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

                                   FORM 10-K

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

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

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

                  FOR THE PERIOD FROM           TO           .

                       COMMISSION FILE NUMBER: 000-21751

                               MESSAGEMEDIA, INC.
             (Exact name of Registrant as specified in its charter)

<TABLE>
<S>                                            <C>
                   DELAWARE                                      33-0612860
          (State or jurisdiction of               (I.R.S. Employer Identification Number)
        incorporation or organization)
</TABLE>

                                6060 SPINE ROAD
                            BOULDER, COLORADO 80301
         (Address, including zip code, of principal executive offices)

                                 (303) 440-7550
              (Registrant's telephone number, including area code)

            SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF ACT:
                                      None

          Securities registered pursuant to section 12(g) of the Act:
                         COMMON STOCK, $.001 PAR VALUE
                                (Title of Class)

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

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

    As of March 10, 2000, there were outstanding 55,619,114 shares of the
Registrant's common stock, $.001 par value. As of that date, the aggregate
market value of the voting stock held by non-affiliates of the Registrant was
approximately $396,018,784 when the closing price of such stock, as reported on
the Nasdaq National Market, was $14.* Shares of common stock held by each
officer and director and each person who owns 5% or more of the outstanding
common stock have been excluded in that such persons may be affiliates.

                      DOCUMENTS INCORPORATED BY REFERENCE

    Certain information called for by Part III is incorporated by reference from
the Proxy Statement relating to the Annual Meeting of Stockholders of the
Registrant to be held on April 27, 2000.
---------------

* Excludes 27,332,058 shares of common stock held by directors and executive
  officers and stockholders whose ownership exceeds five percent of the shares
  outstanding at March 10, 2000. Exclusion of shares held by any person should
  not be construed to indicate that such person possesses the power, direct or
  indirect, to direct or cause the direction of the management of policies of
  the Registrant, or that such person is controlled by or under common control
  with the Registrant.
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                                     PART I

     This Report on Form 10-K contains, in addition to historical information,
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. You can identify these forward-looking
statements when you see words such as "expect", "anticipate", "estimate", and
other similar expressions. Actual results could differ materially from those
projected in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in the subsection
entitled "Factors Affecting Operating Results and Market Price of Stock"
commencing on page 11. Readers are cautioned not to place undo reliance on these
forward-looking statements, which speak only as of the date hereof. We undertake
no obligation to publicly update any forward-looking statements for any reason
even if new information becomes available or other events occur in the future.

ITEM 1. BUSINESS

     MessageMedia, Inc. ("MessageMedia" or the "Company") is a leading provider
of permission-based, comprehensive e-messaging solutions. E-messaging is the
term used to describe our suite of services that utilize the medium of e-mail to
develop and foster permission-based relationships with customers. The Company's
suite of services and products, including Internet-based marketing
("e-marketing"), customer care, e-commerce messaging, survey ("e-survey") and
information distribution solutions, enable businesses to use e-messaging as a
strategic tool to increase sales, improve customer communication and develop
long-term customer loyalty and customer dialog. The Company's e-messaging
solutions, available on an outsourced, subscription basis or as packaged
software licensed on a hosted or client in-house basis, allow businesses to
establish and enhance two-way customer dialog across the extended enterprise,
from marketing to sales to customer service. By leveraging the cost-effective
reach, flexibility and widespread acceptance of e-mail, the Company's solutions
enable businesses to create, deliver and continually refine targeted,
permission-based e-messaging campaigns.

     Through its professional staff of client service representatives, the
Company delivers its outsourced e-messaging services specifically tailored to
each client's business objectives. After an initial sale is made, the Company
appoints an account management team to act as the client's primary point of
contact for all relationship and campaign management issues. The Company's
end-to-end e-messaging mailing and campaign management solutions include
creating a detailed specification of customer needs, developing the web
interfaces, customizing the database, implementing project plans, the campaign
roll-out and post-mailing analysis. The Company's proprietary technology allows
us to track and review current and past e-messaging campaigns, providing
valuable information that allows us to tailor and fine-tune our clients
e-messaging campaigns to optimize effectiveness. The Company's outsourced
services provide clients with the following benefits:

     - a comprehensive set of e-messaging solutions for businesses that seek to
       increase sales, improve customer communication and develop long-term
       customer loyalty;

     - permission-based e-messaging to create an immediate two-way dialogue with
       customers;

     - tools to track, review and refine e-messaging campaigns by leveraging
       MessageMedia's expertise and proprietary technology;

     - rapidly deployable, cost-effective outsourced solutions which eliminate
       the need to invest in the technology, hardware and human resources
       necessary to implement and manage a comprehensive set of e-messaging
       services; and

     - the ability to manage large volumes of simple or complex customer
       communications and easily integrate more advanced e-messaging
       applications.

     Our clients cover a broad range of industry segments, including Internet
Service Providers ("ISPs") and portals, retail/e-commerce, publishing,
hardware/software/technology, travel/hospitality and financial services.

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     In June 1998, we were recapitalized by SOFTBANK Corp. and affiliates, a
leading investor in the Internet sector. We intend to leverage our strategic
relationship with SOFTBANK ("SOFTBANK") through introductions to companies
within the SOFTBANK family of investments and capitalize on the expertise and
advice of its partners with respect to building e-businesses.

     MessageMedia, Inc. was formed with the acquisition of Email Publishing Inc.
("EPub") and Distributed bits, L.L.C. ("DBits") by First Virtual Holdings Inc.
("FVHI"). These firms were merged and consolidated in December 1998 into a
single, combined company that was renamed MessageMedia, Inc. In August 1999, the
Company acquired Revnet Systems Inc. ("Revnet") and Decisive Technologies Inc.
("Decisive"). The Company is a member of the family of companies funded and
supported by SOFTBANK Holdings Inc. and its affiliates. The Company's singular
focus is on e-messaging and it employs advanced technology, tools and
applications to help corporations fully utilize this new channel for building
and enhancing customer relationships online.

INDUSTRY BACKGROUND

  Changing Business Environment and Need to Foster Customer Relationships

     The dramatic growth of the Internet and the proliferation of e-mail has
changed the way businesses and customers interact. Prior to the advent of
e-mail, businesses relied primarily on in-person interaction and physical
proximity to the customer as well as techniques such as direct mail and
telemarketing to foster customer relationships. Such methods, however, vary in
their degree of effectiveness and are often characterized by high costs and slow
response times. In the online environment, competitors are only a mouse click
away, increasing the need to quickly and cost-effectively build and strengthen
customer relationships.

     As a result, online businesses are increasingly in need of strategic
applications that enable them to expand their customer base, foster customer
loyalty and provide personalized, one-to-one communication. Providing a high
quality service online is challenging due to the rapidly evolving nature of the
Internet, shifts in customer demand and customers' sensitivity to uninvited
business solicitation. To date, many attempts to leverage the Internet and
e-mail as a business-to-customer communication medium have faltered because of
the widespread use of blanketed, uninvited email, or SPAM, which many customers
view as invasive. In the Internet world, unsatisfied customers not only can
effortlessly turn to a competitor, but also can easily turn the Internet into
their personal soapbox to criticize the company.

  Permission-based E-mail can be a Highly Strategic Tool for Online Business

     In contrast, permission-based, or "opt-in", e-mail is a highly reliable,
cost-effective and timely way for businesses to create a personal, two-way
dialogue with their customers. Forrester Research predicts that outsourced
e-mail messages will grow from three billion in 1998 to 250 billion in 2002.
While most e-mails sent today are simple in nature, the complexity and
functionality of e-mail is changing dramatically. For example, e-mail can be
used for a variety of highly strategic functions such as marketing, customer
service and transaction confirmations. E-mail functions can also be quickly
customized or adapted to allow businesses to target and shape their
communications to meet the rapidly changing needs of their customers. As
businesses and consumers grow more comfortable with conducting commerce over the
Internet, e-mail volume associated with business communication and e-commerce is
expected to grow even more quickly. The Gartner Group estimates that by 2001
businesses will receive 25% of all customer contacts and inquiries via e-mail
and web-based forms. Furthermore, Forrester Research predicts that by 2001 the
typical online consumer will participate in eight to ten commerce-related
exchanges via e-mail per week. As e-mail grows in popularity, businesses will
face the pressing challenge of using e-mail as a strategic tool for building
customer relationships and responding to large volumes of inbound e-mail
communications.

  Emergence of E-messaging

     E-messaging is the term used to describe the Company's suite of services
that utilize the medium of e-mail to develop and foster permission-based
relationships with customers. We believe customers are far more receptive to
business' communications using the Company's "opt-in" driven approach, forming
the

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foundation for longer lasting and valuable customer relationships. E-messaging
has numerous strategic applications. For example, it may be used as a strategic
marketing tool whereby highly personalized and targeted messages can be sent to
customers informing them of a special promotion or sale. The functionality of
e-messaging also extends easily to a variety of other functions across the
business enterprise including: gathering key customer feedback in e-mail based
surveys; serving as a platform to provide customer service and technical
support; distribution of newsletters; and sending notification and confirmation
of e-commerce transaction-based activities. Moreover, businesses utilizing
e-messaging are able to capture data generated in these electronic
communications. This data can provide a wealth of information to better
understand client needs and preferences for future interactions.

  Complexity of E-messaging Supports the Trend toward Comprehensive Outsourced
  Services

     To create strong and effective e-messaging programs, businesses will need a
broad range of technology and strategic expertise to adapt and implement
effective solutions in today's rapidly changing business and regulatory
environment. We believe this will lead to an increase in the outsourcing of
e-messaging applications. Forrester Research predicts that outsourced e-mail
messages will grow from three billion in 1998 to 250 billion in 2002. In order
to effectively leverage e-messaging as a key competitive tool, businesses not
only must be able to gather information about customer preferences and needs,
but employ systems that are robust enough to seamlessly and quickly respond to
such data. The implementation of effective e-messaging systems requires
substantial hardware, software, technical and administrative resources. As
e-mail grows in volume and sophistication, the resources and expertise required
to cost-effectively implement, enhance and scale e-messaging applications
increases exponentially. Moreover, on a strategic front, the proliferation of
blanketed and uninvited e-mail has spurred a wave of legislative and
industry-group action to regulate the use of commercial, non-permissive e-mail,
which complicates the use of e-mail for commercial purposes. Because of the
complexities of these strategic and technical problems and the need to deploy a
solution quickly and cost-effectively, businesses increasingly are looking to
outsource their e-messaging services to "one-stop" outsourced providers.

SERVICES AND SOFTWARE PRODUCTS

     MessageMedia offers a comprehensive suite of e-messaging solutions to
businesses. Our service offerings are built on a scalable, web based
architecture which is designed to meet the growth in Internet based
communications. Our software products are also built on standards based
technologies that are designed to integrate with existing customer applications.

  Outsourced Services

     We deliver e-messaging solutions on an outsourced service basis. All
applications are managed by our staff so that our clients need only submit their
content and e-mail lists and pay the monthly service bill. Each of our
applications may be purchased separately, however, they are designed to work
closely with one another. Service costs typically are priced with a minimum
expenditure of $5,000 per month.

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     The outsourced e-messaging solutions provided by the Company are designed
to enable our clients to expand their customer base, foster customer loyalty and
provide personalized, one-to-one communications. The development of a dialog
with one's customers is the critical business problem facing businesses that are
moving to a web-enabled, e-commerce sales, service and support business model.
The process of establishing e-messaging based customer dialog involves several
important processes. These processes are:

     GAIN PERMISSION

     - Clients must realize that this is not direct mail. There are groups that
       work to restrict unwanted junk e-mail ("Spam"). Legislative action is
       looming in this area in the U.S. and exists already in Europe.

     - The level of permission given by a customer is critical. Potential
       customers should request to receive e-mail ("opt-in"). The opt-in is then
       confirmed to make sure that the potential customer really wants to
       receive the senders e-mail is even better recognition of the potential
       customers' interest. Building customer loyalty and establishing customer
       dialog is all about having the customer say that they like the clients
       e-mail and want to continue to receive it.

     - Create a Permission Center -- This is a central location for customers to
       Opt-in. It contains the client's permission policies. The opt-in process
       can be used to define the types of information and communication desired
       by the customer who is opting-in. It can also be used to better control
       the requests to "opt-out" or unsubscribe.

     - Maintain high quality permission practices -- It should be clear where a
       message is coming from and why. Client should make it easy to unsubscribe
       from their e-mail list. Confirmed opt-in practices should be utilized to
       ensure real customer interest. E-mail lists should not be rented to other
       parties. Message copy that could be considered Spam must be avoided.

     DELIVER THE RIGHT MESSAGE

     - Value through Content -- The appearance of the message sent is critical.
       High quality creative design, use of colors and effective formats (HTML
       instead of text) are all aspects of content that are important to
       customer receptivity to the message. We can imbed audio and video in a
       message which can be very powerful communications tools.

     - Personalization -- Use of a personal greeting and targeted messages is
       very important along with asking for information only once.

     - Valuable Offer -- It is important to the dialog process that the
       communications be about compelling products, with compelling economics
       and have reasonable terms and restrictions.

     GAIN CUSTOMER INTELLIGENCE

     - Permission profiling -- Use the opt-in process to gather relevant
       customer information and insight into a customer's desires regarding
       communication without crossing the privacy line.

     - Keep a history of all contacts -- Campaign management and message
       reporting tools should be used to analyze trends in customer contacts.

     - Track in-bound responses -- Be responsive to customer messages. Inquiries
       and complaints should be handled promptly to help understand why
       customers unsubscribe.

     - Utilize database marketing techniques -- Use data marts, data overlays,
       data modeling and scoring technologies.

     - Use email based surveys -- Use of e-survey for transaction or periodic
       surveys is a way to measure customer satisfaction and to provide updated
       profile information.

