basis of our strategy going forward.

     - We determined that revenue streams from advertising and sponsorship
       opportunities were declining quickly and would not likely return to their
       earlier levels for some time to come. Those revenue streams were critical
       to making rapid growth via our site-centric approach possible, given the
       high marketing and infrastructure costs of growing a Web site audience.

     - We determined that our lead generation core business remained strong;
       although the Internet-centric aspects such as e-mail list development for
       Internet companies would be more challenging to build. Direct marketing
       in general has continued to prosper, and most direct marketers have
       recognized the importance of the Internet as a key part of their
       distribution mix.

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     - We determined that all major sites throughout the industry would be
       feeling the same impacts on advertising spending, and thus would be
       seeking alternative revenue-generation opportunities such as action-based
       pricing (where fees are paid on a per-lead basis).

     - We determined that our direct marketing clients could be served equally,
       or in fact even better, by our placement of their offers in relevant
       context through other companies' Web sites, without Aptimus spending
       resources to build out our own site audiences.

     As a result of these determinations, we made a shift to build a network
strategy beginning last Summer, placing direct marketing clients' offers in
contextually relevant locations on partner Web sites throughout the Internet.
Consistent with this new strategy, in October 2000, we renamed our company
Aptimus, Inc., and christened our network the Aptimus Network.

     The early results of our network showed strong potential compared to our
traditional business model. The network-based order volumes went from zero in
mid-August 2000 to over 100,000 orders per day in early October, in contrast to
order volumes on the Company's Web sites of 30,000 per day, on average. However,
an immediate internal challenge surfaced with the increased volumes. The
Company's technology systems were built for a site-centric approach, and were
not prepared for the extraordinary volume growth from the network model.
Additionally, our clients, some of whom went from a delivery of 20,000 orders
per month to 20,000 orders per day, were unprepared for this sudden increase in
volume.

     Aptimus thus made the decision to slow down the implementation of the
network strategy in order to resolve the resulting technology challenges.

     The Company began internal development plans around the network model, and
simultaneously sought third party solutions. In its search, XMarkstheSpot, Inc.
was identified as having a very strong network technology platform. The key
features provided by the XMarkstheSpot technology include increased targeting
ability, dynamically served offers, lead volume management by client and offer,
and multiple offer presentation formats for distribution to Web site partners.

     The Company immediately moved to acquire the assets of XMarkstheSpot to
advance its network capabilities by an estimated period of six to twelve months.
The asset acquisition was closed at the end of November 2000 for a total of $1.5
million in cash and 405,588 shares of common stock, 145,580 of which were placed
in escrow.

     Following the acquisition, the Company restructured its organization and
management team around the network opportunity and integrated the XMarkstheSpot
team during December and January. As part of the focus on the network
opportunity and with the planned exit from its consumer Web sites, the Company
reduced its staff to 65 employees as of March 1, 2001, down from 215 at the
beginning of 2001. With the network model in place, a strong technology
foundation and a lower cost structure, the Company is well positioned for 2001
and beyond.

INDUSTRY BACKGROUND

  Direct Marketing

     Advertising expenditures can be broadly defined as either brand or direct
marketing. Brand advertising is intended to generate brand name awareness and
create a specific image for a particular company, product or service. Direct
marketing involves any direct communication to a consumer intended to generate a
specific response or action, generally a purchase of a product or service.

  Traditional Direct Marketing

     Traditional direct marketing media include direct mail, telemarketing,
newspaper, magazine, radio and television advertising. Although traditional
direct marketing is effective and widely used, it presents a number of
challenges for marketers and consumers alike. Traditional direct marketers
generally lack specific and timely information on a particular consumer's
immediate interests. As a result, marketers spend considerable resources on
communications most consumers don't want or need. For example, the average
response rate to

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an average credit card solicitation is only 1.2% according to the DMA. Given the
costs associated with traditional direct marketing, which typically include
printing, data processing, postage, assembly, labor, telecommunications, and
facilities, low response rates make the process increasingly inefficient.

  Online Direct Marketing

     Online direct marketing media include banner advertisements, interstitials,
advertorials, text-links, pop-ups, targeted email solicitations and Web site
sponsorships. Online direct marketing is more efficient than traditional direct
marketing because it requires lower production costs and provides easier and
faster customer response features. In addition, online direct marketing allows
marketers to develop one-to-one relationships with customers; collect
instantaneous data and feedback on marketing campaigns; and, enables highly
customized marketing campaigns.

     Even with these advantages, direct marketers face challenges in realizing
the full potential of the Internet as a marketing medium. With millions of Web
sites, only a fraction of which have significant audiences, it is difficult for
marketers to decide where to spend their marketing budgets. Even leading brand
name marketers who build their own Web sites must find ways to attract a
sizeable audience. In addition, technological hurdles may impede conventional
direct marketers from successfully extending their activities to the Internet.

THE APTIMUS SOLUTION

     Aptimus provides a single-source online solution for marketers to acquire
new customers via online media. The Aptimus Network presents consumers with
relevant offers geared to their immediate interests, allowing marketers to reach
consumers with the right offers when they are most likely to respond. Our offer
presentation serving technology platform enables us to promote offers
contextually across the Internet. Built on a technology platform, which is
flexible and scalable, The Aptimus Network can support millions of users and
hundreds of Marketers and Web site partners.

  Contextual Marketing

     The Aptimus Network draws its strength from contextual marketing. Marketer
offers are placed among partner Web sites and e-mail channels, complementing the
content. The result: the right offers presented at the right place and the right
time.

  Benefits to Consumers

     Aptimus puts consumers in control of the direct marketing process by
empowering them to select offers that most interest them and meet their
individual needs. Through The Aptimus Network of Web site partners, we bring
together consumers and marketers in a contextual interactive environment. The
Aptimus Network has a broad range of offers from top consumer brands. The offers
include items such as catalogs, magazines, product samples, software, brochures,
and coupons, covering a variety of interests such as travel, personal finance,
entertainment and sports. In addition, because many offers are free or trial
offers, consumers are able to try new products and services before making
purchase decisions.

  Benefits to Marketers

     Aptimus benefits marketers by offering a powerful, cost effective way to
acquire customers online. Aptimus provides marketers with a diverse tool kit
designed to meet their objectives throughout the direct marketing process, from
awareness to interest to trial to sale. Our services include all facets of the
digital direct marketing process, from pre-campaign planning, to offer
consultation, creative execution, lead generation, campaign
measurement/reporting and campaign refinement. We offer marketers the option to
only pay for results. Marketers pay Aptimus for the number of leads and/or
orders delivered. Since our lead generation services are billed on a results
basis, marketers can test direct marketing services with little risk.
Additionally, direct marketers control their campaigns by setting budget,
duration and lead volume caps. Most importantly, because consumers select the
offers they want to receive, direct marketers acquire higher quality leads.

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  Benefits to Web site partners

     Aptimus helps Web site partners strengthen their relationships with their
existing visitors by presenting relevant offers to users in the context of their
experience. Compelling promotional offers help engage Web site visitors on
partner sites and help generate additional revenue streams from previously
unmonetized real estate. Aptimus works closely with partners to identify areas
of their Web sites and e-mail channels that have the most profit potential, then
dynamically serve targeted offers that match users' interests. Partners then
share in the cost-per-action results.

STRATEGY

     Our objective is to be the dominant pay-for-performance online direct
marketing network. We intend to achieve this objective by the following key
strategies:

  Increase Client Base

     Aptimus provides direct marketers a cost-effective alternative to
traditional direct marketing and, as a result the Company has a significant
opportunity to increase the number of direct marketing clients we serve. In
particular, we are seeing more national consumer brand companies seeking
Internet-based direct marketing vehicles, and we plan to initiate new
relationships and expand our existing relationships with these companies. We
continue to focus our sales staff to drive this client growth. We plan to
continue to expand and refine the services we offer to our clients, including
enhanced marketing programs, new methods of presenting offers, expanded and
customized data-gathering options and increased opportunities for following up
on initial lead generation. In addition to enhancing our existing marketing
programs, we will be developing new programs in an effort to meet the needs of
new and different marketers. Finally, we are beginning to focus on marketing our
services to advertising and direct marketing agencies as a solution for their
client companies to access consumers on the Internet.

  Increase Web site Partner Base

     We intend to continue to grow our Partner web site network by focusing on
the top 100 Websites. Because consumers tend to favor well-known, high quality,
branded Web sites, it is critical for us to build strong mutually profitable,
relationships with the industry leaders. To date we have established
partnerships with multiple top sites including MSN and NBCi.

  Expand Offers

     The number and quality of offers available on our partner Web sites are
critical to our ability to increase revenues. We plan to expand the number and
variety of offers in the Aptimus Network. We will drive this content expansion
through the focused efforts of our Strategic Solutions Group, internal sales
teams and advertising and direct marketing agency partnerships.

  Continue to Develop and Use Technology to Enhance Direct Marketing
Capabilities

     The Aptimus Network will continue to evolve in order to address the
evolving needs of direct marketers, web publishers and customers with a
sophisticated technology offering. The network resides on a platform that is
flexible, reliable and scalable. It can support millions of users and any number
of marketers and partners. We continually update our technology in order to be
able to provide our marketer clients and partners with the most effective offer
presentations.

CLIENT SERVICES

     We offer marketers and Web site publishers a full suite of products and
services designed to meet their objectives throughout the entire marketing
process. We provide the infrastructure that makes direct marketing work in the
digital world. Combining media and technology expertise, our products and
services enable direct

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marketers to deliver the right offers, to the right prospects, at the right
time, while helping Web publishers maximize their revenue and build their
business online.

     Our primary business is generating customer leads through free, trial and
promotional offers. Consumers are able to place orders with us for these offers
promoted on partner Web sites and in partner e-mail newsletters, and we deliver
this order information to our clients who are responsible for fulfilling these
orders. Information sent to our clients includes information required for order
fulfillment as well as additional information requested by the marketer.
Marketers pay Aptimus for each customer order, or lead, we generate.

SALES AND MARKETING

  Client Base Development

     We sell our solutions to direct marketer clients primarily through a sales
and marketing organization. Aptimus has changed its sales strategy from a
centralized approach based in Seattle to a decentralized approach focused on
large-scale, top-tier direct marketing leaders in major markets. Our salespeople
are located in San Francisco, Seattle, New York, Atlanta and Denver. As part of
our strategy to increase our client base, we will increase our sales force and
client account management teams on an as needed basis. We conduct comprehensive
marketing programs and support our direct sales efforts to promote Aptimus.
These programs include public relations and advertising campaigns designed to
generate awareness and sales leads from marketers through various trade and
industry publications. Our marketing efforts also include participation in
industry trade shows as well as ongoing customer and prospect communications
programs.

  Partner Base Development

     Aptimus has a dedicated team of Web site partner salespeople who target and
offer high-quality Web publishers the opportunity to participate in the Aptimus
Network. Aptimus account managers work closely with our partner Web sites to
determine the most advantageous offer placement and presentation, monetizing
previously untapped content. We continually analyze consumer response to offers
placed on partner web sites in order to optimize results. By adjusting the offer
message and finding the most advantageous site placement and presentation we are
able to maximize return on investment for our partners.

ACQUISITIONS AND TRANSITIONS

     Due to early network technology challenges, Aptimus identified and acquired
a technology solution with its acquisition of XMarkstheSpot, Inc. The acquired
technology has now been fully integrated and Aptimus has begun to rebuild its
network momentum.

     In February 2001, Aptimus announced that it was repositioning the Company
into a direct marketing infrastructure provider, focusing all of its resources
on building its direct marketing network. With this change, Aptimus announced
its plans to discontinue all activities related to its consumer Web sites,
including FreeShop.com, Desteo.com, and CatalogSite.com. Transition plans are
being developed for each site; potential sales offers are currently being
evaluated.

OPERATIONS AND TECHNOLOGY

     We have implemented a broad array of offer presentation, customer service,
transaction processing and reporting systems using both proprietary and licensed
technologies. We believe the acquisition of XMarkstheSpot technology will enable
us to achieve significant growth to accommodate the level of business we are
working to achieve in calendar year 2001 and beyond.

     The Aptimus Network resides on a platform that is flexible, reliable and
scalable. It can support millions of users and large numbers of marketers and
partners. Aptimus' proprietary network has been developed using

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both data and process engineering approaches to ensure a comprehensive and
reliable architecture. The Aptimus Network technology has been created with four
goals in mind:

          Flexibility: The network is built entirely in Java, HTML, and XML, and
     is intended to run across all platforms and networks.

          Compatibility: To support the network, we have designed our remote
     registration drivers to scale easily across partner Websites with a minimum
     of technical integration required.

          Reliability: We have conducted hundreds of thousands of transactions
     across our growing network of partner sites with a negligible failure rate.
     All our data transfers are conducted according to industry-standard
     security protocols, including Secure Sockets Layer (SSL).

          Scalability: All of our technologies are designed for rapid, complete
     deployment across any number of partners. We leverage existing registration
     implementations at our partner sites to speed up the integration process.

     The Aptimus Network technology has been designed to evolve with the
business and the Internet marketplace.

COMPETITION

     We face intense competition from online advertising and direct marketing
companies like DoubleClick, Engage, Avenue A, L-90, and AdForce. For the most
part these competitors continue to sell advertising based on a cost-per-thousand
model vs. our pay-for-performance approach.

     Aptimus also competes for Internet advertising revenues with large Web
publishers and Web portals, such as AOL Time Warner, MSN and Yahoo.

     In the last 12 months we've begun to compete with a number of small direct
competitors who are attempting to build pay-for-performance direct marketing
networks. These competitors include companies such as Mighty Seven and Get
Relevant.

SEASONALITY

     Aptimus is subject to seasonal fluctuations. Direct Marketers generally
increase their customer acquisition efforts in the late third quarter and early
fourth quarter than at any other time of the year. Further, Internet user
traffic typically drops during the summer months. Expenditures by advertisers
and direct marketers tend to vary in cycles that reflect overall economic
conditions as well as budgeting and buying patterns.

INTELLECTUAL PROPERTY

     We regard our copyrights, service marks, trademarks, trade secrets,
proprietary technology and similar intellectual property as critical to our
success, and we rely on trademark and copyright law, trade secret protection and
confidentiality and license agreements with our employees, customers,
independent contractors, partners and others to protect our intellectual
property rights. We have registrations or pending registrations of the trademark
"Aptimus" and "The Aptimus Network" in the United States, Australia, Canada,
China, the European Union, and New Zealand.

     We have registered a number of domain names, including aptimus.com,
freeshop.com, catalogsite.com, desteo.com and clubfreeshop.com among others.
Internet regulatory bodies regulate domain names. The regulation of domain names
in the United States and in foreign countries is subject to change in the
future. Regulatory bodies could establish additional top-level domains, appoint
additional domain name registrars or modify the requirements for holding domain
names. The relationship between regulations governing domain names and laws
protecting trademarks and similar intellectual property rights is unclear.
Therefore, we could be unable to prevent third parties from acquiring domain
names that infringe on or otherwise decrease the

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value of our trademarks and other proprietary rights. We believe there are
online companies in other countries using domain names that potentially infringe
on our trademarks.

     Aptimus may be required to obtain licenses from others to refine, develop,
market and deliver new services. We may be unable to obtain any such license on
commercially reasonable terms, if at all, or guarantee that rights granted by
any licenses will be valid and enforceable.

EMPLOYEES

     As of March 1, 2001, Aptimus had a total of 65 employees. The current
employee mix includes 36 in sales and marketing, 17 in technology and
development, and 12 in finance and administration. Unions represent none of our
employees. We consider relations with our employees to be good.

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                         RISKS RELATED TO OUR BUSINESS

WE HAVE A LIMITED OPERATING HISTORY, WHICH MAKES IT DIFFICULT TO PREDICT OUR
FUTURE PERFORMANCE.

