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

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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

 For the Fiscal Year Ended December 31, 1999     Commission File No.: 000-27411

                              Promotions.com, Inc.
             (Exact name of registrant as specified in its charter)

          Delaware                                       13-3898912
 (State or other jurisdiction of                      (I.R.S. Employer
 incorporation or organization)                      Identification Number)

          11 West 19th Street
          New York, New York                                 10011
 (Address of principal executive offices)                 (Zip Code)

                                 (212) 242-8800
              (Registrant's telephone number, including area code)
        Securities registered pursuant to Section 12(b) of the Act: None
          Securities registered pursuant to Section 12(g) of the Act:
                     Common Stock, par value $.001 per share

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 (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of 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 |_|.

Aggregate market value of the voting stock held by non-affiliates of the
registrant as of the close of business on March 1, 2000: $ 116,642,832*

Common Stock outstanding at March 1, 2000: 14,241,244

Documents Incorporated by Reference

      The information required by Part III of this report, to the extent not set
forth herein, is incorporated by reference from the registrant's definitive
proxy statement relating to the annual meeting of stockholders to be held in
2000, which definitive proxy statements shall be filed with the Securities and
Exchange Commission within 120 days after the end of the fiscal year to which
this Report relates.

            *Includes voting stock held by third parties which may be deemed to
            be beneficially owned by affiliates, but for which such affiliates
            have disclaimed beneficial ownership.

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


                                       1
<PAGE>

                              Promotions.com, Inc.
                         (Formerly Webstakes.com, Inc.)
                         1999 Annual Report on Form 10-K

                                TABLE OF CONTENTS

PART I

Item 1.    Business .........................................................  3
Item 2.    Properties........................................................ 12
Item 3.    Legal Proceedings ................................................ 12
Item 4.    Submission of Matters to a Vote of Security Holders............... 12

PART II

Item 5.    Market for Registrant's Common Equity and Related
           Stockholder Matters............................................... 13
Item 6.    Selected Financial Data .......................................... 14
Item 7.    Management's Discussion and Analysis
           of Financial Condition and Results of Operations ................. 15
Item 7A.   Quantitative and Qualitative Disclosures about
           Market Risk....................................................... 25
Item 8.    Financial Statements and Supplementary Data ...................... 25
Item 9.    Changes in and Disagreements with Accountants
           and Accounting and Financial Disclosure .......................... 42

PART III

Item 10.   Directors and Executive Officers of the Registrant ............... 42
Item 11.   Executive Compensation ........................................... 42
Item 12.   Security Ownership of Certain Beneficial Owners and Management ... 42
Item 13.   Certain Relationships and Related Transactions.................... 42

PART IV

Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K .. 42

SIGNATURES .................................................................. 44


                                       2
<PAGE>

                                     PART I

ITEM 1. BUSINESS

OVERVIEW

Promotions.com, Inc. is a leading provider of technology-driven direct marketing
and promotion solutions to advertisers, agencies, Web publishers and e-commerce
merchants worldwide. We provide a broad range of promotion, technology and data
products and services. Our products and services are designed to increase brand
awareness, stimulate sales and enhance the effectiveness of our customers
promotion and marketing campaigns on the Internet and through other media. Our
patent-pending iDIALOG(TM) technology is the platform for most of our solutions
and enables our customers to use preselected criteria to deliver targeted offers
to consumers during a promotion. During the year ended December 31, 1999, we
served promotions and offers for more than 220 customers.

Our revenues are derived from three principal sources as follows:

      PROMOTIONS.COM CUSTOM SOLUTIONS. Promotions.com CUSTOM SOLUTIONS provides
      the infrastructure, technology and creative solutions enabling customers
      to run integrated Internet promotions under their own brand name on their
      own Web sites. Customers include NBC, The Sharper Image, Road Runner and
      Compaq Computer Corporation, among others.

      WEBSTAKES.COM. WEBSTAKES.COM is a leading media property and promotion
      portal that offers advertising and promotion solutions to marketers,
      including ESPN.COM, Disney, Freeshop and Lifeminders, among others.
      WEBSTAKES.COM offers hundreds of promotions and offers in 16 targeted
      interest categories. Each category is designed to appeal to consumers with
      a specific interest and includes prizes and offers related to the theme of
      the interest category. We deliver targeted promotional offers on
      WEBSTAKES.COM while consumers are entering our promotions using our
      iDIALOG(TM) technology.

      PROMOTIONS.COM DIRECT. Promotions.com DIRECT, is a leading provider of
      opt-in promotion email products and permission email marketing services.
      We have developed a comprehensive database of more than 4 million
      demographic profiles. We use our proprietary database and our iDIALOG(TM)
      technology to generate leads, increase response rates and help our
      customers profit from their email marketing campaigns.

The Internet has emerged as an attractive medium for promotions due to the rapid
growth in the number of Web users, the amount of time such Web users spend on
the Web, the increase in electronic commerce, the interactive nature of the Web,
the Web's global reach and a variety of other factors. Promotions and direct
marketing are used by marketers to stimulate consumer spending. Promotions are
designed to stimulate an immediate action and could include a product purchase,
a request for further information or a visit to a place of business for the
purchase of a specific product or service. American businesses spent $85.4
billion on promotion marketing in 1998, a 7.6% increase over 1997, according to
PROMO Magazine. Promotions include sweepstakes, premium incentives, product
samples, coupons, points and loyalty programs, rebates (cash incentives paid
upon a purchase), games, contests, and promotional research.

Forrester Research, Inc. estimates that Internet promotions are three to five
times more effective than traditional promotions. Forrester estimates that 50%
to 70% of total Internet marketing budgets will be spent on promotions over the
next five years, compared to less than 15% of Internet marketing budgets
currently being spent on promotions.

We believe that in addition to the tremendous growth potential of the domestic
promotion market, markets outside the U.S. will become an increasingly important
component of Internet promotions.


                                       3
<PAGE>

iDIALOG(TM) TECHNOLOGY OVERVIEW

Many of our products and services are powered by our patent-pending iDIALOG(TM)
technology, which enables centralized offer delivery, consumer lead generation,
and reporting. We use our unique iDIALOG(TM) technology to deliver promotional
offers to consumers as they participate in our promotions. We direct a
customer's offer to consumers based on the consumer's demographic profile or
their responses to personalized questions generated in earlier promotions by our
iDIALOG(TM) technology. The following steps illustrate how consumers utilize our
iDIALOG(TM) technology when participating in promotions:

      1.    Web user enters a promotion utilizing the Company's
            iDIALOG(TM) technology.

      2.    Web user selects the prize incentive they are interested in winning.

      3.    iDIALOG(TM) receives the request and checks if the Web user has
            already voluntarily registered in our database.

      4.    If the Web user has not completed the initial voluntary registration
            in our database, they are presented with a registration form to
            complete. Upon completion of the registration form, the Web user's
            browser requests a targeted offer from a Promotions.com server.

      5.    If the Web user is already registered in our database, the Web
            user's browser requests a targeted offer from a Promotions.com
            server.

      6.    Promotions.com iDIALOG (TM) then compares the Web user's profile
            with the targeting criteria of the hundreds of offers available in
            its database and instantly delivers a dynamically targeted offer.
            The Web user can 'opt-in' or 'pass' on the targeted offer.

      7.    Our servers then direct the Web user's browser to the marketers
            desired targeted destination.

Our iDIALOG(TM) technology dynamically targets and delivers offers to Web users
based on pre-selected criteria, including the promotion category, age, gender,
time of day and regional geographic location. Because iDIALOG(TM) technology is
Web-based, continuous enhancements to the technology can be made without the
need for our customers to upgrade or purchase new equipment or software
upgrades. We continue to enhance and develop our patent-pending iDIALOG(TM)
technology platform. Enhancements of the iDIALOG(TM) technology have allowed for
the development of additional features, including (i) instant win games, (ii)
promotional email and (iii) iDIALOG(TM) KIDSAFE technology which provides
marketers with the ability to run promotions compliant with the Children's
Privacy Act of 2000.

PROMOTIONS.COM CUSTOM SOLUTIONS

Promotions.com CUSTOM SOLUTIONS provides customers the opportunity to run a
promotion on the customer's own Web site under its own brand name with an
appearance that is unique and consistent with its own Web site design, while
using our infrastructure and proprietary technology. Our custom solutions are
designed to integrate the online and offline promotional objectives of our
customers to maximize a campaign's effectiveness. Our custom solutions provide
marketers with a portfolio of targeting products and services, in-depth consumer
profiles and comprehensive reporting to develop customized solutions, which
create accountability and greater returns for their promotional spending.
Promotions.com CUSTOM SOLUTIONS utilizes iDIALOG(TM) technology to facilitate
and support its Internet promotions. Marketers benefit from the iDIALOG(TM)
technology by improving the effectiveness of the promotion on their Web sites
and allowing them to make targeted offers to Web users as they are participating
in their promotions. Our Custom Solutions services range from simple
syndications of pre-existing promotions produced by Promotions.com to custom
promotions


                                       4
<PAGE>

that require development efforts and ongoing technical services. A client can
choose a complete promotion package or any one or a combination of specific
services. We guide custom solutions customers through the promotion-creation
process and allow customers to choose those features appropriate for their
promotion. Customers generally select their own prizes or offers for the
promotion, and we tailor the other aspects of the promotion to help them meet
their goals and objectives. Custom promotions often include lead generation
through email campaigns and management reports.

Web users entering Custom Solution promotions register for prizes through our
technology and registration process. This enables our Custom Solution customers
to use our technology to offer our one-time lifetime registration, which makes
it easier for their visitors to enter our sweepstakes or a series of promotions
run by our customers. Customers of Promotions.com CUSTOM SOLUTIONS have included
Autobytel.com, Hyundai, NBC, Netscape, Panasonic, The Sharper Image, Toshiba and
Universal Studios, among others.

We provide the technological, business and creative infrastructure necessary to
effectively produce and conduct online promotions on a cost-effective basis.
These capabilities include the following:

      Creative Services
            o     Theme, naming and concept development of promotions--create
                  appropriate prize interest categories; create theme-based and
                  custom solution promotions
            o     Promotion design and production--create and produce visually
                  attractive, easy-to-use promotions

      Automation of Process
            o     Collection and maintenance of demographic information--manage
                  data provided by member registration, prize selection and
                  other member activity
            o     Promotion research--measure effectiveness of promotions;
                  suggest alternatives to better satisfy client goals
            o     Winner selection, notification and affidavit
                  collection--select winners in compliance with sweepstakes
                  laws; collect affidavits; verify accuracy of information
                  provided by winner
            o     Customer service--respond to email questions o Promotion
                  support services--handle postal entries; provide lists of
                  winners
            o     Legal compliance services--distribute IRS Form 1099's as
                  required; create and provide official rules

      Fulfillment
                  o     Prize selection and acquisition--select appropriate
                        prizes; acquire prizes from suppliers
                  o     Prize fulfillment--arrange for shipment of prizes

WEBSTAKES.COM PROMOTIONS PORTAL

WEBSTAKES.COM is a media property and promotions portal organized by categories
of interest to consumers. WEBSTAKES.COM enables marketers to benefit from the
dynamic offer matching, targeting and delivering functionality provided by our
iDIALOG(TM) technology. As a result, marketers can customize their opt-in offer
delivery on WEBSTAKES.COM within specific categories of interest, within
specific promotions, or by targeting based on a variety of factors including
user interest and user geographical location. We generate revenues from the sale
of sponsorships and advertising on WEBSTAKES.COM. To capitalize on the global
reach of the Internet, we intend to establish WEBSTAKES.COM internationally.

Every time a consumer enters a promotion on WEBSTAKES.COM, our iDIALOG(TM)
technology enables our customers to present them with an offer for products or
services and requests permission to send them follow-up information relating to
such offers. Our iDIALOG(TM) technology targets these opt-in offers based upon
our members' demographic profiles and interests. Responses to these questions
are stored in our database, and we send follow-up emails to our members if we
have been granted permission to do so. Each time a member enters a promotion or
answers or responds to a iDIALOG(TM) question, our database is updated to
include such information.


                                       5
<PAGE>

WEBSTAKES.COM services are most typically sold in sponsorship packages, each of
which includes a combination of WEBSTAKES.COM services tailored to satisfy a
customer's objectives. The choice and level of services included in a
sponsorship package is determined by the level of sponsorship selected by the
customer. Our sponsorship packages vary by:

o     the number of interest categories in which a customer's logo appears;

o     the size of the customer's logo, and whether a text message accompanies
      the logo;

o     the number of guaranteed impressions or visitors delivered to a customer's
      logo, advertisement or Web site;

o     the number of times a customer's offer appears in the Webstakes Update
      newsletter; and

o     the number of email campaigns.

We display the banners and logos of our sponsors on various pages throughout
WEBSTAKES.COM. After a consumer completes an entry in one of our promotions, we
typically deliver them to a page from one of our sponsor's Web sites which
effects a click-through to our customer's Web site.

Webstakes.com features promotions produced and created by Promotions.com in
addition to a listing of promotions created by other companies. These promotions
offer consumers the opportunity to win products and cash prizes, free travel,
gift certificates and to receive coupons for discounts on purchases from leading
merchants 24 hours a day, seven days a week. When they participate in our
promotions, consumers may also request to receive offers and information about
our customers' products through our iDIALOG(TM) technology. iDIALOG(TM) allows
us to target offers based on the consumer's demographic profile and interests.

Since its inception in 1996, WEBSTAKES.COM has offered consumers a chance to
receive offers and win prizes in different interest categories. Each category is
designed to appeal to consumers' specific interests and includes promotional
offers and prizes related to the theme of the interest category. Presently,
there are 16 Prize Club interest categories:

      o    Auto
      o    Books & Music
      o    Business & Finance
      o    Campus
      o    Computing Products
      o    Family & Kids
      o    Fashion & Beauty
      o    Games & Casino
      o    Gifts, Flowers & Food
      o    Home Sweet Home
      o    House & Home
      o    Mind Your Business
      o    Sports & Health
      o    Travel & Outdoors
      o    TV, Movies & Video
      o    Webstakes@The Movies

In addition, several special promotions run at different times throughout the
year on WEBSTAKES.COM. These include promotions designed around holidays such as
Mother's Day and Christmas and events such as the Super Bowl, movie premiers and
the Academy Awards. At any given time, there are typically sweepstakes for over
100 prizes available on WEBSTAKES.COM. We have recently introduced a variety of
new information and features on WEBSTAKES.COM, including interactive content and
comprehensive listings about a broad array of online promotions. For example, we
recently introduced an instant win game on WEBSTAKES.COM. After entering their
email address and/or registering to become a WEBSTAKES.COM member (if not
already a member) they receive a game card that can be "scratched-off" by moving
their mouse back and forth to expose images that determine whether they have won
a prize. We have also introduced a variety of other interactive games and
contests, an extensive listings of coupon offers, free samples and other
promotions available online.