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     ESTABLISH AN ON-GOING DIALOG

     - Create opportunities for dialog -- Dialog doesn't happen when your only
       communication is newsletters or marketing offers. It is about enhanced
       communications which include transaction acknowledgements, thank you
       communications, monthly/annual recaps, etc.

     - Enhancing "Buying Levels" -- Utilize up-sell and cross-sell opportunities
       whenever possible. Create and monitor levels of usage and reward usage
       with added value.

     - Create loyalty programs -- Create points programs or clubs, etc.

     MessageMedia's suite of outsourced services are designed to address the
issues presented by these customer dialog processes. Our outsourced services
utilize the following core competencies:

     CORE COMPETENCIES

     - Permission -- We maintain a staff of full-time permission advocates who
       work with our clients on the development of permission policies, the
       establishment of permission centers, review e-mail list sources and other
       permission and privacy related issues.

     - Account Management and Client Services -- Through our professional staff
       of account management and client service representatives, we deliver
       e-messaging services specifically tailored to each client's business
       objectives. Each client has an account management team (comprised of an
       account manager and one or more client services representatives) which
       acts as the client's primary point of contact for all relationship and
       campaign management issues. They work with the client to develop an
       e-messaging calendar, create a specification of campaign needs, develop
       the necessary web interfaces, customize the client database through which
       we maintain, import and manipulate data, implement project plans, and
       manage pre-production and production testing, campaign roll-out and
       post-mailing analysis. Additionally, our client services professionals
       have extensive experience in the development and delivery of effective
       customer communications programs. This expertise is used extensively by
       clients and their creative/advertising agencies as dialog/communications
       campaigns are designed and placed into production.

     - Outbound Messaging -- We manage all logistics of e-messaging delivery,
       from time-scheduled outbound message distribution to highly interactive
       and event-driven communications, such as confirming an Internet consumer
       purchase. E-messages with personalized content can be precisely targeted
       to segments of our clients e-mailing list. Our technology will also
       determine which format the e-mail reader uses in order to maximize the
       visual impact of the sender's message. We provide reliable, large-scale
       delivery of messages, personalized and customized to each of our client's
       customers in an e-messaging campaign, as well as sophisticated
       error-handling and "bounce" processing to ensure a clean and current
       customer e-mailing list. Our outbound messaging capabilities include the
       ability to include rich media (audio and video) in the e-mail message
       being sent by clients.

     - Inbound Messaging -- We manage all logistics of response processing from
       customers of our clients, including response validation, response
       tracking, performance of client defined actions and automated database
       updates. Our response-handling capabilities enable our clients to engage
       in interactive, two-way marketing campaigns, entirely via e-mail. The
       ability to process and respond to customers' inquiries improves the
       quality of the customer relationship by ensuring our client's ability to
       hear, acknowledge and respond to such request in a personalized manor.

     - E-Survey -- We provide our customers with a wide array of email based
       survey services. These services range from the development of the
       permission profiling questions that may be asked in the permission center
       to periodic and on-going transaction surveys to measure customer
       satisfaction to surveys directed at a specific target
       audience/question/problem. We have a staff of professional quantitative
       methods personnel with extensive experience in the design, development
       and deployment of surveys in both the conventional and e-survey delivery
       modes. These professionals also have

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extensive data analysis and data modeling experience that is used by customers
in the targeting and database segmentation aspects of their outbound e-messaging
campaigns.

     - Database Services -- We track and review the success of current and past
       e-messaging campaigns and can deliver multiple offers to separately
       defined customer groups. This allows our client to identify what worked
       and what did not and adaptively update and manage their campaigns in a
       proactive manner. All messaging activity is automatically tracked and
       logged into our database, creating a clear history of all customer
       actions to aid in resolution of individual requests as well as total
       campaign analysis. This detailed customer record provides a wealth of
       information and enables clients to fine-tune their direct marketing
       efforts and increase the return on investment in the next campaign.
       Additionally, clients often bring other data from their legacy systems to
       their e-messaging database maintained by us so that this additional data
       may be used to more effectively segment and target their customer
       communications.

     SERVICE OFFERINGS

     MessageMedia's outsourced services are delivered through five service
offerings. Within each of these service offerings we provide a wide range of
capabilities. Clients often use more than one of these services. In the fourth
quarter of calendar year 1999, 24% of our outsourced services clients utilized
three or more of these service offerings. The service offering descriptions
provided below are meant to provide a brief, general description of the
capabilities offered and are not meant to be a detailed, all encompassing
description of our capabilities.

     - Information Delivery -- Services in this area utilize our outbound
       messaging capabilities to deliver newsletters and other similar
       communications to an e-mail address list. Clients using this service are
       typically delivering large numbers of simple newsletters without limited
       personalization.

     - e-Marketing -- E-marketing services extend the basic information delivery
       services by adding more sophisticated customer targeting, enhanced
       messaging services including HTML messaging, trackable URL's, rich media
       content (audio and video), dynamically variable content and other
       services.

     - e-Customer Care -- This service offering integrates our inbound message
       handling capabilities with the clients outbound e-marketing programs. It
       provides automated handling of database updates for undeliverable and
       returned messages. Messages which cannot be handled in an automated
       fashion are then routed to the clients customer service call center or
       other client defined location for handling.

     - e-Commerce Messaging -- e-Commerce Messaging services provide our clients
       with a sophisticated customer communications program following an
       e-commerce transaction. This might involve sending an order receipt
       confirmation, then a shipping notice when the product is shipped,
       followed by a thank you for your order message. This is often followed by
       a questionnaire asking about the recent experience and product
       satisfaction. Finally, if there is no additional activity after a period
       of time other e-marketing communications are sent often with a discount
       offer to come back and purchase again.

     - e-Survey -- The use of e-mail based surveys is a powerful tool that can
       be used to determine customer satisfaction, customer communications
       preferences, product and service evaluations, as well as to study
       corporate image and brand equity. Clients have also used e-Survey for
       employee relationship management, including employee commitment studies
       and culture assessments.

INDUSTRY BASED SALES FOCUS

     The outsourced services offered by the Company are targeted toward six
major industry groups. These industry groups are: ISP's and portals; publishing;
retail/consumer; technology; financial services; and the travel and
entertainment industry. In each of these industry groups, we have developed an
understanding of the unique marketing requirements and have learned how to
customize e-marketing and communications programs that meet the challenges
unique to each specific industry. Our extensive experience in serving clients in
each of these industries has allowed our client services professionals the
opportunity to work with clients on a wide range of innovative, cutting edge
e-marketing and customer communications programs.
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     ISP's, portals and the publishing industry have been the industry groups
that have utilized our services for the longest period of time. We have seen
increasing interest on the part of firms in the retail/consumer, financial
services and travel and entertainment industry for business to consumer ("B2C")
communications and dialog programs. In the technology industry we have seen
clients developing both B2C and business to business ("B2B") communications and
dialog programs. In the case of B2B, these programs typically involve client
communications by a client to its distributors, dealers, resellers, consultants
and other middlemen.

  Packaged Software Solutions

     Our software solutions provide a complete solution for targeted,
personalized e-mail marketing and communication. UnityMail performs all standard
e-mail list server functions such as reliable high throughput e-mail delivery,
bounce management, discussion lists, announcement lists, and easy unsubscribes.
Integrated with relational databases such as Oracle or SQL Server, UnityMail can
perform functions such as targeted e-mail (filtering and data segmentation),
personalized e-mail, dynamic content editing, trackable URLs and campaign
sequencing. UnityMail is licensed for amounts ranging from $10,000 to $500,000.
Additionally, for clients with small databases and the need for limited e-mail
marketing functionality, we offer MailKing, an entry level PC-based e-mail
distribution software package. MailKing is priced at $99.95 for single copy
purchases. While these software applications assist businesses conducting basic
e-mail campaigns, we believe that as our software customers adopt more
sophisticated e-messaging campaigns and larger databases, many of these
customers will migrate to our outsourced solutions. For our software products,
we provide help desk support 24 hours per day, seven days a week. Additionally,
we provide installation, training and integration services on a billable hours
basis.

SALES

     Our sales efforts are conducted through a regionally based direct sales
force. The Company's sales force typically markets our solutions to the senior
level marketing personnel and senior corporate management within potential
client organizations. Our sales efforts for the outsourced services portion of
our business are focused on a number of industry vertical segments. Within these
industry vertical segments, we have developed expertise and knowledge of the
business, marketing and technical issues faced by clients in these industries.
We have worked with a number of "blue chip" clients who have agreed to help
facilitate the Company's sales efforts by acting as client references.

     We maintain a separate group of regionally based sales professionals that
are responsible for selling our packaged software applications, principally
UnityMail.

     Our regionally based direct sales force is focused on attracting new
clients. The Company's existing clients are supported by the account management
and client services organization. This group is responsible for working with
current clients on their communications and dialog programs, for retaining these
clients and for increasing the usage of our services by these clients. Our
account management and client services professionals are highly effective at
managing relationships and selling additional services to existing clients when
the need arises.

     As of December 31, 1999, we had 33 people in our sales group, and we plan
to significantly expand this group in the next 12 months. We currently have
regional sales offices in New York, NY and will be opening regional offices in
Chicago, IL and San Francisco, CA during 2000.

MARKETING

     Our marketing strategy is to build brand awareness as a leading provider of
e-messaging solutions and includes a media relations, industry representation
and public speaking focus to develop a reputation as an industry leader for
e-messaging solutions. We use narrowly focused print and online advertising
campaigns for lead generation and use event, forum and trade show participation
to establish and enhance our business-to-business brand presence.

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RESEARCH, DEVELOPMENT AND ENGINEERING

     Our research, development and engineering activities are focused primarily
on the design, development and enhancement of e-messaging services, as well as
on increasing the capacity and reliability of existing products and services. We
have devoted a significant portion of our resources to research, development and
engineering programs. The Company's research, development and engineering
expenses were $4.9 million, $4.8 million, and $6.7 million for the years ended
December 31, 1999, 1998 and 1997, respectively. We believe that significant
research, development and engineering expenditures will be required in order for
us to remain competitive. Accordingly, we expect that research, development and
engineering expenses will continue to constitute a significant portion of our
overall expenses in the future.

     Our ability to design, develop, test and support new software products and
enhancements on a timely basis is critical to our future success. There can be
no assurance that we will be successful in developing and marketing new software
products and enhancements that meet changing customer needs and respond to such
technological changes or evolving industry standards. Our current services are
designed around certain widely used and accepted standards, including the MIME
and SMTP e-mail standards and upon process-based security via an e-mail
confirmation. Current and future use of our services will depend, in part, on
industry acceptance of such standards and practices as they apply to the
Internet and Internet commerce.

INTERNATIONAL

     The market for outsourced e-mail services is growing dramatically.
According to Forrester Research, online trade in Europe will be a euro 36
billion business in 2000. Forrester's research indicates that "European
eCommerce will grow by more than 100% per year until 2003, reaching euro 1.6
trillion or 6.3% of total trade by 2004." European firms are quickly learning
from the U.S. market how to more effectively utilize e-messaging. To date, we
have had limited business dealings outside the United States.

     In October 1999, we entered into an agreement to establish a joint venture
in Europe with @viso ("Atviso"), a strategic partnership between Vivendi, the
leading European communications firm, and Softbank. On March 13, 2000, we
announced that the definitive agreements between @viso and MessageMedia had been
completed thus forming MessageMedia Europe. We will own 51% of the joint venture
while @viso will own 49%. @viso will act as an incubator, providing capital,
infrastructure, technical facilities and personnel resources to MessageMedia
Europe.

COMPETITION

     The market for our products and services is intensely competitive. There
are no substantial barriers to entry into our business, and we expect that
established and new entities will enter the market for e-messaging services and
interactive Internet communications in the near future.

     Our principal competitors in the e-messaging services arena include 24x7,
Inc., Axciom, Inc., Cyber Data Systems, Inc., DoubleClick, Inc., eGain
Communications Corporation, EmailChannel, Inc., Exactis.com, Inc., Experian,
Inc., Kana Communications, Inc., MarketHome, Inc., MatchLogic, Inc., Mustang
Software, Inc., NetCreations, Inc., PostX Corporation and ReplyNet, Inc. We also
compete with BroadVision, Inc., Digital Impact, E-Care Group, Mypoints.com, Inc.
and Post Communications for one-to-one marketing.

     We may experience additional competition from ISPs and other large
established businesses that enter the market for e-messaging services. Companies
such as ADVO Inc., America Online, Inc., AT&T, IBM Corporation, Harte-Hanks,
Inc., Hewlett-Packard Company, Integrion Financial Network LLC, The Interpublic
Group of Companies, Inc., Microsoft Corporation, Netscape Communications and
Foote Cone & Belding, some of whom are current clients of ours, which possess
large, existing customer bases, substantial financial resources and established
distribution channels could develop, market or resell a number of messaging
services.

     The Internet, in general, and our e-messaging solutions, in particular,
also must compete for a share of advertisers' total advertising budgets with
traditional advertising media such as television, radio, cable and
                                        8
<PAGE>   10

print. Consequently, we compete with advertising and direct marketing agencies.
To the extent that e-messaging is perceived to be a limited or ineffective
advertising medium, companies may be reluctant to devote a significant portion
of their advertising budget to our e-messaging solutions, which could limit the
growth of e-messaging and negatively effect our business.

     We also expect that competition may increase as a result of industry
consolidation. Potential competitors may choose to enter the market for
e-messaging services by acquiring one or more of our existing competitors or by
forming strategic alliances with such competitors. In addition, current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products or services to address the needs of our potential e-messaging
customers. Accordingly, it is possible that new competitors or alliances may
emerge and rapidly acquire significant market share. Increased competition is
likely to result in price reductions, reduced gross margins and loss of market
share, any of which would have a material adverse effect on our business,
results of operations and financial condition. We also may experience
competition from internal information systems and development groups of our
current and prospective clients that have better access to senior management.