     Our limited operating history makes predicting our future performance
difficult and does not provide investors with a meaningful basis for evaluating
an investment in our common stock. From our inception in June 1994 through June
1997, we existed as a division of Online Interactive, Inc. We began operations
as an independent company in June 1997. In the first half of 1998, we began
offering advertising opportunities on our Web sites and in our email
newsletters, in addition to our primary business of lead generation. As a
result, our performance from the end of the first quarter of 1998 through
January 2001 was not comparable to prior periods. In February 2001, we
repositioned the company as a direct marketing infrastructure provider, focusing
all our resources on building our direct marketing network. As a result, our
performance will not be comparable to prior periods. Moreover, the current
economic downturn in the Internet business has caused many online advertisers to
drastically cut back or eliminate their advertising and marketing budgets and,
in some cases, cease business operations altogether. Further erosion of this
revenue source may adversely affect our operating results.

WE WILL FACE RISKS ENCOUNTERED BY EARLY-STAGE COMPANIES IN INTERNET-RELATED
BUSINESSES AND MAY BE UNSUCCESSFUL IN ADDRESSING THESE RISKS.

     We face risks frequently encountered by early-stage companies in new and
rapidly evolving markets, including the market for online direct marketing. We
may not succeed in addressing these risks, and our business strategy may not be
successful. These risks include uncertainties about our ability to:

     - attract a larger number of consumers to our direct marketing network;

     - contract with new marketing clients and add new and compelling content to
       our offer network;

     - contract with new online distribution partners with access to large
       volumes of online users;

     - collect receivables for services performed from existing marketing
       clients;

     - manage our evolving operations;

     - adapt to potential decreases in online advertising rates;

     - successfully introduce new products and services;

     - continue to develop and upgrade our technology and to minimize technical
       difficulties and system downtime;

     - create and maintain the loyalty of our customers, partners and clients;

     - maintain our current, and develop new, strategic relationships and
       alliances; and

     - attract, retain and motivate qualified personnel.

WE HAVE A HISTORY OF LOSSES, EXPECT FUTURE LOSSES AND MAY NEVER ACHIEVE
PROFITABILITY.

     We have not achieved profitability and expect to continue to incur
substantial losses through 2001. We incurred net losses of $3.2 million, or more
than 2.5 times the amount of our net revenues, for the year ended December 31,
1998, $10.9 million, or nearly 1.3 times the amount of our net revenues, for the
year ended December 31, 1999, and $21.1 million, or 1.2 times the amount of net
revenues for the year ended December 31, 2000. As of December 31, 2000, our
accumulated deficit was $38.2 million. We have replaced an earlier strategy of
increased expenditures to accelerate growth with our current strategy of
maintaining operating expenses and capital expenditures to levels commensurate
with actual growth. In February 2001 the decision was made to discontinue
activities related to our consumer-direct Web sites. Although this decision will
result in a decrease in continuing operating expenses after the first quarter of
2001, we will need to significantly increase net revenues to achieve
profitability. Even if we do achieve profitability, we may be unable to sustain
profitability on a quarterly or annual basis in the future. It is possible that
our net revenues
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will grow more slowly than we anticipate or that operating expenses will exceed
our expectations. Our accountants have noted these conditions that raise
substantial doubt about our ability to continue as a going concern, as
emphasized in their report included in this annual report.

OUR QUARTERLY OPERATING RESULTS ARE UNCERTAIN AND MAY FLUCTUATE SIGNIFICANTLY,
WHICH COULD NEGATIVELY AFFECT THE VALUE OF OUR SHARE PRICE.

     Our operating results have varied significantly from quarter to quarter in
the past and may continue to fluctuate. For example, during the year ended
December 31, 2000, the percentage of annual net revenues attributable to the
first, second, third and fourth quarters were 30.5%, 34.8%, 20.7% and 14.0%,
respectively. Our operating results for a particular quarter or year may fall
below the expectations of securities analysts and investors. With the
significant shift in the business to an online direct marketing infrastructure
provider, operating results in the near term may fall below earlier established
expectations of securities analysts and investors. These lower operating results
may cause a decrease in our stock price.

     Our limited operating history and new business model makes it difficult to
ascertain the effects of seasonality on our business. We believe, however, that
our revenues may be subject to seasonal fluctuations because advertisers
generally place fewer advertisements during the first and third calendar
quarters of each year. In addition, expenditures by advertisers tend to be
cyclical, reflecting overall economic conditions as well as budgeting and buying
patterns. A decline in the economic prospects of advertisers could alter current
or prospective advertisers' spending priorities, or the time periods in which
they determine their budgets, or increase the time it takes to close a sale with
our advertisers.

IF WE CANNOT SECURE SUFFICIENT PROMOTIONAL OFFERS FROM OUR MARKETER CLIENTS, OUR
BUSINESS WILL SUFFER.

     If we are unsuccessful in acquiring and renewing a continuing array of
free, trial and promotional offers for our distribution network, our order
volumes will likely decrease. The attractiveness of our offer network to
consumers and distribution partners is based in part on our ability to provide a
broad variety of offers of interest to consumers. In addition, a number of other
Web sites give consumers access to similar offers. We face competition for free,
trial and promotional offers from these Web sites as well as a variety of other
online and traditional competitors. Without sufficient variety and quality of
offers, our promotional offer network will become less attractive to both
marketers and our distribution partners through whose sites the offers are
promoted, and our ability to generate revenues from marketer clients will be
adversely affected.

THE MAJORITY OF OUR CONTRACTS HAVE MONTH-TO-MONTH TERMS, AND THE LOSS OF A
SIGNIFICANT NUMBER OF THESE CONTRACTS IN A SHORT PERIOD OF TIME COULD HARM OUR
BUSINESS.

     During the year ended December 31, 2000, approximately 90% of our contracts
had month-to-month terms with automatic renewal unless terminated by either
party with 10 days' notice. The loss of a significant number of these contracts
in any one period could result in decreased traffic to our Web sites, cause an
immediate and significant decline in our net revenues and cause our business to
suffer.

THE LOSS OF THE SERVICES OF ANY OF OUR EXECUTIVE OFFICERS OR KEY PERSONNEL WOULD
LIKELY CAUSE OUR BUSINESS TO SUFFER.

     Our future success depends to a significant extent on the efforts and
abilities of our senior management, particularly Timothy C. Choate, our
Chairman, President and Chief Executive Officer, and other key employees,
including our technical and sales personnel. The loss of the services of any of
these individuals could harm our business. We may be unable to attract, motivate
and retain other key employees in the future. Competition for employees in our
industry is intense, and in the past we have experienced difficulty in hiring
qualified personnel. We do not have employment agreements with any of our key
personnel, nor do we have key-person insurance for any of our employees.

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OUR RECENT ACQUISITIONS AND ANY FUTURE ACQUISITIONS PRESENT MANY RISKS AND
UNCERTAINTIES GENERALLY ASSOCIATED WITH ACQUISITIONS, INCLUDING, WITHOUT
LIMITATION:

     - difficulties integrating operations, personnel, technologies, products
       and information systems of acquired businesses;

     - potential loss of key employees of acquired businesses;

     - adverse effects on our results of operations from acquisition-related
       charges and amortization of goodwill and purchased technology;

     - increased fixed costs, which could delay profitability;

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

     - potential dilution to current shareholders from the issuance of
       additional equity securities;

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

     - responsibility for liabilities of companies we acquire; and

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

OUR STOCK PRICE HAS SUFFERED A SIGNIFICANT DECREASE DURING THE LAST FISCAL YEAR
AND, AS A RESULT, WE ARE NOT CURRENTLY IN COMPLIANCE WITH NASDAQ'S CRITERIA FOR
CONTINUED LISTING ON NASDAQ, AND MAY BE DELISTED IF WE ARE UNABLE TO COMPLY.

     Our common stock is quoted on the NASDAQ National Market. There are a
number of continuing requirements that must be met in order for the common stock
to remain eligible for quotation on the NASDAQ National Market or the NASDAQ
SmallCap Market. The failure to meet the maintenance criteria in the future
could result in the delisting of our common stock from NASDAQ. If our common
stock were to be delisted, trading, if any, in the common stock may then
continue to be conducted on the OTCBB. As a result, an investor may find it more
difficult to sell the common stock or to obtain accurate quotations as to the
market value of the common stock. By letter dated March 22, 2001, we were
advised by NASDAQ that we are out of compliance with the NASDAQ rule that
requires companies listed on the exchange to maintain a minimum bid price of
$1.00 for their stock. We cannot assume that we will regain compliance with
NASDAQ listing requirements within the prescribed timeframes, or at all.

SINCE OUR STOCK PRICE IS VOLATILE, WE MAY BECOME SUBJECT TO SECURITIES
LITIGATION THAT IS EXPENSIVE AND COULD RESULT IN A DIVERSION OF RESOURCES.

     The market price of our common stock has fluctuated in the past and is
likely to continue to be highly volatile. Securities class action litigation has
often been brought against companies that experience volatility in the market
price of their securities. Litigation brought against us could result in
substantial costs to us in defending against the lawsuit and a diversion of
management's attention that could reduce the value of your investment.

IF A SIGNIFICANT NUMBER OF OUR CLIENTS EXPERIENCE A DECLINE IN THEIR FINANCIAL
CONDITION, THE COLLECTIBILITY OF OUR ACCOUNTS RECEIVABLE MAY SUFFER, MATERIALLY
ADVERSELY AFFECTING OUR FINANCIAL RESULTS.

     Some of our clients have suffered a decline in their financial condition,
causing us to reevaluate the collectibility of some accounts receivable. Due in
part to this reevaluation, we restated our financial results for the third
quarter of 2000. A decline in the financial condition of addition clients owing
significant amounts to us could cause us to write off the amounts owed by these
entities as bad debt, which could have a material adverse effect on our
financial results.

                                        10
<PAGE>   12

AN INCREASE IN THE NUMBER OF ORDERS ON OUR NETWORK MAY STRAIN OUR SYSTEMS OR
THOSE OF OUR THIRD-PARTY SERVICE PROVIDERS, AND WE ARE VULNERABLE TO SYSTEM
MALFUNCTIONS.

     Any serious or repeated problems with the performance of our network could
lead to the dissatisfaction of consumers, our marketer clients or our
distribution partners. The order volume on our network is expected to increase
over time as we seek to expand our client, consumer and distribution partner
base. The proprietary and third-party systems that support our network must be
able to accommodate an increased volume of traffic. Although we believe our
systems and those of our third-party hosting service providers can currently
accommodate well in excess of current order volumes, our Web sites and our
network have, in the past, experienced slow response times and other systems
problems for a variety of reasons, including failure of our third party Internet
service providers, hardware failures and failure of software applications. In
these instances, our Web sites and our network were typically unavailable or
slow for approximately one and one-half to two hours. Although these failures
did not have a material adverse effect on our business, we may experience
similar problems in the future that could have a material adverse effect on our
business.

WE FACE INTENSE COMPETITION FROM MARKETING-FOCUSED COMPANIES FOR MARKETER
CLIENTS AND MAY BE UNABLE TO COMPETE SUCCESSFULLY.

     We may be unable to compete successfully with current or future
competitors. We face intense competition from online advertising and direct
marketing companies like DoubleClick, Engage, Avenue A, L-90, and AdForce.
Competition with smaller direct competitors has been increasing in the last
twelve months. These competitors include Mighty Seven and Get Relevant. We
expect competition from online competitors to increase significantly because
there are no substantial barriers to entry in our industry. Increased
competition could result in price reductions for online advertising space and
marketing services, reduced gross margins and loss of market share.

     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 Aptimus. These advantages may allow them to respond more quickly
and effectively to new or emerging technologies and changes in customer
requirements. These advantages may also allow them to engage in more extensive
research and development, undertake farther-reaching marketing campaigns, adopt
more aggressive pricing policies and make more attractive offers to potential
employees, strategic partners and advertisers. 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 prospective marketer
clients.

     Online marketing is a rapidly developing industry, and new types of
products and services may emerge that are more attractive to consumers and
marketers than the types of services we offer. As a result, it is possible that
new competitors may emerge and rapidly acquire significant market share.

IF OUR CUSTOMERS REQUEST PRODUCTS AND SERVICES DIRECTLY FROM OUR MARKETER
CLIENTS INSTEAD OF REQUESTING THE PRODUCT OR SERVICE FROM US, OUR BUSINESS COULD
SUFFER.

     Our marketer clients and/or distribution partners may offer the same free,
trial or promotional products or services on their own Web sites that we offer
via our offer distribution network. Our customers may choose to request products
or services directly from our marketer clients and/or distribution partners
instead of requesting the product or service through us, which would result in
lower net revenues to the Company from lead generation and cause our business to
suffer.

WE MAY NEED TO INCUR LITIGATION EXPENSES IN ORDER TO DEFEND OUR INTELLECTUAL
PROPERTY RIGHTS, AND MIGHT NEVERTHELESS BE UNABLE TO ADEQUATELY PROTECT THESE
RIGHTS.

     We may need to engage in costly litigation to enforce our intellectual
property rights, to protect our trade secrets or to determine the validity and
scope of the intellectual property rights of others. We can give no assurance
that our efforts to prevent misappropriation or infringement of our intellectual
property will be successful. An adverse determination in any litigation of this
type could require us to make significant changes
                                        11
<PAGE>   13

to the structure and operation of our services and features or to license
alternative technology from another party. Implementation of any of these
alternatives could be costly and time-consuming and may not be successful. Any
intellectual property litigation would likely result in substantial costs and
diversion of resources and management attention.

     Our success largely depends on our trademarks, including "Aptimus", and
internally developed technologies, including our opt-in serving platform, which
includes order collection, order processing and lead delivery, that we seek to
protect through a combination of trademark, copyright and trade secret laws.
Protection of our trademarks is crucial as we attempt to build our brand name
and reputation. Despite actions we take to protect our intellectual property
rights, it may be possible for third parties to copy or otherwise obtain and use
our intellectual property without authorization or to develop similar technology
independently. In addition, legal standards relating to the validity,
enforceability and scope of protection of intellectual property rights in
Internet-related businesses are uncertain and still evolving. Although we are
not currently engaged in any lawsuits for the purpose of defending our
intellectual property rights, we may need to engage in such litigation in the
future. Moreover, we may be unable to maintain the value of our intellectual
property rights in the future.

WE COULD BECOME INVOLVED IN COSTLY AND TIME-CONSUMING DISPUTES REGARDING THE
VALIDITY AND ENFORCEABILITY OF RECENTLY ISSUED OR PENDING PATENTS.

     The Internet, including the market for e-commerce and online advertising,
direct marketing and promotion, is characterized by a rapidly evolving legal
landscape. A variety of patents relating to the market have been recently
issued. Other patent applications may be pending. It is possible that
significant activity in this area may continue and that litigation may arise due
to the patent holder's efforts to enforce their patent rights.

     We may incur substantial expense and management attention may be diverted
if litigation occurs. Moreover, whether or not claims against us have merit, we
may be required to enter into license agreements or be subject to injunctive or
other equitable relief, either of which would result in unexpected expenses or
management distraction.

WE MAY FACE LITIGATION AND LIABILITY FOR INFORMATION DISPLAYED ON OUR NETWORK.

     We may be subjected to claims for defamation, negligence, copyright or
trademark infringement and various other claims relating to the nature and
content of materials we publish on our offer distribution network. These types
of claims have been brought, sometimes successfully, against online services in
the past. We could also face claims based on the content that is accessible from
our network through links to other Web sites. Any litigation arising from these
claims would likely result in substantial costs and diversion of resources and
management attention, and an unsuccessful defense to one or more such claims
could result in material damages. We have no insurance coverage for these types
of claims.

SECURITY AND PRIVACY BREACHES COULD SUBJECT US TO LITIGATION AND LIABILITY AND
DETER CONSUMERS FROM USING OUR NETWORK.