                                       6
<PAGE>

Membership Registration and Newsletter Subscriptions

Visitors to WEBSTAKES.COM must register as members to participate in our
promotions and receive targeted opt-in offers. Visitors become members by
completing our one-time registration form that requires them to provide certain
demographic information. Once this information is provided, a visitor becomes a
lifetime member and never has to provide the registration information again,
other than to update any changed information, to enter any other promotion on
WEBSTAKES.COM.

Many of our members choose to subscribe to our WEBSTAKES.COM newsletter. We
publish both a weekly edition, the Webstakes Update, which currently has more
than 2.1 million subscribers, and a daily edition, the Daily Reminder, which
currently has more than 850,000 subscribers. These newsletters are 100% opt-in
meaning that they are only distributed to members who have specifically
requested to receive them, either during our registration process, through an
iDIALOG(TM) offer or some other venue. The newsletters provide an important
means for us to communicate with our members and to provide them with
information about our promotions and about special offers from our customers.

Affiliate Program

Our Affiliate Program allows a member to put a free link to the WEBSTAKES.COM
Affiliate Program sweepstakes on their personal home page. Members with their
own personal Web site can request the information necessary to feature a
WEBSTAKES.COM banner on their Web page. We have received more than 23,000
requests for this information. A visitor to a member's personal home page can
click on the WEBSTAKES.COM banner, register as a WEBSTAKES.COM member and enter
a monthly $1,000 sweepstakes run exclusively for the Affiliate Program. After
entering the special sweepstakes, the visitor is taken to the WEBSTAKES.COM home
page and can then enter other WEBSTAKES.COM promotions. Every affiliate is
automatically entered into a special monthly $500 sweepstakes we conduct to
encourage participation in the Affiliate Program. This program can make personal
home pages more fun while at the same time increasing the exposure of
WEBSTAKES.COM.

Tell-A-Friend

We also promote awareness of WEBSTAKES.COM and its promotions through our
Tell-a-Friend Program, which enables recipients of our email and Webstakes
Update, as well as visitors to WEBSTAKES.COM, to forward any promotion to
friends and family via email, and provides incentives to members who tell others
about WEBSTAKES.COM.

PROMOTIONS.COM DIRECT

Our third revenue source, Promotions.com DIRECT was launched in January 2000 and
provides marketers with access to the company's database of opt-in consumers.
DIRECT provides comprehensive direct marketing services including email campaign
management and lead generation. Our services enable marketers to target their
products and services to consumers who have opted-in to receive such offers.
These consumers can opt-out, or unsubscribe from receiving such offers, at any
time.

We provide access to our opt-in list, email delivery services and promotional
tools to enhance email results as follows:

      EMAIL ADDRESS LIST RENTAL. We provide marketers a solution to reach
      consumers fitting their targeted criteria to help achieve maximum response
      rates to their offers. Promotions.com manages email campaigns on behalf of
      direct marketers enabling them to precisely target emails based on the
      full demographic profiling available in our database. We support more than
      20 different selection criteria. Our direct marketing staff can provide
      assistance with email address list recommendations. Full creative services
      are available including copywriting and design of html email messages.

      TRACKING AND REPORTING. Through our systems, we can provide real-time
      email campaign results to our customers.

      PROMOTIONAL ENHANCEMENTS. We have developed several techniques for
      improving the response rates of our customers' email marketing campaigns
      through the inclusion of promotional tools in their marketing messages.
      Essentially, we can include a simple sweepstakes offer or instant win game
      card as part of any direct marketing campaign.


                                       7
<PAGE>

Opt-in email offers three key advantages to businesses as compared to direct
mail marketing and online banner advertising:

      SPEED. Opt-in email campaigns can be prepared and sent out within hours,
      unlike direct mail campaigns that can take weeks to produce at printers
      and lettershops. Email campaign results begin within moments of
      transmission, with most responses received in 2-3 days. Direct mail
      campaigns can take weeks to accumulate responses.

      RESPONSIVENESS. Opt-in email campaigns typically generate higher response
      rates than direct mail or online banner campaigns. Forrester Research
      estimates that opt-in email campaigns generated click-through rates of
      between 14.0-22.0% (March 1999). These click-through rates greatly exceed
      both online banner response rates of between .5 - 1.0% and direct mail
      response rates of between 1.0-2.0%. We also believe that our ability to
      add promotional components into our email campaigns results in our list
      generating higher response rates than other email lists on the market.

      COST. Opt-in email campaigns are less expensive than direct mail
      campaigns. Forrester Research estimates that the typical cost for email
      campaigns per email message sent (including list rental and transmission)
      is 20-25 cents. This compares to an average cost of 60 cents per delivery
      for a direct mail campaign, including list rental, printing, postage and
      processing fees. While banner ads may cost less than email campaigns on a
      CPM (cost per thousand) basis, banner campaigns often end up costing more
      due to low response rates.

We have only recently begun offering customers the opportunity to send emails to
our database as part of stand alone marketing efforts where we will charge on a
CPM basis. However, based on the feedback we have received to date, we believe
there is sufficient demand in the marketplace to warrant this type of service.
Forrester estimates that by 2004, US marketers will send 200 billion emails
generating a $1.6 billion opportunity for list owners. In the short time that we
have offered this service, our customers include Hewlett Packard, Bell South,
eNews and Buildscape, among others. Our service allows demographic selection of
email addresses based on the self-reported data provided by our members when
they initially registered with us. Selection is also based on behavior of
consumers while on WEBSTAKES.COM including category and prize affinity, answers
to survey questions and response to direct marketing offers. By maximizing the
demographic information that we receive from our members, we can effectively
target offers to consumers for our customers.

Our Promotions.com DIRECT opt-in database offers marketers the opportunity to
reach more than 2.3 million consumers via email. We provide leading marketers
and e-commerce retailers the opportunity to access a selection of targeted email
lists designed to achieve maximum response to their offers.

The goal of Promotions.com DIRECT is to become a leader in opt-in direct
marketing promotion solutions on the Internet and to provide promotional tools
that can be used to enhance online direct marketing efforts for ourselves, our
direct marketing customers, as well as other direct marketing service providers.
Key elements of our strategy include the following:

      ENRICH OUR DATABASE WITH TRANSACTIONAL DATA. We can learn more about our
      members every time they visit our Web site, WEBSTAKES.COM. Every time one
      of our members registers to win a prize, this information enhances our
      knowledge about the types of products and services they are interested in.
      Our members are also continually responding to direct marketing offers
      through our iDIALOG(TM) direct marketing system, which provides us with
      further understanding of their interests. We intend to offer marketers the
      opportunity to make selections from our membership database based on these
      additional criteria.

      DEVELOP NEW INTERNET MARKETING PRODUCTS AND SERVICES. We intend to expand
      our direct marketing services to enable direct marketing emails to include
      incentive programs and other promotional tools such as sweepstakes and
      instant win games. The tools that we offer will work in the context of
      emails we distribute to our members under the WEBSTAKES.COM brand, and
      they will also work with third party mailings sent by our marketing
      customers under their own brand names as well as mailings sent by other
      Internet direct marketing companies.

      EXPAND OUR SALES CHANNELS. We have recently entered into an arrangement
      with a list manager pursuant to which they will be marketing our opt-in
      email list to the list brokerage community. This arrangement facilitates
      our access to traditional direct marketers seeking to run email campaigns.
      We will also continue to engage in direct sales to our customer base.


                                       8
<PAGE>

OUR TECHNOLOGY PLATFORM

Promotions.com proprietary iDIALOG(TM) technology serves as the enabling
platform for all of our solutions. This centralized promotion management
technology, resident on our servers, is linked to every promotion and
instantaneously completes the dynamic offer matching, targeting and delivering
functions. In 1999, our iDIALOG(TM) technology generated approximately 3.7
million leads worldwide. iDIALOG(TM) is a promotion tracking and reporting tool.
Detailed daily online performance reports allow marketers to actively monitor
and react to the success of particular promotions, marketing campaigns and Web
site traffic patterns. We have leveraged the iDIALOG(TM) technology to develop
additional promotional products including (i) instant win games, (ii)
tell-a-friend, (iii) match and win and (iv) promotional email and (v)
iDIALOG(TM) KIDSAFE technology which provides marketers with the ability to run
promotions compliant with the Children's Privacy Act.

Our operating infrastructure is designed to support the creation and delivery of
millions of page views each day. This infrastructure currently uses hundreds of
application, Web and database servers to provide timely and efficient delivery
of our services to customers and members. Our servers run on Sun Solaris and
Linux. Our standard database system is Oracle.

We have developed a broad array of information systems to perform site
management, Web user interaction, tracking, searching, transaction processing
and fulfillment functions. When available, our systems use third-party licensed
technologies to augment internally developed software. We focus our development
efforts on improving and enhancing our specialized tools with the goal of
automating as many processes as possible to increase member and customer
satisfaction.

Our iDIALOG(TM) technology consists of three integrated systems: a publishing
system, an Internet promotion engine and a data processing system, all of which
are supported by relational databases and multi-dimensional data warehousing
systems.

Publishing System

The publishing system contains the relevant information about our promotions,
including prizes, interest categories and customers. Once a customer's offer or
advertisement has been designed, each component, such as color, text and
graphics, is published as data objects in our Oracle relational database
management systems. Various combinations of these data objects are accessed and
published to the promotion.

Internet Promotion Engine

When a member visits a promotion, the Internet promotion engine creates a Web
page of various data objects by accessing the online Oracle databases. The
components of each Web page are dynamically generated based on the demographic
characteristics and preferences of the member, The Internet promotion engine
also deploys email campaigns to members on an opt-in basis based on information
stored in the Oracle databases. The online promotion engine uses a combination
of Java, Linux and Netscape and Apache Webservers as the vehicle to interact
with the Oracle databases. This software handles all transactional events and
queries, updates the Oracle databases and manages WEBSTAKES.COM, which is
designed to give members a convenient and safe environment to register for
offers.

Data Processing System

Our data processing system retrieves member demographic data from our Oracle
databases through the Internet promotion engine, processes the data, creates and
issues offers to members and manages all winner selections. The system was
designed to give employees and customers instant online access to information
related to specific promotions. Our salespeople can access member profiles to
search and analyze demographics and usage patterns to suggest promotions and
offers to customers. Generally, only aggregate data, and not individual member
profiles, is available to our customers. Members decide whether their data may
be used by third parties.

The structure of our hardware and software is designed to allow for rapid
expansion while maintaining our desired Web user performance standards. In the
rapidly changing Internet environment, we believe that the ability to update an
application to stay current with new technologies is important. Our system
design allows for the additional, modification or replacement of applications in
a cost-efficient and expeditious manner. We continually evaluate emerging
technologies and new developments in Web technologies with the objective of
optimizing our member and customer interfaces, Web site features and operational
systems.


                                       9
<PAGE>

Our Internet connectivity is provided by Frontier GlobalCenter. We have entered
into an Internet-hosting agreement with Frontier to maintain all of our
production servers at Frontier's New York and California data centers. Frontier
provides comprehensive facilities management services, including human and
technical monitoring of all production servers 24 hours per day, seven days per
week. Frontier provides unlimited bandwidth and redundant connectivity for our
servers to communicate with the end users. The facility has two independent
uninterruptible power supplies, as well as two independent diesel generators
designed to provide power to the systems within seconds in the event of a power
outage. We safeguard our information using large RAID devices. We have backup
copies of all of our programs and data at an offsite location.

OUR STRATEGY

Our objective is to be the leading provider of global Internet promotion
solutions. Key elements of our strategy are to:

      PROVIDE THE MOST COMPREHENSIVE INTERNET PROMOTION SOLUTIONS. We intend to
      leverage the information aggregated from the millions of individual Web
      users that visit our promotions on WEBSTAKES.COM and the Web sites of
      marketers using the CUSTOM SOLUTIONS service to further enhance our
      existing solutions and facilitate the development of additional solutions.
      We believe that our proprietary iDIALOG(TM) technology and the experience
      and knowledge gained through the delivery of thousands of Internet
      promotions provide us with a significant competitive advantage over other
      Internet promotion solutions providers. We intend to leverage our
      technology, our demographic profile database and promotion expertise to
      continue to develop new solutions and technological capabilities that meet
      the needs of marketers. In addition, we intend to continue to add new
      features and functionality to our iDIALOG(TM) technology.

      INCREASE THE SIZE OF OUR DATABASE OF DEMOGRAPHIC PROFILES. We seek to
      continually expand the size of our profile database and deepen our
      proprietary database to provide a large audience to our marketers and the
      ability to more accurately target messages for our customers. To increase
      the size of our database, we use a variety of approaches, including online
      advertising, offline acquisitions programs, referrals, strategic
      partnerships and Custom Solutions. We increase the depth of our database
      each time a person enters a promotion created by Promotions.com from which
      we collect demographic and behavioral data. As more people enter our
      promotions, and with each additional contact with each person, the extent
      and precision of our information continues to grow. We intend to use our
      growing database and our knowledge and experience to assist customers to
      tailor offers and encourage future participation in Internet promotions.

      ENHANCE AND EXPAND WEBSTAKES.COM. By enhancing and expanding
      WEBSTAKES.COM, we believe that it will become a leading solution for
      marketers worldwide. We intend to expand WEBSTAKES.COM by continuously
      adding additional promotions, new categories of interest and a full array
      of promotion tools. Any such additions will be required to meet the strict
      inclusion and maintenance criteria in order to ensure that they will
      continue to provide the desired audiences for marketers. We also plan to
      continue to enhance WEBSTAKES.COM by introducing additional promotional
      tools.

      EXPAND CUSTOM SOLUTIONS & DIRECT SERVICES. We provide promotion services
      to marketers that need full-service promotion solutions. We intend to
      continue to focus on identifying appropriate marketers that may be
      interested in utilizing our Promotion solutions.

      EXPAND SALES AND MARKETING. We believe that a strong sales and marketing
      organization is essential to effectively sell and market Internet
      promotion solutions. We intend to continue to expand our sales and
      marketing efforts. We believe that brand awareness of Promotions.com and
      its solutions is critical to its success given the emerging nature of the
      Internet promotion market. As a result, we are targeting our efforts to
      marketers in order to establish and expand the recognition of its
      corporate identity and service offerings through its Web site,
      advertisements within trade publications, direct mail, promotional
      activities, trade show participation and other media events. From January
      1, 1999 to December 31, 1999, our sales and marketing organization
      increased from 17 people to 62 people. We have entered into an agreement
      with Excite to market our promotions on Excite.com, MatchLogic and with
      NBC to advertise on national television and NBC.com.

      EXTEND GLOBAL PRESENCE. We are developing our products and services
      internationally. We believe that our products and technology can both help
      U.S.-based businesses to reach international consumers and help
      international businesses to reach U.S. and international consumers. We
      intend to open sales offices in selected foreign countries and to employ
      non-exclusive sales agents to expand international sales. We also intend
      to create foreign language promotion services to increase foreign sales.