     Many of our current and potential competitors have longer operating
histories, greater name recognition, larger customer bases, more diversified
lines of products and services and significantly greater resources than we do.
These competitors may be able to undertake more extensive marketing campaigns,
adopt more aggressive pricing policies and make more attractive offers to
potential customers. In addition, many of our current or potential competitors
have broad distribution channels that may be used to bundle competing products
or services directly to end-users or purchasers. If these competitors bundle
competing products or services for their customers, the demand for our products
and services could substantially decline. As a result of the above factors, we
cannot assure you that we will compete effectively with current or future
competitors or that competitive pressures will not have a material adverse
effect on our business, financial condition and results of operations.

LIMITED INTELLECTUAL PROPERTY

     We rely on a combination of trade secret, copyright and trademark laws,
nondisclosure agreements, and other contractual provisions and technical
measures to protect our proprietary rights. We believe that, due to the rapid
pace of technological innovation for Internet products, our ability to establish
and maintain a position of technology leadership in the industry depends more on
the skills of our development personnel than upon the legal protections afforded
our existing technology. There can be no assurance that trade secret, copyright
and trademark protections will be adequate to safeguard the proprietary software
underlying our products and services, or that our agreements with employees,
consultants and others who participate in the development of its software will
not be breached, that we will have adequate remedies for any breach or that our
trade secrets will not otherwise become known. Moreover, notwithstanding our
efforts to protect our intellectual property, there is no assurance that
competitors will not be able to develop functionally equivalent interactive
messaging technologies without infringing any of our intellectual property
rights. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy or otherwise obtain and use products or technology
that we consider proprietary, and third parties may attempt to develop similar
technology independently. In addition, effective protection of intellectual
property rights may be unavailable or limited in certain countries. Accordingly,
there can be no assurance that our means of protecting its proprietary rights
will be adequate or that our competitors will not independently develop similar
technology.

     As the volume of Internet commerce increases, and the number of products
and service providers that support Internet commerce increases, we believe that
Internet commerce technology providers may become increasingly subject to
infringement claims. There can be no assurance that plaintiffs will not file
infringement claims in the future. In particular, on October 19, 1998,
Exactis.com, Inc filed a complaint against our subsidiary Epub in the Federal
District Court of Colorado. The complaint alleged infringement of a patent held
by Exactis.com, Inc. and sought injunctive relief and unspecified damages. On
October 28, 1998, we filed a complaint in the U.S. District Court for the
Southern District of California against Exactis.com, Inc. The complaint alleged
infringement of a patent held by us and sought injunctive relief and unspecified
damages.

                                        9
<PAGE>   11

On October 13, 1999 both parties agreed to a settlement of theses actions which
have subsequently been dismissed by the courts with prejudice.

     Litigation to determine the validity of any claims could result in
significant expense to us and divert the efforts of our technical and management
personnel from productive tasks, whether or not such litigation is determined in
our favor. In addition, patent litigation such as the Exactis.com, Inc. lawsuit
often gives rise to counterclaims by the defendants, which could include
challenges to the validity of patents held by us. In the event of an adverse
ruling in any such litigation, we may be required to pay substantial damages,
discontinue the use and sale of infringing products, expend significant
resources to develop non-infringing technology or obtain licenses to infringing
technology. The failure by us to develop or license a substitute technology
could have a material adverse effect on our business, financial condition and
results of operations.

GOVERNMENT REGULATION

     A number of states have adopted laws restricting the distribution of
unsolicited commercial emails or SPAM. We actively monitor such legislation and
regulatory development to minimize the risk of our participation in activities
that violate such anti-SPAM legislation. Additionally, a number of legislative
and regulatory proposals are under consideration by federal and state lawmakers
and regulatory bodies and may be adopted with respect to the Internet. Some of
the issues that such laws or regulations may cover include user privacy,
obscenity, fraud, pricing and characteristics and quality of products and
services. The adoption of any such laws or regulations may decrease the growth
of the Internet, which could in turn decrease the projected demand for our
products and services or increase our cost of doing business. Moreover, the
applicability to the Internet of existing U.S. and international laws governing
issues such as property ownership, copyright, trade secret, libel, taxation and
personal privacy is uncertain and developing. Any new legislation or regulation,
or application or interpretation of existing laws, could have a material adverse
effect on our business, results of operations, financial condition and
prospects.

EMPLOYEES

     As of December 31, 1999, we employed a total of 273 full time employees. Of
these, 152 were in account management, client services and production functions,
35 were in research, development and engineering, 45 were in marketing and sales
and 41 were in general and administration functions.

     Our future success depends to a significant extent upon the continued
service of our key technical and senior management personnel and upon our
ability to attract and retain additional highly skilled creative, technical,
financial and strategic marketing personnel. Competition for such personnel is
intense. There can be no assurance that we will be successful in attracting and
retaining such personnel, and the failure to do so could have a material adverse
effect on our business, financial condition and results of operations. None of
our employees are represented by a labor union. We have never experienced a work
stoppage and believe that our relationships with its employees are good.

EXECUTIVE OFFICERS OF THE COMPANY

     The following table sets forth the names, ages and positions of the
executive officers of the Company as of March 28, 2000:

<TABLE>
<CAPTION>
NAME                             AGE                         POSITION
----                             ---                         --------
<S>                              <C>   <C>
A. Laurence Jones..............  47    President and Chief Executive Officer
Martin T. Johnson..............  48    Senior Vice President, Chief Financial Officer and
                                       Secretary
Mary Beth Loesch...............  39    Senior Vice President of Corporate Development
Elizabeth Wallace..............  40    Senior Vice President of Sales and Service
</TABLE>

     Mr. Jones became our President in March 1999 and our Chief Executive
Officer and a director in April 1999. Prior to joining our company, Mr. Jones
served as an operating affiliate of McCown De Leeuw & Co., a private equity
firm, from January 1998 to February 1999. From 1993 to January 1998, Mr. Jones
served as

                                       10
<PAGE>   12

President and Chief Executive Officer of Neodata Services, Inc., a privately
held direct marketing company. Mr. Jones serves as a director of Exabyte Corp.
and Cooperative Computing, Inc./Triad. Mr. Jones received a B.S. in Computer
Science from Polytechnic Institute in 1975 and an M.B.A. from Boston University
in 1980.

     Mr. Johnson has served as our Senior Vice President and Chief Financial
Officer and Secretary since February 2000. From October 1999 through February
1999 he served as Vice President and Chief Financial Officer and Secretary. From
1994 through 1999, Mr. Johnson was Senior Vice President and Chief Financial
Officer of Technology Solutions Company. Prior to joining Technology Solutions
Company, Mr. Johnson was Corporate Controller of The Marmon Group, Inc., an
autonomous association of over 70 independent member companies. In February
1998, he became a member of the Issuer Affairs Committee of The Nasdaq Stock
Market. Mr. Johnson received a Bachelor of Science in Electrical Engineering
from Lehigh University in 1973 and a Masters of Management from Northwestern
University in 1976.

     Ms. Loesch has served as our Senior Vice President of Corporate Development
since February 1999. From April 1999 to February 1999, she served as Vice
President of Corporate Development. From January 1998 until April 1999, she
served as President of the Advanced Network Solutions Group at Internet
Communications Corp. From 1996 until 1998 she worked for KPMG Peat Marwick where
she served as managing director of the high-technology consulting practice.
Prior to that she held various executive-level positions at CSG Systems
Incorporated and U S WEST, Inc. Ms. Loesch received an M.B.A. from Creighton
University in 1986 and graduated summa cum laude with a B.S.B.A. from Creighton
University in 1982.

     Ms. Wallace has served as our Senior Vice President of Sales and Services
since November 1999. From April 1999 to November 1999, she served as Vice
President of Operations. From October 1996 until October 1998, Ms. Wallace
served as Vice President of Customer Management at Telecommunications, Inc., and
from February to October 1996 as Director of Client Services of TeleTech
TeleService, Inc. From 1992 to 1996, Ms. Wallace was Executive Director at DDB
Needham Worldwide. Ms. Wallace attended Rick's College in 1985 and received an
associates degree in Business Administration from Truman College in 1986.

FACTORS AFFECTING OPERATING RESULTS AND MARKET PRICE OF STOCK

     You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones we face. If any of the following risks actually occur, our business,
financial condition or results of operations could be materially and adversely
affected. In that case, the trading price of our common stock could decline, and
you may lose all or part of your investment.

WE HAVE A HISTORY OF OPERATING LOSSES AND FUTURE LOSSES ARE LIKELY.

     We have incurred net losses applicable to common shares of approximately
$91 million since our inception in March 1994. We have not achieved
profitability and expect to continue to incur operating losses at least into
2001. We intend to continue to invest heavily in acquisitions, infrastructure
development and marketing. Accordingly, we expect to continue to incur
significant operating and capital expenditures and, as a result, we will need to
generate significant revenue to achieve and maintain profitability. Although our
revenue has grown in recent quarters, we cannot assure you that we will achieve
sufficient revenue for profitability. Even if we do achieve profitability, we
cannot assure you that we can sustain or increase profitability on a quarterly
or annual basis in the future. If revenue grows slower than we anticipate, or if
operating expenses exceed our expectations or cannot be adjusted accordingly,
our business, results of operations and financial condition will be materially
and adversely affected.

OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE WE HAVE A LIMITED OPERATING
HISTORY AND RECENTLY HAVE CHANGED OUR BUSINESS MODEL.

     We were incorporated in March 1994 for the purpose of developing an
Internet payment system. In 1998 we changed our business model and acquired two
e-messaging companies, EPub and DBits. In August 1999, we acquired two
additional e-messaging companies, Revnet and Decisive. An investor in our common
stock

                                       11
<PAGE>   13

must consider the risks and difficulties frequently encountered by early stage
companies in new and rapidly evolving markets, including the Internet
e-messaging market. These risks include our:

     - ability to sustain historical revenue growth rates;

     - need to manage our expanding operations;

     - need to successfully integrate our recent and any future acquisitions;

     - competition;

     - ability to attract, retain and motivate qualified personnel;

     - ability to maintain our current, and develop new, strategic
       relationships;

     - ability to anticipate and adapt to the changing Internet market; and

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

     We also depend on the growing use of the Internet for marketing,
advertising, commerce and communication. We cannot assure you that our business
strategy will be successful or that we will successfully address these risks.

OUR MARKETS ARE RELATIVELY NEW AND UNPROVEN AND OUR SUCCESS DEPENDS ON MARKET
ACCEPTANCE AND THE EFFECTIVENESS OF OUR E-MESSAGING SERVICES.

     Demand and market acceptance for Internet e-messaging solutions is
uncertain. Our future success is highly dependent on an increase in the use of
the Internet as a marketing, advertising and communications medium. The adoption
of Internet e-messaging, particularly by those entities that historically have
relied upon traditional media for marketing and advertising, requires the
acceptance of a new way of conducting business, exchanging information and
marketing products and services. Many of our current or potential e-messaging
customers have little or no experience using the Internet for marketing and
advertising purposes and they have allocated only a limited portion of their
budgets to Internet e-messaging. Moreover, our customers may find Internet
e-messaging to be less effective for promoting their products and services
relative to traditional marketing and advertising media. If our e-messaging
platform fails to meet customers' demands, the use of our e-messaging services
may decline over time and our business would suffer.

WE ADOPTED OUR CURRENT BUSINESS MODEL IN THE FOURTH QUARTER OF 1998 AND ITS
PROFIT POTENTIAL IS UNCERTAIN.

     The profit potential for our business model, which is to generate revenue
solely by providing Internet e-messaging solutions to our customers, is
unproven. To be successful, both Internet marketing and our future and current
service offerings, including information distribution, e-mail marketing,
e-customer care, e-commerce messaging and e-surveys, will need to achieve broad
market acceptance. Our ability to generate significant revenue will depend, in
part, on our ability to contract with a sufficient number of customers. The
intense competition among Internet e-messaging companies has led to the creation
of a number of pricing alternatives for Internet e-messaging solutions. These
alternatives make it difficult for us to project future levels of revenue and
applicable gross profit that can be sustained by us or the Internet e-messaging
industry in general.

SUBSTANTIAL SALES OF OUR COMMON STOCK BY OUR LARGE STOCKHOLDERS COULD CAUSE OUR
STOCK PRICE TO FALL.

     A limited number of stockholders hold a large portion of our common stock.
To the extent our large stockholders sell substantial amounts of our common
stock in the public market, the market price of our common stock could fall.
Several transactions completed by us during the last fiscal year increased both
the number of our securities available for resale to the public and the number
of our securities held by our largest stockholders. For instance, in connection
with our acquisition of Revnet and Decisive, we issued 5,316,618 shares of our
common stock and assumed options to purchase up to approximately 1,148,493
additional shares of our common stock. Additionally, we issued 4,095,124 shares
of our common stock in a private

                                       12
<PAGE>   14

placement. Affiliates of two of our largest stockholders, Softbank Corp and
Pequot Capital Management, Inc. acquired 975,611 of the shares sold in the
private placement. All of the shares referred to above have been registered for
resale on Registration Statements on Form S-3 which have been declared effective
by the SEC. Accordingly, all such shares may be resold into the public markets
without restrictions.

WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE REVNET AND DECISIVE OR FUTURE
ACQUISITIONS.

     In August 1999 we acquired Revnet and Decisive. As a result, companies that
had previously operated independently and with distinct business models must now
work together. The integration will require significant effort from our
personnel and the personnel of the acquired companies who are now our employees.
We may not be able to profitably consolidate these businesses.