     We could be subject to litigation and liability if third parties penetrate
our network security or otherwise misappropriate our users' personal or credit
card information. This liability could include claims for unauthorized purchases
with credit card information, impersonation or other similar fraud claims. It
could also include claims for other misuses of personal information, such as for
unauthorized marketing purposes. In addition, the Federal Trade Commission and
other federal and state agencies have been investigating various Internet
companies in connection with their use of personal information. We could be
subject to investigations and enforcement actions by these or other agencies. In
addition, we rent customer names and street addresses to third parties. Although
we provide an opportunity for our customers to remove their names from our
rental list, we nevertheless may receive complaints from customers for these
rentals.

     The need to transmit confidential information securely has been a
significant barrier to electronic commerce and communications over the Internet.
Any compromise of security could deter people from using
                                        12
<PAGE>   14

the Internet in general or, specifically, from using the Internet to conduct
transactions that involve transmitting confidential information, such as
purchases of goods or services. Many marketers seek to offer their products and
services on our distribution network because they want to encourage people to
use the Internet to purchase their goods or services. Internet security concerns
could frustrate these efforts. Also, our relationships with consumers may be
adversely affected if the security measures we use to protect their personal
information prove to be ineffective. We cannot predict whether events or
developments will result in a compromise or breach of the technology we use to
protect customers' personal information. We have no insurance coverage for these
types of claims.

     Furthermore, our computer servers or those of our third-party hosting
service providers may be vulnerable to computer viruses, physical or electronic
break-ins and similar disruptions. We may need to expend significant additional
capital and other resources to protect against a security breach or to alleviate
problems caused by any such breaches. We may be unable to prevent or remedy all
security breaches. If any of these breaches occur, we could lose marketing
clients, distribution partners and visitors to our distribution network.

WE MAY NEED ADDITIONAL FINANCING, AND OUR PROSPECTS FOR OBTAINING IT ARE
UNCERTAIN.

     Our business does not currently generate the cash necessary to fund our
operations. Should it become necessary, we may be unable to obtain additional
financing in the future. We currently anticipate that our available cash
resources will be sufficient to meet our currently anticipated capital
expenditures and working capital requirements for at least the next six to nine
months. Thereafter, we may need to raise additional funds to develop or enhance
our services or products, fund expansion, respond to competitive pressures or
acquire businesses or technologies. Unanticipated expenses, poor financial
results or unanticipated opportunities that require financial commitments could
give rise to earlier financing requirements. If we raise additional funds
through the issuance of equity or convertible debt securities, the percentage
ownership of our existing shareholders would be reduced, and these securities
might have rights, preferences or privileges senior to those of our common
stock. Additional financing may not be available on terms favorable to the
Company, or at all. If adequate funds are not available or are not available on
acceptable terms, our ability to fund our expansion, take advantage of business
opportunities, develop or enhance services or products or otherwise respond to
competitive pressures would be significantly limited, and we might need to
significantly restrict our operations.

                         RISKS RELATED TO OUR INDUSTRY

IF THE ACCEPTANCE OF ONLINE ADVERTISING AND ONLINE DIRECT MARKETING DOES NOT
INCREASE, OUR BUSINESS WILL SUFFER.

     The demand for online marketing may not develop to a level sufficient to
support our continued operations or may develop more slowly than we expect. We
expect to derive almost all of our revenues from contracts with marketer clients
under which we provide online marketing services through our offer distribution
network. The Internet has not existed long enough as a marketing medium to
demonstrate its effectiveness relative to traditional marketing methods.
Marketers that have historically relied on traditional marketing methods may be
reluctant or slow to adopt online marketing. Many marketers have limited or no
experience using the Internet as a marketing medium. In addition, marketers that
have invested substantial resources in traditional methods of marketing may be
reluctant to reallocate these resources to online marketing. Those companies
that have invested a significant portion of their marketing budgets in online
marketing may decide after a time to return to more traditional methods if they
find that online marketing is a less effective method of promoting their
products and services than traditional marketing methods. Moreover, the
Internet-based companies that have adopted online marketing methods may
themselves develop more slowly than anticipated or not at all. This, in turn,
may result in slower growth in demand for the online direct marketing services
of the type provided by the company.

     We do not know if accepted industry standards for measuring the
effectiveness of online marketing will develop. An absence of accepted standards
for measuring effectiveness could discourage companies from committing
significant resources to online marketing. There are a variety of pricing models
for marketing on

                                        13
<PAGE>   15

the Internet. We cannot predict which, if any, will emerge as the industry
standard. Absence of such a standard makes it difficult to project our future
pricing and revenues.

IF WE ARE UNABLE TO ADAPT TO RAPID CHANGES IN THE ONLINE MARKETING INDUSTRY, OUR
BUSINESS WILL SUFFER.

     Online marketing is characterized by rapidly changing technologies,
frequent new product and service introductions, short development cycles and
evolving industry standards. We may incur substantial costs to modify our
services or infrastructure to adapt to these changes and to maintain and improve
the performance, features and reliability of our services. We may be unable to
successfully develop new services on a timely basis or achieve and maintain
market acceptance.

WE FACE RISKS FROM POTENTIAL GOVERNMENT REGULATION AND OTHER LEGAL UNCERTAINTIES
RELATING TO THE INTERNET.

     Laws and regulations that apply to Internet communications, commerce and
advertising are becoming more prevalent. The adoption of such laws could create
uncertainty in use of the Internet and reduce the demand for our services, or
impair our ability to provide our services to clients. Recently, Congress
enacted legislation regarding children's privacy on the Internet. Additional
laws and regulations may be proposed or adopted with respect to the Internet,
covering issues such as user privacy, freedom of expression, pricing, content
and quality of products and services, taxation, advertising, intellectual
property rights and information security. The passage of legislation regarding
user privacy or direct marketing on the Internet may reduce demand for our
services or limit our ability to provide customer information to marketers.
Furthermore, the growth of electronic commerce may prompt calls for more
stringent consumer protection laws. For example, the European Union recently
adopted a directive addressing data privacy that may result in limits on the
collection and use of consumer information. The adoption of consumer protection
laws that apply to online marketing could create uncertainty in Internet usage
and reduce the demand for our services, or impair our ability to provide those
services to clients.

     In addition, we are not certain how our business may be affected by the
application of existing laws governing issues such as property ownership,
copyrights, encryption and other intellectual property issues, taxation, libel,
obscenity and export or import matters. It is possible that future applications
of these laws to our business could reduce demand for our services or increase
the cost of doing business as a result of litigation costs or increased service
delivery costs.

     Our services are available on the Internet in many states and foreign
countries, and these states or foreign countries may claim that we are required
to qualify to do business in their jurisdictions. Currently, we are qualified to
do business only in Washington, Minnesota and California. Our failure to qualify
in other jurisdictions if we were required to do so could subject us to taxes
and penalties and could restrict our ability to enforce contracts in those
jurisdictions.

ITEM 2: PROPERTIES

     The company currently occupies 35,670 square feet in a leased facility in
Seattle, Washington and 7,188 square feet in a leased facility in San Francisco,
California. The current lease in Seattle expires in May 2004, and the current
lease in San Francisco expires in July 2003. In addition, the company leases
small office space in each of New York, Atlanta, and Denver pursuant to
short-term, renewable tenancies. The leased facilities are adequate for the
company's needs.

ITEM 3: LEGAL PROCEEDINGS

     In February 2001, the company initiated legal proceedings against
About.com, Inc, requesting a declaratory judgment and alleging anticipatory
repudiation, breach of contract, and breach of covenant of good faith and fair
dealing. About.com initiated its own suit against the company, alleging breach
of contract, quantum meruit, unjust enrichment and account stated to which
claims the company believes it has meritorious defenses. The company's suit is
pending in the United States District Court for the Western District of
Washington as Aptimus, Inc. v. About.com, Inc., Civil Action No. C01-0254P;
About.com's suit is pending in United States District Court for the Southern
District of New York as About.com, Inc. v. Aptimus,
                                        14
<PAGE>   16

Inc., Civil Action No. 01 CIV 2106(AGS). The company intends to vigorously
prosecute its claims against About.com and defend itself against About.com's
claims.

     In March 2001, the company received a demand for arbitration from I-Bridge
LLC for sums allegedly due as a consequence of the company's termination of a
contract assumed in connection with its acquisition of XMarkstheSpot, Inc. The
company believes the claim is without merit and intends to defend itself
vigorously.

     The company recently underwent a substantial reduction in force. As a
result of that action, the company has received a demand from an attorney
representing an affected employee alleging discrimination. The company has
rejected the demand as entirely without merit. The company will defend itself
vigorously should the employee file suit.


ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



     none


                                        15
<PAGE>   17

                                    PART II

ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

                          PRICE RANGE OF COMMON STOCK

     The Company's Common Stock (the "Common Stock") has been quoted on the
Nasdaq National Market under the symbol "FSHP" since our initial public offering
on September 27, 1999 through October 23, 2000. Since October 24, 2000 the
Common Stock has been quoted on the Nasdaq National Market under the symbol
"APTM." Prior to that time, there was no public market for our common stock. The
following table shows the high and low closing sale prices for our common stock
as reported on the Nasdaq National Market for the periods indicated:

<TABLE>
<CAPTION>
                                                               HIGH     LOW
                                                              ------   ------
<S>                                                           <C>      <C>
YEAR ENDED DECEMBER 31, 1999
  Third quarter (from September 27, 1999)...................  $13.56   $11.50
  Fourth quarter............................................  $59.94   $11.50
YEAR ENDED DECEMBER 31, 2000
  First quarter.............................................  $43.00   $17.75
  Second quarter............................................  $16.56   $ 4.94
  Third quarter.............................................  $ 6.63   $ 2.81
  Fourth quarter............................................  $ 3.44   $ 0.75
</TABLE>

     As of March 29, 2001, there were 161 holders of record of the Common Stock
and 15,319,411 shares of the Common Stock outstanding.

     The Company has never paid dividends on the Common Stock and does not
intend to pay dividends on the Common Stock in the foreseeable future. The
Company's board of directors intends to retain any earnings to provide funds for
the operation and expansion of the Company's business.

RECENT SALES OF UNREGISTERED SECURITIES

     In 2000, an aggregate of 10,774 shares of common stock were issued to two
persons pursuant to the exercise of warrants issued in 1998. In addition, the
Company issued 260,008 shares of common stock in connection with its acquisition
of XMarkstheSpot, Inc. The sales and issuances of these securities were exempt
from Securities Act registration under Section 4(2) of the Securities Act, on
the basis that the transactions did not involve a public offering.

USE OF PROCEEDS

     On September 27, 1999, the Securities and Exchange Commission declared
effective the Company's Registration Statement, on Form S-1 (Commission File No.
333-81151). Pursuant to this Registration Statement, in October 1999 the Company
closed its initial public offering of 3,680,000 shares of the Company's common
stock at an initial public offering price of $12.00 per share (the "Offering").
Net proceeds to the Company, after calculation of the underwriters' discount and
commissions, from the Offering totaled $41,068,800. As of December 31, 2000,
approximately $35.2 million of the proceeds from these transactions had been
used, primarily for marketing and other working capital expenditures and
approximately $5.9 million had been used to purchase computers, software,
furniture and leasehold improvements. Until the proceeds were used they were
invested in short-term commercial paper.

                                        16
<PAGE>   18

ITEM 6: SELECTED FINANCIAL DATA

                            SELECTED FINANCIAL DATA
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

     The following selected financial data are qualified in their entirety by
reference to, and you should read them in conjunction with, Aptimus' financial
statements and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
Annual Report. The selected financial data for the years ended June 30, 1996 and
1997 reflect the net revenues, expenses and changes in division equity and cash
flows of the FreeShop Division of Online Interactive, Inc. Certain general and
administrative costs incurred by Online have been allocated to the Company on a
basis which management believes represents a reasonable allocation of such costs
to present FreeShop as a stand-alone company. These allocations consist
primarily of corporate expenses such as executive and other compensation,
depreciation, rent and legal expenses. The corporate expenses have been
allocated based on an estimate of Online personnel time dedicated to the
operations and management of FreeShop for year ended June 30, 1996 and the nine
months ended March 31, 1997. For the three-month period ended June 30, 1997,
these corporate expenses were generally allocated on a specific identification
basis rather than on the basis of personnel time.


<TABLE>
<CAPTION>
                                   FREESHOP DIVISION
                                       OF ONLINE                       APTIMUS, INC.
                                   INTERACTIVE, INC.    --------------------------------------------
                                      FISCAL YEAR        SIX MONTHS
                                     ENDED JUNE 30,        ENDED          YEAR ENDED DECEMBER 31,
                                   ------------------   DECEMBER 31,   -----------------------------
                                    1996       1997         1997        1998       1999       2000
                                   -------   --------   ------------   -------   --------   --------
<S>                                <C>       <C>        <C>            <C>       <C>        <C>
STATEMENT OF OPERATIONS DATA:
Revenues.........................  $1,271    $ 1,198      $   535      $ 1,251   $  8,506   $ 16,873
  Operating expenses:
  Sales and marketing............     624      1,810        1,175        3,088     15,042     29,571
  Internet and network
     connectivity................     309        310          128          181        616      2,047
  Research and development.......      65        135          182          387        901      2,439
  General and administrative.....     291        353           83          417      1,343      3,055
  Depreciation and
     amortization................      10         34           47          140      1,156      2,419
  Equity-based compensation......      --         --           63          174      1,117        774
          Total operating
            expenses.............   1,299      2,642        1,678        4,387     20,175     40,305
                                   ------    -------      -------      -------   --------   --------
Operating loss...................     (28)    (1,444)      (1,143)      (3,136)   (11,669)   (23,432)
Interest expense.................      --         --            6           66         40        114
Other income, net................      --         --           --           (3)      (818)    (2,442)
                                   ------    -------      -------      -------   --------   --------
Net (loss).......................  $  (28)   $(1,444)     $(1,149)     $(3,199)  $(10,891)  $(21,104)
                                   ======    =======      =======      =======   ========   ========
Basic and diluted net loss per
  share..........................  $(0.01)   $ (0.31)     $ (0.22)     $ (0.51)  $  (1.08)  $  (1.36)
                                   ======    =======      =======      =======   ========   ========
Shares used to compute basic and
  diluted net loss per share.....   4,601      4,601        5,189        6,224     10,043     15,567
                                   ======    =======      =======      =======   ========   ========
</TABLE>


<TABLE>
<CAPTION>
                                         AS OF JUNE 30,             AS OF DECEMBER 31,
                                         --------------    ------------------------------------
                                         1996     1997     1997     1998      1999       2000
                                         -----    -----    ----    ------    -------    -------
<S>                                      <C>      <C>      <C>     <C>       <C>        <C>
BALANCE SHEET DATA:
  Cash and cash equivalents............    --       --       26     2,892     33,795     12,854
  Working capital (deficiency).........    80      322     (158)    2,014     46,736     23,032
  Total assets.........................  $207     $536     $645    $3,687    $55,816    $35,532
  Long-term obligations, less current
     portion...........................    --        5      160       195         40        944
  Total shareholders' equity...........   105      432       82     2,243     50,911     29,868
</TABLE>

                                        17
<PAGE>   19

ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

     We began our direct marketing business in 1994 as the FreeShop division of
Online Interactive, Inc. In addition to operating the FreeShop division, Online
Interactive was also engaged in the business of selling software over the
Internet. In July 1997, Micro Warehouse, Inc., a catalog retailer and direct
marketer of computers, software and related products, purchased all of the stock
of Online Interactive from its shareholders. Before the purchase was completed,
Online Interactive transferred the FreeShop division to FreeShop International,
Inc., a newly formed, wholly owned subsidiary, and spun off FreeShop
International through a distribution to its shareholders. On February 19, 1999,
FreeShop International changed its name to FreeShop.com, Inc. On October 16,
2000 FreeShop.com, Inc. changed its name to Aptimus, Inc.