                                       10
<PAGE>

SALES AND MARKETING

UNITED STATES

We sell our promotion and direct marketing solutions in the United States
through a sales and marketing organization that consisted of 62 employees as of
December 31, 1999. These employees are located at our headquarters in New York,
NY and in our office in San Francisco, CA. Our sales organization is divided
into dedicated groups that separately sell our services and product offerings,
and within these groups, our sales representatives are further divided into
separate teams to serve the needs of our diverse client base.

We have created sales subgroups for each of the industry categories we serve.
Salespeople are assigned to a particular industry category in order to develop
an in-depth understanding of the evolving needs of a particular category and the
marketers within such category. This expertise allows us to more effectively
manage existing categories and take advantage of opportunities to expand into
additional categories.

To support our direct sales efforts and to actively promote the Promotions.com
brand, we conduct comprehensive marketing programs, including public relations,
print advertisements, online advertisements, trade shows and ongoing customer
communications programs.

INTERNATIONAL

Promotions.com is in the process of expanding its operations worldwide through
the creation of strategic business relationships. Such relationships enable us
to leverage the local marketplace knowledge of our business partners. As we
continue to expand internationally, we intend to expand our direct sales and
marketing capabilities to create direct sales organizations in certain
international markets and, in other markets, to enter into strategic business
relationships with companies having knowledge of the particular marketplace.

CUSTOMERS

We served approximately 220 customers in 1999 and approximately 125 customers in
1998. In 1999, our five largest customers accounted for approximately 17% of our
revenues.

PRIVACY

We believe that it is important to build and maintain the trust of the consumers
in our database. We are committed to maintaining the privacy of the consumers in
our database and their personally identifiable information. We are a member of
TRUSTe, an independent, non-profit initiative whose mission is to build Web
users' trust and confidence in the Internet by promoting the principles of
disclosure and informed consent. As a member of TRUSTe, we disclose our
information practices on WEBSTAKES.COM and in our promotions, and we comply with
specified information disclosure practices. During the registration process and
thereafter, WEBSTAKES.COM visitors must grant us permission to send them the
Webstakes Update and email offers from us and/or our customers. If Web users do
not specifically authorize us to send them information, they will not receive
email from us or our customers. We seek to ensure that our privacy policy
satisfies consumer expectations and evolving Internet practices.

Promotions.com continues to promote the advancement of key privacy standards and
is working with the Privacy Council, one of the nation's leading privacy
consultancy groups to ensure the highest privacy standards on the Internet.
Promotions.com has always valued the trust of its members, which has been a key
to the Company's growth over the past four years. The Company maintains a 100%
opt-in policy to ensure that the consumer always decides what type of marketing
messages they receive from the Company.

The Federal Trade Commission, or FTC, adopted regulations effective April 21,
2000, regarding the collection and use of personal identifying information
obtained from individuals when accessing Web sites, with particular emphasis on
access by minors. These regulations also include enforcement and redress
provisions. The Company is implementing programs to ensure full compliance with
the FTC regulations.


                                       11
<PAGE>

COMPETITION

Competition in the Internet promotion services market is intense. We expect
competition in our market to continue to intensify as a result of increasing
market size, greater visibility of the market opportunity for Internet promotion
services and minimal barriers to entry. Competition may also increase as a
result of industry consolidation, particularly among narrowly-focused promotion
companies. We believe that our ability to compete depends on many factors both
within and beyond our control, including the following:

o     the success of the sales and marketing efforts of us and our competitors;
o     the ease of use, performance, price and reliability of promotions
      developed by us and our competitors; and
o     the timing and market acceptance of new services developed by us and our
      competitors.

The online promotion services market is highly fragmented, with many companies
focusing generally on only one aspect of the promotions market. We also compete
with offline promotion companies, large Internet publishers, search engines and
other portal companies, a variety of Internet advertising networks and other
companies that facilitate the marketing of products and services on the
Internet.

Please see "Risk Factors - We face significant competition, and we may not be
able to compete successfully" for a more detailed description of the risks of
our competition.

Employees

As of December 31, 1999, we employed 121 people including 62 in sales and
marketing, 45 in engineering and product development and 14 in finance, human
resources, business operations and administration. We are not subject to any
collective bargaining agreements and believe that our relationship with our
employees is good.

CORPORATE INFORMATION

We were incorporated in New York on January 8, 1996 as Webstakes, Inc. We
reincorporated in Delaware as Netstakes, Inc. on June 5, 1996 and we continued
doing business under the name Webstakes. We changed our name to Webstakes.com,
Inc. on June 11, 1999. On September 24, 1999, we completed our initial public
offering of common stock, receiving net proceeds of approximately $44.9 million.
On January 27, 2000, we changed our name to Promotions.com, Inc.

Our principal executive offices are located at 11 West 19th Street, 10th Floor,
New York, New York 10011. Our telephone number at that location is (212)
242-8800.

ITEM 2. PROPERTIES

As of December 31, 1999, our principal offices were located in two separate
facilities in New York, New York. These facilities consist of a total of
approximately 12,850 square feet and are under leases, which expire in August
2000 and February 2002. We intend to consolidate our principal offices in the
third quarter of 2000 to a larger facility and in January 2000 entered into a
ten year lease for approximately 36,000 square feet of office space in New York,
New York. This space is currently under construction to provide for the
expansion of personnel and facilities. While this construction is ongoing, the
Company is occupying temporary space of approximately 4,800 square feet. We also
lease approximately 2,400 square feet of space for our sales and marketing
efforts in San Francisco, California. We are continually evaluating our
facilities requirements and believe, to the extent additional space will be
required, such space will be available at market rates.

ITEM 3. LEGAL PROCEEDINGS

We are not a party to any material legal proceedings.

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

There were no matters submitted to a vote of security holders during the fourth
quarter of 1999.


                                       12
<PAGE>

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

We have not declared or paid any dividends on our capital stock since our
inception and do not anticipate paying dividends in the foreseeable future. Our
current policy is to retain earnings, if any, to finance the expansion of our
business. The future payment of dividends will depend on the results of
operations, financial condition, capital expenditure plans and other factors
that we deem relevant and will be at the sole discretion of our board of
directors.

Market Information

Since our initial public offering on September 24, 1999, our common stock has
been traded on the Nasdaq National Market. From September 24, 1999 through
February 1, 2000, our stock traded under the symbol "IWIN" and since February 2,
2000, our stock trades under the symbol "PRMO." The following table sets forth
the high and low closing prices of the common stock, for the periods indicated,
as reported by the Nasdaq National Market.

                                                                High     Low
                                                                ----     ---
      Year Ended December 31, 1999
      Third Quarter (commencing September 24, 1999)........... $11.50   $8.88
      Fourth Quarter.......................................... $26.19   $6.28

The market price of our common stock is highly volatile and fluctuates in
response to a wide variety of factors. See "Risk Factors- Our Common Stock Price
is Likely to be Highly Volatile."

Holders

On March 1, 2000, we had approximately 52 holders of record of common stock.
This does not reflect persons or entities who hold their stock in nominee or
"street" names through various brokerage firms.

Use of Proceeds From IPO

Pursuant to Rule 701 of Regulation S-K, the use of proceeds from the Company's
offering of common stock which commenced on September 24, 1999, is as follows as
of December 31, 1999:

Shares registered:                                             3,575,000

Aggregate price of offering amount registered:               $50,050,000

Shares sold:                                                   3,575,000

Aggregate price of offering amount sold                      $50,050,000

Director or indirect payments to
 directors, officers, general
 partners of the issuer or their
 associates, to persons owning ten
 percent or more of any class of
 equity securities of the issuer and
 to affiliates of the issuer:                                       $-0-

Direct or indirect payments to others:                        $5,070,641

Net offering proceeds to the issuer after
  deducting expenses:                                        $44,979,359

Detail uses to date:*                                        $10,331,729

Working capital reserves:                                           $-0-

Temporary investments in cash and cash equivalents:          $34,647,630

* As of December 31, 1999, the proceeds used from our initial public offering
were used towards payments due to Excite and Matchlogic and for working capital
and general corporate purposes.


                                       13
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data should be read together with the financial
statements and the notes to those statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in Item 7.
The statement of operations for the years ended December 31, 1999, 1998 and
1997, and the balance sheet data as of December 31, 1999 and 1998, are derived
from our audited financial statements included in this annual report. The
statement of operations data for the period from January 8, 1996 (inception)
through December 31, 1996 and the balance sheet data as of December 31, 1997 and
1996 has been derived from our audited financial statements not included in this
annual report.

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,                 January 8, 1996
                                                             ------------------------------------------        (Inception) to
                                                             1999               1998               1997       December 31, 1996
                                                             ----               ----               ----       -----------------
                                                                     (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S>                                                      <C>                <C>                <C>                <C>
     Statement of Operations Data:
      Revenues ...................................       $    10,456        $     4,799        $     1,618        $        80

      Loss from operations .......................           (19,023)            (1,338)              (190)              (213)

      Net loss ...................................           (18,371)            (1,414)              (227)              (221)
      Net loss attributable to common
        stockholders .............................       $   (27,083)       $    (1,414)       $      (227)       $      (221)
                                                         ===========        ===========        ===========        ===========
      Basic and diluted net loss per share
        attributable to common
        stockholders .............................       $     (3.61)       $     (0.27)       $     (0.05)       $     (0.06)
                                                         ===========        ===========        ===========        ===========
      Weighted average shares of
        common stock used in
        computing basic and diluted net
        loss per share ...........................         7,502,575          5,181,356          4,278,916          3,999,576
                                                         ===========        ===========        ===========        ===========
</TABLE>

The following table is a summary of our balance sheet as of December 31, 1999,
1998, 1997 and 1996.

<TABLE>
<CAPTION>
                                                                                      As of December 31,
                                                                                      ------------------
                                                                   1999             1998               1997              1996
                                                                   ----             ----               ----              ----
                                                                                        (IN THOUSANDS)
<S>                                                              <C>              <C>               <C>               <C>
     Balance Sheet Data:
      Cash ............................................          $34,648          $    18           $    85           $    24
      Working Capital .................................           41,605           (1,124)             (149)             (249)
      Total Assets ....................................           53,725            1,196               476               134
      Notes payable (excluding current
      portion) ........................................               --               67                --                --
      Total stockholders' equity
      (deficit) .......................................           47,856             (753)              125              (191)
</TABLE>


                                       14
<PAGE>

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

The following discussion of the financial condition and results of operations of
Promotions.com contains forward-looking statements relating to the future events
and the future events and the future performance of Promotions.com within the
meaning of section 27A of the Securities Exchange Act of 1933, as amended, and
section 21E of the Securities Exchange Act of 1934, as amended. Stockholders are
cautioned that such statements involve risks and uncertainties. Promotions.com's
actual results and timing of certain events could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including, but not limited to, those set forth under "Risk Factors" and
elsewhere in this report and in Promotions.com's other public filings on file
with the Securities & Exchange Commission.

OVERVIEW

During 1999, revenue was generated primarily by promotion services. Principally
all of the company's historical revenues have been derived from the sale of
promotion services. We expect to derive substantially all of our revenues from
the sale of promotion services for the foreseeable future.

We recognize revenues from promotion services ratably over the period during
which we provide promotion services, provided that no significant obligations
remain and collection of the resulting receivable is reasonably assured.
Payments received from customers prior to providing promotion services are
recorded as deferred revenue and are recognized as revenue ratably as the
services are provided. With respect to revenue generated from our promotions
portal, WEBSTAKES.COM, we generally guarantee a minimum number of impressions,
or times that the customer's name, logo or other identifier appears in pages
viewed by visitors to WEBSTAKES.COM, and/or times that our visitors are
delivered to our customer's web site. To the extent that these minimum
guarantees are not met, we defer recognition of the corresponding revenues until
the guaranteed levels are achieved.

Promotion.com CUSTOM SOLUTIONS services provides custom turnkey solutions to
create and manage promotions on a customer's own web site. Revenues are derived
principally from contracts in which the company typically provides services for
the administration and implementation of the promotion. The contracts typically
include cancellation clauses ranging from 30 to 60 days. Since there are
significant up front customized design work incurred before a promotion begins,
the company recognizes the portion of revenue related to the customized design
work at the time the work is performed. The remaining revenue is recognized
ratably in the period in which the promotion is run, provided that no
significant company obligations remain.

Revenues include revenues from barter transactions in which we exchange
promotion services for advertising and prizes. Revenues from these barter
transactions are recorded as promotion revenues at the lower of the estimated
fair value of the goods or services received or delivered and are recognized
when we deliver the promotion services. Advertising expenses related to barter
are recognized when our advertisements are run on the reciprocal web site, which
is typically in the same period as the corresponding barter revenues are
recognized. Prize expenses related to barter are recognized when prizes are
awarded. In 1999, barter revenues were 20% of our total revenues. We expect
that, as our cash revenues grow, barter as a percentage of our revenues will
decrease.

The period-to-period comparisons of our historical operating results should not
be relied upon as indicative of future performance. Our annual report should be
considered in light of the risks, expenses and difficulties encountered by
companies in the early stages of development, particularly companies in the
rapidly evolving stages of the Internet market. Although we have experienced
revenue growth in recent periods, we anticipate that we will incur operating
losses for the foreseeable future due to a high level of planned operating and
capital expenditures. In particular, we expect to increase our operating
expenses in order to expand our sales force and marketing personnel and to
develop, integrate and scale our technology.


                                       15
<PAGE>

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 1999, 1998, and 1997

Revenues. Revenues primarily result from the sale of promotion services.
Revenues were approximately $10.5 million for 1999, $4.8 million for 1998 and
$1.6 million for 1997. We recorded barter revenues of approximately $2.1 million
during 1999, $2.0 million during 1998 and $485,000 during 1997, representing
approximately 20%, 42% and 30% of total revenues during those periods. The
period-to-period growth in revenues was primarily attributable to the increasing
number of marketers purchasing promotional services on the Company's on-line
media property and purchasing CUSTOM SOLUTIONS as well as larger longer-term
purchases by certain marketers. Approximately 220 customers purchased
promotional services during 1999 as compared to approximately 125 in 1998 and 67
in 1997. No one customer accounted for more than 10% of total revenues or net
accounts receivable for the years ended December 31, 1999 and 1998, and one
customer accounted for 35% of total revenues for the year ended December 31,
1997. In 1999, 1998 and 1997, revenues from the Company's five largest customers
accounted for 17%, 24% and 53% of total revenues, respectively. There can be no
assurances that the online promotion market will grow, customers will continue
to purchase promotional services, that customers will not make smaller and
shorter term purchases, or that market prices for Web-based promotional services
will not decrease due to competitive or other factors.