     The following risks are common to the integration of different companies,
and may be associated with recent or future acquisitions, including the recent
acquisitions of Revnet and Decisive:

     - the difficulty of incorporating new operations, technology and personnel
       into one company;

     - the potential effects on operating results from increases in goodwill
       amortization, acquired in-process technology, stock compensation expense
       and increased compensation expense resulting from newly hired employees;

     - the diversion of management attention from other aspects of our business;

     - the potential disruption of our ongoing business;

     - the potential reduction of the value of our e-messaging solutions or
       reputation if an acquired company turns out to be a poor performer;

     - the additional expense associated with amortization of acquired
       intangible assets;

     - the maintenance of uniform standards, controls, procedures and policies;

     - the potential of disputes with the sellers of one or more acquired
       entities;

     - the possible failure to retain key acquired personnel;

     - the assumption of most or all of the liabilities of the acquired
       companies, some of which may be hidden, significant or not reflected in
       the final acquisition price; and

     - the impairment of relationships with employees and customers.

     As part of our business strategy, we intend to focus on acquiring, or
making significant investments in, additional companies, products and
technologies that complement our business. The successful implementation of this
strategy depends on our ability to identify suitable acquisition candidates,
acquire those companies on acceptable terms and integrate their operations
successfully with our business. If we make additional acquisitions, we could
have difficulty in assimilating the acquired products, services or technologies
into our operations. These difficulties could disrupt our ongoing business,
distract our management and employees, increase our expenses and adversely
affect our results of operations. Furthermore, we may incur debt or issue equity
securities to pay for any future acquisitions. The issuance of equity securities
could be dilutive to our existing stockholders.

OUR FAILURE TO ENHANCE OUR EXISTING PRODUCTS AND INTRODUCE NEW PRODUCTS ON A
TIMELY BASIS COULD CAUSE OUR REVENUE TO FALL.

     We are continually developing significant enhancements for our e-messaging
services and products. Any delay or difficulty associated with the introduction
of these enhancements could significantly harm our business, results of
operations and financial condition. We also may not be able to develop the
underlying core technologies necessary to create new products or enhancements,
or to license those products from third parties.

                                       13
<PAGE>   15

WE NEED TO ATTRACT AND RETAIN QUALIFIED PERSONNEL AND MAY NOT BE ABLE TO DO SO.

     Our success depends on the continued service of our key senior management
personnel, in particular, A. Laurence Jones, our President and Chief Executive
Officer. The loss of any member of our senior management team could have a
material adverse effect on our future operating results. Our future success also
depends on our continuing ability to attract, retain and motivate highly skilled
employees. We face significant competition for individuals with the skills and
experience required to perform in required roles and may not be able to attract
or retain such individuals in the future.

OUR MANAGEMENT TEAM HAS ONLY WORKED TOGETHER FOR A SHORT PERIOD OF TIME AND MAY
NOT WORK WELL TOGETHER.

     Virtually all of our executive officers, including our President and Chief
Executive Officer, Chief Financial Officer, Senior Vice President of Sales and
Service and Senior Vice President of Corporate Development, have joined our
company in 1999. Due to the fact that many of our executive officers are new to
our company and never have worked together, our management may not be able to
function effectively, individually or as a team.

WE ANTICIPATE FLUCTUATIONS IN OUR FUTURE OPERATING RESULTS.

     We expect that our future operating results will fluctuate significantly.
These fluctuations may be due to a number of factors, many of which are beyond
our control. Some of the factors that may cause fluctuations include the
following:

     - Market response to our e-messaging services;

     - Difficulties in the development or deployment of new e-messaging products
       or services;

     - The timing and rate at which we increase our expenses to support
       projected growth;

     - Fluctuating market demand for our products and services;

     - The degree of acceptance of the Internet as a medium for communicating
       with customers;

     - Product introductions and service offerings by our competitors;

     - The mix of the products and services provided by us; and

     - The cost of compliance with applicable government regulations, including
       anti-SPAM legislation.

     Our revenue for the foreseeable future will remain dependent on e-messaging
activity, the fees that we charge for our services and license fees for software
products. These future revenues are difficult to forecast. In addition, we plan
to significantly increase our operating expenses to increase our sales and
marketing operations, to upgrade and enhance our e-messaging solutions and to
market and support our solutions. We may be unable to adjust spending quickly
enough to offset any unexpected revenue shortfall. If we have a shortfall in
revenue in relation to our expenses, or if our expenses precede increased
revenue, our business, results of operations and financial condition would be
materially and adversely affected. This would likely affect the market price of
our common stock in a manner which may be unrelated to our long-term operating
performance.

     We believe that marketing and advertising sales in traditional media, such
as television and radio, generally are lower in the first calendar quarter of
each year. Seasonal or cyclical patterns may develop in our industry if our
market makes the transition from an emerging to a more developed medium. Our
revenue may also be affected by seasonal and cyclical patterns in Internet
e-messaging spending if they emerge.

     We believe that period-to-period comparisons of our operating results are
not meaningful and should not be relied upon as an indication of our future
performance. Due to the factors we have listed above and other factors, it is
likely that our future operating results will at times not meet the expectations
of market analysts or investors. If our operating results fail to meet
expectations, the price of our common stock could fall.

                                       14
<PAGE>   16

WE NEED TO EFFECTIVELY MANAGE OUR GROWTH.

     An effective planning and management process is required to successfully
implement our business plan in the rapidly evolving market for Internet
e-messaging. We continue to increase the scope of our operations, and we have
grown our workforce substantially. As of January 1, 1995, we had 5 employees
and, as of December 31, 1999, we had 273 employees. In addition, we plan to
continue to expand our sales and marketing and service offerings. This growth
has placed, and our anticipated future growth in our operations will continue to
place, a significant strain on our management systems and resources. We expect
that we will need to continue to improve our financial and managerial controls
and reporting systems and procedures, and will need to continue to expand, train
and manage our workforce. Our future performance also may depend on the
effective integration of acquired businesses. Such integration, even if
successful, may require a significant period of time and expense, and may place
a significant strain on our resources. Our business, results of operations and
financial condition will be materially and adversely affected if we are unable
to effectively manage our expanding operations.

WE DEPEND ON THIRD-PARTY PROVIDERS OVER WHOM WE HAVE NO CONTROL TO OPERATE OUR
E-MESSAGING PLATFORM.

     We depend heavily on several third-party providers of Internet and related
telecommunication services, including hosting and co-location companies, in
operating our e-messaging platform. These companies may not continue to provide
services to us without disruptions in service, at the current cost, or at all.
Although we believe that we could obtain these services from other sources if
need be, the costs associated with any transition to a new service provider
would be substantial, requiring us to reengineer our computer systems and
telecommunications infrastructure to accommodate a new service provider. This
process would be both expensive and time-consuming.

     In addition, failure of our Internet and related telecommunications
providers to provide the data communications capacity in the time frame required
by us could cause interruptions in the services we provide. Despite precautions
taken by us, unanticipated problems affecting our computer and
telecommunications systems in the future could cause interruptions in the
delivery of our e-messaging services, causing a loss of revenue and potential
loss of customers.

WE RELY ON A FEW CUSTOMERS FOR A SIGNIFICANT PORTION OF OUR REVENUE.

     A significant portion of our revenues are generated by a limited number of
customers. We expect that we will continue to depend on large contracts with a
small number of significant customers. This situation can cause our revenue and
earnings to fluctuate between quarters based on the timing of contracts. None of
our customers has any obligation to purchase additional products or services
from us. Consequently, if we fail to develop relationships with significant new
customers, our business and financial condition will suffer.

COMPETITION IN OUR INDUSTRY IS INTENSE.

     We believe none of our competitors offer the full range of solutions
provided by us. However, the market for our products and services is intensely
competitive. There are no substantial barriers to entry into our business, and
we expect that established and new entities will enter the market for
e-messaging services and interactive Internet communications in the near future.

     Our principal competitors in the e-messaging services arena include 24x7,
Inc., Axciom, Inc., Cyber Data Systems, Inc., DoubleClick, Inc., eGain
Communications Corporation, EmailChannel, Inc., Exactis.com, Inc., Experian,
Inc., Kana Communications, Inc., MarketHome, Inc., MatchLogic, Inc., Mustang
Software, Inc., NetCreations, Inc., PostX Corporation and ReplyNet, Inc. We also
compete with BroadVision, Inc., Digital Impact, E-Care Group and Mypoints.com,
Inc. for one-to-one marketing.

     We may experience additional competition from ISPs and other large
established businesses that enter the market for e-messaging services. Companies
such as ADVO Inc., America Online, Inc., AT&T, IBM Corporation, Harte-Hanks,
Inc., Hewlett-Packard Company, Integrion Financial Network LLC, The Interpublic
Group of Companies, Inc., Microsoft Corporation, Netscape Communications and
Foote Cone &

                                       15
<PAGE>   17

Belding, some of whom are current clients of ours, which possess large, existing
customer bases, substantial financial resources and established distribution
channels could develop, market or resell a number of messaging services.

     The Internet, in general, and our e-messaging solutions, in particular,
also must compete for a share of advertisers' total advertising budgets with
traditional advertising media such as television, radio, cable and print.
Consequently, we compete with advertising and direct marketing agencies. To the
extent that e-messaging is perceived to be a limited or ineffective advertising
medium, companies may be reluctant to devote a significant portion of their
advertising budget to our e-messaging solutions, which could limit the growth of
e-messaging and negatively effect our business.

     We also expect that competition may increase as a result of industry
consolidation. Potential competitors may choose to enter the market for
e-messaging services by acquiring one or more of our existing competitors or by
forming strategic alliances with such competitors. In addition, current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products or services to address the needs of our potential e-messaging
customers. Accordingly, it is possible that new competitors or alliances may
emerge and rapidly acquire significant market share. Increased competition is
likely to result in price reductions, reduced gross margins and loss of market
share, any of which would have a material adverse effect on our business,
results of operations and financial condition. We also may experience
competition from internal information systems and development groups of our
current and prospective clients that have better access to senior management.

     Many of our current and potential competitors have longer operating
histories, greater name recognition, larger customer bases, more diversified
lines of products and services and significantly greater resources than we do.
These competitors may be able to undertake more extensive marketing campaigns,
adopt more aggressive pricing policies and make more attractive offers to
potential customers. In addition, many of our current or potential competitors
have broad distribution channels that may be used to bundle competing products
or services directly to end-users or purchasers. If these competitors bundle
competing products or services for their customers, the demand for our products
and services could substantially decline. As a result of the above factors, we
cannot assure you that we will compete effectively with current or future
competitors or that competitive pressures will not have a material adverse
effect on our business, financial condition and results of operations.

THE MARKETS FOR OUR PRODUCTS ARE UNDEVELOPED AND RAPIDLY CHANGING, WHICH MAKES
AN INVESTMENT IN OUR COMPANY RISKY.

     The Internet and Internet e-messaging markets are characterized by rapidly
changing technologies, evolving industry standards, frequent new product and
service introductions, changing customer demands and increasing numbers of
service providers. Our products and services are designed around current
technical standards and our revenue depends on continued industry acceptance of
these standards. While we intend to provide compatibility with the most popular
industry standards, widespread adoption of a proprietary or closed standard
could prevent us from doing so. The standards on which our products and services
are or will be based may not be accepted by the industry.

     New market entrants have introduced or are developing products and services
for use on the Internet and the World Wide Web that compete with our products.
The products, services or technologies developed by others may render our
products and services noncompetitive or obsolete. Accordingly, our future
success will depend on our ability to adapt to rapidly changing technologies and
to enhance existing solutions and develop and introduce a variety of new
solutions to address new industry standards and our customers' changing demands.
We may experience difficulties that could delay or prevent the successful
design, development, introduction or marketing of our solutions. In addition,
our new solutions or enhancements must meet the requirements of our current and
prospective customers and must achieve significant market acceptance. Material
delays in introducing new solutions and enhancements may cause customers to
forego purchases of our solutions and purchase those of our competitors.

                                       16
<PAGE>   18

     The degree to which our e-messaging platform is accepted and used in the
marketplace will depend on continued growth in the use of e-mail as a primary
means of communications by businesses and consumers. An increase in the use of
e-messaging also will depend on market acceptance of e-mail as a method for
targeted marketing of products and services. Our ability to successfully
differentiate our services from random mass e-mailing products and services
which have encountered substantial resistance from consumers will also be
important. Businesses that already have invested substantial resources in
traditional or other methods of conducting business may be reluctant to adopt
new commercial methods or strategies that may limit or compete with their
existing businesses. Individuals with established patterns of purchasing goods
and services may be reluctant to alter those patterns.

WE FACE RISKS OF DEFECTS AND DEVELOPMENT DELAYS IN OUR PRODUCTS AND SERVICES.

     Products and services based on sophisticated software and computing systems
often encounter development delays. Our underlying software may contain hidden
errors and failures when introduced or when usage increases. It is possible that
we may experience delays in the development of the software and computing
systems underlying our services. Despite testing that our clients and we
conduct, we may not locate errors if they occur. Also, we may experience
development delays. These occurrences could harm our reputation and revenue
growth.

IF CURRENT GROWTH RATES CONTINUE, THE CAPACITY OF OUR SOFTWARE OR HARDWARE COULD
BE STRAINED, LEADING TO SLOWER RESPONSE TIMES OR SYSTEM FAILURES.

     If the volume of messages that our systems process significantly increases,
the capacity of our software or hardware could be strained. This could lead to
slower response time or system failures. We have made and intend to continue to
make substantial investments to increase our server capacity by adding new
servers and upgrading our software as necessary. However, our products and
services may not be able to meet the growing demand as the number of World Wide
Web and Internet users increases. We also depend, as do our customers, on Web
browsers, e-mail clients and Internet and online service providers for access to
our services. Some users of our services have experienced difficulties due to
system failures unrelated to our system, products or services. If we cannot
effectively address these capacity constraints, our business and financial
condition could be materially and adversely affected.

THE SUCCESS OF OUR E-MESSAGING PLATFORM DEPENDS ON INCREASED USAGE AND THE
STABILITY OF THE INTERNET.