     We began our online marketing operations in 1994 through a relationship
with Prodigy Communications Corporation, a proprietary online service. In 1995,
we also began a marketing relationship with America Online, Inc., another
proprietary online service. We came to believe proprietary online environments,
which provide content exclusively to their fee-paying members, were limiting our
ability to develop the FreeShop brand and to access the growing number of people
using the Internet. As a result, we terminated our relationship with Prodigy in
August 1997 and our relationship with America Online in March 1998. From March
1998 through July 2000 we focused exclusively on our Web sites and Club FreeShop
email program. In August 2000 we started exploring a network model whereby
client offers would be distributed throughout a network of partner sites.

     During 2000 we derived our revenues primarily from online lead generation
and advertising contracts related to the FreeShop Web site and Club FreeShop
email Newsletters. In 2001, we expect to primarily derive our revenues from
network lead generation contracts. We receive lead generation revenues when we
deliver customer information to a marketer in connection with an offer on our
Web site or in our network. We receive advertising revenues from sales of banner
advertising, site sponsorships and newsletter sponsorships. We also derive a
small portion of our lead generation revenues from the rental of customer names
and street addresses to third parties. Lead generation pricing is based on cost
per lead and varies depending on the type of offer. Generally, pricing of
advertising is based on cost per impression or cost per click through. In the
second half of 2000 we saw a shift away from these traditional advertising
models towards a cost per action model where advertisers pay based on actual
orders or registrations received. The services we deliver are primarily sold
under short-term agreements that are subject to cancellation. We recognize
revenues in the period in which we deliver the service.

     Our ten largest clients accounted for 25.0%, 30.8% and 28.0% of our net
revenues in the years ended December 31, 1998, 1999 and 2000, respectively. No
single client accounted for more than 10% of net revenues in any of the years
ended December 31, 1998, 1999 and 2000.

     Part of our strategy has involved growth through the acquisition of
businesses that will expand our offerings to consumers and our services to
marketers. In November 2000 we purchased substantially all of the assets of
XMarkstheSpot, Inc. in order to improve our network offer serving technology. We
accounted for this acquisition as a purchase and have included the results of
the acquired business in our financial statements from the date of the
acquisition. This acquisition resulted in the allocation of $1.7 million of the
purchase price to intangible assets. We are amortizing these intangible assets
over periods ranging from one to two years.

     In the fourth quarter of 2000 eNews.com, Inc. ceased to be a client due a
decline in financial condition. Our relationship with two other significant
clients ceased as a result of our shift in strategy away from a site-centric
model to a network model. These three clients accounted for approximately 8.6%
of our revenues during the year ended December 31, 2000.

     We reviewed our previously reported third quarter revenue related to the
accounting for agreements that provide for payment in equity securities of
non-public companies and the collectibility of certain third quarter revenues.
As a result of the review we restated our results for the three and nine months
ending September 30, 2000. The restatement resulted in a reduction in revenues
for the nine months ended September 30, 2000 from $16.6 million to $14.5
million, or 12.7% of revenues.

                                        18
<PAGE>   20

     The Company has reclassified its operations statement into a single step
statement of operations. Amounts previously reported as cost of revenue were
reclassified to the appropriate operating expense categories, primarily Internet
and network connectivity. This reclassification was made to more accurately
reflect the indirect nature of costs previously classified as cost of revenue.

     Our business has been operating at a loss and generating negative cash
flows from operations since inception. As of December 31, 2000, we had an
accumulated deficit of approximately $38.2 million. In February 2001 the
decision was made to discontinue activities related to our consumer-direct
Websites and to focus the resources of the Company towards the network strategy.
This decision and the overall decline in Internet advertising has resulted in a
significant decrease in revenues in the fourth quarter of 2000 and the first
quarter of 2001. This decision will also result in a decrease in our continuing
operating expenses beginning in the second quarter of 2001. Even with a decrease
in continuing operating expenses and growth in revenues our losses and negative
cash flows are likely to continue.

RESULTS OF OPERATIONS

     The following table sets forth statement of operations data for the periods
indicated as a percentage of net revenues:

<TABLE>
<CAPTION>
                                                  YEAR ENDED DECEMBER 31,
                                               ------------------------------
                                                1998        1999        2000
                                               ------      ------      ------
<S>                                            <C>         <C>         <C>
Net revenues.................................   100.0%      100.0%      100.0%
Operating expenses:
  Sales and marketing........................   246.8       176.8       175.3
  Internet and network connectivity..........    14.5         7.2        12.1
  Research and development...................    30.9        10.6        14.5
  General and administrative.................    33.3        15.8        18.1
  Depreciation and amortization..............    11.2        13.6        14.3
  Equity-based compensation..................    13.9        13.1         4.6
                                               ------      ------      ------
          Total operating expenses...........   350.7       237.2       238.9
                                               ------      ------      ------
Operating loss...............................  (250.7)     (137.2)     (138.9)
Interest expense.............................     5.3         0.5         0.7
Other income, net............................    (0.2)       (9.6)      (14.5)
                                               ------      ------      ------
Net loss.....................................  (255.7)%    (128.0)%    (125.1)%
                                               ======      ======      ======
</TABLE>

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

     Net revenues. We derive our revenues primarily from online lead generation
and advertising contracts. Our net revenues increased by $8.4 million, or 98%,
to $16.9 million in the year ended December 31, 2000 from $8.5 million in the
year ended December 31, 1999. This growth in net revenues was attributable to an
increase in the number of visits to our Web sites and an increase in the size of
the Club FreeShop email list. Revenues from advertising services were $9.4
million in 2000, compared to $4.2 million in 1999. As a result in the overall
decline in Internet advertising spending and the shift in strategy to a network
model has resulted in significant decreases in revenues in the fourth quarter of
2000 and the first quarter of 2001.

     Sales and marketing. Sales and marketing expenses consist primarily of
marketing and promotional costs related to developing our brand and generating
visits to our Web sites, as well as personnel and other costs. Sales and
marketing expenses increased by $14.6 million, or 97%, to $29.6 million in 2000
from $15.0 million in 1999. The increase was due primarily to a $7.9 million, or
598%, increase in advertising and brand awareness spending and to a $2.6
million, or 196%, increase in personnel costs. Advertising and brand awareness
costs consisted primarily of online advertising spending. As a percentage of net
revenues, sales and marketing expenses remained fairly consistent at 175.3% in
2000 and 176.8% in 1999. We expect sales and marketing expenses to increase in
the first quarter of 2001, due to severance costs, and then decline
significantly in 2001 starting with the second quarter.

                                        19
<PAGE>   21

     Internet and network connectivity. Internet and network connectivity
consists of expenses associated with the maintenance and usage of our Web sites
and email delivery costs. Such costs include Internet connection charges,
hosting facility costs, banner ad serving fees and personnel costs. Internet and
network connectivity expenses increased by $1.4 million, or 232%, to $2.0
million in 2000 from $0.6 million in 1999. One million of this increase was
related to email delivery costs, which is expected to be significantly lower in
2001.

     Research and development. Research and development expenses primarily
include personnel costs related to maintaining and enhancing the features,
content and functionality of our Web sites and related systems. Research and
development expenses increased by $1.5 million, or 171%, to $2.4 million in 2000
from $0.9 million in 1999. The increase was primarily due to hiring additional
staff to support our growth, continued improvements in our internal systems and
enhancements and modifications to our Web sites. As a percentage of net
revenues, research and development expenses increased to 14.5% in 2000 from
10.6% in 1999. Research and development costs are expected to increase in the
first quarter of 2001, due to severance resulting from reductions in staffing
made in the first quarter of 2001. Research and development cots are expected to
decrease in the second quarter of 2001.

     General and administrative. General and administrative expenses primarily
consist of management, financial and administrative personnel expenses and
related costs and professional service fees. General and administrative expenses
increased by $1.7 million, or 128%, to $3.0 million in 2000 from $1.3 million in
1999. The increase was primarily due to increased personnel costs and
professional service fees necessary to support our growth. As a percentage of
net revenues, general and administrative expenses increased to 18.1% in 2000
from 15.8% in 1999. General and administrative expenses in 2001 are expected to
remain relatively consistent with levels in 2000.

     Depreciation and amortization. Depreciation and amortization expenses
consist of depreciation on leased and owned computer equipment, software, office
equipment and furniture and amortization on intellectual property, non-compete
agreements, goodwill and other intangible assets from acquisitions. Depreciation
and amortization expenses increased by $1.3 million, or 109%, to $2.4 million in
2000 from $1.1 million in 1999. The increase in depreciation and amortization
primarily relates to the acquisition of additional computer equipment, furniture
and leasehold improvements. As a percentage of net revenues, depreciation and
amortization expenses increased to 14.3% in 2000 from 13.6% in 1999.
Amortization expense will increase in 2001 due to amortization of intangible
assets acquired from XMarkstheSpot. This increase will be partially offset by
the write-off of capitalized internally developed software and intangible assets
related to our consumer direct Web sites.

     Equity-based compensation. Equity-based compensation expenses consist of
amortization of deferred stock compensation recognized in connection with stock
options and recognition of expenses when our principal shareholders sold our
stock to an employee at a price below the estimated fair market value of our
common stock. Deferred stock compensation is recorded based on the intrinsic
value when we issue stock options to employees and directors at an exercise
price below the estimated fair market value of our common stock at the date of
grant. Deferred stock compensation is also recorded based on the fair value of
the option granted as calculated using the Black-Scholes option pricing model
when options or warrants are issued to advisors and other service providers.
Deferred stock compensation is amortized over the vesting period of the option
or warrant. Equity-based compensation expenses decreased by $0.3 million, or
31%, to $0.8 million in 2000 from $1.1 million in 1999. The decrease resulted
primarily from recognition of $0.4 million of expense associated with the sale
of shares by a principal shareholder to an employee in April of 1999.

     Interest expense. Interest expense relates to capital equipment leases and
a note payable to Imperial Bank, and totaled $114,000 in 2000 and $40,000 in
1999. The increase in interest expense is a result of the Imperial Bank note
payable obtained in June of 2000.

     Other income, net. Other income, net, consists primarily of interest
income. Other income, net, increased by $1.6 million to $2.4 million in 2000
from $0.8 million in 1999. The increase was due to having higher cash balances
over the entire year compared to having significant cash balances for only one
quarter of 1999. Other income, net will decrease in 2001 as cash used in
operations will decrease the amount available for
                                        20
<PAGE>   22

investment. Also the write-off of capitalized internally developed software and
intangible assets related to our consumer direct Web sites is expected to result
in a net expense in the first quarter of 2001.

     Income Taxes. No provision for federal income taxes has been recorded for
any of the periods presented due to our current loss position.

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

     Net revenues. Our net revenues increased by $7.2 million, or 580%, to $8.5
million in the year ended December 31, 1999 from $1.3 million in the year ended
December 31, 1998. This growth in net revenues was attributable to the
introduction of advertising services in June 1998 and an increase in the number
of visits to our Web sites, which increased lead generation revenues. We
introduced advertising products, including banner ads, site sponsorships and
newsletter sponsorships, in the second and third quarters of 1998. Revenues from
advertising services were $4.2 million in 1999, compared to $288,000 in 1998.

     Sales and marketing. Sales and marketing expenses increased by $11.9
million, or 387%, to $15.0 million in 1999 from $3.1 million in 1998. The
increase was due primarily to a $7.9 million, or 598%, increase in advertising
and brand awareness spending and to a $2.6 million, or 196%, increase in
personnel costs. As a percentage of net revenues, sales and marketing expenses
decreased to 176.8% in 1999 from 246.8% in 1998. The decrease as a percentage of
net revenues was primarily due to sales and marketing expenses, other than
advertising spending, increasing at a lesser rate than net revenues.

     Internet and network connectivity. Internet and network connectivity
increased by $435,000, or 240%, to $616,000 in 1999 from $181,000 in 1998. The
increase was primarily due to costs related to additional Internet connection
capacity and personnel costs to support our growth. As a percentage of net
revenues, Internet and network connectivity expenses decreased to 7.2% in 1999
from 14.5% in 1998

     Research and development. Research and development expenses increased by
$514,000, or 133%, to $901,000 in 1999 from $387,000 in 1998. The increase was
primarily due to hiring additional staff to support our growth, continued
improvements in our internal systems and enhancements and modifications to our
Web sites. As a percentage of net revenues, research and development expenses
decreased to 10.6% in 1999 from 30.9% in 1998. The decrease as a percentage of
net revenues was primarily due to research and development expenses increasing
at a slower rate than net revenues.

     General and administrative. General and administrative expenses increased
by $926,000, or 222%, to $1.3 million in 1999 from $417,000 in 1998. The
increase was primarily due to increased personnel costs and professional service
fees necessary to support our growth. As a percentage of net revenues, general
and administrative expenses decreased to 15.8% in 1999 from 33.3% in 1998. The
decrease as a percentage of net revenues was primarily due to general and
administrative expenses increasing at a slower rate than net revenues.

     Depreciation and amortization. Depreciation and amortization expenses
increased by $1.0 million, or 726%, to $1.1 million in 1999 from $0.1 million in
1998. The increase resulted from the depreciation of approximately $2.3 million
in equipment and furniture acquired during 1999 and the amortization of
approximately $2.7 million in intangible assets related to the acquisition of
substantially all of the assets of Commonsite, LLC and Travel Companions
International, Inc. As a percentage of net revenues, depreciation and
amortization expenses increased to 13.6% in 1999 from 11.2% in 1998.

     Equity-based compensation. Equity-based compensation expenses increased by
$943,000, or 542%, to $1.1 million in 1999 from $174,000 in 1998. The increase
resulted primarily from recognition of $406,000 in expenses related to the sale
of securities to an employee by a principal shareholder at a price below the
estimated fair market value as an inducement for the employee to work for
FreeShop, and recognition of expenses related to issuing options with exercise
prices based on the last price received from a third party investor.

     Interest expense. Interest expense primarily relates to capital equipment
leases, and totaled $40,000 in 1999 and $66,000 in 1998.

                                        21
<PAGE>   23

     Other income, net. Other income, net, consists primarily of interest
income. Other income, net, increased by $815,000 to $818,000 in 1999 from $3,000
in 1998. The increase was due to higher cash balances resulting from the
investments by Fingerhut and the proceeds from our initial public offering in
September 1999.

     Income Taxes. No provision for federal income taxes has been recorded for
any of the periods presented due to our current loss position.

LIQUIDITY AND CAPITAL RESOURCES

     Since we began operating as an independent company in June 1997, we have
financed our operations primarily through the issuance of equity securities.
Gross proceeds from the issuance of stock through December 31, 2000 totaled
$65.7 million, including $21.5 million raised from Fingerhut. As of December 31,
2000, we had approximately $24.9 million in cash, cash equivalents and
short-term securities, providing working capital of $23.0 million.

     Net cash used in operating activities was $18.6 million and $9.1 million in
the years ended December 31, 2000 and 1999, respectively. Cash used in operating
activities in the year ended December 31, 2000 resulted primarily from net
losses and increases in accounts receivable and prepaid expenses and a decrease
in accrued liabilities, which were partially offset by an increase in accounts
payable. Cash used in operating activities in the year ended December 31, 1999
resulted primarily from net losses and increases in accounts receivable and
prepaid expenses, which were partially offset by an increases in accounts
payable and accrued liabilities.

     Net cash used in investing activities was $2.5 million and $17.9 million in
the years ended December 31, 2000 and 1999, respectively. In the year ended
December 31, 2000, $1.6 million was used to acquire substantially all of the
assets of XMarkstheSpot, Inc., $3.2 million was used to purchase computer
equipment and software, furniture, office equipment and to pay for leasehold
improvements and $2.3 million was received from the sale of short-term
securities. In the year ended December 31, 1999, $1.8 million was used to
acquire substantially all of the assets of Commonsite, LLC and Travel Companions
International, Inc.; $2.3 million was used to purchase computer equipment and
software, furniture, office equipment and to pay for leasehold improvements and
$13.8 million was used to invest in short-term securities.