Product Development Expenses. Product development expenses include the personnel
costs associated with the design and development of WEBSTAKES.COM, our
promotions infrastructure and technology, as well as software licensing costs.
Product development expenses were approximately $2.1 million or 20% of total
revenues for 1999, $549,000 for 1998, or 11.4% of total revenues and $181,000
for 1997, or 11.2% of total revenues. The year-to-year increases in absolute
dollars are primarily attributable to increases in the number of engineers that
develop and enhance the features and functionality of WEBSTAKES.COM and, in
1999, the Company's increased focus on Promotions.com CUSTOM SOLUTIONS services
and the roll-out of new products. Historically, we expensed our product
development costs as incurred. However, in the first quarter of 1999, we began
to capitalize the labor costs of improvements and betterments to our software
under Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." Such improvements and betterments
include improving the functionality and navigability of WEBSTAKES.COM.
Therefore, we have capitalized $196,000 of product development expenses for the
year ended December 31, 1999 and are amortizing these costs over three years. We
believe that timely deployment of new and enhanced products and technology is
critical to attaining our strategic objectives. Accordingly, we intend to
continue recruiting and hiring experienced product development personnel and to
make additional investments in product development. Consequently, the Company
expects to incur increased product development expenditures in absolute dollars
in future periods.

Sales and Marketing Expenses. Sales and marketing expenses consist primarily of
advertising costs, salaries and commissions of sales and marketing personnel,
costs of trade shows, conventions and marketing materials and other marketing
expenses. Sales and marketing expenses were approximately $19.9 million for 1999
or 190% of total revenues, $3.6 million for 1998, or 75.4% of total revenues and
$1.1 million for 1997, or 67.4% of total revenues. The period-to-period
increases in sales and marketing expenses reflect the growth of the Company and
are due to increases in advertising costs, compensation expense associated with
the growth of the Company's sales force and marketing personnel and an increase
in sales commission associated with the increase in revenues. In 1999, the
increase was primarily attributed to an increase in advertising costs associated
with the Company's aggressive marketing strategy. The Company anticipates that
sales and marketing expenses in absolute dollars will increase in future periods
as it continues to pursue an aggressive marketing strategy through advertising
and continues to expand its international operations, and continues to build its
sales force.

General and Administrative Expenses. General and administrative expenses consist
primarily of services and related costs of general corporate functions,
including finance, accounting costs and facilities. General and administrative
expenses were approximately $6.7 million for 1999, or 64% of total revenues,
$2.0 million for 1998, or 41.0% of total revenues and $536,000 for 1997, or
33.1% of total revenues. The increases in general and administrative expenses
were primarily attributable to increased salaries and related expenses
associated with hiring additional personnel, and increased professional fees and
facility expenses to support the growth of our operations. In addition, we
incurred bonus expenses of $435,000 in 1999 related to the initial public
offering. The increase was also due in part to an increase in allowance for
doubtful accounts. This increase in the allowance for doubtful accounts was the
result of an increase in cash revenues, an increase in the percentage of cash
revenues reserved for doubtful accounts and the establishment of a reserve for
one account for which collection is in doubt. We expect to incur additional
general and administrative expenses as we hire additional personnel and incur
additional costs related to the growth of our business and operation as a public
company. We expect these expenses to include facilities expansion, investor
relations programs and professional service fees. Accordingly, we anticipate
that general and administrative expenses will continue to increase in absolute
dollars. We


                                       16
<PAGE>

expect that general and administrative expenses will follow the pattern for a
growth company, increasing initially and then, once a certain revenue base is
achieved, decreasing, as a percentage of revenue.

Interest Income, Net. Interest income, net of expense, consists primarily of
interest earned on our cash balance and the interest expense on our outstanding
debt. We recognized net interest income of approximately $652,000 for 1999, and
net interest expense of $76,000 for 1998 and $37,000 for 1997. The increase was
primarily attributable to a higher average cash balance, principally due to
proceeds received from a private placement and initial public offering during
1999. Interest income in future periods is likely to go down as a result of a
reduction in average cash balances maintained by the Company and changes in the
market rates of its investments.

Income Taxes. No income tax benefit is reflected in the financial statements as
a valuation allowance was provided for deferred tax assets relating to net
operating losses. As of December 31, 1999, we had approximately $28.5 million of
federal net operating loss carryforwards for tax reporting purposes to offset
future taxable income. Our federal net operating loss carry forwards expire in
the years 2012 through 2019.

Liquidity and Capital Resources

Since inception, we have financed our operations primarily through the private
and public placement of equity securities and the incurrence of indebtedness. On
September 24, 1999, we completed the initial public offering of 3,575,000 shares
of common stock for gross proceeds of $50.1 million and net proceeds of $44.9
million, after deducting expenses of the offering.

Net cash used in operating activities was approximately $21.7 million (net of
$5.7 million of MatchLogic & Excite expenses) for 1999, compared to
approximately $1.5 million for 1998 and $125,000 for 1997. The increase in cash
used in operating activities for 1999 was primarily due to the net loss of $18.3
million during the period which resulted from costs incurred to support the
Company's sales and marketing efforts and the increased personnel required to
manage the Company's growing operations combined with higher levels of accounts
receivable resulting from increased revenues which was partially offset by
increases in accounts payable and accrued expenses.

Net cash used in investing activities was approximately $2.3 million for 1999,
$301,000 for 1998 and $203,000 for 1997. As of December 31, 1999, our principal
capital commitments consisted of obligations outstanding under operating and
capital leases. All net cash used in investing activities was used for capital
expenditures, primarily the acquisition of equipment. We estimate that our
capital expenditures will be approximately $8.0 million for 2000. We currently
expect that our principal capital expenditures through 2000 will relate to
improvements to our technical infrastructure and expansion of our headquarters.

Net cash provided by financing activities were approximately $64.4 million for
1999, $1.7 million for 1998 and $390,000 for 1997. Net cash provided by
financing activities in 1999 was primarily attributable to our private
placements and initial public offering. Net cash provided by financing
activities in 1998 was primarily attributable to incurrence of indebtedness and,
to a lesser extent, borrowings under a secured credit facility related to
equipment financing. We borrowed $200,000 available under a credit facility in
December 1997 to purchase equipment. To date, we have made all payments due
under this equipment loan.

We have a financing agreement with a leasing company for the leasing of
equipment in an amount up to $1.0 million in operating and/or capital leases,
secured by certain accounts receivable and the equipment purchased pursuant to
the agreement. To date, we have leased approximately $840,000 of equipment under
the agreement. The leases have terms of up to three years and the interest rates
under the leases range from 8 1/2% to 13%. We are required to make monthly
payments of interest and principal under the leases.

We have a two-year sponsorship agreement with Excite under which Excite agreed
to promote WEBSTAKES.COM through ad banner placements and links to WEBSTAKES.COM
and its promotions on Excite.com, WebCrawler.com and Classified2000.com. We have
prepaid Excite $5.6 million during 1999 for this two year agreement. At Home
Corporation, the parent company of Excite, is one of our principal stockholders.
Each quarter we recognize approximately $683,000 of expense related to this
agreement.

We have a service agreement with MatchLogic, a wholly owned subsidiary of
Excite, pursuant to which MatchLogic will provide ad serving and targeting, data
processing, analysis, enhancement and other services to Promotions.com. The term
of the agreement is two years. We have prepaid MatchLogic $13.1 million, during
1999 for this two-year agreement. Each quarter we recognize approximately $1.5
million of expense related to this agreement.


                                       17
<PAGE>

In June 1999, we redeemed all outstanding shares of class A mandatorily
redeemable convertible preferred stock and 1,714,608 shares of common stock for
an aggregate amount of $24.0 million. To finance the redemption and to provide
working capital, we issued shares of new class B mandatorily redeemable
convertible preferred stock to a group of investors, including among others, At
Home Corporation, XL Ventures, a subsidiary of Big Flower Holdings, and
Travelers, for an aggregate purchase price of $40.0 million. Upon completion of
the initial public offering, the class B mandatorily redeemable convertible
preferred stock automatically converted into 6,666,668 shares of common stock.
The class A mandatorily redeemable convertible preferred stock and class B
mandatorily redeemable convertible preferred stock are not be available for
reissue. The excess of the consideration paid to the holders of the class A
mandatorily redeemable convertible preferred stock over the carrying amount of
the class A mandatorily redeemable convertible preferred stock represents a
deemed dividend or return to the holders of the class A mandatorily redeemable
convertible preferred stock of $8.7 million.

Our capital requirements depend on numerous factors, including the amount of
resources the Company devotes to advertising and marketing our brand, the
resources the Company devotes to expanding our sales and marketing capabilities,
resources devoted to acquire or invest in complementary businesses,
technologies, products or services or to invest in geographic expansion.
Management believes that our cash on hand as of December 31, 1999 of $34.6
million together with cash flows will be sufficient to meet our anticipated cash
needs for working capital and capital expenditures for our existing business for
the next 12 months based on our current rate of cash use. However, we will need
to raise additional funds during 2000 in order to fund more rapid expansion,
adopt a more aggressive marketing strategy or in response to competitive
pressures. There can be no assurances that any required additional financing
will be available on terms favorable to us, or will be available at all. If
adequate funds are not available on acceptable terms, we may be unable to fund
our expansion, successfully promote our brand name, develop or enhance our
services, respond to competitive pressures or take advantage of acquisition
opportunities. Any of these events could have a material adverse effect on our
business, results of operations or financial condition.


                                       18
<PAGE>

                                  RISK FACTORS

An investment in our Company involves a high degree of risk. You should consider
carefully the risks below, together with the other information contained in this
annual report, before you decide to invest in our Company. If any of the
following risks actually occur, our business, results of operations and
financial condition could be harmed, the trading price of our common stock could
decline and you could lose all or part of your investment.

RISKS RELATING TO OUR COMPANY AND OUR BUSINESS

OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT.

We were incorporated, and launched our first promotion, in January 1996.
Accordingly, we have a limited operating history upon which to evaluate our
operations and future prospects. In addition, our revenue model is evolving and
relies substantially upon the growth of promotion spending on the Internet and
our ability to become a full-service Internet promotion company. As an early
stage company in a new and rapidly evolving market, we face risks and
uncertainties relating to our ability to successfully implement our business
plan, which are described in more detail below. We may not successfully address
these risks.

WE HAVE NOT BEEN PROFITABLE AND MAY NOT BECOME PROFITABLE, IN WHICH EVENT OUR
BUSINESS AND STOCK PRICE WOULD BE ADVERSELY AFFECTED.

To date, we have not been profitable. We may never be profitable, or, if we
become profitable, we may be unable to sustain profitability. We expect to
continue to incur losses for the foreseeable future because we expect to
continue to spend significant resources to expand our business. Although we have
experienced revenue growth in recent periods, these growth rates may not be
sustainable or indicative of future growth. We reported a loss of $18.4 million
for the year ended December 31, 1999. As of December 31, 1999, our accumulated
deficit was approximately $20.2 million. For us to make a profit, our revenues
will need to increase sufficiently to cover our costs and expenses.

A SIGNIFICANT PORTION OF OUR REVENUES HAVE BEEN DERIVED FROM BARTER
TRANSACTIONS, AND WE MAY NOT BE SUCCESSFUL IN GENERATING SUFFICIENT CASH
REVENUES TO COVER OUR COSTS AND EXPENSES IN THE FUTURE.

For the year ended December 31, 1999, approximately 20% of our revenues were
derived from the trading of promotion services for advertising and prizes. We do
not receive cash for sales involving barter agreements. We expect that barter
agreements will continue to account for a significant portion of our revenues in
the future and we may not generate sufficient cash to pay our cash expenses.

OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE, WHICH MAY CAUSE THE PRICE OF OUR
COMMON STOCK TO DECREASE.

We expect our operating results to vary significantly from quarter to quarter
due to many factors discussed in this Risk Factors section, some of which are
beyond our control. It is possible that in future periods our results of
operations will be below the expectations of public market analysts and
investors. In this event, the price of our common stock would likely decrease.
You should not rely on quarter-to-quarter comparisons of our results of
operations as an indication of future performance.

The rapidly evolving market in which we operate and potential seasonal
fluctuations in promotional spending and Internet use make it difficult to
forecast our revenues accurately. Our operating expenses are based on our
expectations of future revenues and are relatively fixed in the short term.
Accordingly, we may not be able to adjust our spending in a timely manner to
compensate for any unexpected revenue shortfall. If we have a shortfall in
revenues in relation to our expenses, or if our expenses precede expected
revenues, then our results of operations and financial condition would be
materially adversely affected.


                                       19
<PAGE>

IF THE DEMAND FOR INTERNET PROMOTION SERVICES DOES NOT INCREASE, OUR BUSINESS
WILL BE HARMED.

Our success depends in part on the increased acceptance of online promotion
services. The market for Internet promotion services has only recently begun to
develop and is evolving rapidly. Most businesses have little or no experience
using the Internet for promotion purposes. As a result, many businesses have
allocated only a limited portion of their marketing budgets to Internet
promotion spending. An increase in the demand for these services is dependent in
part on the effectiveness of the promotions and the recognition of this
effectiveness by customers and potential customers. The market for Internet
promotion services may not grow and any growth may not be sustained.

IF WE ARE UNABLE TO ATTRACT VISITORS TO WEBSTAKES.COM AND THE WEB SITES OF OUR
CUSTOMERS, THE EFFECTIVENESS OF OUR PROMOTIONS WOULD BE REDUCED, AND OUR
BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION WOULD BE MATERIALLY
ADVERSELY AFFECTED.

Our future success depends upon our ability to continue to attract and retain
visitors with demographic characteristics desired by our clients to
WEBSTAKES.COM and the web sites of our customers. In addition, we guarantee our
clients that visitors will view their pages and/or link to their web sites a
minimum number of times. If we are unable to meet these minimum guarantees, we
will be required to defer recognition of the related revenues until the
guaranteed minimum is achieved. In addition, we will be required to provide
services to the customer for free until we are able to meet our guaranteed
minimum, which may reduce our promotion inventory in future periods.

IF WE ARE UNSUCCESSFUL IN BROADENING OUR PRODUCT OFFERINGS, OUR REVENUE GROWTH
WILL BE LIMITED.

To date, substantially all of our revenues have been derived from conducting
sweepstakes on the Internet. Our growth is largely dependent upon our ability to
leverage our sweepstakes expertise to become a full-service Internet promotion
company. In the event that we are unable to successfully implement our growth
strategy, our business, results of operations and financial condition would be
materially adversely affected.

WE FACE SIGNIFICANT COMPETITION, AND WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY.

The market for Internet promotion services is intensely competitive. We expect
competition in our market to continue to intensify as a result of increasing
market size, greater visibility of the market opportunity for Internet promotion
services and minimal barriers to entry. Industry consolidation may also increase
competition. We compete with many types of companies, including both online and
offline promotion companies, large Internet publishers, search engine and other
Internet portal companies, a variety of Internet-based advertising networks and
other companies that facilitate the marketing of products and services on the
Internet. Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customers bases and significantly greater financial, technical and marketing
resources than we do. This may allow them to compete more effectively and be
more responsive to industry and technological change than us. We may not be able
to compete successfully and competitive pressures may reduce our revenues and
result in increased losses or reduced profits.

Our ability to compete depends on many factors both within and beyond our
control. These factors include:

      o     the success of the sales and marketing efforts of us and our
            competitors;

      o     the ease of use, performance, price and reliability of promotions
            offered by us and our competitors; and

      o     the timing and market acceptance of new promotion services developed
            by us and our competitors.