     Our success will depend, in large part, upon the maintenance of the
Internet infrastructure, such as a reliable network backbone with the necessary
speed, data capacity and security, and timely development of enabling products
such as high speed modems, for providing reliable Internet access and services
and improved content. We cannot assure you that the Internet infrastructure will
continue to effectively support the demands placed on it as the Internet
continues to experience increased numbers of users, frequency of use or
increased bandwidth requirements of users. Even if the necessary infrastructure
or technologies are developed, we may have to spend a considerable amount of
money and time to adapt our solutions accordingly. Furthermore, the Internet has
experienced a variety of outages and other delays due to damage to portions of
its infrastructure. Any future outages or delays could impact the Internet sites
of customers using our solutions.

     We believe that the future of the Internet as a center for commerce will
depend in significant part on the following factors:

     - Continued rapid growth in the number of households and commercial,
       educational and government institutions with access to the Internet;

     - The level of usage by individuals;

     - The number and quality of products and services designed for use on the
       Internet; and

     - Expansion of the Internet infrastructure.

                                       17
<PAGE>   19

     The degree to which e-mail will become a common method of communication
depends on the extent that users increasingly prefer e-mail over traditional
means of communication. The growth of e-mail also depends on widespread access
to reliable and affordable e-mail services by individuals, businesses and other
organizations. Because usage of the Internet as a medium for on-line exchange of
information, advertising, merchandising and entertainment is a recent
phenomenon, it is difficult to predict whether the number of users drawn to the
Internet will continue to increase and whether any significant market for our
e-messaging platform, or any substantial commercial use of the Internet, will
develop. We cannot assure you that Internet usage patterns, and reliance on
e-mail communication in particular, will continue to grow and will not decline
as the newness of this method of communication wears off. It also is uncertain
whether the cost of Internet access will decrease. If either the Internet or
e-mail communication fails to achieve increased acceptance and does not become
accessible to a broad audience at moderate costs, the market for our products
and services will be jeopardized. The success of our business also depends on a
significant expansion of the Internet infrastructure to provide adequate
Internet access and proper management of Internet traffic.

ANY SYSTEM FAILURE MAY HARM OUR BUSINESS OR REPUTATION.

     The continuing and uninterrupted performance of our computer systems and
our customers' computer systems is critical to our ability to provide outsourced
services. Sustained or repeated system failures would reduce the attractiveness
of our solutions to our customers and could harm our business reputation. Slower
response time or system failures may also result from straining the capacity of
our deployed software or hardware due to an increase in the volume of e-messages
delivered through our servers. To the extent that we do not effectively address
any capacity constraints or system failures, our business, results of operations
and financial condition would be materially and adversely affected.

     Our operations are dependent on our ability to protect our computer systems
against damage from fire, power loss, water damage, telecommunications failures,
vandalism, infection by computer viruses, other malicious acts and similar
unexpected adverse events. In addition, interruptions in our solutions could
result from the failure of our Internet and related telecommunications providers
to provide the necessary data communications capacity in the time frame we
require. Despite precautions we have taken, unanticipated problems affecting our
systems have from time to time in the past caused, and in the future could
cause, interruptions in the delivery of our solutions. Our business results of
operations and financial condition could be materially and adversely affected by
any damage or failure that interrupts or delays our operations.

WE FACE SECURITY RISKS AND POTENTIAL LIABILITY ASSOCIATED WITH MISAPPROPRIATION
OF CONFIDENTIAL INFORMATION.

     We currently retain highly confidential customer information in a secure
database server. We cannot assure you, however, that we will be able to prevent
unauthorized individuals from gaining access to this database server. Any
unauthorized access to our servers could result in the theft of confidential
customer information such as e-mail addresses. It also is possible that one of
our employees could attempt to misuse confidential customer information,
exposing us to liability. We use disclaimers and limitation of warranty
provisions in our client agreements in an attempt to limit our liability to
clients, including liability arising out of systems failure. However, such
provisions may not be enforceable or effective in limiting our exposure to
damage claims.

OUR INSURANCE COVERAGE MAY NOT BE ADEQUATE TO COMPENSATE US FOR ALL POTENTIAL
LOSSES.

     Although we carry insurance, which we believe to be adequate, the coverage
it provides may not be adequate to compensate us for all losses that may occur.
We are in the process of taking precautions to protect both our company and our
customers from events that could interrupt delivery of our products and services
or that could result in a loss of transaction or customer data. However, these
measures will not eliminate a significant risk to our operations from a natural
disaster or systems failure. We cannot guarantee that these measures would
protect the company from an organized effort to inundate our servers with
massive quantities of e-mail or other Internet message traffic which could
overload our systems and result in a significant interruption of service. Our
business interruption insurance would not fully compensate us for lost revenue,
income, additional costs or increased costs that we would experience during the
occurrence of any disruption

                                       18
<PAGE>   20

of our computer systems. We cannot guarantee that we will be able to obtain
sufficient insurance coverage on reasonable terms or at all in the future.

OUR MEANS OF PROTECTING OUR PROPRIETARY RIGHTS MAY BE INADEQUATE AND OUR
COMPETITORS MAY DEVELOP SIMILAR TECHNOLOGY.

     We rely on a combination of trade secret, copyright and trademark laws,
nondisclosure agreements, and other contractual provisions and technical
measures to protect our proprietary rights. We believe that, due to the rapid
pace of technological innovation for Internet products, our ability to establish
and maintain a position of technology leadership in the industry depends more on
the skills of our development personnel than upon the legal protections afforded
our existing technology. Trade secret, copyright and trademark protections may
not be adequate to safeguard the proprietary software underlying our products
and services. We may not have adequate remedies for any breach and our trade
secrets may otherwise become known. Moreover, notwithstanding our efforts to
protect our intellectual property, competitors may be able to develop
functionally equivalent e-messaging technologies without infringing any of our
intellectual property rights. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy or otherwise obtain and use
products or technology that we consider proprietary, and third parties may
attempt to develop similar technology independently. In addition, effective
protection of intellectual property rights may be unavailable or limited in
certain countries. Accordingly, our means of protecting our proprietary rights
may not be adequate and our competitors may independently develop similar
technology.

     We generally enter into confidentiality or license agreements with our
employees, consultants and corporate partners, and generally control access to
and distribution of our technologies, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights from
unauthorized use or disclosure, parties may attempt to disclose, obtain or use
our solutions or technologies. We cannot assure you that the steps we have taken
will prevent misappropriation of our solutions or technologies, particularly in
foreign countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the United States.

     We have licensed, and we may license in the future, elements of our
trademarks, trade dress and similar proprietary rights to third parties. While
we attempt to ensure that the quality of our brand is maintained by these
business partners, such partners may take actions that could materially and
adversely affect the value of our proprietary rights or our reputation. In
addition, we currently license certain software and communication systems from
third parties. Our failure to maintain these licenses, or to find replacements
for such technology in a timely and cost-effective manner, could have a material
adverse effect on our business, results of operations and financial condition.

WE HAVE IN THE PAST, AND MAY IN THE FUTURE, BECOME INVOLVED IN PATENT
INFRINGEMENT CLAIMS WHICH RESULT IN A SIGNIFICANT DRAIN ON OUR RESOURCES AND
PREVENT OUR MANAGEMENT TEAM FROM FOCUSING ON MORE PROFITABLE TASKS.

     As the volume of Internet commerce increases, and the number of products
and service providers that support Internet commerce increases, we believe that
Internet commerce technology providers may become increasingly subject to
infringement claims. We have been subject to claims of alleged infringement of
intellectual property rights in the past, and may become involved in additional
claims in the future. In addition, we may initiate claims of litigation against
third parties for infringement of our proprietary rights or to establish the
validity of our proprietary rights. Any such claims, with or without merit,
could be time consuming, result in costly litigation, disrupt or delay the
enhancement or shipment of our products and services or require us to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable or favorable to us, which
could have a material adverse effect on our business, financial condition and
results of operations. Litigation to determine the validity of any claims could
result in significant expense to us and divert the efforts of our technical and
management personnel from productive tasks, whether or not such litigation is
determined in our favor. In addition, patent litigation often gives rise to
counterclaims by the defendants, which could include challenges to the validity
of patents held by us. In the event of an adverse ruling in any such litigation,
we may be required to pay

                                       19
<PAGE>   21

substantial damages, discontinue the use and sale of infringing products, expend
significant resources to develop non-infringing technology or obtain licenses to
infringing technology. Our failure to develop or license a substitute technology
could have a material adverse effect on our business.

IN THE FUTURE, WE MAY BE SUBJECT TO INCREASED GOVERNMENT REGULATION.

     Laws and regulations directly applicable to Internet communications,
commerce and advertising are becoming more prevalent. We believe that we are not
currently subject to direct regulation by any government agency in the United
States, other than regulations that are generally applicable to all businesses
and newly enacted laws prohibiting unsolicited commercial e-mail, or spam, or
laws intended to protect minors. A number of legislative and regulatory
proposals are under consideration by federal and state lawmakers and regulatory
bodies and may be adopted with respect to the Internet. Some of the issues that
such laws or regulations may cover include user privacy, obscenity, fraud,
pricing and characteristics and quality of products and services. The adoption
of any such laws or regulations may decrease the growth of the Internet, which
could in turn decrease the projected demand for our products and services or
increase our cost of doing business. Moreover, the applicability to the Internet
of existing U.S. and international laws governing issues such as property
ownership, copyright, trade secret, libel, taxation and personal privacy is
uncertain and developing. Any new legislation or regulation, or application or
interpretation of existing laws, could have a material adverse effect on our
business.

OUR STOCK PRICE HAS BEEN VOLATILE IN THE PAST AND MAY BE VOLATILE IN THE FUTURE,
REGARDLESS OF OUR ACTUAL OPERATING PERFORMANCE.

     The stock market in general, and Internet companies in particular,
including our company, have experienced extreme price and volume fluctuations
that often have been unrelated or disproportionate to operating performance. The
trading prices of many Internet companies' stocks are at or near historical
highs and these trading prices and multiples are substantially above historical
levels. These trading prices and multiples may not be sustained. Broad market
and industry factors may reduce our stock price, regardless of our actual
operating performance. In addition, the trading price of our common stock could
fluctuate in response to factors such as:

     - quarterly fluctuations in our revenue and financial results both in
       absolute terms and relative to analyst and investor expectations;

     - changes in recommendations of securities analysts;

     - announcements of technological innovations or new services or products;

     - publicity regarding actual or potential results with respect to
       technologies, services or products under development;

     - disputes or other developments concerning proprietary rights, including
       copyright and litigation matters; and

     - other events or factors, many of which are beyond our control.

     In the past, companies that have experienced volatility in the market price
of their stock have been the object of securities class action litigation. If we
were the object of securities class action litigation, it could result in
substantial costs and a diversion of management's attention and resources.

PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD PREVENT OR DELAY A
CHANGE IN CONTROL OF OUR COMPANY AND MAY REDUCE THE MARKET PRICE OUR COMMON
STOCK.

     Provisions in our charter documents may delay, defer or prevent a change in
control of our company that a stockholder may consider favorable, may discourage
bids for our common stock at a premium over the

                                       20
<PAGE>   22

market price of our common stock and may adversely affect the market price of
our common stock and the voting and other rights of the holders of our common
stock. These provisions include:

     - authorizing the issuance of preferred stock without stockholder approval;

     - providing for a classified board of directors with staggered,
       three -- year terms;

     - prohibiting cumulative voting in the election of directors;

     - requiring super-majority voting to effect certain amendments to our
       certificate of incorporation and bylaws;

     - limiting the persons who may call special meetings of stockholders; and

     - prohibiting stockholders actions by written consent.

     Other provisions of Delaware law also may discourage, delay or prevent
someone from acquiring or merging with us.

OUR OFFICERS AND DIRECTORS AND THEIR AFFILIATES EXERCISE SIGNIFICANT CONTROL
OVER OUR COMPANY.

     Our directors and executive officers, and certain of their affiliates,
individually and as a group, effectively control us and direct our affairs and
business, including any determination with respect to the acquisition or
disposition of assets by us, future issuance's of common stock or other
securities by us, declaration of dividends on our common stock and the election
of directors. This concentration of ownership also may have the effect of
delaying, deferring or preventing a change in control of our company.

YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS BECAUSE THEY ARE INHERENTLY
UNCERTAIN.

     This document contains certain forward-looking statements that involve
risks and uncertainties. We use words such as "anticipate", "believe", "expect",
"future", "intend", "plan" and similar expressions to identify forward-looking
statements. These statements are only predictions. Although we believe that the
expectations reflected in these forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this document. Our actual results
could differ materially from those anticipated in these forward-looking
statements for many reasons, including the risks faced by us and described on
the preceding pages and elsewhere in this document.

     We believe it is important to communicate our expectations to our
investors. However, there may be events in the future that we are not able to
predict accurately or over which we have no control. The risk factors listed
above, as well as any cautionary language in this document, provide examples of
risks, uncertainties and events that may cause our actual results to differ
materially from the expectations we describe in our forward-looking statements.
Before you invest in our common stock, you should be aware that the occurrence
of the events described in these risk factors and elsewhere in this document
could have a material adverse effect on our business, operating results,
financial condition and stock price.

ITEM 2. PROPERTIES

     The Company's corporate facility consists of approximately 27,200 square
feet of leased space in Boulder, Colorado. This primary facility lease expires
on November 30, 2000. The Company leases space in Denver, Colorado for its
computer processing center. On January 11, 1999, the Company closed its San
Diego operations and did not renew its facility lease, which expired in May
1999. In December 1998, the Company acquired EPub. In doing so, the Company
acquired a facility lease consisting of approximately 6,500 square feet of
leased space in Boulder, Colorado. This facility lease expires in June 2002.
Additionally, the company leases facilities in Huntsville, Alabama and New York
City, New York.