     Net cash provided by financing activities was $0.2 million and $57.9
million in the years ended December 31, 2000 and 1999, respectively. Net cash
provided by financing activities in 2000 resulted from receipt of $2.0 million
from a note payable and $0.3 million from the issuance of common stock pursuant
to option agreements and the Company's employee stock purchase plan. These
proceeds were offset by the repurchase of $1.6 million in common stock, payments
of $0.4 million on the note payable and payments of $0.1 million on the capital
leases. Net cash provided by financing activities in 1999 resulted primarily
from issuance of capital stock, which was partially offset by principal payments
made on capital leases.

     We believe our current cash and cash equivalents will be sufficient to meet
our anticipated cash needs for working capital and capital expenditures for at
least the next six to nine months. Thereafter, we may need to raise additional
capital to meet our long-term operating requirements. Although revenues on an
annual basis have increased from the prior year, on a quarterly basis they
declined in the fourth quarter of 2000 and the first quarter of 2001. This
decline in revenues will be offset, starting in the second quarter of 2001 by
cost reduction measures taken in February 2001.

                                        22
<PAGE>   24

     Our cash requirements depend on several factors, including the level of
expenditures on advertising and brand awareness, the rate of market acceptance
of our services and the extent to which we use cash for acquisitions and
strategic investments. Unanticipated expenses, poor financial results or
unanticipated opportunities requiring financial commitments could give rise to
earlier financing requirements. If we raise additional funds through the
issuance of equity or convertible debt securities, the percentage ownership of
our shareholders would be reduced, and these securities might have rights,
preferences or privileges senior to those of our common stock. Additional
financing may not be available on terms favorable to us, or at all. The
notification of possible delisting from NASDAQ and the going concern contingency
contained in our audit report may make raising additional capital more
difficult. If adequate funds are not available or are not available on
acceptable terms, our ability to fund our expansion, take advantage of business
opportunities, develop or enhance services or products or otherwise respond to
competitive pressures would be significantly limited, and we might need to
significantly restrict our operations.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. SFAS No. 133 is effective for the Company's 2001 fiscal year. The
adoption of this statement is not expected to have a significant impact on
results of operations, financial position or cash flows of the Company as the
Company does not hold any derivative instruments.

     In September 2000, the FASB issued Statement of Financial Accounting
Standards 140 ("FAS 140"), "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." FAS 140 replaces Statement of
Financial Accounting Standards 125, revising the standards governing the
accounting for securitizations and other transfers of financial assets and
collateral. Adoption of FAS 140 is required for transfers and servicing of
financial assets and extinguishment of liabilities occurring after March 31,
2001. We are currently evaluating the impact of FAS 140, if any, on current
accounting policies regarding the service of assets and extinguishment of
liabilities.

ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Substantially all of the Company's cash equivalents, short-term securities
and capital lease obligations are at fixed interest rates and therefore the fair
value of these instruments is affected by changes in market interest rates. As
of December 31, 2000, however, the Company's cash equivalents and short-term
securities mature within three months. As of December 31, 2000, the Company
believes the reported amounts of cash equivalents, short-term securities and
capital lease obligations to be reasonable approximations of their fair values.
As a result, the Company believes that the market risk arising from its holding
of financial instruments is minimal.

                                        23
<PAGE>   25

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         INDEX TO FINANCIAL STATEMENTS

                                 APTIMUS, INC.
                              FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Independent Accountants...........................   25
Balance Sheet as of December 31, 1999 and 2000..............   26
Statement of Operations for the years ended December 31,
  1998, 1999 and 2000.......................................   27
Statement of Shareholders' Equity for the years ended
  December 31, 1998, 1999 and 2000..........................   28
Statement of Cash Flows for the years ended December 31,
  1998, 1999 and 2000.......................................   29
Notes to Financial Statements...............................   30
</TABLE>

                                        24
<PAGE>   26

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of Aptimus, Inc.

     In our opinion, the financial statements listed in the index appearing
under Item 14(a)(1) on page 45 present fairly, in all material respects, the
financial position of Aptimus, Inc. at December 31, 2000 and 1999, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the index appearing under Item
14(a)(2) on page 45 presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related financial
statements. These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

     The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

PricewaterhouseCoopers LLP

Seattle, Washington
February 28, 2001

                                        25
<PAGE>   27

                                 APTIMUS, INC.

                                 BALANCE SHEET
                                 (IN THOUSANDS)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                1999       2000
                                                              --------    -------
<S>                                                           <C>         <C>
Cash and cash equivalents...................................  $ 33,795    $12,854
Accounts receivable, net....................................     3,472      2,240
Prepaid expenses and other assets...........................       382        646
Short-term investments......................................    13,952     12,012
                                                              --------    -------
          Total current assets..............................    51,601     27,752
Fixed assets, net of accumulated depreciation...............     2,250      4,760
Intangible assets, net......................................     1,922      2,643
Long-term investments.......................................        --        345
Deposits....................................................        43         32
                                                              --------    -------
                                                              $ 55,816    $35,532
                                                              ========    =======

                      LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable............................................  $  1,370    $ 2,573
Accrued and other liabilities...............................     3,390      1,154
Current portion of capital lease obligations................       105        193
Current portion of notes payable............................        --        800
                                                              --------    -------
          Total current liabilities.........................     4,865      4,720
Capital lease obligations, net of current portion...........        40        144
Notes payable, net of current portion.......................        --        800
                                                              --------    -------
          Total liabilities.................................     4,905      5,664
                                                              --------    -------
Shareholders' equity Common stock, no par value; 100,000
  shares authorized, 15,524 and 15,505 issued and
  outstanding at December 31, 1999 and 2000, respectively...    66,587     65,874
Additional paid-in capital..................................     2,858      2,518
Deferred stock compensation.................................    (1,466)      (352)
Accumulated deficit.........................................   (17,068)   (38,172)
                                                              --------    -------
          Total shareholders' equity........................    50,911     29,868
                                                              --------    -------
                                                              $ 55,816    $35,532
                                                              ========    =======
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                        26
<PAGE>   28

                                 APTIMUS, INC.

                            STATEMENT OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                              -------------------------------
                                                               1998        1999        2000
                                                              -------    --------    --------
<S>                                                           <C>        <C>         <C>
Net revenues................................................  $ 1,251    $  8,506    $ 16,873
Operating expenses:
  Sales and marketing (excludes equity-based compensation of
     $45, $862 and $545 in 1998, 1999 and 2000
     respectively)..........................................    3,088      15,042      29,571
  Internet and network connectivity (excludes equity-based
     compensation of $0, $14 and $21 in 1998, 1999 and 2000
     respectively)..........................................      181         616       2,047
  Research and development (excludes equity-based
     compensation of $0, $80 and $114 in 1998, 1999, and
     2000 respectively.)....................................      387         901       2,439
  General and administrative (excludes equity-based
     compensation of $129, $161 and $94 in 1998, 1999 and
     2000 respectively.)....................................      417       1,343       3,055
  Depreciation and amortization.............................      140       1,156       2,419
  Equity-based compensation.................................      174       1,117         774
                                                              -------    --------    --------
          Total operating expenses..........................    4,387      20,175      40,305
                                                              -------    --------    --------
Operating loss..............................................   (3,136)    (11,669)    (23,432)
Interest expense............................................       66          40         114
Other income net............................................       (3)       (818)     (2,442)
                                                              -------    --------    --------
Net loss....................................................  $(3,199)   $(10,891)   $(21,104)
                                                              =======    ========    ========
Basic and diluted net loss per share........................  $ (0.51)   $  (1.08)   $  (1.36)
                                                              =======    ========    ========
Weighted average shares used in computing net loss per
  share.....................................................    6,224      10,043      15,567
                                                              =======    ========    ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                        27
<PAGE>   29

                                 APTIMUS, INC.

                       STATEMENT OF SHAREHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                            SERIES B
                                           CONVERTIBLE                                         NOTE
                                         PREFERRED STOCK      COMMON STOCK     ADDITIONAL   RECEIVABLE      DEFERRED
                                        -----------------   ----------------    PAID-IN        FROM          STOCK
                                        SHARES    AMOUNT    SHARES   AMOUNT     CAPITAL     SHAREHOLDER   COMPENSATION
                                        ------   --------   ------   -------   ----------   -----------   ------------
<S>                                     <C>      <C>        <C>      <C>       <C>          <C>           <C>
BALANCES AT DECEMBER 31, 1997.........     --    $     --    5,597   $ 2,699     $   63        $(25)        $    --
Issuance of common stock, net of
  offering expenses of $73............                       2,488     5,108
Exercise of stock options.............                          56         9
Repayment of note receivable from
  shareholder.........................                                                           25
Deferred compensation related to
  grants of stock options and
  warrants............................                                              147                         (23)
Shares transferred to employees by
  principle shareholders..............                                               84
Amortization of deferred stock
  compensation........................                                                                           10
Net loss..............................
                                         ----    --------   ------   -------     ------        ----         -------
BALANCES AT DECEMBER 31, 1998.........     --          --    8,141     7,816        294          --             (13)
Repurchase of common stock............                        (160)      (77)
Issuance of common stock..............                         160       400
Issuance of common stock upon
  conversion of promissory note.......                          20        50
Issuance of common stock in connection
  with business acquisition...........                          53       736
Shares sold to employee by principle
  shareholder.........................                                              406
Issuance of common stock in initial
  public offering, net of expenses of
  $4,134..............................                       3,680    40,026
Exercise of stock options and
  warrants............................    878      17,495      118       141
Conversion of preferred stock.........   (878)    (17,495)   3,512    17,495
Deferred compensation related to
  grants of stock options.............                                            2,324                      (2,324)
Deferred compensation related to
  forfeitures of stock options........                                             (166)                        166
Amortization of deferred stock
  compensation........................                                                                          705
Net loss..............................
                                         ----    --------   ------   -------     ------        ----         -------
BALANCES AT DECEMBER 31, 1999.........     --          --   15,524    66,587      2,858          --          (1,466)
Repurchase of common stock............                        (664)   (1,637)
Exercise of stock options and
  warrants............................                         211       229
Issuance of shares under employee
  stock purchase program..............                          28       115
Deferred compensation related to
  grants of stock options.............                                              146                        (146)
Deferred compensation related to
  forfeitures of stock options........                                             (486)                        486
Amortization of deferred stock
  compensation........................                                                                          774
Issuance of common stock in connection
  with business acquisition...........                         406       580
Net loss..............................
                                         ----    --------   ------   -------     ------        ----         -------
BALANCE ON DECEMBER 31, 2000..........     --    $     --   15,505   $65,874     $2,518        $ --         $  (352)
                                         ====    ========   ======   =======     ======        ====         =======

<CAPTION>

                                                          TOTAL
                                        ACCUMULATED   SHAREHOLDERS'
                                          DEFICIT        EQUITY
                                        -----------   -------------
<S>                                     <C>           <C>
BALANCES AT DECEMBER 31, 1997.........   $ (2,655)      $     82
Issuance of common stock, net of
  offering expenses of $73............                     5,108
Exercise of stock options.............                         9
Repayment of note receivable from
  shareholder.........................                        25
Deferred compensation related to
  grants of stock options and
  warrants............................                       124
Shares transferred to employees by
  principle shareholders..............                        84
Amortization of deferred stock
  compensation........................                        10
Net loss..............................     (3,199)        (3,199)
                                         --------       --------
BALANCES AT DECEMBER 31, 1998.........     (5,854)         2,243
Repurchase of common stock............       (323)          (400)
Issuance of common stock..............                       400
Issuance of common stock upon
  conversion of promissory note.......                        50
Issuance of common stock in connection
  with business acquisition...........                       736
Shares sold to employee by principle
  shareholder.........................                       406
Issuance of common stock in initial
  public offering, net of expenses of
  $4,134..............................                    40,026
Exercise of stock options and
  warrants............................                    17,636
Conversion of preferred stock.........                        --
Deferred compensation related to
  grants of stock options.............                        --
Deferred compensation related to
  forfeitures of stock options........                        --
Amortization of deferred stock
  compensation........................                       705
Net loss..............................    (10,891)       (10,891)
                                         --------       --------
BALANCES AT DECEMBER 31, 1999.........    (17,068)        50,911
Repurchase of common stock............                    (1,637)
Exercise of stock options and
  warrants............................                       229
Issuance of shares under employee
  stock purchase program..............                       115
Deferred compensation related to
  grants of stock options.............                        --
Deferred compensation related to
  forfeitures of stock options........                        --
Amortization of deferred stock
  compensation........................                       774
Issuance of common stock in connection
  with business acquisition...........                       580
Net loss..............................    (21,104)       (21,104)
                                         --------       --------
BALANCE ON DECEMBER 31, 2000..........   $(38,172)      $ 29,868
                                         ========       ========
</TABLE>


   The accompanying notes are an integral part of these financial statements.
                                        28
<PAGE>   30

                                 APTIMUS, INC.

                            STATEMENT OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                              -------------------------------
                                                               1998        1999        2000
                                                              -------    --------    --------
<S>                                                           <C>        <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss....................................................  $(3,199)   $(10,891)   $(21,104)
  Adjustments to reconcile net loss to net cash used in
     operating activities:
     Depreciation and amortization..........................      140       1,156       2,419
     Bad debt expense.......................................       57         393       1,995
     Amortization of deferred stock compensation............       10         705         774
     Shares sold or transferred to employees by principal
       shareholders.........................................       84         406
     Issuance of stock options and warrants for services....       88
     Loss (gain) on disposal of property and equipment......        9          (2)         (3)
     Amortization of discount on short-term investments.....                 (154)       (301)
     Changes in assets and liabilities, net of effects of
       business acquisitions:
       Accounts receivable..................................     (191)     (3,489)     (1,107)
       Prepaid expenses and other assets....................      (21)       (352)       (253)
       Accounts payable.....................................      217         906       1,203
       Accrued and other liabilities........................      602       2,237      (2,236)
       Payable to Online Interactive, Inc...................      (27)
                                                              -------    --------    --------
       Net cash used in operating activities................   (2,231)     (9,085)    (18,613)
                                                              -------    --------    --------
CASH FLOWS FROM INVESTING ACTIVITIES
     Purchase of property and equipment.....................      (67)     (2,263)     (3,239)
     Proceeds from disposal of fixed assets.................                               23
     Payment for business acquisitions......................               (1,841)     (1,554)
     Purchase of short-term investments.....................              (15,298)    (21,259)
     Sale of short-term investments.........................                1,500      23,500
     Purchase of long-term investments......................                               (1)
                                                              -------    --------    --------
          Net cash used in investing activities.............      (67)    (17,902)     (2,530)
                                                              -------    --------    --------
CASH FLOWS FROM FINANCING ACTIVITIES
       Proceeds from note payable...........................      135                   2,000
       Repayment of notes payable...........................      (85)                   (400)
       Principal payments under capital leases..............      (64)       (112)       (105)
       Proceeds from shareholder note receivable............       25
       Repurchase of common stock...........................                 (400)     (1,637)
       Issuance of common stock, net of issuance costs......    5,153      40,908         344
       Issuance of Series B preferred stock.................               17,494
                                                              -------    --------    --------
          Net cash provided by financing activities.........    5,164      57,890         202
                                                              -------    --------    --------
  Net increase (decrease) in cash and cash equivalents......    2,866      30,903     (20,941)
  Cash and cash equivalents at beginning of period..........       26       2,892      33,795
                                                              -------    --------    --------
  Cash and cash equivalents at end of period................  $ 2,892    $ 33,795    $ 12,854
                                                              =======    ========    ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                        29
<PAGE>   31

                                 APTIMUS, INC.