IF OUR CUSTOMERS DO NOT RENEW THEIR AGREEMENTS OR TERMINATE THEM PRIOR TO THEIR
SCHEDULED EXPIRATIONS, OUR REVENUES WILL BE REDUCED.

Our agreements with customers generally have terms ranging from one to 12
months. In addition, substantially all of our agreements permit our customers to
terminate their relationships with us on relatively short notice. Our customers
may not remain customers for the full term of their agreements or renew such
agreements when they expire.


                                       20
<PAGE>

OUR BRAND MAY NOT ACHIEVE THE RECOGNITION NECESSARY TO INCREASE OUR MEMBERSHIP
BASE AND ATTRACT CUSTOMERS.

To be successful, we must continue to build our brand identity. We believe that
the importance of brand recognition will increase as more companies enter our
market. We may not be successful in our marketing efforts or in increasing our
brand awareness.

SWEEPSTAKES REGULATIONS MAY LIMIT OUR ABILITY TO CONDUCT SWEEPSTAKES OR LIMIT
PARTICIPATION IN OUR SWEEPSTAKES, WHICH COULD ADVERSELY AFFECT OUR BUSINESS.

The sweepstakes industry is subject to extensive regulation on the local, state
and national levels, regardless of whether promotions are conducted online or
offline. Congress and many state attorneys general and legislatures recently
have announced regulatory initiatives aimed at the sweepstakes industry due to
recently reported deceptive industry practices. The publicity generated by these
initiatives may adversely affect demand for our services. Although we believe
that additional laws and regulations are likely to be enacted, we cannot predict
what they will be. Any new sweepstakes regulations may have a material adverse
affect on our business, results of operations and financial condition.
Additionally, the Internet is a new medium for sweepstakes, and it is difficult
to predict how existing laws and regulations will be interpreted.

OUR FAILURE TO MANAGE OUR GROWTH EFFECTIVELY COULD ADVERSELY AFFECT OUR
BUSINESS.

In order to successfully implement our business plan, we must grow
significantly. Our anticipated future growth will likely place a significant
strain on our management resources and systems. To manage our growth
effectively, we will need to continue to improve our operational, financial and
managerial controls and reporting systems and procedures, and we will need to
continue to expand, train and manage our workforce. If we do not manage our
growth effectively, our business, results of operations and financial condition
would be materially adversely affected.

WE MAY BE UNABLE TO INCREASE OUR SALES FORCE, WHICH WOULD HAVE A MATERIAL
ADVERSE EFFECT ON THE GROWTH OF OUR BUSINESS.

We need to substantially expand our sales force to increase market awareness and
sales of our promotion services. Competition for qualified sales personnel is
intense, and we might not be able to hire the quality and number of sales
personnel we require. New hires require extensive training and typically take
several months to achieve productivity. If we fail to effectively increase our
sales force, our business, results of operations and financial condition would
be materially adversely affected.

OUR BUSINESS MAY SUFFER IF WE ARE UNABLE TO RETAIN KEY PERSONNEL.

Our future success is substantially dependent upon the continued service of our
founders, Steven H. Krein, Chief Executive Officer, and Daniel J. Feldman,
President, and other executive officers. The loss of the services of any of our
executive officers could have a material adverse affect on our business. Many of
our executive officers have only been employed by us for a short time, including
our Chief Financial Officer, who joined us in April 1999 and our Chief Operating
Officer, who joined us in December 1999. We do not currently have "key person"
life insurance policies on any of our employees. We have employment agreements
only with Messrs. Krein and Feldman. Competition for senior management is
intense, and we may not be successful in attracting and retaining key personnel.

THE INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, AND ANY INFRINGEMENT
ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, COULD ADVERSELY AFFECT OUR
BUSINESS AND FINANCIAL CONDITION.

Third parties may infringe or misappropriate our patents, trademarks or other
intellectual property rights, which could have a material adverse effect on our
business, results of operations or financial condition. The actions we take to
protect our trademarks and other proprietary rights may not be adequate. In
addition, the validity, enforceability and scope of protection of proprietary
rights in Internet-related industries are uncertain and still evolving. Although
we have patent and trademark applications pending, none have been granted to
date.


                                       21
<PAGE>

Third parties may assert infringement claims against us. Any claims and any
resulting litigation, should they occur, could subject us to significant
liability for damages. In addition, even if we prevail, litigation could be
time-consuming and expensive to defend, and could result in the diversion of our
time and attention. Any claims from third parties may also result in limitations
on our ability to use the intellectual property subject to these claims unless
we are able to enter into contractual arrangements with the third parties making
these claims, which arrangements may not be available on commercially reasonable
terms.

WE MAY REQUIRE ADDITIONAL FINANCING TO EXPAND OUR BUSINESS, AND WE MAY NOT BE
ABLE TO OBTAIN ADDITIONAL FINANCING.

We may need to raise additional funds in the future in order to fund more
aggressive brand promotion or more rapid expansion, to develop new or enhanced
services, to respond to competitive pressures or to make acquisitions.
Additional financing may not be available on terms favorable to us, and may not
be available at all. If adequate funds are not available on acceptable terms, we
may be unable to fund our expansion, successfully promote our brand, take
advantage of acquisition opportunities, develop or enhance services or respond
to competitive pressures, any of which could have a material adverse effect on
our business, results of operations and financial condition. If additional funds
are raised by our issuing equity securities, stockholders may experience
dilution of their ownership interest and the newly issued securities may have
rights superior to those of the common stock. If additional funds are raised by
our issuing debt, we may be subject to limitations on our operations, including
limitations on the payment of dividends.

WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS FOR PRODUCTS GIVEN AS PRIZES IN
OUR PROMOTIONS AND FOR PRODUCTS SOLD BY OUR CUSTOMERS OVER THE INTERNET.

Consumers may sue us if any of the products we give as prizes are defective,
fail to perform properly or injure the user. We may also be sued by consumers
who purchase products that are offered or marketed through WEBSTAKES.COM.
Although our agreements with our customers typically contain provisions intended
to limit our exposure to these product liability claims, these limitations may
not eliminate our liability. Liability claims could require us to spend
significant time and money in litigation or pay significant damages. We do not
carry product liability insurance. As a result, any of these claims, whether or
not successful, could have a material adverse effect on our business, results of
operations and financial condition.

PRIVACY AND SECURITY CONCERNS MAY CAUSE CONSUMERS NOT TO PARTICIPATE IN OUR
PROMOTIONS, WHICH WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

An important feature of the services we provide our customers is our ability to
develop and maintain demographic and other information about consumers
participating in our promotions. Privacy and other security concerns may cause
consumers to resist providing us with personal data, which would reduce the
value of our services. Moreover, privacy and security concerns may inhibit
consumer acceptance of the Internet as a means of commerce. If privacy and other
security concerns of consumers are not adequately addressed, our business would
be materially adversely affected.

OUR GROWTH WILL DEPEND ON THE GROWTH OF INTERNET USAGE.

We depend on continued growth in the use of the Internet by businesses and
consumers. If electronic commerce does not grow or grows more slowly than
expected, the use of the Internet by businesses may decline or grow more slowly
than anticipated. In addition, the acceptance and growth in the use of the
Internet by consumers could be negatively affected by consumer concerns about
the security of electronic commerce transactions and privacy. Even if Internet
usage grows, the Internet infrastructure may not be able to support the demands
placed on it and its performance or reliability may decline.

WE MAY BE UNABLE TO RESPOND TO TECHNOLOGICAL CHANGE EFFECTIVELY.

Our industry is characterized by rapid technological change, frequent new
service introductions, changing consumer demands and evolving industry standards
and practices. Our inability to anticipate and effectively respond to these
changes on a timely basis would materially adversely affect our business,
results of operations and financial condition. Our future success will depend,
in part, on our ability to cost-effectively adapt to rapidly changing
technologies, to enhance existing services and to develop and introduce a
variety of new services to address changing demands of consumers and our clients
on a timely basis.


                                       22
<PAGE>

THE FAILURE OF OUR COMPUTER OR COMMUNICATIONS SYSTEMS MAY ADVERSELY AFFECT OUR
BUSINESS.

Our business depends on the efficient and uninterrupted operation of our
computer and communications systems. Any system failure, including network,
software or hardware failure, that causes an interruption in our service or
decreases the responsiveness of WEBSTAKES.COM or the web sites of our customers
could materially adversely affect our business. WEBSTAKES.COM could also be
affected by computer viruses, electronic break-ins or other similar disruptions.
Our insurance policies have coverage limits of $775,000 per occurrence and
therefore may not adequately compensate us for any losses that may occur due to
any interruptions in our service.

Frontier GlobalCenter, Inc. maintains all of our production servers at their
Manhattan Data Center. Our operations depend on Frontier's ability to protect
its own systems and our systems against damage from fire, power loss, water,
telecommunications failures, vandalism and other malicious acts, and similar
unexpected adverse events. Any disruption in the Internet access provided by
Frontier could have a material adverse effect on our business, results of
operations and financial condition.

WE DEPEND ON THE CONTINUED VIABILITY OF THE INTERNET INFRASTRUCTURE.

Our success depends upon the development and maintenance of a viable Internet
infrastructure. The current Internet infrastructure may be unable to support an
increased number of web users. The timely development of products such as
high-speed modems and communications equipment will be necessary to continue
reliable Internet access. Furthermore, the Internet has experienced outages and
delays as a result of damage to portions of its infrastructure. Such outages and
delays could adversely affect WEBSTAKES.COM and the level of traffic on our
customers' web sites. The effectiveness of the Internet may decline due to
delays in the development or adoption of new standards and protocols designed to
support increased levels of activity. If such new infrastructure, standards or
protocols are developed, we may be required to incur substantial expenditures to
adapt our services to the new technologies.

LAWS AND REGULATIONS PERTAINING TO THE INTERNET MAY ADVERSELY AFFECT OUR
BUSINESS.

There are an increasing number of laws and regulations pertaining to the
Internet. These laws and/or regulations may relate to liability for information
retrieved from or transmitted over the Internet, online content regulation, user
privacy, taxation and the quality of products and services. Moreover, the
applicability to the Internet of existing laws governing intellectual property
ownership and infringement, copyright, trademark, trade secret, obscenity,
libel, employment, personal privacy and other issues is uncertain and
developing. Any new law or regulation pertaining to the Internet, or the
application or interpretation of existing laws, could decrease the demand for
our promotion services, increase our cost of doing business or otherwise have a
material adverse effect on our business, results of operations and financial
condition. Please see "Business--Government Regulation and Legal Uncertainties."

CHANGES IN THE LAWS RELATING TO DATA COLLECTION AND USE PRACTICES AND THE
PRIVACY OF INTERNET USERS AND OTHER INDIVIDIUALS COULD HARM OUR BUSINESS

The U.S. federal and various state governments have recently proposed
limitations on the collection and use of information regarding Internet users.
In addition, in October 1998, the European Union adopted a directive that could
limit our ability to collect and use information regarding Internet users in
Europe. Since many of the proposed laws or regulations are just being developed,
we cannot yet determine the impact these regulations may have on our business.


                                       23
<PAGE>

In addition, growing public concern about privacy and the collection,
distribution and use of information about individuals has led to self-regulation
of these practices by the direct marketing industry and to increased federal and
state regulation. The Direct Marketing Association, or DMA, the leading trade
association of direct marketers, has adopted guidelines regarding the fair use
of this information which it recommends participants, such as us, should use. We
are also subject to various federal and state regulations concerning the
collection, distribution and use of information regarding individuals. As a
consequence of government legislation or regulation or enforcement efforts or
evolving standards of fair information collection practices, we may be required
to make changes to our business in ways that could diminish the effectiveness of
our business or its attractiveness to potential customers. Although our
compliance with the DMA's guidelines and applicable federal and state laws and
regulations has not had a material adverse effect on us, we cannot assure you
that the DMA will not adopt additional, more burdensome guidelines or that
additional, more burdensome federal or state laws or regulations, including
antitrust, consumer privacy and fair collection laws, will not be enacted or
applied to us or our customers, which could materially and adversely affect our
business, financial condition and results of operations.

OUR OFFICERS AND DIRECTORS MAY CONTROL US.

Our executive officers and directors in the aggregate, beneficially own
approximately 40.6% of our common stock. These stockholders may be able to
effectively exercise control over all matters requiring approval by our
stockholders, including the election of directors and approval of significant
corporate transactions. This concentration of ownership may also have the effect
of delaying or preventing a change in control of us, which could have a material
adverse effect on our stock price.

THE SALE OF SHARES ELIGIBLE FOR FUTURE SALE IN THE OPEN MARKET COULD DEPRESS OUR
STOCK PRICE

Sales of significant amounts of common stock in the public market in the future
or the perception that sales will occur could materially and adversely affect
the market price of the common stock or our future ability to raise capital
through an offering of our equity securities. There are approximately 10,641,000
shares of common stock held by our stockholders that are "restricted
securities," as that term is defined in Rule 144 of the Securities Act of 1933.
Restricted securities may be sold in the public market only if registered or if
they qualify for an exemption for registration under Rules 144, 144(k), or 701
under the Securities Act. Currently, approximately 472,000 shares of the
restricted securities are eligible for sale in the public market under Rule 144
without volume limitations or further registration under the Securities Act, not
including approximately 3,528,000 shares held by our "affiliates," within the
meaning of the Securities Act. These 3,528,000 shares are eligible for public
sale subject to volume limitations. After June 14, 2000, approximately 6,667,000
additional shares of restricted securities will be eligible for sale in the
public market under Rule 144 subject to volume limitations. The holders of these
shares are entitled to require us to register their shares for public sale.

There are outstanding options to purchase 2,025,290 shares of common stock which
are eligible for sale in the public market from time to time depending on
vesting. In addition, there are outstanding warrants to purchase up to 221,683
shares of common stock upon exercise. The securities issued upon the exercise of
such warrants will be "restricted securities," as that term is defined in Rule
144 of the Securities Act, however, will be eligible for sale in the public
market pursuant to Rule 144 subject to volume limitations.

OUR COMMON STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE

The market price of our common stock has been and will likely continue to be
highly volatile. The stock market has experienced significant price and volume
fluctuations and the market prices of securities of technology companies,
particularly Internet-related companies, have been highly volatile. In the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has often been instituted against the company
issuing the securities. This type of litigation could result in substantial
costs and a diversion of our management's attention and resources.


                                       24
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Currency Rate Fluctuations. Promotions.com's results of operations, financial
position and cash flows are not materially affected by changes in the relative
values of non-U.S. currencies to the U.S. dollar.

Market Risks. Our accounts receivable are subject, in the normal cause of
business, to collection risks. We regularly assess these risks and have
established policies and business practices to protect against the adverse
effects of collection risks. As a result, Promotions.com does not anticipate any
material losses in this area.