     Our operations are dependent in part upon our ability to protect our
operating systems against physical damage from fire, floods, earthquakes, power
loss, telecommunications failures, break-ins and similar events.

                                       21
<PAGE>   23

We do not presently have redundant, multiple site capacity in the event of any
such occurrence. Despite the implementation of network security measures by us,
our servers also are potentially vulnerable to computer viruses, break-ins and
similar disruptions from unauthorized tampering with our computer systems. The
occurrence of any of these events could result in interruptions, delays or
cessations in service to users of our products and services, which could have a
material adverse effect on our business, financial condition and results of
operations.

ITEM 3. LEGAL PROCEEDINGS

     On October 19, 1998, Exactis.com, Inc, filed a complaint against our
subsidiary Epub in the Federal District Court of Colorado. The complaint alleged
infringement of a patent held by Exactis.com, Inc. and sought injunctive relief
and unspecified damages. On October 28, 1998, we filed a complaint in the U.S.
District Court for the Southern District of California against Exactis.com, Inc.
The complaint alleged infringement of a patent held by us and sought injunctive
relief and unspecified damages. On October 13, 1999 both parties agreed to a
settlement of theses actions which have subsequently been dismissed by the
courts with prejudice.

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

     There were no submissions of matters to a vote of security holders during
the quarter ended December 31, 1999.

                                    PART II

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

     MessageMedia's common stock commenced trading in the over-the-counter
market on December 13, 1996 and was quoted on the Nasdaq National Market under
the symbol "FVHI" (First Virtual Holdings Incorporated). On December 15, 1998,
the Company changed its Nasdaq symbol to "MAIL" and on March 30, 1999, the
Company changed its Nasdaq symbol to "MESG". The following table represents the
high and low sales prices for the Company's common stock on the Nasdaq National
Market.

<TABLE>
<CAPTION>
                                                                   1999                1998
                                                              -------------        ------------
                                                              HIGH      LOW        HIGH     LOW
                                                              ----      ---        ----     ---
<S>                                                           <C>       <C>       <C>     <C>
First Quarter...............................................   9 9/16   4 7/8     3 1/8     11/16
Second Quarter..............................................  26 3/4    7         3 1/16    21/32
Third Quarter...............................................  22 3/4    9 3/4     7 3/8   1 7/16
Fourth Quarter..............................................  20        9 15/16   6 5/16  1 25/32
</TABLE>

     On March 10, 2000, the last reported sale price on The Nasdaq Stock Market
for the Company's Common Stock was $14.

     The Company has never paid dividends on its Common Stock. The Company does
not anticipate paying any dividends on its Common Stock in the foreseeable
future. As of March 10, 1999, there were approximately 423 holders of record.
The number of holders of the Company's common stock does not include beneficial
owners of common stock whose shares are held in the name of banks, brokers,
nominees or other fiduciaries.

     The market price for the Company's Common Stock may be significantly
affected by factors such as the announcement of new products or services by the
Company or its competitors, technological innovation by the Company, its
competitors or other vendors, quarterly variations in the Company's operating
results or the operating results of the Company's competitors, general
conditions in the Company's and its customers' markets, changes in the earnings
estimates by analysts or reported results that vary materially from such
estimates. In addition, the stock market has experienced significant price
fluctuations that have affected the

                                       22
<PAGE>   24

market prices of equity securities of many high technology and emerging growth
companies and that often have been unrelated to the operating performance of
such companies. These broad market fluctuations may materially and adversely
affect the market price of the Company's Common Stock. Following periods of
volatility in the market price of a company's securities, securities class
action litigation has often been instituted against such a company and its
officers and directors. Any such litigation against the Company could result in
substantial costs and a diversion of management's attention and resources, which
could have a material adverse effect on the Company's business, operating
results and financial condition.

ITEM 6. SELECTED FINANCIAL DATA

     The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and related notes thereto
appearing elsewhere in this Report on Form 10-K.

STATEMENT OF OPERATIONS:

<TABLE>
<CAPTION>
                                                      YEAR ENDED DECEMBER 31,
                              -----------------------------------------------------------------------
                                  1999           1998           1997           1996          1995
                              ------------   ------------   ------------   ------------   -----------
<S>                           <C>            <C>            <C>            <C>            <C>
Revenues....................  $ 10,021,544   $  1,287,790   $  1,450,598   $    695,866   $   197,902
Cost of revenues............     4,589,358         97,553        270,416        265,900       123,375
                              ------------   ------------   ------------   ------------   -----------
Gross profit................     5,432,186      1,190,237      1,180,182        429,966        74,527
Operating expenses:
  Marketing and sales.......     9,704,452      1,934,486      5,424,110      1,836,545       346,400
  Research, development and
     engineering............     4,935,931      4,828,277      6,687,177      4,652,582       530,809
  General and
     administrative.........     7,677,527      3,810,073      4,377,688      4,237,638     1,292,781
  Restructuring expenses....     1,025,000        812,166             --             --            --
  Write-off of in-process
     technology.............            --      1,300,000             --             --            --
  Depreciation and
     amortization...........    28,923,515      2,470,917      1,097,716        524,124       106,628
                              ------------   ------------   ------------   ------------   -----------
Total operating expenses....    52,266,425     15,155,919     17,586,691     11,250,889     2,276,618
                              ------------   ------------   ------------   ------------   -----------
Loss from operations........   (46,834,239)   (13,965,682)   (16,406,509)   (10,820,923)   (2,202,091)
Interest income (expense)...       564,978        133,659        459,227        130,983       (67,890)
                              ------------   ------------   ------------   ------------   -----------
Net loss....................   (46,269,261)   (13,832,023)   (15,947,282)   (10,689,940)   (2,269,981)
Dividends imputed on
  preferred stock...........            --       (153,126)    (1,250,000)            --            --
                              ------------   ------------   ------------   ------------   -----------
Net loss applicable to
  common shares.............  $(46,269,261)  $(13,985,149)  $(17,197,282)  $(10,689,940)  $(2,269,981)
                              ============   ============   ============   ============   ===========
Net loss per share, basic
  and diluted...............  $      (1.00)  $      (0.63)  $      (1.94)  $      (2.33)  $     (0.54)
Shares used in per share
  computation, basic and
  diluted...................    46,367,195     22,304,902      8,842,367      4,588,262     4,170,231
</TABLE>

BALANCE SHEET DATA:

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                     ----------------------------------------------------------------
                                        1999          1998         1997         1996          1995
                                     -----------   ----------   ----------   -----------   ----------
<S>                                  <C>           <C>          <C>          <C>           <C>
Cash, cash equivalents and short
  term investments.................  $37,920,277   $4,659,375   $6,331,059   $17,127,971   $2,091,651
Furniture, equipment, software and
  information technology, net......    4,727,839    1,475,720    1,878,893     2,023,861      471,653
Intangibles........................   75,162,221   23,894,715           --            --           --
Total Assets.......................  123,191,245   31,220,981    9,048,089    19,692,557    2,574,826
Current Liabilities................    5,765,314    2,670,602    4,769,958     3,236,037      622,403
Notes and amounts payable non
  current..........................       35,808       53,786      162,500     1,912,500    1,200,000
Stockholders' equity (net capital
  deficiency)......................  117,390,123   28,483,510     (571,869)   14,944,020      752,423
</TABLE>

                                       23
<PAGE>   25

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

     The Company commenced operations in 1994. From inception through 1998, our
revenues principally were derived from our Internet payment system and related
services. In June 1998, we were recapitalized by SOFTBANK and affiliates through
a series of transactions resulting in their acquisition of 19.1 million shares
of our common stock. In July 1998, the Company made a strategic decision to
focus exclusively on e-messaging and related services, leveraging the expertise
of our key technical personnel and our existing proprietary technology from the
Internet payment system, which was phased out. In December 1998, the Company
changed its name from First Virtual Holdings Incorporated to MessageMedia, Inc.
in connection with our acquisitions of two e-messaging companies, Email
Publishing, Inc. ("EPub") and Distributed Bits, L.L.C. ("DBits"). As a result of
the acquisitions, EPub and DBits became our wholly-owned subsidiaries. These
acquisitions enabled us to expand our suite of e-messaging services. In August
1999, the Company acquired two additional e-messaging companies, Revnet Systems,
Inc. ("Revnet") and Decisive Technology Corporation ("Decisive") to further
broaden our comprehensive suite of e-messaging solutions and our customer base.
All of these acquisitions were accounted for as purchase transactions. A summary
of these acquisitions follows:

     - Email Publishing, Inc. EPub, based in Boulder, Colorado, was a leading
       provider of outsourced email message delivery services to businesses and
       organizations. On December 9, 1998, we acquired all of the common stock
       of EPub in exchange for 5,582,676 shares of our common stock and the
       assumption by us of options and warrants to acquire up to approximately
       417,324 additional shares of our common stock.

     - Distributed Bits, L.L.C. DBits, based in Chicago, Illinois, was a
       development stage company developing customer email management systems
       and solutions. On December 11, 1998, we acquired all equity interests in
       DBits in exchange for 1,305,320 shares of our common stock and warrants
       to purchase an additional 500,000 shares of our common stock.

     - Revnet Systems, Inc. Revnet, based in Huntsville, Alabama, was a leading
       developer and supplier of software solutions providing businesses and
       organizations with "in-house" email message delivery capability. Revnet
       also provided outsourced email message delivery services. On August 9,
       1999, we acquired all of the common stock of Revnet in exchange for
       3,262,120 shares of our common stock and the assumption by us of options
       to purchase up to approximately 681,675 additional shares of our common
       stock.

     - Decisive Technology Corporation. Decisive, based in Mountain View,
       California, was a leading provider of online customer intelligence
       solutions such as e-surveys. On August 16, 1999, we acquired all of the
       common stock of Decisive in exchange for 2,054,498 shares of our common
       stock and the assumption by us of options and warrants to acquire up to
       approximately 466,818 additional shares of our common stock.

  Sources of Revenue and Revenue Recognition

     - E-MESSAGING SOLUTIONS

     The Company currently derives revenue from outsourced e-messaging services
and software products and related support services. The Company's outsourced
e-messaging services include information distribution, email marketing,
e-customer care, e-commerce messaging and e-survey. The Company's software
products provide e-messaging and e-survey capabilities for clients desiring an
in-house solution. The Company sells software products on-line and through our
direct sales force and distributor network.

     - Outsourced e-messaging services. Revenue from information distribution,
       email marketing, e-customer care and e-commerce messaging is recognized
       as earned in accordance with individual customer contracts which
       typically provide for monthly minimums and varying revenue on a per
       message basis, depending upon monthly message volumes and mailing
       enhancements. The Company recognizes revenue from e-survey service
       agreements typically on a percentage-of-completion basis and bills
       customers as services are provided. Accordingly, revenue recognized in
       advance of billing milestones is

                                       24
<PAGE>   26

       recorded as unbilled accounts receivable, and collections resulting from
       billing milestones achieved in advance of recognizing revenue are
       recorded as deferred revenue on the balance sheet.

     - Software products and support services. We recognize revenue at the time
       of shipment of the related software products. Typically, no significant
       post shipment obligations exist after the software sale. Substantially
       all of our customers that purchase our software products also enter into
       annual support and maintenance contracts. Revenue attributable to annual
       support and maintenance contracts is recognized ratably over the term of
       the respective agreement.

     - INTERNET PAYMENT SYSTEM

     In connection with our strategic decision to focus exclusively on
e-messaging solutions, in the third quarter of 1998 we phased out our Internet
payment system and related services. Revenue related to the Internet payment
system, including consumer and merchant registrations, transaction, marketing
and merchandising revenue, consulting fees and interactive advertising
development, are separately reported as "Internet payment system" revenue. We
currently do not generate any Internet payment system revenue. Revenue from
registration fees and the related direct costs of processing such registrations
was recognized over a 12 month period. Transaction and marketing revenue was
recognized when earned.

     MessageMedia has incurred net operating losses in each quarter since
inception. As of December 31, 1999, MessageMedia had an accumulated deficit of
approximately $90.0 million. To date, the Company has not generated significant
revenues. There can be no assurance that the Company's future revenues will
increase and the Company's ability to generate significant future revenues is
subject to substantial uncertainty. In addition, as the Company introduces the
new functionality of its messaging platform and explores opportunities to merge
with or acquire complementary businesses and technologies, the Company expects
to continue to incur significant operating losses for the foreseeable future.

RESULTS OF OPERATIONS

  Revenues

     The Company currently derives its revenue from outsourced e-messaging
services and software products and related support services. The Company's
outsourced e-messaging services include information distribution, e-mail
marketing, e-customer care, e-commerce messaging and e-survey. The Company's
software products provide e-messaging and e-survey capabilities for clients
desiring their own "in-house" solution. Prior to July 1998, the Company derived
its revenue from our First Virtual Internet Payment System ("FVIPS") and related
services. In the third quarter of 1998, we phased out the operations of the
FVIPS and launched our e-messaging services. Revenue for the periods presented
was earned as detailed in the table below:

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                                  -------------------------------------
                                                     1999          1998         1997
                                                  -----------   ----------   ----------
<S>                                               <C>           <C>          <C>
Messaging and related services..................  $ 9,001,161   $  424,564   $       --
Software licenses...............................    1,020,383           --           --
First Virtual Internet Payment System...........           --      863,226    1,450,598
                                                  -----------   ----------   ----------
          Total revenues........................  $10,021,544   $1,287,790   $1,450,598
                                                  ===========   ==========   ==========
</TABLE>

     For the year ended December 31, 1999, revenues increased to approximately
$10 million as compared to approximately $1.3 million for the year ended
December 31, 1998. This increase is primarily attributable to the change in our
business strategy from an internet payment system services to e-messaging
services and software licenses. In July 1998, we began our e-messaging services,
which is now our primary business, and phased out our FVIPS operations. The
increase in revenue is also due to increases in the number of clients using our
services, increased e-messaging volume, and an incremental increase in revenue
as a result of the EPub, Revnet, and Decisive acquisitions. For the year ended
December 31, 1999, revenue from Software licenses increased to $1 million due to
the acquisition of Revnet and Decisive which both had software products.