                         NOTES TO FINANCIAL STATEMENTS

 1. ORGANIZATION AND BUSINESS

     Aptimus began as a division of Online Interactive, Inc. (Online), a
Washington corporation, incorporated in July 1994. On June 30, 1997, Online
Interactive contributed the FreeShop Division, including certain net assets, to
its wholly owned subsidiary, FreeShop International, Inc., a Washington
corporation incorporated on June 23, 1997, which then began operating as a
separate entity.

     On February 19, 1999, FreeShop International, Inc. changed its name to
FreeShop.com, Inc. On October 16, 2000 FreeShop.com, Inc. changed its name to
Aptimus, Inc. (Aptimus or the Company). Aptimus operates an online direct
marketing network. Aptimus is primarily an online marketing service that
generates sales leads, creates product awareness, and initiates consumer
purchases through multiple online marketing vehicles, including free and trial
offers, banner advertising, email newsletter sponsorship, and others.

     The Company has been in operation since 1994 and has incurred operating
losses since inception. The financial statements have been prepared assuming the
Company will continue as a going concern and do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets and liabilities that may result from this uncertainty.

     The Company's ability to continue as a going concern is dependent on a
number of factors, including its level of future revenues and its ability to
reduce operating costs. The Company has initiated steps to reduce operating
costs by significantly reducing headcount and intends to further reduce
operating costs by discontinuing activities related to its consumer-direct Web
sites. There can be no assurance that the Company will be able to increase
revenues or reduce operating expenses as planned.

     If the Company is unable to increase revenues or reduce operating expenses
as planned it may not have sufficient funds to satisfy its cash requirements.
The Company may be forced to curtail operations, dispose of assets or seek
additional funding. Such events would materially and adversely affect the value
of the Company's equity securities. There can be no assurance that the Company
will be able to successfully complete the steps necessary to continue as a going
concern.

 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Use of estimates

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

  Cash, cash equivalents and short term investments

     The Company generally considers any highly liquid investments purchased
with an original or remaining maturity of three months or less at the date of
purchase to be cash equivalents.

     The Company classifies, at the date of acquisition, its marketable
securities into categories in accordance with the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." At December 31, 1999 and 2000, short-term
investments consisted of commercial paper with maturities of less than one year.
Currently, the Company classifies all of its short-term investments as held to
maturity, which are reported at amortized cost, which approximated their fair
value at December 31, 1999 and 2000. Realized gains and losses and declines in
value of securities judged to be other than temporary are included in other
income (expense), net.

                                        30
<PAGE>   32
                                 APTIMUS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

     The Company invests its cash and cash equivalents in deposits with three
financial institutions that may, at times, exceed federally insured limits.
Management believes that the risk of loss is minimal. To date, the Company has
not experienced any losses related to temporary cash investments.

  Property and equipment

     Property and equipment are stated at cost less accumulated depreciation and
are depreciated using the straight-line method over their estimated useful
lives. Leasehold improvements are amortized on a straight-line method over their
estimated useful lives or the term of the related lease, whichever is shorter.
The estimated useful lives are as follows:

<TABLE>
<S>                                                        <C>
Office furniture and equipment...........................  Five years
Computer hardware and software...........................  Three years
Leasehold improvements...................................  Three to Five years
</TABLE>

     The cost of normal maintenance and repairs are charged to expense as
incurred and expenditures for major improvements are capitalized. Gains or
losses on the disposition of assets in the normal course of business are
reflected in the results of operations at the time of disposal. Equipment under
capital leases, which all contain bargain purchase options, is recorded at the
present value of minimum lease payments and is amortized using the straight-line
method over the estimated useful lives of the related assets.

  Intangible assets

     Intangible assets are stated at cost less accumulated amortization and are
amortized using the straight-line method over their estimated useful lives. The
estimated useful lives are as follows:

<TABLE>
<S>                                                           <C>
Client list.................................................  One year
Work force in place.........................................  One year
Non-compete agreement and customer lists....................  Two years
Acquired technology.........................................  Two years
Goodwill....................................................  Three years
Worldwide Brochures database................................  Five years
</TABLE>

     At December 31, 1999 and 2000, accumulated amortization of intangible
assets was $745,000 and $1,783,000, respectively.

  Long-term investments

     Long-term investments consist of minority equity investments in non-public
companies. These investments are being accounted for on the cost basis and will
be evaluated for impairment each quarter.

  Impairment of long-lived assets

     The Company evaluates its long-lived assets for impairment and continues to
evaluate them as events or changes in circumstances indicate that the carrying
amount of such assets may not be fully recoverable. The Company evaluates the
recoverability of long-lived assets by measuring the carrying amount of the
assets against the estimated undiscounted future cash flows associated with
these assets. At the time such evaluations indicate that the future undiscounted
cash flows of certain long-lived assets are not sufficient to recover the
carrying value of such assets, the assets are adjusted to their fair values. No
losses for impairment have been recognized in 1998, 1999, or 2000.

                                        31
<PAGE>   33
                                 APTIMUS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

  Fair value of financial instruments

     The carrying amounts of the Company's financial instruments, including cash
and cash equivalents, short-term investments, accounts receivable, accounts
payable and accrued liabilities, approximate fair value because of their short
maturities.

  Deferred revenues

     Deferred revenues consist of advance billings and payments on marketing
contracts and are included in accrued and other liabilities in the accompanying
balance sheet.

  Revenue recognition

     The Company has several revenue sources from its online marketing service
activities, including lead generation, advertising, and list rental. The Company
has adopted the provisions of Staff Accounting Bulletin No. 101 ("SAB 101") in
the year ended December 31, 2000. The adoption of SAB 101 did not have a
material impact on reported revenues.

     Lead generation revenues consist of fees received, generally on a per
inquiry basis, for delivery of leads to clients. Revenue is recognized in the
period the leads are provided to the client.

     Advertising revenues consist of email newsletter sponsorships, banner
advertising, and anchor positions. Newsletter sponsorship revenues are derived
from a fixed fee or a fee based on the circulation of the newsletter. Newsletter
sponsorship revenues are recognized in the period in which the newsletter is
delivered. Banner advertising and anchor positions can be based on impressions,
fixed fees, or click throughs. Fixed fee contracts, which range from three
months to two years, are recognized ratably over the term of the agreement,
provided that no significant Company obligations remain. Revenue from
impressions or click through based contracts is recognized based on the
proportion of impressions or click throughs delivered, to the total number of
guaranteed impressions or click throughs provided for under the related
contracts.

     List rental revenues are received from the rental of customer names to
third parties through the use of list brokers. Revenue from list rental
activities is recognized in the period the names are delivered by the list
broker to the third party.

     Also included in net revenues are barter revenues generated from exchanging
lead generation and advertising services for advertising services. Such
transactions are recorded at the lower of the estimated fair value of the
advertisements received or delivered. Revenue from barter transactions is
recognized when advertising or lead generation is provided, and services
received are charged to expense when used. For the years ended December 31,
1998, 1999 and 2000, the Company recognized revenue from barter transactions of
$83,000, $489,000 and $1,738,000, respectively.

     The Company also has advertising and lead generation agreements that
provide for payment in equity securities of non-public companies. Revenue is
recognized under such agreements when sufficient contemporaneous evidence exists
concerning the value of the equity securities. Revenue recognized under such
agreements for the year ended December 31, 2000 was $344,000. No similar
arrangements existed in 1999 or prior years.

  Advertising costs

     The Company expenses advertising costs as incurred. Total advertising
expense for the years ended December 31, 1998, 1999 and 2000, was $1,191,000,
$8,600,000 and $15,586,000, respectively.

                                        32
<PAGE>   34
                                 APTIMUS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

  Research and development costs

     Research and development costs are expensed as incurred.

  Web site development costs

     Costs incurred in developing the Company's Web sites are accounted for in
accordance with Emerging Issues Task Force Issues Summary 00-02, "Accounting for
Web site Development Costs." As such, the Company expenses all costs incurred
that relate to the planning and post implementation phases of development. Costs
incurred in the development phase are capitalized and recognized over the Web
site's estimated useful life if the Web site is expected to have a useful life
beyond one year. Costs capitalized are included in fixed assets and are
amortized over three years. Costs associated with repair or maintenance of
existing sites or the development of Web site content are expensed as incurred.

  Income taxes

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

  Net loss per share

     Basic net loss per share represents net loss available to common
shareholders divided by the weighted average number of shares outstanding during
the period. Diluted net loss per share represents net loss available to common
shareholders divided by the weighted average number of shares outstanding,
including the potentially dilutive impact of common stock options and warrants.
Common stock options and warrants are converted using the treasury stock method.
Basic and diluted net loss per share are equal for all periods presented because
the impact of common stock equivalents is antidilutive.

     The following table sets forth the computation of the numerators and
denominators in the basic and diluted net loss per share calculations for the
periods indicated and those common stock equivalent securities not included in
the diluted net loss per share calculation (in thousands):

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                                      -------------------------------
                                                       1998        1999        2000
                                                      -------    --------    --------
<S>                                                   <C>        <C>         <C>
Numerator:
  Net loss..........................................  $(3,199)   $(10,891)   $(21,104)
                                                      =======    ========    ========
Denominator:
  Weighted average shares used in computing net loss
     per share......................................    6,224      10,043      15,567
                                                      =======    ========    ========
Potentially dilutive securities consist of the
  following:
  Options to purchase common stock..................      815       1,123       1,397
  Warrants to purchase common stock.................    3,501          28          16
                                                      -------    --------    --------
                                                        4,316       1,151       1,413
                                                      =======    ========    ========
</TABLE>

  Concentrations of credit risk

     Concentrations of credit risk with respect to accounts receivable exist due
to the large number of internet based companies but are mitigated due to the
wide variety of customers to which the Company provides services, as well as
their dispersion across many different geographic areas. As such, no single
customer

                                        33
<PAGE>   35
                                 APTIMUS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

accounted for greater than 10% of total net revenues for the years ended
December 31, 1998, 1999 and 2000. No single customer accounted for more than 10%
of accounts receivable balances as of December 31, 1998. As of December 31, 1999
one customer accounted for 13.1% of outstanding accounts receivable. No other
customers accounted for greater than 10% of accounts receivable as of December
31, 1999 and no single customer accounted for more than 10% of accounts
receivable balances as of December 31, 2000. The Company maintains an allowance
for doubtful accounts receivable based upon its historical experience and the
expected collectibility of all accounts receivable.

  Stock compensation

     The Company has elected to apply the disclosure-only provision of SFAS No.
123 for employee stock-based compensation plans. Accordingly, the Company
accounts for stock-based compensation to employees using the intrinsic-value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. Compensation expense
for stock options is measured as the excess, if any, of the fair value of the
Company's common stock at the date of grant over the exercise price. The Company
records the fair value of equity instruments issued to nonemployees in
accordance with the provisions of SFAS No. 123 and the Emerging Issues Task
Force consensus in Issue No. 96-18, "Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or in Conjunction With Selling,
Goods or Services".

  Comprehensive income

     To date, the Company has not had any transactions required to be reported
in comprehensive income other than its net loss.

  Reclassifications

     Certain prior year amounts have been reclassified to conform with the
current year's presentation.

  Recent accounting pronouncements

     In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. SFAS No. 133 is effective for the Company's 2001 fiscal year. The
adoption of this statement is not expected to have a significant impact on
results of operations, financial position or cash flows of the Company as the
Company does not hold any derivative instruments.

     In September 2000, the FASB issued Statement of Financial Accounting
Standards 140 ("FAS 140"), "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." FAS 140 replaces Statement of
Financial Accounting Standards 125, revising the standards governing the
accounting for securitizations and other transfers of financial assets and
collateral. Adoption of FAS 140 is required for transfers and servicing of
financial assets and extinguishment of liabilities occurring after March 31,
2001. We are currently evaluating the impact of FAS 140, if any, on current
accounting policies regarding the service of assets and extinguishment of
liabilities.

                                        34
<PAGE>   36
                                 APTIMUS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

 3. ACCOUNTS RECEIVABLE

     Accounts receivable consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                             ----------------
                                                              1999      2000
                                                             ------    ------
<S>                                                          <C>       <C>
Accounts receivable........................................  $3,843    $4,041
Less: Allowance for doubtful accounts......................    (339)   (1,785)
Less: Allowance for list rental adjustments................     (32)      (16)
                                                             ------    ------
                                                             $3,472    $2,240
                                                             ======    ======
</TABLE>

 4. PROPERTY AND EQUIPMENT

     Property and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                             ----------------
                                                              1999      2000
                                                             ------    ------
<S>                                                          <C>       <C>
Computer hardware and software.............................  $2,308    $5,208
Office furniture and equipment.............................     352       674
Leasehold improvements.....................................     195       842
                                                             ------    ------
                                                              2,855     6,724
Less: Accumulated depreciation and amortization............    (605)   (1,964)
                                                             ------    ------
                                                             $2,250    $4,760
                                                             ======    ======
</TABLE>

     Property and equipment includes equipment purchased under capital leases in
the amount of $338,000 and $424,000 at December 31, 1999 and 2000, respectively.
Accumulated amortization on this equipment was $190,000 and $54,000 at December
31, 1999 and 2000, respectively.

 5. ACCRUED AND OTHER LIABILITIES

     Accrued and other liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                             ----------------
                                                              1999      2000
                                                             ------    ------
<S>                                                          <C>       <C>
Accrued advertising expense................................  $1,973    $  727
Accrued commissions........................................     432        77
Accrued bonus..............................................     365
Accrued public relations costs.............................     151        16
Deferred revenue...........................................      91        70
Accrued vacation...........................................      91       148
Other......................................................     287       116
                                                             ------    ------
                                                             $3,390    $1,154
                                                             ======    ======
</TABLE>

 6. NOTE PAYABLE

     On June 29, 2000 the Company borrowed $2 million under an equipment term
loan with Imperial Bank. The loan and security agreement with Imperial Bank
provides for up to a $2 million term loan for equipment and up to $750,000 under
a revolving line-of-credit facility. The term loan is collateralized by a first
priority security interest in all of the Company's unpledged assets. Borrowings
under this facility are payable in thirty equal monthly installments of
principal plus accrued interest through December 2002. Interest is accrued at
the bank's prime rate plus 1.0%, or 10.5% at December 31, 2000.

                                        35
<PAGE>   37
                                 APTIMUS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

     The revolving line-of-credit allows for draws up to the amount of eligible
account receivable balances, generally those less than 90 days old. Advances on
the revolving line of credit bear interest on the outstanding daily balance at a
rate of 0.75% above the bank's prime rate, 10.25% at December 31, 2000. As of
December 31, 2000 no amounts had been borrowed under the line-of-credit.

     Debt outstanding at December 31, 2000 becomes due as follows (in
thousands):

<TABLE>
<S>                                                           <C>
Years ending December 31,
2001........................................................  $  800
2002........................................................     800
                                                              ------
                                                              $1,600
                                                              ======
</TABLE>

 7. RELATED PARTY TRANSACTIONS

     In January and February 1998, the Company issued notes payable to
shareholders in the amount of $85,000. Such notes included interest at 10%. The
outstanding balance, including accrued interest of $6,000 was repaid in
September 1998.

     During 1998, two of the Company's principal shareholders transferred 56,000
shares of common stock to certain employees of the Company as incentive
compensation. As a result, the Company recorded $84,000 of compensation expense
based on the fair market value of the Company's common stock on the date of
transfer.

     During January 1999, the Company repurchased 50,000 shares of common stock
from a principal shareholder for $125,000 and subsequently retired the shares.
The repurchase price of $2.50 per share was less than the $5.20 per share
estimated fair value of the common stock at the date of repurchase.

     During April 1999 one of the Company's principal shareholders sold 40,000
shares of common stock to an employee at a price below the estimated fair market
value as an inducement for the employee to work for the Company. $406,000 of
equity-based compensation expense was recorded in connection with this
transaction.

     During the year ended December 31,1999 and 2000, the Company provided
services in the amount of $425,000 and 250,000 to a company for which Fingerhut
is a significant shareholder. During the year ended December 31, 2000 Fingerhut
acted as the list broker for the Company. Fees paid to Fingerhut for such
services were $36,000.