Interest Rate Risk. Our investments are classified as cash and cash equivalents
with original maturities of three months or less. Therefore, changes in the
market's interest rates do not affect the value of the investments as recorded
by Promotions.com.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

   INDEX TO FINANCIAL STATEMENTS                                    Page

      Independent Accountants Report                                26

      Balance Sheets as of December 31, 1999 and 1998               27

      Statements of Operations for each of the three years in the
               period ended December 31, 1999                       28

      Statements of Stockholders' Equity for each of the three
               years in the period ended December 31, 1999          29

      Statements of Cash Flows for each of the three years in the
               period ended December 31, 1999                       30

      Notes to Financial Statements                                 31

      Financial Statement Schedules:
                I - Computation of loss per share                   Exhibit 11.1

               II - Valuation and qualifying Accounts for each
                     of the three years in the period ended
                     December 31, 1999                              Exhibit 99.1

All other schedules are omitted because they are not applicable or the required
information is shown in the Financial Statements or Notes thereto.


                                       25
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
Promotions.com, Inc.:

In our opinion the financial statements listed in the accompanying index present
fairly, in all material respects, the financial position of Promotions.com, Inc.
(formerly Webstakes.com, Inc.) at December 31, 1999 and 1998 and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. In addition, in our opinion, the financial
statement schedules listed in the accompanying index present 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 schedules are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States, 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, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

                                                      PRICEWATERHOUSECOOPERS LLP
                                                              New York, New York
                                                                January 28, 2000


                                       26
<PAGE>

                              PROMOTIONS.COM, INC.
                         (FORMERLY WEBSTAKES.COM, INC.)
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                  December 31,
                                                                                                  ------------

                                                                                             1999              1998
                                                                                             ----              ----
<S>                                                                                      <C>               <C>
                         ASSETS
Current assets:
     Cash and cash equivalents .....................................................     $ 34,647,630      $     17,573
     Accounts receivable, less allowance for bad debts of $574,876
     and $125,000 ..................................................................        2,396,853           615,230
     Prepaid expenses and other current assets , principally
     related party in 1999 .........................................................        9,976,198           125,174
                                                                                         ------------      ------------

       Total current assets ........................................................       47,020,681           757,977
                                                                                         ------------      ------------

Fixed assets, net ..................................................................        3,089,311           437,759
Other assets .......................................................................        3,615,465                --
                                                                                         ------------      ------------

       Total assets ................................................................     $ 53,725,457      $  1,195,736
                                                                                         ============      ============

           LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:

     Accounts payable ..............................................................     $  1,754,255      $    221,745
     Accrued liabilities ...........................................................        2,821,005           169,136
     Deferred revenues .............................................................          483,366           117,297
     Capital lease obligation ......................................................          290,640            31,764
     Notes payable - related party, current portion ................................           66,667         1,342,222
                                                                                         ------------      ------------

       Total current liabilities ...................................................        5,415,933         1,882,164
                                                                                         ------------      ------------

     Capital lease obligation, net of current portion ..............................          436,424                --
     Deferred gain on sale of assets ...............................................           17,531                --

     Notes payable - related party, net of current
     portion .......................................................................               --            66,667
                                                                                         ------------      ------------

       Total liabilities ...........................................................        5,869,888         1,948,831
                                                                                         ------------      ------------

Stockholders' equity (deficit):

     Common stock---par value $.01, 50,000,000 shares authorized, 14,241,244 and
     5,714,184 shares issued and outstanding at December 31,
     1999 and 1998, respectively ...................................................          142,412            57,142
     Additional paid-in capital ....................................................       67,969,343         1,140,624
     Accumulated deficit ...........................................................      (20,233,041)       (1,861,977)
     Deferred compensation .........................................................          (23,145)          (88,884)
                                                                                         ------------      ------------
            Total stockholders' equity (deficit) ...................................       47,855,569          (753,095)
                                                                                         ------------      ------------
            Total liabilities and stockholders' equity .............................     $ 53,725,457      $  1,195,736
                                                                                         ============      ============
</TABLE>

    The accompanying notes are an integral part of these financial statements


                                       27
<PAGE>

                              PROMOTIONS.COM, INC.
                         (FORMERLY WEBSTAKES.COM, INC.)
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                        Year ended December 31,
                                                                                        -----------------------
                                                                                1999              1998             1997
                                                                                ----              ----             ----
<S>                                                                        <C>              <C>              <C>
Revenues ................................................................  $ 10,456,199     $  4,798,893     $  1,618,277

Operating expenses:
     Product development ................................................     2,130,134          548,818          181,260
     Sales and marketing ................................................    19,856,609        3,618,557        1,090,721
     General and administrative exclusive of the non-cash financial
        advisory services of $796,691 ...................................     6,695,332        1,969,214          535,963
     Non-cash financial advisory
       services .........................................................       796,691               --               --
                                                                           ------------     ------------     ------------

       Total operating expenses .........................................    29,478,766        6,136,589        1,807,944
                                                                           ------------     ------------     ------------

     Loss from operations ...............................................   (19,022,567)      (1,337,696)        (189,667)
Interest income (expense), net ..........................................       651,503          (76,347)         (37,172)
                                                                           ------------     ------------     ------------

Net loss ................................................................  $(18,371,064)    $ (1,414,043)    $   (226,839)
Deemed dividend on redemption of
       class A mandatorily redeemable convertible
       preferred stock ..................................................    (8,712,352)              --               --
                                                                           ------------     ------------     ------------
Net loss attributable to common
       stockholders .....................................................  $(27,083,416)    $ (1,414,043)    $   (226,839)
                                                                           ============     ============     ============
Basic and diluted net loss per share
       attributable to common
       stockholders .....................................................  $      (3.61)    $      (0.27)    $       (.05)
                                                                           ============     ============     ============
Weighted average shares of
       common stock used in
       computing basic and diluted net
       loss per share attributable to
       common stockholders ..............................................     7,502,575        5,181,356        4,278,916
                                                                           ============     ============     ============
</TABLE>

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


                                       28
<PAGE>

                              PROMOTIONS.COM, INC.
                            (FORMERLY WEBSTAKES.COM)
                  STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                     Common Stock
                                                     ------------         Additional      Deferred       Accumulated
                                                 Shares        Amount   Paid-In-Capital  Compensation       Deficit        Total
                                                 ------        ------   ---------------  ------------       -------        -----
<S>                                           <C>          <C>            <C>            <C>            <C>            <C>
Balance January 1, 1997 ..................     3,999,576   $     39,996   $     (9,967)                 $   (221,095)  $   (191,066)
Debt to equity conversion at book value
plus interest ............................       999,600          9,996        533,256                                      543,252
Stock options to non-employees ...........                                       3,625   $     (3,625)                           --
Net and comprehensive loss ...............                                                                  (226,839)      (226,839)
                                            ------------   ------------   ------------   ------------   ------------   ------------
Balance December 31, 1997 ................     4,999,176         49,992        526,914         (3,625)      (447,934)       125,347
                                            ============   ============   ============   ============   ============   ============

Debt to equity conversion at book value
plus interest ............................       715,008          7,150        524,826                                      531,976
Amortization of deferred
compensation .............................                                                      3,625                         3,625
Stock options to non-employees ...........                                      88,884        (88,884)                           --
Net and comprehensive loss ...............                                                                (1,414,043)    (1,414,043)
                                            ------------   ------------   ------------   ------------   ------------   ------------
Balance December 31, 1998 ................     5,714,184         57,142      1,140,624        (88,884)    (1,861,977)      (753,095)
                                            ============   ============   ============   ============   ============   ============

Repurchase of common stock ...............    (1,714,608)       (17,146)   (10,270,502)                                 (10,287,648)
Issuance of common stock .................     3,575,000         35,750     44,943,609                                   44,979,359
Conversion of Class B mandatorily
Redeemable convertible preferred stock ...     6,666,668         66,666     39,933,334                                   40,000,000
Deemed dividend on redemption of Class
A mandatorily redeemable convertible
preferred stock ..........................                                  (8,712,352)                                  (8,712,352)
Adjustment of deferred compensation to
non-employees to current fair value ......                                     140,840       (140,840)                           --
Stock options to non-employees ...........                                     793,790       (793,790)                           --
Amortization of deferred compensation ....                                                  1,000,369                     1,000,369
Net and comprehensive loss ...............                                                               (18,371,064)   (18,371,064)
                                            ------------   ------------   ------------   ------------   ------------   ------------
Balance December 31, 1999 ................    14,241,244   $    142,412   $ 67,969,343   $    (23,145)  $(20,233,041)  $ 47,855,569
                                            ============   ============   ============   ============   ============   ============
</TABLE>

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


                                       29
<PAGE>

                              PROMOTIONS.COM, INC.
                         (FORMERLY WEBSTAKES.COM, INC.)
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                             Year Ended December 31,
                                                                                             -----------------------
                                                                                  1999                 1998                  1997
                                                                                  ----                 ----                  ----
<S>                                                                          <C>                  <C>                  <C>
Cash flows from operating activities:
Net loss ............................................................        $(18,371,064)        $ (1,414,043)        $   (226,839)
Adjustments to reconcile net loss to net cash used
   in operating activities:
     Depreciation and amortization of fixed assets and
     patents ........................................................             597,311              147,515               37,661
     Amortization of deferred compensation expense ..................             203,678                   --                   --
     Bad debt expense ...............................................             606,932              208,604               11,829
     Gain on sale of assets .........................................              (4,542)                  --                   --
     Non-cash financial advisory services expense ...................             796,691                3,625                   --
     Interest payable converted into common stock ...................              35,000               24,826               33,256
   Changes in operating assets and liabilities:
     Increase in accounts receivable ................................          (2,388,440)            (710,498)             (72,184)
     (Increase) in prepaid expenses and other
       current assets, principally related party in 1999 ............          (9,851,024)            (122,423)              (2,751)
     (Increase) decrease in other assets ............................          (3,615,465)              41,708              (41,708)
     Increase in accounts payable ...................................           1,532,510               66,488              107,096
     Increase in accrued liabilities ................................           2,651,869              147,055                5,147
     Increase in deferred revenue ...................................             366,069               93,964               23,333
                                                                             ------------         ------------         ------------
Net cash used in operating activities ...............................         (27,440,475)          (1,513,179)            (125,160)
                                                                             ------------         ------------         ------------
Cash flows from investing activity:
   Purchase of fixed assets .........................................          (2,498,014)            (301,444)            (203,060)
   Proceeds from sale of fixed assets ...............................             157,294
                                                                             ------------         ------------         ------------
Net cash used in investing activity .................................          (2,340,720)            (301,444)            (203,060)
                                                                             ------------         ------------         ------------
Cash flows from financing activities:
   Proceeds from issuance of notes payable ..........................             120,000            1,820,000              390,000
   Principal payments on notes payable-related party ................             (72,222)             (61,111)                  --
   Proceeds from issuance of common stock, net ......................          44,979,359                   --                   --
   Principal payments on capital lease obligations ..................            (190,885)             (12,058)                  --
   Proceeds from issuance of class A mandatorily
     redeemable convertible preferred stock .........................           3,575,000                   --                   --
   Proceeds from issuance of class B mandatorily
     redeemable convertible preferred stock .........................          40,000,000                   --                   --
   Redemption of class A mandatorily redeemable
     convertible preferred stock and repurchase of
     common stock ...................................................         (24,000,000)
                                                                             ------------         ------------         ------------
Net cash provided by financing activities ...........................          64,411,252            1,746,831              390,000
                                                                             ------------         ------------         ------------
Net increase (decrease) in cash for the period ......................          34,630,057              (67,792)              61,780
Cash and cash equivalents, beginning of period ......................              17,573               85,365               23,585
                                                                             ------------         ------------         ------------
Cash and cash equivalents, end of period ............................        $ 34,647,630         $     17,573         $     85,365
                                                                             ------------         ============         ============
Cash paid during the period for interest ............................        $     56,562         $     18,530         $         --
                                                                             ============         ============         ============

<CAPTION>
Supplemental disclosure of non-cash investing, financing and other activities:

                                                                                 1999                  1998                  1997
                                                                                 ----                  ----                  ----
<S>                                                                          <C>                  <C>                  <C>
Notes payable converted
   into common and
   preferred stock ..................................................        $  1,390,000         $    521,956                   --
Preferred stock converted
   into common stock ................................................        $ 40,000,000                   --                   --

Equipment acquired
   under capital leases .............................................        $    840,000         $     43,822                   --
Barter transactions .................................................        $  2,083,657         $  2,039,144         $    484,844
</TABLE>

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


                                       30
<PAGE>

                              PROMOTIONS.COM, INC.
                         (FORMERLY WEBSTAKES.COM, INC.)
                          NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

Promotions.com, Inc. (the "Company"), was incorporated and commenced operations
in the state of New York on January 8, 1996 as Webstakes, Inc. and was
reincorporated in the State of Delaware on June 5, 1996 as Netstakes, Inc. On
June 11, 1999, the Company changed its name to Webstakes.com, Inc. On January
27, 2000, the Company changed its name to Promotions.com, Inc. Promotions.com,
Inc. is a global Internet promotion solutions company. Combining technology,
data and promotions expertise, the Company provides promotion solutions to help
companies achieve their overall marketing and business objectives. The company
generates revenues through WEBSTAKES.COM., a web site dedicated to Internet
sweepstakes and promotions; Promotions.com DIRECT, which offers targeted email
and lead generation; and Promotions.com CUSTOM SOLUTIONS, a full service
integrated Internet promotion services group.

The Company has a limited operating history and its prospects are subject to the
risks, expenses and uncertainties frequently encountered by companies in the new
and rapidly evolving markets for Internet products and services. These risks
include the failure to develop and extend the Company's online service brand,
the rejection of the Company's services by web consumers, vendors and/or
advertisers, the inability of the Company to maintain and increase the levels of
traffic on its online service, as well as other risks and uncertainties. In the
event that the Company does not successfully implement its business plan,
certain assets may not be recoverable.

2. SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

PROMOTION SERVICES

During 1999, revenue was generated primarily by promotion services and promotion
custom solutions services. Principally all of the Company's historical revenues
have been derived from promotion services. Promotion services revenues are
derived principally from contracts in which the Company typically guarantees a
minimum number of impressions, or times that the customers name, logo or other
identifier appears in pages viewed by visitors to WEBSTAKES.COM, and/or times
that visitors are delivered to the customer's web site, over a specified period
of time for a fixed fee. The contracts typically include cancellation clauses
ranging from 30 to 60 days. Promotion services revenues are recognized ratably
in the period in which the promotion is run, provided that no significant
Company obligations remain. To the extent that minimum guarantees are not met,
the Company defers recognition of the corresponding revenues until the
guaranteed minimums are achieved and the customers receive credits or refunds
for the guaranteed services not provided. Promotion services revenues were
approximately 89%, 93% and 96% of total revenues for the years ended December
31, 1999, 1998 and 1997, respectively.

PROMOTION CUSTOM SOLUTIONS SERVICES

Promotion CUSTOM SOLUTIONS services provides custom turnkey solutions to create
and manage promotions on a customers own web site. Revenues are derived
principally from contracts in which the company typically provides services for
the administration and implementation of the promotion. The contracts typically
include cancellation clauses ranging from 30 to 60 days. Since there are
significant up front customized design work incurred before a promotion begins,
the company recognizes the portion of revenue related to the customized design
work at the time the work is performed. The remaining revenue is recognized
ratably in the period in which the promotion is run, provided that no
significant company obligations remain. Promotion CUSTOM SOLUTIONS services
revenues were approximately 11%, 7%, and 4% of total revenues for the years
ended December 31, 1999, 1998 and 1997, respectively.