                                       25
<PAGE>   27

     For the year ended December 31, 1998, revenues decreased to approximately
$1.3 million as compared to $1.5 million for the year ended December 31, 1997.
The Company introduced its new messaging services in July 1998 and discontinued
its FVIPS operations in the third quarter of 1998.

  Cost of Revenues

     The cost of e-messaging solutions revenues consists of salaries, benefits,
consulting fees and operational costs related to providing our outsourced
e-messaging services and software packaging and distribution costs. The cost of
revenues from FVIPS consists of fees paid to third parties for processing
transactions, costs of setting up new accounts and communication expenses
related to providing services from the FVIPS. We have incurred cost of revenues
from Messaging and related services, Software licenses, and FVIPS, as detailed
in the table below:

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                                       -------------------------------
                                                          1999       1998       1997
                                                       ----------   -------   --------
<S>                                                    <C>          <C>       <C>
Messaging and related services.......................  $4,589,358   $29,394   $     --
Software licenses....................................          --        --         --
First Virtual Internet Payment System................          --    68,159    270,416
                                                       ----------   -------   --------
Total cost of revenues...............................  $4,589,358   $97,553   $270,416
                                                       ==========   =======   ========
</TABLE>

     For the year ended December 31, 1999, cost of revenues increased to
approximately $4.6 million as compared to $97,553 for the year ended December
31, 1998. This increase is primarily attributable to increased headcount needed
to service our growing e-messaging customer base and e-messaging volumes, and
the incremental increase in cost of revenues as a result of acquiring Revnet and
Decisive.

     For the year ended December 31, 1998, cost of revenues decreased to $97,553
from $270,416 for the year ended December 31, 1997. The Company discontinued its
FVIPS operations in the third quarter of 1998, and ceased operations of both
Interactive advertising development and merchandising in December 1997.

  Operating Expenses

     Operating expenses consist of marketing and sales, research, development
and engineering, and general and administrative expenses. Overall operating
expenses increased for the year ended December 31, 1999 as compared to the year
ended December 31, 1998 due to increased headcount and related expenses.
Additionally, the acquisitions of EPub and DBits were completed in December 1998
and the acquisitions of Revnet and Decisive were completed in August of 1999,
therefore their operating results were not included in the comparable period in
1998. Operating expenses decreased for the year ended December 31, 1998 as
compared to the year ended December 31, 1997 due to the Company's decision to
phase out the FVIPS and related services.

     During the first quarter of 1999, the Company incurred merger integration
and restructuring expenses in connection with the relocation of the Company's
corporate headquarters from San Diego, California to Boulder, Colorado. During
the second quarter of 1998, the Company incurred restructuring expenses in
connection with ceasing operations of our FVIPS. The Company expects operating
expenses to continue to be substantial as development and enhancement of
technological capabilities associated with our e-messaging services continue, as
we explore opportunities to merge with or acquire complementary businesses or
technologies, and as we add staff to service our growing customer base. We also
anticipate that expenses necessary for the introduction of new services and
promotion of our products will be substantial.

     Marketing and sales expenses. Marketing and sales expenses, which include
salaries and wages, consulting fees, advertising, trade show expenses, travel
and other marketing expenses, increased to $9.7 million for the year ended
December 31, 1999, as compared to $1.9 million for the year ended December 31,
1998. This increase is primarily due to increased headcount in sales, client
services and marketing staff, as a result of increased sales efforts related to
our e-messaging services and an incremental increase in headcount from
acquisitions. Additionally, advertising and promotional spending increased as a

                                       26
<PAGE>   28

result of promoting our new e-messaging services and products. Marketing and
Sales expense for the year ended December 31, 1999 includes a one-time charge of
approximately $855,000 in compensation expense from acceleration of stock
options. This compensation expense relates to an employment agreement with a
former officer which included an option vesting acceleration clause that was
triggered upon the company obtaining certain sales contracts and/or certain
sales levels.

     For the year ended December 31, 1998, marketing and sales expenses
decreased to $1.9 million as compared to $5.4 million for the year ended
December 31,1997. This decrease is primarily due to the reduction in headcount
in marketing staff, a decrease in consulting fees due to reductions in marketing
research, a decrease in promotional expenses from elimination of sales efforts
related to the payment system, a decrease in recruiting and relocation expenses
as hiring new employees slowed, a decrease in travel related expenses and a
general decrease in spending from lower headcount.

     Research, development and engineering expenses. Research, development and
engineering expenses, which include salaries and wages and consulting fees to
support the development, enhancement and maintenance of the Company's products
and services, increased to $4.9 million for the year ended December 31, 1999, as
compared to $4.8 million for the year ended December 31, 1998. This increase
resulted primarily from an increase in headcount and related compensation
expense.

     For the year ended December 31, 1998, research, development and engineering
expenses decreased to $4.8 million as compared to $6.7 million for the year
ended December 31, 1997. This decrease is primarily due to the reduction in
headcount in the research, development and engineering staff, resulting in a
decrease in salaries, wages and payroll taxes, a decrease in consulting fees due
to the elimination of development consultants associated with the payment
system, a decrease in travel related expenses, a decrease in communications
expenses related to the shut down of the payment system and a general decrease
in spending from lower department headcount and reduced overhead associated with
both a general reduction in staff and with the closure of the Ann Arbor office
in December 1997.

     General and administrative expenses. General and administrative expenses
consist primarily of salaries and wages, professional and consulting fees and
other expenses associated with the general management and administration of the
Company. General and administrative expenses increased to $7.7 million for the
year ended December 31, 1999, as compared to $3.8 million for the year ended
December 31, 1998. This increase is primarily due to an increase in headcount in
general and administrative staff and a related increase in compensation expense
as a result of the Company's growth. Additionally, there was an incremental
increase in headcount and related expenses due to the merger and integration of
Revnet's and Decisive's operations.

     For the year ended December 31, 1998, general and administrative expenses
decreased to $3.8 million as compared to $4.4 million for the year ended
December 31, 1997. This decrease is primarily due to the reduction in headcount
in general and administrative staff resulting in a decrease in salaries, wages
and payroll taxes, a decrease in promotional expenses from less public relations
and investor relations activities, offset in part, by an increase in legal
expenses for patent litigation and Nasdaq listing issues, an increase in
consulting expenses for merger and acquisition related research and analysis and
a general increase in spending to support the Company's operations.

     Restructuring expenses. In the first quarter of 1999, the Company recorded
a charge of $1,025,000 as a result of the Company's decision to relocate the
Corporate headquarters from San Diego, California to a new facility in Boulder
Colorado. This decision was made to create efficiencies in the Company's
messaging services operations, reduce overhead by centralizing into one facility
and eliminate duplication of efforts from similar positions in the separate
offices. The merger integration and restructuring activity of MessageMedia,
DBits, and EPub included a company wide staff reduction which resulted in
approximately $632,000 of employee severance pay and other related expenses and,
approximately $393,000 in moving expenses and costs related to closing the San
Diego facility.

     In the second quarter of 1998, the Company recorded a restructuring charge
of approximately $812,000 as a result of the Company's decision to focus its
efforts on its messaging platform, initiate efforts to cease operations of our
FVIPS and better align its cost structure with expected revenue projections. The

                                       27
<PAGE>   29

restructuring activity included the elimination of job responsibilities company
wide, resulting in approximately $545,000 of employee severance pay and other
related expenses, and approximately $267,000 related to relocating our corporate
office and termination fees for cancellation of certain contracts related to
FVIPS.

     Write-off of in-process technology. In connection with the EPub
acquisition, the Company wrote-off $1.3 million of in-process technology. This
amount was expensed as a non-recurring charge on December 9, 1998, the
acquisition date. This write-off was necessary because the acquired technology
had not yet reached technological feasibility and had no future alternative
uses. MessageMedia is using the acquired in-process technology to build future
functionality into its e-messaging platform and enhance its suite of services.

     The nature of the efforts required to develop the purchased in-process
technology into a commercially viable product principally relate to the
completion of all planning, designing, prototyping and testing activities that
are necessary to establish that the product can be produced to meet its design
specifications, including functions, features and technical performance
requirements.

     The value of the purchased in-process technology was determined with the
assistance of an independent valuation, by estimating the projected net cash
flows related to such products, including costs to complete the development of
the technology and the future revenues to be earned upon commercialization of
the products. These cash flows were discounted back to their net present value.
The resulting projected net cash flows from such projects were based on
management's estimates of revenues and operating profits related to such
projects.

     If these projects to develop commercial products based on the acquired
in-process technology are not successfully completed, the revenues and financial
conditions of MessageMedia may be adversely affected in future periods.

     Fluctuations in operating results. The Company expects to experience
significant fluctuations in its future quarterly operating results. These
fluctuations will be due to several factors, many of which are beyond the
control of the Company, including, among others, market response to the
Company's messaging services; difficulties encountered in the development or
deployment of products or services, including interactive messaging;
difficulties encountered in acquiring and/or merging with other companies or
technologies, including in particular any difficulties in integrating the
technology and operations of Decisive and/or Revnet; market acceptance of
Internet commerce in general and the Company's messaging services concept in
particular; fluctuating market demand for the Company's products and services;
the degree of acceptance of the Internet as an advertising and merchandising
medium; the timing and effectiveness of collaborative marketing efforts
initiated by the Company's strategic partners; the timing of the introduction of
new products and services offered by the Company; the timing of the release of
enhancements to the Company's products and services; product introductions and
service offerings by the Company's competitors; the mix of the products and
services provided by the Company; the timing and rate at which the Company
increases its expenses to support projected growth; the cost of compliance with
applicable government regulations; competitive conditions in the Company's
marketplace; and general economic conditions. In addition, the fees charged by
the Company for advertising, messaging, and consulting services, are subject to
change as the Company introduces its messaging services and assesses its
marketing strategy and competitive position.

LIQUIDITY AND CAPITAL RESOURCES

     At December 31, 1999, the Company had $37.9 million in cash and cash
equivalents. On March 26, 1999, the Company issued 2,352,942 shares of its
common stock in a private placement for net proceeds of approximately $10
million. On October 25, 1999, the Company closed a private placement in exchange
for 4,095,124 of newly issued shares of the Company's common stock, for net cash
proceeds of approximately $40.1 million. MessageMedia believes that existing
cash resources will be sufficient to support MessageMedia's currently
anticipated working capital and capital expenditure requirements through the end
of 2000. MessageMedia will need to raise additional funds through the public or
private sale of its equity or debt securities or from other sources during 2001.
The timing and amount of MessageMedia's capital requirements will depend on a
number of factors, including demand for MessageMedia's products and services,
the need to develop new or enhanced products and services, competitive pressures
and the availability of complementary businesses or technologies that
MessageMedia may wish to acquire. If additional funds are

                                       28
<PAGE>   30

raised through the issuance of equity securities, the percentage ownership of
MessageMedia's stockholders will be diluted and such equities may have rights,
preferences or privileges senior to those of the holders of MessageMedia's
common stock. There can be no assurance that additional financing will be
available when needed or that, if available, will include terms favorable to
MessageMedia or its stockholders. If adequate funds are not available on
acceptable terms, MessageMedia may be unable to develop or enhance its products
or services, take advantage of opportunities or respond to competition and the
Nasdaq National Market may choose to discontinue the listing of MessageMedia's
common stock.

     Management continues to pursue opportunities to increase its revenues and
believes that the market for e-messaging based services is expanding
dramatically. Management believes that these efforts and its continuing efforts
to raise additional capital through equity placements with existing
stockholders, their affiliates or strategic partners should allow MessageMedia
to continue operations for the next twelve to eighteen months. If near term
revenues do not increase or if MessageMedia is unable to raise additional
equity, management would be required to further reduce its expenditures on
research and development and general and administrative activities. These
reductions could significantly hamper MessageMedia's ability to develop its
messaging services.

     Net cash flows used in operating activities were approximately $19.0
million and $11.9 million for the years ended December 31, 1999 and 1998,
respectively. Net operating cash flows were primarily attributable to net losses
offset by non-cash charges for depreciation, amortization and stock-based
compensation, as well as increases in accounts receivable.

     Net cash flows used in investing activities were approximately $1.7 million
and $421,741 for the years ended December 31, 1999 and 1998 respectively. The
net cash flows used in investing activities resulted from capital expenditures
for fixed assets of approximately $3.8 million in 1999 offset by approximately
$2.1 million in net cash acquired with the Revnet and Decisive acquisitions.
Capital expenditures in 1998 were $436,474 in 1998 offset by $14,733 of proceeds
from sales of fixed assets in 1998

     Net cash flows from financing activities were approximately $54.0 million
and $10.7 million for the years ended December 31, 1999 and 1998, respectively.
The net cash flow from financing activities in 1999 primarily resulted from
approximately $50.2 million in net proceeds from issuance of common stock as a
result of two separate private placements of equity in March 1999 and October
1999 and common stock issued under our employee stock purchase plan.
Additionally in 1999 there was approximately $3.3 million in proceeds from
exercise of stock options and $1.0 million from issuance of warrants. The net
cash flow from financing activities in 1998 primarily resulted from
approximately $8.9 million in net proceeds from issuance of common stock, $1.4
million in proceeds from borrowings from stockholders and bank, and $271,308 in
proceeds from exercise of stock options.

     The Company has no material financial commitments other than obligations
under operating leases.