 8. COMMITMENTS AND CONTINGENCIES

     The Company's office facilities are leased under operating leases that
provide for minimum rentals and require payment of property taxes and include
escalation clauses. In addition, the Company also leases certain equipment under
agreements treated for financial reporting purposes as capital leases.

     Future minimum lease payments under the noncancellable leases are as
follows (in thousands).

<TABLE>
<CAPTION>
                                                            CAPITAL    OPERATING
                 YEAR ENDING DECEMBER 31,                   LEASES      LEASES
                 ------------------------                   -------    ---------
<S>                                                         <C>        <C>
  2001....................................................   $239       $  913
  2002....................................................     97          970
  2003....................................................     73          952
  2004....................................................                 366
                                                             ----       ------
Total minimum lease payments..............................    409       $3,201
                                                             ====
Less: Amount representing interest........................    (72)
                                                             ----
Present value of capital lease obligations................    337
Less: Current portion.....................................   (193)
                                                             ----
Capital lease obligations, net of current portion.........   $144
                                                             ====
</TABLE>

                                        36
<PAGE>   38
                                 APTIMUS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

     Rent expense for the years ended December 31, 1998, 1999 and 2000, was
$199,000, $325,000 and $712,000, respectively. The company has also entered into
other agreements with service providers that are either non-cancelable or have
extended cancellation notification terms. Such agreements call for payments
totaling $1.3 million through March 2002.

  Litigation

     The Company is subject to various claims and pending or threatened lawsuits
in the normal course of business. Management believes that the outcome of any
such lawsuits would not have a materially adverse effect on the Company's
financial position, results of operations or cash flows.

 9. SHAREHOLDERS' EQUITY

  Preferred stock

     In May 1999 the Board of Directors designated 1,250,000 shares of preferred
stock as Series B convertible preferred stock. Each share of Series B
convertible preferred stock is convertible into four shares of common stock.
Each share of Series B convertible preferred stock has similar rights and
obligations as four shares of common stock, except it has no voting rights.
During 1999 877,967 shares of Series B preferred stock were issued pursuant to
warrants and converted into common shares on October 1, 1999.

     Subject to the provisions of the articles of incorporation and limitations
prescribed by law, the board of directors has the authority to issue, without
further vote or action by the shareholders, up to 6,814,516 additional shares of
preferred stock in one or more series.

  Common stock

     On December 10, 1998, Aptimus issued 1,619,387 shares of the Company's
common stock to Fingerhut Companies Inc. (Fingerhut) at a price of $2.47 per
share. The shares were partially paid for by surrender and cancellation of a
$500,000 Convertible Promissory Note, which the Company had issued to Fingerhut
on December 4, 1998.

     The Company and Fingerhut also entered into a Shareholders Agreement on
December 10, 1998 which grants Fingerhut a right of first refusal on shares
proposed for transfer by the Company's two principal shareholders, contains
certain agreements regarding composition of the Company's Board of Directors,
requires Board approval of certain specified actions by the Company, grants
certain demand and piggyback registration rights to Fingerhut, and provides for
certain drag-along and tag-along rights among the parties with respect to
proposed sales of shares to third parties. The Shareholders Agreement terminates
on the earliest of December 10, 2008, the closing of a sale of the Company's
assets or the acquisition of the Company by merger or consolidation.

     On August 9, 1999, the Board of Directors declared a 1 for 2.5 reverse
stock split on the Company's common stock. Common stock issued, stock option,
warrant and convertible preferred stock information in these financial
statements have been restated to reflect this reverse split.

     In October 1999 the Company closed its initial public offering of 3,680,000
shares of the Company's common stock at $12.00 per share. Total proceeds, net of
offering costs of $4,134,000, were $40,026,000. Concurrent with the closing of
the initial public offering, Fingerhut exercised their remaining rights to
purchase 405,359 additional shares of Series B convertible preferred stock for
$8,879,000. Upon the closing of the initial public offering all of the Company's
Series B convertible preferred stock converted into 3,511,868 shares of common
stock.

                                        37
<PAGE>   39
                                 APTIMUS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

  Warrants

     In connection with the sale of common stock to Fingerhut, the Company
issued to Fingerhut a series of warrants to purchase shares of the Company's
common stock. These warrants were modified in May 1999 to allow for the purchase
of Series B convertible preferred stock. These warrants were exercised for
Series B preferred stock and converted to common stock during 1999.

     In return for various services the Company has issued warrants to purchase
shares of common stock. At December 31, 2000, warrants outstanding are as
follows:

<TABLE>
<CAPTION>
YEAR OF ISSUE   SHARES   EXERCISE PRICE   YEAR OF EXPIRATION
-------------   ------   --------------   ------------------
<S>             <C>      <C>              <C>
    1997         2,400       $1.02               2002
    1998        14,000       $1,02               2003
</TABLE>

Stock options

     Effective June 30, 1997, the Company approved the 1997 Stock Option Plan
(the Plan) to provide for the granting of stock options to employees, directors
and consultants of the Company to acquire ownership in the Company and provide
them with incentives for their service. Under the terms of the Plan, 2,036,000
shares of common stock have been reserved for issuance to plan participants.

     The Plan is administered by the Board of Directors of the Company, which
determines the terms and conditions of the options granted, including exercise
price, number of options granted and the vesting period of such options. The
maximum term of options is ten years from the date of grant. The options are
generally granted at the estimated fair value of the underlying stock, as
determined by the Board of Directors, on the date of grant. As of December 31,
2000, options to purchase 1,270,000 shares of common stock were available for
future grant under the Plan. For the year ended December 31, 1998, 1999 and
2000, $23,000, $2,324,000 and $211,000, respectively, of deferred compensation
was recorded for options for which the exercise price was lower than the fair
market value at the date of grant. The deferred compensation recognized will be
amortized over the vesting period of the related options in accordance with
Financial Accounting Standards Board interpretation No. 28. During the years
ended December 31, 1999 and 2000, $166,000 and $486,000 of unamortized deferred
compensation was reversed due to forfeitures of options.

     The following table presents activity under the Plan (in thousands, except
per share data):

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                ---------------------------------------------------------
                                                      1998                1999                2000
                                                -----------------   -----------------   -----------------
                                                         WEIGHTED            WEIGHTED            WEIGHTED
                                                         AVERAGE             AVERAGE             AVERAGE
                                                         EXERCISE            EXERCISE            EXERCISE
                                                SHARES    PRICE     SHARES    PRICE     SHARES    PRICE
                                                ------   --------   ------   --------   ------   --------
<S>                                             <C>      <C>        <C>      <C>        <C>      <C>
Options outstanding at beginning of period....  1,003     $0.56       815     $1.12     1,123     $3.92
Options granted...............................    645      1.30       498      7.68       786      9.00
Options exercised.............................     56      0.15       108      1.21       200      1.14
Options forfeited.............................    777      0.60        82      2.45       312      8.61
                                                          -----               -----               -----
Options outstanding at end of period..........    815     $1.12     1,123     $3.92     1,397     $6.12
                                                          =====               =====               =====
Weighted average fair value of options granted
  during the period...........................            $0.34               $9.99               $6.49
</TABLE>

                                        38
<PAGE>   40
                                 APTIMUS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

     The following table summarizes information about stock options outstanding
under the Plan at December 31, 2000 (in thousands, except per share data and
remaining contractual life):

<TABLE>
<CAPTION>
                      OPTIONS OUTSTANDING                              OPTIONS EXERCISABLE
----------------------------------------------------------------   ----------------------------
                             WEIGHTED AVERAGE
                                REMAINING
                               CONTRACTUAL      WEIGHTED AVERAGE               WEIGHTED AVERAGE
   RANGE OF      NUMBER OF         LIFE             EXERCISE       NUMBER OF       EXERCISE
EXERCISE PRICES   SHARES        (IN YEARS)           PRICE          SHARES          PRICE
---------------  ---------   ----------------   ----------------   ---------   ----------------
<S>              <C>         <C>                <C>                <C>         <C>
$ 0.15                31            5.0              $0.15             31           $0.15
  1.02 -- $ 1.50     231            5.0               1.02            221            1.02
  2.00 --   5.00     516            9.3               2.97            219            2.02
  5.31 --   9.56     442           10.0               7.05              3            8.65
 11.50 --  14.63     103            9.3              13.01             27           12.80
 23.44 --  36.00      74           10.0              31.52             16           31.78
                   -----                                              ---
                   1,397            8.8              $6.12            517           $3.01
                   =====                                              ===
</TABLE>

     The weighted average fair values and weighted average exercise prices per
share at the date of grant for options granted were as follows:

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                   -------------------------------------------------
                                                     AVERAGE FAIR VALUE      AVERAGE EXERCISE PRICE
                                                   -----------------------   -----------------------
                                                   1998     1999     2000    1998     1999     2000
                                                   -----   ------   ------   -----   ------   ------
<S>                                                <C>     <C>      <C>      <C>     <C>      <C>
Options granted with exercise prices less than
  the fair value of the stock on the date of
  grant..........................................  $0.41   $10.18   $12.61   $2.50   $ 5.18   $15.82
Options granted with exercise prices equal to the
  fair value of the stock on the date of grant...  $0.34   $ 9.42   $ 4.78   $1.28   $13.19   $ 6.63
Options granted with exercise prices greater than
  the fair value of the stock on the date of
  grant..........................................     --   $ 9.80   $18.99      --   $15.19   $27.96
</TABLE>

     During the years ended December 31, 1998, 1999 and 2000, the Company
granted options to purchase 209,000, 12,000 and 5,000 shares of common stock,
respectively, to consultants, advisors and investment managers and as severance
to certain employees.

     The Company follows SFAS No. 123 in accounting for options and warrants
issued to non-employees. During the year ended December 31, 1998, the Company
recognized $67,150 of expense in connection with options issued to terminated
employees and advisors. The remaining fair value of options issued to advisors
of $9,750 was recorded as deferred compensation in the shareholders' equity
section and amortized over the vesting period of the options. In determining the
fair value of the options and warrants granted or issued to non-employees on the
date of grant, the Company used the Black-Scholes option-pricing model with the
following assumptions:

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                              ------------------------
                                                              1998     1999      2000
                                                              -----    -----    ------
<S>                                                           <C>      <C>      <C>
Weighted average risk free interest rate....................  5.14%    4.63%     6.62%
Weighted average expected life (in years)...................  1.30     1.00     10.00
Volatility..................................................   100%     100%      100%
Dividends...................................................  none     none      none
</TABLE>

     The weighted-average fair value of warrants issued during 1998 was $0.83
per share. No warrants were issued during 2000.

                                        39
<PAGE>   41
                                 APTIMUS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

  Fair Value Pro Forma Disclosures

     Had compensation expense for employee-related options been determined based
on the fair value at the grant dates consistent with the method of SFAS No. 123,
"Accounting for Stock Based Compensation," the Company's net loss and loss per
share would have been increased to the pro forma amounts indicated below (in
thousands, except per share data):

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                                      -------------------------------
                                                       1998        1999        2000
                                                      -------    --------    --------
<S>                                                   <C>        <C>         <C>
Net loss As reported................................  $(3,199)   $(10,891)   $(21,104)
  Pro forma.........................................  $(3,248)   $(12,031)   $(24,093)
Loss per share as reported..........................  $ (0.51)   $  (1.08)   $  (1.36)
  Pro forma.........................................  $ (0.52)   $  (1.20)   $  (1.55)
</TABLE>

     For SFAS No. 123 pro forma disclosure, the fair value of each option is
estimated on the date of grant using the minimum value method allowable for
non-public companies for the year ended December 31, 1998, and the Black-Scholes
option pricing model for the years ended December 31, 1999 and 2000, with the
following assumptions used for grants to employees:

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                              1998     1999     2000
                                                              -----    -----    -----
<S>                                                           <C>      <C>      <C>
Weighted average risk free interest rate....................  4.78%    5.62%    6.29%
Weighted average expected life (in years)...................  4.00     3.94     4.00
Volatility..................................................     0%     100%     100%
Dividends...................................................  none     none     None
</TABLE>

10. STOCK PURCHASE PLAN

     The Company's Board of Directors adopted the Employee Stock Purchase Plan
(the Purchase Plan) on April 17, 2000 under which two million shares have been
reserved for issuance. Under the Purchase Plan, eligible employees may purchase
common stock in an amount not to exceed 50% of the employees' cash compensation
or 1,800 shares per purchase period. The purchase price per share will be 85% of
the common stock fair value at the lower of certain plan defined dates. Pursuant
to the Purchase Plan, 28,436 shares were purchased at a weighted average price
of $4.04 per share for the year ended December 31, 2000, and no shares were
purchased for the years ended December 31, 1999 and December 31, 1998.

11. EMPLOYEE RETIREMENT PLAN

     During 1999, the Company established the FreeShop.com, Inc. 401(k) plan, a
tax-qualified savings and retirement plan intended to qualify under Section 401
of the Internal Revenue Code. All employees who satisfy the eligibility
requirements relating to minimum age and length of service are eligible to
participate in the plan and may enter the plan on the first day of any month
after they become eligible to participate. Participants may make pre-tax
contributions to the plan of up to 15% of their eligible earnings, subject to a
statutorily prescribed annual limit. The Company may make matching contributions
of up to 100% of the first 6% of the compensation elected for contribution to
the plan by an employee. Each participant is fully vested in his or her
contributions and the investment earnings thereon, but vesting in any matching
contributions by us takes place over a period of five years. The Company has
made no matching contributions to the plan as of December 31, 2000.

                                        40
<PAGE>   42
                                 APTIMUS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

12. INCOME TAXES

     A current provision for income taxes was not recorded for the years ended
December 31, 1998, 1999 and 2000 due to taxable losses incurred during such
periods. A valuation allowance has been recorded for deferred tax assets because
realization is primarily dependent on generating sufficient taxable income prior
to the expiration of net operating loss carry-forwards. Net operating losses of
the FreeShop Division of Online did not carry over to the Company.

     Deferred tax assets at December 31, 1999 and 2000 are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                          -------------------
                                                           1999        2000
                                                          -------    --------
<S>                                                       <C>        <C>
Net operating loss carryforwards........................  $ 4,913    $ 11,936
Nondeductible allowances and accruals...................      520       1,830
Expense related to stock options and warrants...........      377           0
                                                          -------    --------
                                                            5,810      13,766
Less: Valuation allowance...............................   (5,810)    (13,766)
                                                          -------    --------
                                                          $    --    $     --
                                                          =======    ========
</TABLE>

     At December 31, 2000, the Company had net operating loss carry forwards of
approximately $35.1 million for federal income tax reporting purposes. The net
operating losses will expire beginning in 2012 if not previously utilized.
Should certain changes in the Company's ownership occur, there could be a
limitation on the utilization of its net operating losses.

13. SUPPLEMENTAL CASH FLOW INFORMATION

     The following items are supplemental information required for the statement
of cash flows (in thousands):

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                              1998     1999     2000
                                                              -----    -----    -----
<S>                                                           <C>      <C>      <C>
Cash paid during the period for interest....................  $ 66     $ 40     $114
                                                              ====     ====     ====
Property and equipment acquired with capital leases.........  $102     $ --     $ --
                                                              ====     ====     ====
Common stock issued in connection with business
  combination...............................................  $ --     $736     $580
                                                              ====     ====     ====
Conversion of note payable..................................  $ --     $ 50     $
                                                              ====     ====     ====
</TABLE>

14. ACQUISITIONS

     In May 1999, Aptimus entered into purchase and sale agreements to acquire
substantially all of the assets of Commonsite LLC (Commonsite) and Travel
Companions International, Inc. (Travel). Total consideration for the acquired
assets of the two companies is $2,577,000, which is comprised of $1,841,000 in
cash and 52,920 shares of common stock, valued at $13.91 per share. The
aggregate purchase price has been allocated to the net assets acquired, based
upon their respective fair market values. The excess of the purchase price over
the fair market value of the assets acquired and liabilities assumed of
$1,382,000 has been allocated to cost in excess of net assets acquired and is
being amortized over three years.