Included in revenues are barter revenues from the exchange by the Company with
counterparties of promotion services for reciprocal advertising, or applicable
goods and services. Barter revenues are recorded as promotion service revenues
at the lower of the estimated fair value of goods and services received or
promotion services provided, and are recognized when the counterparty's
promotions are run by the Company. The fair value of promotional services
provided and received is determined based on the value of similar services sold
and purchased for cash by the Company. Barter revenues represented 20%, 42% and
30% of total revenues for the years ended December 31, 1999, 1998 and 1997,
respectively. Barter expenses is recognized when the Company's promotions are
run on the counterparty's web sites, which is typically in the same period the
related barter revenue is recognized.


                                       31
<PAGE>

                              PROMOTIONS.COM, INC.
                         (FORMERLY WEBSTAKES.COM, INC.)
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

CONCENTRATION OF CREDIT RISK

In 1999 and 1998, no one customer accounted for greater than 10% of total
revenues or 10% of net accounts receivable. One customer accounted for 35% of
total revenues in 1997. In 1999, 1998, and 1997, revenues from the Company's
five largest customers accounted for 17%, 24% and 53% of total revenues,
respectively.

FIXED ASSETS

Fixed assets are stated at costs. Fixed assets under capital leases are stated
at the lower of the present value of minimum lease payments at the beginning of
the lease term or the leased assets at the inception of the lease. The cost of
additions and betterment's are capitalized, and repairs and maintenance costs
are charged to operations in the periods incurred.

Depreciation of computer and office equipment and furniture and fixtures is
provided for using the straight-line method over their estimated useful lives of
three years to five years. Amortization of leasehold improvements is provided
for over the lesser of the term of the related lease or the estimated useful
life of the improvement. Accumulated amoritization includes the amortization of
assets recorded under capital leases. Depreciation and amortization expense has
been included in general and administrative expense. The Company recognizes
gains or losses on the sale or disposal of fixed assets in the period of
disposal.

As required by Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," management reviews long-lived assets for impairment whenever events or
changes in circumstances indicate the carrying amount of the assets may not be
recoverable. This evaluation is based on a number of factors including
expectations for operating income and undiscounted cash flows that will result
from the use of such assets. The Company has not identified any such
impairments.

INCOME TAXES

The Company recognizes deferred taxes by the asset and liability method of
accounting for income taxes. Under the asset and liability method, deferred
income taxes are recognized for differences between the financial statement and
tax basis of assets and liabilities at enacted statutory tax rates in effect for
the years in which the differences are expected to reverse. The effect on
deferred taxes of change in tax rates is recognized in income in the period that
includes the enactment date. In addition, valuation allowances are established
when it is more likely than not that deferred tax assets will not be realized.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include money market accounts and all highly liquid
investments purchased with original maturities of three months or less.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of the Company's financial instruments, including cash,
accounts receivable, accounts payable and accrued liabilities, approximate fair
value because of their short maturities. The carrying amount of the Company's
note payable approximates the fair value of such instruments based upon
management's best estimate of interest rates that would be available to the
Company for similar debt obligations at December 31, 1999 and 1998.


                                       32
<PAGE>

STOCK-BASED EMPLOYEE COMPENSATION

The accompanying financial position and results of operations of the Company
have been prepared in accordance with APB Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB No. 25"). Under APB No. 25, generally no compensation
expense is recognized in connection with the awarding of stock option grants to
employees, provided that, as of the grant date, all terms associated with the
award are fixed and the quoted market price of the Company's stock as of the
grant date is equal to or less than the option exercise price.

Disclosure required by Statement of Financial Accounting Standards No.
123,"Accounting for Stock-Based Compensation" ("SFAS No. 123"), including
proforma operating results had the Company prepared its financial statements in
accordance with the fair value based method of accounting for stock-based
compensation, has been included in Note 6.

The fair value of options and warrants granted to non-employees for goods or
services are included in the financial statements and expensed as the goods are
utilized or the services performed.

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 amount of assets and liabilities, 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 these estimates. Significant estimates and assumptions made by
the Company include those related to the useful lives and recoverability of
fixed assets, recoverability of deferred tax assets, allowance for doubtful
accounts and the fair value of products and services exchanged in barter
transactions.

NET LOSS PER SHARE

Basic loss per share is computed using the weighted-average number of common
shares outstanding during the period. Diluted loss per share is computed using
the weighted-average number of common and common stock equivalent shares
outstanding during the period. Common equivalent shares are excluded from the
computation if their effect is antidilutive.

As the Company reported net losses for the years ended December 31, 1999, 1998,
and 1997 all 2,025,290, 114,009 and 66,228 of the options outstanding at
December 31, 1999, 1998 and 1997, respectively, were antidilutive and therefore,
there were no reconciling items between basic and diluted loss per share for the
years then ended.

COMPREHENSIVE INCOME

Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," requires the presentation and disclosure of all changes in equity from
non-owner sources as "Comprehensive Income". The Company had no items of
Comprehensive Income in years ended December 31, 1999, 1998 and 1997.

RECLASSIFICATIONS

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

ADVERTISING COSTS

Advertising production costs are recorded as expense the first time an
advertisement appears. All other advertising costs are expensed as incurred.
Advertising expense totaled approximately $14.0 million, $2.3 million, and
$524,000 for 1999, 1998, and 1997, respectively.

SEGMENTS

The Company adopted the provisions of Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information", in 1998. This statement establishes standards for the way
companies report information about operating segments in annual financial
statements. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. The Company has determined
that it does not have any separately reportable business segments as of December
31, 1999.


                                       33
<PAGE>

                              PROMOTIONS.COM, INC.
                         (FORMERLY WEBSTAKES.COM, INC.)
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

3. FIXED ASSETS

Fixed assets consist of the following:

                                                              DECEMBER 31,
                                                              ------------
                                                          1999           1998
                                                          ----           ----
Computer and office equipment ....................   $ 2,660,857    $   542,144
Computer software costs ..........................       196,190             --
Furniture and fixtures ...........................        95,525         34,307
Leasehold improvements ...........................        10,133         10,133
Capital leases ...................................       839,475         43,822
                                                     -----------    -----------
                                                       3,802,180        630,406
Less accumulated depreciation and amortization ...      (712,869)      (192,647)
                                                     -----------    -----------
                                                     $ 3,089,311    $   437,759
                                                     ===========    ===========

Depreciation and amortization of fixed assets was approximately $597,311,
$147,515 and $37,661 for the years ended December 31, 1999, 1998 and 1997
respectively.

Computer Software Costs

In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position ("SOP") 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides
guidance over accounting for computer software developed or obtained for
internal use including the requirement to capitalize specified costs and
amortization of such costs. The Company adopted SOP 98-1 during the first
quarter of 1999. Costs incurred during the preliminary project stage are
expensed as incurred. Computer software costs incurred during the application
development stage are capitalized. Typically, these costs relate to internal
payroll costs of employees directly associated with the development of the
internal use computer software. Amortization commences once the software is
ready for its intended use and is amortized by the straight-line method over the
estimated useful life, typically twelve to eighteen months. Amortization expense
for computer costs totaled approximately $78,000 for 1999 and unamortized
computer software costs totaled approximately $118,000 as of December 31, 1999.

4. ACCRUED LIABILITIES

Accrued liabilities consist of the following:

                                                              DECEMBER 31,
                                                              ------------
                                                         1999             1998
                                                         ----             ----
Compensation and related expenses ............       $  422,610       $   18,194
Sales and marketing ..........................        1,581,749               --
Professional services ........................          314,045               --
Other ........................................          502,601          150,942
                                                     ----------       ----------
                                                     $2,821,005       $  169,136
                                                     ==========       ==========

5. RELATED-PARTY TRANSACTIONS (SEE ALSO NOTES 9 and 12)

The Company entered into advertising transactions with a stockholder in the
amounts of $0, $35,070 and $81,239, for the years 1999, 1998 and 1997,
respectively.


                                       34
<PAGE>

                              PROMOTIONS.COM, INC.
                         (FORMERLY WEBSTAKES.COM, INC.)
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

6. STOCK OPTION PLAN:

1997 Stock Option Plan

In 1997, the Company's Board of Directors and stockholders adopted the Company's
Stock Option Plan (the "Plan"). The Plan provides for the granting, at the
discretion of the Stock Option Committee of the Board of Directors (the "SOC"),
of: (i) options that are intended to qualify as incentive stock options, within
the meaning of Section 422 of the Internal Revenue Code, as amended (the
"Code"), to employees and (ii) options not intended to so qualify to employees,
officers, consultants and directors. Amended in April 1999, the total number of
shares of common stock for which options may be granted under the Plan is
450,000.

The exercise price of all stock options granted under the Plan is determined by
the SOC at the time of grant. The maximum term of each option granted under the
Plan is 10 years from the date of grant. Options generally vest ratably over a
four year period.

As of December 31, 1999 and 1998, an aggregate of -0- and 135,991 shares were
available for future grants under the Plan, respectively.

1999 Equity Compensation Plan

In June 1999, the Company's Board of Directors and stockholders adopted the
Company's Equity Compensation Plan (the "1999 Plan"). The 1999 Plan provides for
the granting, at the discretion of a committee of the board of: (i) options that
are intended to qualify as incentive stock options, within the meaning of
Section 422 of the Code, to employees and (ii) options not intended to so
qualify to employees, officers, consultants and directors. The Company has
2,000,000 shares of common stock authorized for grants under the 1999 Plan.

The exercise price of all stock options granted under the 1999 Plan is
determined by the committee of the board at the time of the grant. The maximum
term of each option granted under the 1999 Plan is 10 years from the date of
grant. Options generally vest ratably over a four year period.

As of December 31, 1999, an aggregate of 424,710 were available for future
grants under the plan.

Stock-Based Compensation

The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock--Issued to Employees" ("APB 25") and related interpretations in accounting
for its stock option issuances. The Company has adopted the disclosure-only
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", whereby
compensation expense is recognized ratably over the vesting period. Had
compensation cost for the Company's stock options issued at the fair value of
the Company's stock been determined based on the fair value of the stock options
at the grant date for awards in 1999 and 1998 consistent with the provisions of
SFAS No. 123, the Company's net loss would have been adjusted to the pro forma
amounts indicated below:

                                                           DECEMBER 31,
                                                           ------------
                                                     1999                1998
                                                     ----                ----

Net loss
   As reported ..........................        $27,083,416         $1,414,043
   Pro Forma ............................        $32,736,442         $1,426,552

Net loss per share
    As reported--basic and diluted ......             $(3.61)            $(0.27)
    Pro forma--basic and diluted ........             $(4.36)            $(0.28)


                                       35
<PAGE>

                              PROMOTIONS.COM, INC.
                         (FORMERLY WEBSTAKES.COM, INC.)
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

6. STOCK OPTION PLAN - (CONTINUED):

The fair value of each option granted in 1999 after the initial public offering
was estimated using the Black-Scholes option-pricing model which takes into
account as of the grant date the exercise price and expected life of the option,
the current price of the underlying stock and its expected volatility, expected
dividends, and the risk free interest rate for the expected term of the option.

The fair value of each option granted in 1999 prior to the initial public
offering and in 1998 was estimated using the minimum value method of the
Black-Scholes option pricing model which assumes no volatility. The values were
obtained using assumptions which were derived using information supplied by the
Company. Changes in the information would affect the assumptions and the option
prices derived from those assumptions. The weighted average assumptions used for
grants made in 1999 and 1998 were as follows:

                                                    1999        1998
                                                    ----        ----

Risk free interest rate...........................  6.7         5.69

Expected option life (years)......................    7            7

Expected future dividend yield....................  0.0%         0.0%

Expected volatility...............................   59%         0.0%

As the fiscal year 1997 option grants were made on December 31, 1997, no
compensation cost would have resulted for the fiscal year.

In December 1997, the Company issued options to non-employee consultants to
purchase up to 27,028 shares of the Company's common stock, which vest ratably
over two years. During 1999, the Company issued options to non-employee
consultants to purchase up to 69,972 shares of the Company's common stock, which
vested on the date of grant. In accordance with Emerging Issues Task Force
Abstract No. 96-18, "Accounting for Equity Investments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services", the Company is recording the value of the services being received
based on the fair value of the options provided or the services received which
ever is more reliably measured. The fair value of these options has been
estimated using the Black-Scholes pricing model and has been recorded as
deferred compensation and is being amortized as service expense over the vesting
period. Final measurement will occur on the vesting date.

The following table summarizes the activity in options under both plans:


                                                                    WEIGHTED
                                                                  AVERAGE FAIR
                                                                 VALUE/EXCERISE
                                                     OPTIONS /      PRICE PER
                                                       SHARES   OPTION/PER SHARE
                                                       ------   ----------------
Outstanding, January 1, 1997 ................              --                 --
Granted .....................................          66,228              $1.16
Outstanding, December 31, 1997 ..............          66,228              $1.16
Granted .....................................          73,081              $3.02
Forfeited ...................................         (25,300)             $2.82
Outstanding, December 31, 1998 ..............         114,009              $1.98
Granted .....................................       1,974,059              $9.97
Forfeited ...................................         (62,778)            $10.48
Outstanding, December 31, 1999 ..............       2,025,290              $9.57


                                       36
<PAGE>

                              PROMOTIONS.COM, INC.
                         (FORMERLY WEBSTAKES.COM, INC.)
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

6. STOCK OPTION PLAN - (CONTINUED):

As of December 31, 1999 and 1998, 234,114 and 23,566 options were exercisable
with a weighted average per share fair value/exercise price of $7.45 and $1.19.
No options were exercisable at December 31, 1997.

At December 31, 1999, 1998 and 1997, the weighted average remaining contractual
life of the options outstanding was approximately 9.51 years, 9.47 years and
10.00 years, respectively.

7. DEFINED CONTRIBUTION PLAN

The Company began sponsoring a defined contribution plan for its employees which
was effective January 1, 1998. Under the 401(K) Savings Plan (the "Plan"),
employees are allowed to contribute up to 15% of their salary to the Plan, as
defined. The Company makes voluntary contributions to the Plan matching 50% of
the first 6% of employee contributions, which vest over a period of 4 years at
25% per year starting in the second year of service. The total Company
contributions in 1999 and 1998 were $44,808 and $24,556, respectively.

8. COMMITMENTS

LEASES:

The Company leases office space in New York and California under non-cancelable
operating leases expiring at various dates through 2002. The following is a
schedule of future minimum lease payments under non-cancelable operating leases
as of December 31, 1999:

YEAR ENDING
DECEMBER 31

2000....................................................  $267,663
2001....................................................   142,191
2002....................................................    19,792
                                                          --------

                                                          $429,646
                                                          ========

Rent expense was $388,267, $90,693 and $16,439 for the periods ended December
31, 1999, 1998 and 1997, respectively.

LEASE AGREEMENT

In March 1999, the Company entered into a secured financing agreement with a
leasing company for the leasing of equipment in an amount up to $1 million. The
lease has a one-year availability period and a term of 36 months, with interest
and principal payable monthly. At December 31, 1999, the Company has leased
approximately $840,000 of equipment under the lease. These items have been
accounted for as a capital lease. The future minimum lease payments due under
capital leases, together with the present value of such payments is $809,589
less $82,525 representing interest.

9. CONVERTIBLE NOTES AND EQUIPMENT LOAN--RELATED PARTY

In July 1996, the Company entered into a promissory note agreement with a former
holder of class A mandatorily redeemable convertible preferred stock (the "Class
A") (the "holder"). Under the agreement, the Company received $260,000 during
1996 and an additional $240,000 during 1997. At the time of issuance, the note
was equal to the fair value of shares received upon conversion. This note, and
the interest related thereto, was converted into 999,600 shares of common stock
at $.54 per share in September 1997.


                                       37
<PAGE>

                              PROMOTIONS.COM, INC.
                         (FORMERLY WEBSTAKES.COM, INC.)
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

9. CONVERTIBLE NOTES AND EQUIPMENT LOAN--RELATED PARTY-(CONTINUED):

In September 1997, the Company entered into a promissory note agreement with the
holder. Under the agreement, the Company received $150,000 during 1997 and an
additional $350,000 during 1998. At the time of issuance, the note was equal to
the fair value of shares received upon conversion. This note, and the interest
related thereto, was converted into 715,008 shares of common stock at $.73 per
share in September 1998.

In December 1997, the Company entered into a promissory note agreement with the
holder. Under this agreement, the Company received $200,000 during 1998. The
terms of the agreement call for 36 equal monthly payments of principal and
accrued interest. At December 31 1999, minimum future payments due under notes
payable were $66,667 for the year 2000.

In July 1998, the Company entered into an agreement with the holder under which
the holder agreed to purchase at a future date 50,000 shares of class A. During
the course of 1998, and in January 1999, the holder advanced the Company
$1,270,000 and $120,000, respectively, at an interest rate of prime plus 3%. At
the time of issuance, the face amount of the note was equal to the fair value of
shares to be received upon conversion. On January 20, 1999, the outstanding
principal balance of $1,390,000 plus interest was converted into the agreed upon
50,000 class A and the Company received additional cash of $3,575,000 for the
remaining class A. See Note 10, below.

10. CAPITAL STOCK

At December 31, 1999, the authorized capital stock of the Company consisted of
50,000,000 shares of common stock, $.01 par value per share. The Board of
Directors (the "Board") of the Company has the authority to issue preferred
stock in classes with rights and privileges determined by the Board. Upon
formation of the Company, 3,999,576 shares of $.01 par value common stock were
issued to the founders.

In June 1999, the Company's board of directors and stockholders amended the
Company's Certificate of Incorporation to create the class B, $.01 par value and
authorized 6,700,000 shares of the class B. The previously existing class B
preferred stock became the class C preferred stock, no par value. Additionally,
the number of authorized shares of common stock was increased to 50,000,000
shares.

In 1997, the Board approved a 1 for 1,176 common stock split, which has been
retroactively restated to the inception date. However, the retroactive
restatement of the common stock, $.01 par value, at inception exceeded the
beginning capital infusion of $30,000, resulting in negative additional paid-in
capital at January 1, 1997 of $9,967.

PREFERRED STOCK

In January 1999, the Company issued 50,000 shares of the class A through a
private placement, in consideration for net proceeds of approximately
$5,000,000, inclusive of the conversion of $1,390,000 of advances plus interest.
The holders of the class A were entitled to receive cumulative or noncumulative
dividends when and if declared by the Board. The preferred shares were
redeemable at the option of the holders at any time after August 1, 2003 for
$100 per share (par value), plus accrued and unpaid dividends at the redemption
date.


                                       38
<PAGE>

                              PROMOTIONS.COM, INC.
                         (FORMERLY WEBSTAKES.COM, INC.)
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

10. CAPITAL STOCK-(CONTINUED):

PRIVATE PLACEMENT

In June 1999, the Company completed a private placement and issued 6,666,668
shares of class B, in consideration for net proceeds of $40,000,000.
Subsequently, the Company repurchased all 50,000 shares of class A and 1,714,608
shares of common stock for $24,000,000. The repurchased class A was cancelled.

In accordance with EITF D-42 "The Effect on the Calculation of Earnings per
Share for the Redemption or Induced Conversion of Preferred Stock," the excess
of the consideration paid to the holders of the class A in the redemption of the
50,000 shares over the carrying amount of class A represents a deemed dividend
or return to the holders of the class A of $8,712,352.

Each share of the class B is convertible into one share of common stock and
automatically converted, on terms as defined, at this one for one ratio upon
completion of the Company's IPO.

As the Class B was only convertible upon closing of the Company's IPO, which was
outside the control of the holder, in accordance with EITF D-60 "Accounting for
the Issuance of Convertible Preferred Stock and Debt Securities with a
Nondetachable Conversion Feature," the Company looked to the commitment date as
the measurement date in determining whether the issuance of the Class B included
a beneficial conversion feature. It was determined that as the issuance price
equaled the common stock fair value on that date, no beneficial conversion
feature existed.

WARRANTS

In March 1999, the Company issued to Allen & Co. warrants to purchase 168,350
shares of the Company's common stock (which was increased in June 1999 to a
total of 221,683 shares of common stock), for financial advisory services
provided plus three payments of $100,000 due on June 30, 1999, 2000 and 2001 in
exchange for financial advisory services to be provided from non-employee
consultants. The Company has recorded the value of the services being received
by valuing the warrants using the Black-Scholes pricing model and such cost is
being expensed over the vesting period. Final measurement will occur on the
vesting date. As the warrants vested upon issuance, all of the expense was
recognized as non-cash financial advisory services expense in the year ended
December 31, 1999.


                                       39
<PAGE>

                              PROMOTIONS.COM, INC.
                         (FORMERLY WEBSTAKES.COM, INC.)
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

11. INCOME TAXES

There is no current provision for corporate income taxes as the Company
generated a net operating loss for tax purposes.

The difference between the provision for income taxes computed at the statutory
rate and the reported amount of tax expense attributable to income before income
taxes for the years ended December 31, 1999, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
                                                                                   December 31,
                                                                                   ------------
                                                                  1999                 1998                 1997
                                                                  ----                 ----                 ----
<S>                                                           <C>                    <C>                   <C>
Tax benefit at statutory rates .............................  $(6,429,872)           $(494,915)            $(79,394)
State and local income taxes, net of federal income
   tax benefit .............................................   (2,020,817)            (155,545)             (24,952)
Other net ..................................................      (25,799)              11,113                7,000
Valuation allowance adjustment .............................    8,476,488              639,347               97,346
                                                              -----------          -----------          -----------
                                                              $        --          $        --          $        --
                                                              ===========          ===========          ===========
</TABLE>

The components of the net deferred tax asset as of December 31, 1999, 1998 and
1997 consist of the following:

<TABLE>
<CAPTION>
                                                                                                    December 31,
                                                                                                    ------------
                                                                                 1999                   1998                  1997
                                                                                 ----                   ----                  ----
<S>                                                                           <C>                     <C>                   <C>
Deferred tax assets:
   Operating loss carryforward ...................................            $9,207,795              $757,574              $206,169
   Allowance for doubtful accounts ...............................               264,439                57,500                 5,842
   Accrued expenses ..............................................                    --                33,120                    --
   Other .........................................................                15,717                 3,450                    --
                                                                              ----------            ----------            ----------

     Total deferred tax assets ...................................             9,487,951               851,644               212,011

Deferred tax liabilities:
Capitalized software costs .......................................                54,214                    --                    --
Depreciation and amortization ....................................               119,759                14,155                13,869
                                                                              ----------            ----------            ----------

        Total deferred tax liabilities ...........................               173,973                14,155                13,869
                                                                              ----------            ----------            ----------

Net deferred tax asset ...........................................             9,313,977               837,489               198,142
Less: valuation allowance ........................................             9,313,977               837,489               198,142
                                                                              ----------            ----------            ----------
Deferred tax asset ...............................................            $       --            $       --            $       --
                                                                              ==========            ==========            ==========
</TABLE>

The net deferred tax asset has been fully reserved due to the uncertainty of the
Company's ability to realize this asset in the future.

As of December 31, 1999, the Company had available for federal income tax
purposes net operating loss carryforwards of approximately $20.0 million which
expire in the years 2012 through 2019.


                                       40
<PAGE>

                              PROMOTIONS.COM, INC.
                         (FORMERLY WEBSTAKES.COM, INC.)
                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

12. PREPAID EXPENSES-RELATED PARTY

In June 1999, the Company entered into a two-year sponsorship agreement with
Excite under which Excite agreed to promote WEBSTAKES.COM through ad banner
placements and links to WEBSTAKES.COM and its promotions on Excite.com., Web
Crawler.com and Classified 2000.com. The Company prepaid Excite $5.6 million
during 1999 for this two-year agreement. At December 31, 1999, the total prepaid
expense related to this agreement was $4.1 million of which $2.8 million is
recorded in prepaid expenses and other current assets and $1.3 million is
recorded in other assets. Amounts are being amortized ratably over the two year
term of the contract. At Home Corporation, the parent company of Excite, is a
principal stockholder of the Company.

In June 1999, the Company entered into a two-year service agreement with
MatchLogic, Inc., a wholly owned subsidiary of Excite, pursuant to which
MatchLogic will provide ad serving and targeting, data processing analysis,
enhancement and other services to Promotions.com. The Company prepaid MatchLogic
$13.1 million during 1999 for this two-year agreement. At December 31, 1999, the
total prepaid expenses related to this agreement was $8.9 million of which $6.6
million is recorded in prepaid expenses and other current assets and $2.3
million is recorded in other assets. Amounts are being amortized ratably over
the two year term of the contract.

13. SUBSEQUENT EVENTS (UNAUDITED)

LEASE

In January 2000, the Company entered into an agreement to lease an additional
36,000 square feet of office space in New York City. In lieu of a cash security
deposit, the Company delivered to the landlord an irrevocable, unconditional and
transferable letter of credit in the amount of $1,600,000.


                                       41
<PAGE>

                              PROMOTIONS.COM, INC.
                         (FORMERLY WEBSTAKES.COM, INC.)

ITEM 9. Changes in and Disagreements with Accounts and Accounting Financial
Disclosure

None.

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

Incorporated by reference from the information in our proxy statement for the
2000 Annual Meeting of Stockholders which we will file with the Securities and
Exchange Commission within 120 days of the end of the fiscal year to which this
report relates.

Item 11. Executive Compensation

Incorporated by reference from the information in our proxy statement for the
2000 Annual Meeting of Stockholders which we will file with the Securities and
Exchange Commission within 120 days of the end of the fiscal year to which this
report relates.

Item 12. Security Ownership of Certain Beneficial Owners and Management

Incorporated by reference from the information in our proxy statement for the
2000 Annual Meeting of Stockholders which we will file with the Securities and
Exchange Commission within 120 days of the end of the fiscal year to which this
report relates.

Item 13. Certain Relationships and Related Transactions

Incorporated by reference from the information in our proxy statement for the
2000 Annual Meeting of Stockholders which we will file with the Securities and
Exchange Commission within 120 days of the end of the fiscal year to which this
report relates.

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on form 8-K

(a)   The following documents are filed as part of this report:

      (1)   Financial Statements: See Index to Financial Statements at Item 8 on
            page 25 of this report.

      (2)   Financial Statement Schedule: See Index to Financial Statements at
            Item 8 on page 25 of this report.


                                       42
<PAGE>

(a)(3)   Exhibits

      The following is a list of exhibits filed as part of this report on Form
10-K. Where so indicated by footnote, exhibits that were previously filed are
incorporated by reference. For exhibits incorporated by reference, the location
of the exhibit in the previous is indicated parenthetically except for those
situations where the exhibit number was the same as set forth below.

<TABLE>
<CAPTION>
Exhibit
Number            Description
------            -----------
<S>               <C>
3.1(1)            - Certificate of Incorporation
3.2(1)            - Certificate of Amendment to the Certificate of Incorporation, dated February 23, 1999
3.3(1)            - Certificate of Amendment to the Certificate of Incorporation dated January 17, 1999
3.4(1)            - Certificate of Amendment to the Certificate of Incorporation, dated June 11, 1999
3.5(1)            - Amended and Restated Bylaws
3.6(3)            - Amended and Restated Bylaws dated September 29, 1999
3.7*              - Certificate of Ownership and Merger dated January 26, 2000
10.1(1)(2)        - Netstakes, Inc. Stock Option Plan
10.2(1)(2)        - 1999 Equity Compensation Plan
10.3(1)           - Master Lease Agreement No.L6731 with Leasing Technologies International, Inc. dated November
                    19, 1999
10.4(1)           - Master Service Agreement between Registrant and Frontier Global Center dated February 8, 1999
10.5(1)(2)        - Letter Agreement between Registrant and Steven H. Krein, dated June 11, 1999
10.6(1)(2)        - Letter Agreement between Registrant and Daniel Feldman, dated June 11, 1999
10.7(1)           - Stock Purchase Agreement dated June 11, 1999
10.8*             - Master Lease Agreement between Registrant and 450 Westside Partners, LLC dated January 12, 2000
11.1*             - Statement regarding computation of per share earnings
23.1*             - Consent of PricewaterhouseCoopers LLP.
27.1*             - Financial data schedule
99.1*             - Valuation and Qualifying Accounts.
</TABLE>

*  Filed herewith.

(1)   Filed as an exhibit to the Registrants Registration Statement on Form S-1
      (Registration No. 333-80593) filed with the Commission on June 14, 1999,
      amended and incorporated herein by reference.

(2)   Compensatory plans and arrangements for executives and others.

(3)   Filed as an exhibit on Form 10-Q filed on November 15, 1999 and
      incorporated herein by reference.

(b)   Reports on form 8-K

      No reports on Form 8-K were filed or required to be filed for the last
quarter of the fiscal year.


                                       43
<PAGE>

                                   SIGNATURES

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

Dated:  March 30, 2000                   Promotions.com, Inc.

                                         By /s/ Steven H. Krein
                                           -------------------------------
                                           Steven H. Krein
                                           Chairman of the Board and Chief
                                           Executive Officer

      Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated this 30th day of March, 2000.

/s/ Daniel J. Feldman
-----------------------------
Daniel J. Feldman                        President and Director

/s/ Thomas E. Brophy
-----------------------------
Thomas E. Brophy                         Chief Financial Officer
                                         (Chief Accounting Officer)

/s/ Dirk A. Hall
-----------------------------
Dirk A. Hall                             Director

/s/ Kristopher A. Wood
-----------------------------
Kristopher A. Wood                       Director

/s/ Arnold Greenberg
-----------------------------
Arnold Greenberg                         Director


                                       44