                                        41
<PAGE>   43
                                 APTIMUS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

     In connection with the acquisitions, assets acquired and liabilities
assumed were as follows (in thousands):

<TABLE>
<S>                                                           <C>
Fair value of tangible assets acquired......................  $   55
Liabilities assumed.........................................    (145)
Fair value of customer lists................................     560
Fair value of database......................................     375
Fair value of client lists..................................     300
Fair value of non-compete agreement.........................      50
Goodwill....................................................   1,382
                                                              ------
                                                              $2,577
                                                              ======
</TABLE>

     In November 2000, Aptimus entered into purchase and sale agreements to
acquire substantially all of the assets of XMarkstheSpot, Inc. Total
consideration for the acquired assets is $2,077,000, which is comprised of
$1,497,000 in cash and 405,588 shares of common stock, valued at $1.43 per
share. The aggregate purchase price has been allocated to the net assets
acquired, based upon their respective fair market values.

     In connection with the acquisition, the purchase price was allocated as
follows (in thousands):

<TABLE>
<S>                                                           <C>
Fair value of tangible assets acquired......................  $  671
Liabilities assumed.........................................    (297)
Fair value of acquired technology...........................   1,314
Fair value of work force in place...........................     389
                                                              ------
                                                              $2,077
                                                              ======
</TABLE>

     The following summarizes the unaudited pro forma results of operations, on
a combined basis, as if the Company's acquisition of Commonsite and Travel
occurred as of the beginning of 1998, and the acquisition of XMarkstheSpot,
Inc., occurred as of the beginning of 1999 after including the impact of certain
adjustments such as amortization of cost in excess of net assets acquired (in
thousands, except per share data):

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                                      -------------------------------
                                                       1998        1999        2000
                                                      -------    --------    --------
                                                                (UNAUDITED)
<S>                                                   <C>        <C>         <C>
Net revenues........................................  $ 1,893    $  8,877    $ 18,181
Pro forma net loss..................................  $(4,296)   $(14,678)   $(28,447)
Pro forma basic and diluted net loss per share......  $ (0.68)   $  (1.40)   $  (1.78)
</TABLE>

     The unaudited pro forma results are not necessarily indicative of the
results of operations which would actually have been reported had the
acquisition occurred prior to the beginning of the periods presented. In
addition, they are not intended to be indicative of future results.

                                        42
<PAGE>   44
                                 APTIMUS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

     The following table sets forth the Company's unaudited quarterly financial
information for the years ending December 31, 1999 and 2000 (in thousands,
except per share data).

<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED
                                   -------------------------------------------------------------------------------
                                   3/31/99   6/30/99   9/30/99   12/31/99   3/31/00   6/30/00   9/30/00   12/31/00
                                   -------   -------   -------   --------   -------   -------   -------   --------
<S>                                <C>       <C>       <C>       <C>        <C>       <C>       <C>       <C>
Net revenue......................      667     1,397     2,386     4,056      5,147     5,877     3,492     2,357
Net loss.........................  $(1,366)  $(2,503)  $(3,508)  $(3,514)   $(4,175)  $(4,612)  $(5,958)  $(6,359)
                                   =======   =======   =======   =======    =======   =======   =======   =======
  Basic and diluted net loss per
    share........................  $ (0.17)  $ (0.30)  $ (0.42)  $ (0.23)   $ (0.27)  $ (0.29)  $ (0.38)  $ (0.41)
                                   =======   =======   =======   =======    =======   =======   =======   =======
</TABLE>

16. SUBSEQUENT EVENTS

     On February 20, 2001 the Company announced its intention to reposition
itself as a direct marketing infrastructure provider, focusing all its resources
on building its direct marketing network. As part of this repositioning all
activities related to its consumer-direct Web sites, including FreeShop.com,
Desteo.com, and CatalogSite.com will be discontinued. Also as part of this
repositioning a significant reduction in staffing levels and other expenses
related to the consumer-direct Web sites was made. The changes will result in
approximately $1.5 million of severance costs, the write-off of approximately
$346,000 in software and the write-off of approximately $976,000 in intangible
assets in the first quarter of 2001.

                                        43
<PAGE>   45

ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     Not applicable.

                                    PART III

ITEM 10: DIRECTORS AND OFFICERS OF THE REGISTRANT

     Information with respect to Directors may be found under the caption
"Election of Directors and Management Information" in the Company's Proxy
Statement for the Annual Meeting of Shareholders to be held June 12, 2001 (the
"Proxy Statement"). Such information is incorporated herein by reference.

ITEM 11: EXECUTIVE COMPENSATION

     The information in the Proxy Statement set forth under the captions
"Information Regarding Executive Officer Compensation" and "Information
Regarding the Board and its Committees" is incorporated herein by reference.

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information set forth under the caption "Information Regarding
Beneficial Ownership of Principal Shareholders, Directors, and Management" of
the Proxy Statement is incorporated herein by reference.

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information set forth under the caption "Certain Relationships and
Related Transactions" of the Proxy Statement is incorporated herein by
reference.

                                        44
<PAGE>   46

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

     (a)1. Financial Statements

     The following financial statements of the Registrant and the Report of
Independent Accountants thereon are included herewith in Item 8 above.

<TABLE>
<CAPTION>
                                                                      PAGE
                                                                      ----
        <S>                                                           <C>
        Report of Independent Accountants...........................   25
        Balance Sheet as of December 31, 1999 and 2000..............   26
        Statement of Operations for the years ended December 31,
          1998, 1999 and 2000.......................................   27
        Statement of Shareholders' Equity for the years ended
          December 31, 1998, 1999 and 2000..........................   28
        Statement of Cash Flows for the years ended December 31,
          1998, 1999 and 2000.......................................   29
        Notes to Financial Statements...............................   30
</TABLE>

     (a)2.

<TABLE>
<CAPTION>
        SCHEDULE NO.                          DESCRIPTION
        ------------                          -----------
        <S>           <C>
        1.1           Valuation and Qualifying Accounts and Reserves
</TABLE>

     (b) Reports on Form 8-K

     On October 18, 2000, the Company filed a Form 8-K announcing its name
change from FreeShop.com, Inc. to Aptimus, Inc.

     On December 14, 2000, the Company filed a Form 8-K announced a modification
in the business metrics of the Company to reflect its previously announced move
away from a site-centric toward a network-centric business model.

     (c) Exhibits:

<TABLE>
<CAPTION>
    EXHIBIT
     NUMBER                           DESCRIPTION
    -------                           -----------
    <S>       <C>
     3.1*     Second Amended and Restated Articles of Incorporation of
              registrant.
     3.2*     Amended and Restated Bylaws of registrant.
     4.1*     Specimen Stock Certificate.
     4.2*     Form of Common Stock Warrant.
    10.1*++   Form of Indemnification Agreement between the registrant and
              each of its directors.
    10.2*++   1997 Stock Option Plan, as amended.
    10.3*++   Form of Stock Option Agreement.
    10.4*     Investor Subscription Agreement, dated December 10, 1998,
              between registrant and Fingerhut Companies, Inc.
    10.5*     Warrant Agreement, dated December 10, 1998, between
              registrant and Fingerhut Companies, Inc.
    10.6*     Stockholders Agreement, dated December 10, 1998, among
              registrant, Timothy C. Choate, John P. Ballantine and
              Fingerhut Companies, Inc.
    10.7*     Asset Purchase Agreement, dated May 5, 1999, among
              registrant, Travel Companions International, Inc., Jeff Mohr
              and Janet Mohr.
    10.8*     Asset Purchase Agreement, dated May 6, 1999, among
              registrant, Commonsite, LLC and Alan Bennett.
</TABLE>

                                        45
<PAGE>   47

<TABLE>
<CAPTION>
    EXHIBIT
     NUMBER                           DESCRIPTION
    -------                           -----------
    <S>       <C>
    10.9*     Registration Rights Agreement, dated May 6, 1999, between
              registrant and Commonsite, LLC.
    10.10*    Loan and Security Agreement, dated September 18, 1998,
              between registrant and Imperial Bank.
    10.11*    Lease Agreement, dated September 23, 1997 and amended as of
              February 16, 1999, between registrant and Merrill Place LLC.
    10.11.1*  Second Amendment to Lease, dated November 30, 1999, between
              registrant and Merrill Place LLC.
    10.12*    Promotion Agreement, dated May 18, 1998 and amended as of
              June 30, 1998 and September 30, 1998, between registrant and
              CNET, Inc.
    10.13+*   Linkshare Network Membership Agreement, dated September 23,
              1998, between registrant and Linkshare Corporation.
    10.14*    Letter Agreement dated June 18, 1999 between registrant and
              Fingerhut.
    10.15*    Escrow Agreement dated June 18, 1999 between registrant and
              Fingerhut.
    10.16*    Common Stock Purchase Warrant dated January 26, 1998 in
              favor of Karrie Lee.
    10.17*    Warrant to Purchase Stock dated September 18, 1998 in favor
              of Imperial Bank.
    10.18*    Common Stock Purchase Warrant dated January 23, 1998 in
              favor of Hallco Leasing Corporation.
    10.19*    Common Stock Purchase Warrant dated December 4, 1997 in
              favor of Hallco Leasing Corporation.
    10.20*    Common Stock Purchase Warrant dated January 26, 1998 in
              favor of Employco, Inc.
    10.21+*   Marketing Agreement with NewSub Services, Inc. effective as
              of June 1, 1999.
    10.22+*   Marketing Agreement with eNews.com, Inc. dated December 8,
              1999. (Incorporated by reference Exhibit 10.1 to the
              Company's Report on Form 8-K filed January 12, 2000).
    10.23     Asset Purchase Agreement, dated November 22, 2000, among
              Aptimus, Inc. and XMarkstheSpot, inc.
    23.1      Consent of PricewaterhouseCoopers LLP, independent
              accountants.
</TABLE>

---------------
*  Incorporated by reference to the Company's Registration Statement on Form S-1
   (No. 333-81151).

+  Confidential treatment has been granted as to certain portions of this
   Exhibit. Omitted portions have been filed separately with the Securities and
   Exchange Commission.

++ Management compensation plan or agreement.

                                        46
<PAGE>   48

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Aptimus, Inc. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


April 11, 2001                            APTIMUS, INC.


                                          By:     /s/ TIMOTHY C. CHOATE
                                            ------------------------------------
                                                     Timothy C. Choate,
                                                  Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report to be signed by the following persons on behalf of the registrant in the
capacities and on the dates indicated.


<TABLE>
<CAPTION>
                      SIGNATURE                                     TITLE                     DATE
                      ---------                                     -----                     ----
<S>                                                      <C>                             <C>
                /s/ TIMOTHY C. CHOATE                       Chairman of the Board,       April 11, 2001
-----------------------------------------------------     President Chief Executive
                  Timothy C. Choate                          Officer and Director

                  /s/ JOHN A. WADE                        Secretary, Vice President,     April 11, 2001
-----------------------------------------------------      Finance, Chief Financial
                    John A. Wade                         Officer and Chief Accounting
                                                                   Officer
</TABLE>


                                        47
<PAGE>   49

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
    EXHIBIT
     NUMBER                           DESCRIPTION
    -------                           -----------
    <S>       <C>
     3.1*     Second Amended and Restated Articles of Incorporation of
              registrant.
     3.2*     Amended and Restated Bylaws of registrant.
     4.1*     Specimen Stock Certificate.
     4.2*     Form of Common Stock Warrant.
    10.1*     Form of Indemnification Agreement between the registrant and
              each of its directors.
    10.2*     1997 Stock Option Plan, as amended.
    10.3*     Form of Stock Option Agreement.
    10.4*     Investor Subscription Agreement, dated December 10, 1998,
              between registrant and Fingerhut Companies, Inc.
    10.5*     Warrant Agreement, dated December 10, 1998, between
              registrant and Fingerhut Companies, Inc.
    10.6*     Stockholders Agreement, dated December 10, 1998, among
              registrant, Timothy C. Choate, John P. Ballantine and
              Fingerhut Companies, Inc.
    10.7*     Asset Purchase Agreement, dated May 5, 1999, among
              registrant, Travel Companions International, Inc., Jeff Mohr
              and Janet Mohr.
    10.8*     Asset Purchase Agreement, dated May 6, 1999, among
              registrant, Commonsite, LLC and Alan Bennett.
    10.9*     Registration Rights Agreement, dated May 6, 1999, between
              registrant and Commonsite, LLC.
    10.10*    Loan and Security Agreement, dated September 18, 1998,
              between registrant and Imperial Bank.
    10.11*    Lease Agreement, dated September 23, 1997 and amended as of
              February 16, 1999, between registrant and Merrill Place LLC.
    10.11.1*  Second Amendment to Lease, dated November 30, 1999, between
              registrant and Merrill Place LLC.
    10.12*    Promotion Agreement, dated May 18, 1998 and amended as of
              June 30, 1998 and September 30, 1998, between registrant and
              CNET, Inc.
    10.13+*   Linkshare Network Membership Agreement, dated September 23,
              1998, between registrant and Linkshare Corporation.
    10.14*    Letter Agreement dated June 18, 1999 between registrant and
              Fingerhut.
    10.15*    Escrow Agreement dated June 18, 1999 between registrant and
              Fingerhut.
    10.16*    Common Stock Purchase Warrant dated January 26, 1998 in
              favor of Karrie Lee.
    10.17*    Warrant to Purchase Stock dated September 18, 1998 in favor
              of Imperial Bank.
    10.18*    Common Stock Purchase Warrant dated January 23, 1998 in
              favor of Hallco Leasing Corporation.
    10.19*    Common Stock Purchase Warrant dated December 4, 1997 in
              favor of Hallco Leasing Corporation.
    10.20*    Common Stock Purchase Warrant dated January 26, 1998 in
              favor of Employco, Inc.
    10.21+*   Marketing Agreement with NewSub Services, Inc. effective as
              of June 1, 1999.
    10.22+*   Marketing Agreement with eNews.com, Inc. dated December 8,
              1999. (Incorporated by reference Exhibit 10.1 to the
              Company's Report on Form 8-K filed January 12, 2000).
    10.23     Asset Purchase Agreement, dated November 22, 2000, among
              Aptimus, Inc. and XMarkstheSpot, inc.
    23.1      Consent of PricewaterhouseCoopers LLP, independent
              accountants.
</TABLE>

---------------
* Incorporated by reference to the Company's Registration Statement on Form S-1
  (No. 333-81151).

+ Confidential treatment has been granted as to certain portions of this
  Exhibit. Omitted portions have been filed separately with the Securities and
  Exchange Commission.
<PAGE>   50

                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

<TABLE>
<CAPTION>
                                       BALANCE AT   CHARGES TO   CHARGES TO                 BALANCE AT
                                       BEGINNING    COSTS AND      OTHER                      END OF
                                       OF PERIOD     EXPENSES     ACCOUNTS    DEDUCTIONS      PERIOD
                                       ----------   ----------   ----------   ----------   -------------
<S>                                    <C>          <C>          <C>          <C>          <C>
Year ended December 31, 1998
  Allowance for doubtful accounts....  $   79,719   $   56,551   $       --    $ 93,619     $    42,651
  Tax valuation allowance............     418,697           --    1,064,048          --       1,482,745
Year ended December 31, 1999
  Allowance for doubtful accounts....      42,651      393,221           --      64,756         371,116
  Tax valuation allowance............   1,482,745           --    4,327,069                   5,809,814
Year ended December 31, 2000
  Allowance for doubtful accounts....     371,116    1,994,844           --     564,901       1,801,059
  Tax valuation allowance............   5,809,814           --    7,956,001                  13,765,815
</TABLE>