     In order to accommodate the growth in business, the Company expects to
continue to make expenditures in expansion of the Company's facilities,
infrastructure, additional sales and marketing employees, and network and
bandwidth capacity.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The information required by Item 8 is incorporated by reference herein from
Part IV, Item 14(a) (1) and (2).

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

     Not applicable.

                                       29
<PAGE>   31

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

IDENTIFICATION OF DIRECTORS

     The information required by this item concerning the directors of the
Company is incorporated by reference from the section entitled "Election of
Directors" in the Company's Proxy Statement anticipated to be filed within 120
days of December 31, 1999 with the Securities and Exchange Commission with
respect to the Company's 2000 Annual Meeting of Stockholders to be held on April
27, 2000 (the "Proxy Statement").

IDENTIFICATION OF EXECUTIVE OFFICERS

     The information required by this item is incorporated by reference from the
information set forth in the section entitled "Executive Officers of the
Company" in Part I, Item 1 of this Report on Form 10-K.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

     The information required by this item concerning the directors of the
Company is incorporated by reference from the section entitled "Section 16(a)
Beneficial Ownership Reporting Compliance" contained in the Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

     The section labeled "Executive Compensation" appearing in the Proxy
Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The section labeled "Security Ownership of Certain Beneficial Owners and
Management" appearing in the Proxy Statement is incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The section labeled "Certain Relationships and Related Transactions"
appearing in the Proxy Statement is incorporated herein by reference.

                                    PART IV

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

     (a)(1) Index to the consolidated financial statements

<TABLE>
<CAPTION>
                                                               PAGE
                                                               ----
<S>                                                            <C>
Report of Ernst & Young LLP, Independent Auditors...........    35
Consolidated Balance Sheets as of December 31, 1999 and
  1998......................................................    36
Consolidated Statements of Operations for the years ended
  December 31, 1999, 1998 and 1997..........................    37
Consolidated Statements of Stockholders' Equity (Net Capital
  Deficiency) for the years ended December 31, 1999, 1998
  and 1997..................................................    38
Consolidated Statements of Cash Flows for the years ended
  December 31, 1999, 1998 and 1997..........................    39
Notes to Financial Statements...............................    40
(a)(2) Consolidated Index to the Financial Statement
  Schedules
Schedule II -- Valuation and Qualifying Accounts............    54
</TABLE>

                                       30
<PAGE>   32

     (a)(3) Index to Exhibits

<TABLE>
<CAPTION>
         NUMBER                                 EXHIBIT TITLE
         ------                                 -------------
<C>                      <S>
          2.1.1*****     -- Agreement and Plan of Merger and Reorganization dated
                            July 22, 1999 among the Registrant, Revnet Systems Inc.
                            and MM1 Acquisition Corporation.
          2.1.2*****     -- Agreement and Plan of Merger and Reorganization dated
                            July 22, 1999 among the Registrant, Decisive Technology
                            Corporation and MM2 Acquisition Corporation.
          3.1*           -- Amended and Restated Certificate of Incorporation of the
                            Company.
          3.2*           -- Bylaws of the Company.
         10.1*           -- Form of Indemnification Agreement entered into between
                            Company and its officers and directors.
         10.2*           -- The Company's 1994 Incentive and Non-Statutory Stock
                            Option Plan.
         10.3*           -- The Company's 1995 Stock Plan.
         10.4*           -- The Company's Employee Stock Purchase Plan.
         10.7*           -- Marshall T. Rose Employment Agreement.
         10.9*           -- Series A Preferred Stock Purchase Agreement dated as of
                            May 22, 1995 between the Company and the purchasers named
                            therein.
         10.10*          -- Series B Preferred Stock Purchase Agreement dated as of
                            December 22, 1995 between the Company and First USA
                            Merchant Services, Inc..
         10.11*          -- Securities Purchase Agreement between the Company and
                            General Electric Capital Corporation, dated July 3, 1996.
         10.12*          -- Warrant to Purchase 47,619 shares of Common Stock, issued
                            to General Electric Capital Corporation as of July 3,
                            1996.
         10.13*          -- Series D Preferred Stock Purchase Agreement between the
                            Company and First Data Corporation, dated August 26,
                            1996.
         10.14*          -- Amended and Restated Shareholder Rights Agreement dated
                            August 26, 1996 between the Company and First Data
                            Corporation.
         10.16*          -- Warrant to purchase 475,734 shares of Series B Preferred
                            Stock, issued to First USA Paymentech.
         10.25*          -- Master Lease Agreement dated as of October 24, 1996
                            between the Company and ComDisco, Inc.
         10.32*****      -- David Ehrenthal employment agreement
         10.33*****      -- Purchase Agreement dated April 30, 1998 among the
                            Company, SOFTBANK Holdings and SOFTBANK Technology
                            Ventures IV, LP
         10.34*****      -- Loan Agreement dated April 30, 1998 among the Company and
                            SOFTBANK Holdings, Inc.
         10.35*****      -- Form of Convertible Promissory Note issued to SOFTBANK
                            Holdings, Inc.
         10.36*****      -- Bert C. Klein employment agreement
         10.37*****      -- Philip Bane Severance Agreement
         10.38*****      -- Nathaniel Borenstein Severance Agreement
         10.39*****      -- John Stachowiak Severance Agreement
         10.40*****      -- Carolyn Turbyfill Severance Agreement
         10.41**         -- Dennis J. Cagan Employment Agreement
         10.42**         -- A. Laurence Jones Employment Agreement
         10.43***        -- Robin Green Employment Agreement
         10.44***        -- Mary Beth Loesch Employment Agreement
</TABLE>

                                       31
<PAGE>   33

<TABLE>
<CAPTION>
         NUMBER                                 EXHIBIT TITLE
         ------                                 -------------
<C>                      <S>
         10.45***        -- Elizabeth Wallace Employment Agreement
         10.46***        -- Sue Morse Employment Agreement
         10.47***        -- Bert Klein Employment Agreement
         10.48****       -- Stuart Obermann Employment Agreement
         10.49****       -- Randy Bachmeyer Employment Agreement
         10.50****       -- Kelly Wood Employment Agreement
         10.51           -- Martin T. Johnson Employment Agreement
         10.52           -- Denis Cagan Separation Agreement
         21.1            -- List of Subsidiaries
         23.1            -- Consent of Ernst & Young, LLP, Independent Auditors
         27.1            -- Financial Data Schedule.
</TABLE>

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

*      Previously filed as exhibits to the Company's Registration Statement on
       Form S-1 (SEC File #333-14573).

**    Previously filed as exhibit to the Company's Form 10-Q, March 31, 1999
      (SEC File #000-21751).

***   Previously filed as exhibit to the Company's Form 10-Q, June 30, 1999 (SEC
      File #000-21751).

****  Previously filed as exhibit to the Company's Form 10-Q, September 30, 1999
      (SEC File #000-21751).

***** Previously filed.

     (b) Reports on Form 8-K

     None

     (c) Exhibits

     See (a)(3) above.

     (d) Financial Statement Schedules

     See (a)(2) above

                                       32
<PAGE>   34

                                   SIGNATURE

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

                                            MESSAGEMEDIA, INC.

                                            By:    /s/ A. LAURENCE JONES
                                              ----------------------------------
                                                      A. Laurence Jones
                                                President and Chief Executive
                                                            Officer

Dated: March 28, 2000

                               POWER OF ATTORNEY

     By signing this Form 10-K, I hereby appoint each of A. Laurence Jones and
Martin T. Johnson as my attorneys-in-fact to sign all amendments to this Form
10-K on my behalf, and file this Form 10-K (including all exhibits and other
documents related to the Form 10-K) with the Securities and Exchange Commission.
I authorize each of my attorneys-in-fact to (1) appoint a substitute
attorney-in-fact for himself and (2) perform any actions that he believes are
necessary or appropriate to carry out the intention and purpose of this Power of
Attorney. I ratify and confirm all lawful actions taken directly or indirectly
by my attorneys-in-fact and by any properly appointed substitute
attorneys-in-fact.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                      SIGNATURE                                      TITLE                      DATE
                      ---------                                      -----                      ----
<C>                                                    <S>                                 <C>

                /s/ A. LAURENCE JONES                  President and Chief Executive       March 28, 2000
-----------------------------------------------------    Officer and Director (Principal
                  A. Laurence Jones                      Executive Officer)

                /s/ MARTIN T. JOHNSON                  Senior Vice President, Chief        March 28, 2000
-----------------------------------------------------    Financial Officer, and Secretary
                  Martin T. Johnson                      (Principal Financial and
                                                         Accounting Officer)

                 /s/ BRADLEY A. FELD                   Co-Chairman of the Board            March 28, 2000
-----------------------------------------------------
                   Bradley A. Feld

                 /s/ GERALD A. POCH                    Co-Chairman of the Board            March 28, 2000
-----------------------------------------------------
                   Gerald A. Poch

                 /s/ DENNIS J. CAGAN                   Director                            March 28, 2000
-----------------------------------------------------
                   Dennis J. Cagan

                 /s/ R.TERRY DURYEA                    Director                            March 28, 2000
-----------------------------------------------------
                   R. Terry Duryea
</TABLE>

                                       33
<PAGE>   35

<TABLE>
<CAPTION>
                      SIGNATURE                                      TITLE                      DATE
                      ---------                                      -----                      ----
<C>                                                    <S>                                 <C>

                /s/ RONALD D. FISHER                   Director                            March 28, 2000
-----------------------------------------------------
                  Ronald D. Fisher

                /s/ PAMELA H. PATSLEY                  Director                            March 28, 2000
-----------------------------------------------------
                  Pamela H. Patsley

                /s/ GARY E. RIESCHEL                   Director                            March 28, 2000
-----------------------------------------------------
                  Gary E. Rieschel
</TABLE>

                                       34
<PAGE>   36

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors
MessageMedia, Inc.

     We have audited the accompanying consolidated balance sheets of
MessageMedia, Inc. as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity (net capital
deficiency), and cash flows for each of the three years in the period ended
December 31, 1999. Our audits also include the financial statement schedules
listed in the Index at Item 14a. These financial statements and schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedules based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards 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. An
audit also includes 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 our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of MessageMedia,
Inc. at December 31, 1999 and 1998, and the consolidated 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. Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.

                                            ERNST & YOUNG LLP

Denver, Colorado
February 4, 2000

                                       35
<PAGE>   37

                               MESSAGEMEDIA, INC.

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                              ---------------------------
                                                                  1999           1998
                                                              ------------   ------------
<S>                                                           <C>            <C>
                                         ASSETS
Current assets:
  Cash and cash equivalents.................................  $ 37,920,277   $  4,659,375
  Accounts receivable, net..................................     4,277,677        680,927
  Prepaid expenses and other................................       749,537        429,963
                                                              ------------   ------------
          Total current assets..............................    42,947,491      5,770,265
Furniture, equipment and software, net......................     4,727,839      1,475,720
Patent and other costs, net.................................            --         50,835
Intangible assets, net......................................    75,162,221     23,894,715
Deposits and other..........................................       353,694         29,446
                                                              ------------   ------------
          Total assets......................................  $123,191,245   $ 31,220,981
                                                              ============   ============

                          LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $  2,481,785   $  1,383,197
  Accrued compensation and related liabilities..............     1,912,345        148,419
  Accrued interest..........................................            --         15,226
  Deferred revenue..........................................       324,376         36,000
  Amount due to stockholders, current portion...............            --        395,000
  Note payable and capital lease obligations, current
     portion................................................        25,422        108,990
  Other accrued liabilities.................................     1,021,386        583,770
                                                              ------------   ------------
          Total current liabilities.........................     5,765,314      2,670,602
Note payable and capital lease obligations..................        35,808         53,786
Deferred rent...............................................            --         13,083
                                                              ------------   ------------
          Total long term liabilities.......................        35,808         66,869
Stockholders' equity:
Preferred stock, 5,000,000 shares authorized, none
  outstanding on December 31, 1999 and 1998, respectively...            --             --
Common stock, $0.001 par value; 100,000,000 shares
  authorized, 54,920,498 and 40,121,048 shares issued and
  outstanding on December 31, 1999 and 1998, respectively...        54,920         40,121
  Additional paid-in capital................................   208,343,236     70,963,655
  Warrants..................................................       321,072      1,865,487
  Deferred compensation.....................................    (1,331,811)      (657,720)
  Accumulated deficit.......................................   (89,997,294)   (43,728,033)
                                                              ------------   ------------
       Total stockholders' equity...........................   117,390,123     28,483,510
                                                              ------------   ------------
          Total liabilities and stockholders' equity........  $123,191,245   $ 31,220,981
                                                              ============   ============
</TABLE>

                            See accompanying notes.

                                       36
<PAGE>   38

                               MESSAGEMEDIA, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                     ------------------------------------------
                                                         1999           1998           1997
                                                     ------------   ------------   ------------
<S>                                                  <C>            <C>            <C>
Revenues:
  Services.........................................  $  9,001,161   $  1,287,790   $  1,450,598
  Software Licenses................................     1,020,383             --             --
                                                     ------------   ------------   ------------
Total Revenues.....................................    10,021,544      1,287,790      1,450,598
Cost of revenues...................................     4,589,358         97,553        270,416
                                                     ------------   ------------   ------------
Gross profit.......................................     5,432,186      1,190,237      1,180,182
Operating expenses:
  Marketing and sales..............................     9,704,452      1,934,486      5,424,110
  Research, development and engineering............     4,935,931      4,828,277      6,687,177
  General and administrative.......................     7,677,527      3,810,073      4,377,688
  Restructuring expenses...........................     1,025,000        812,166             --
  Write-off of in-process technology...............            --      1,300,000             --
  Depreciation and amortization....................    28,923,515      2,470,917      1,097,716
                                                     ------------   ------------   ------------
Total operating expenses...........................    52,266,425     15,155,919     17,586,691
                                                     ------------   ------------   ------------
Loss from operations...............................   (46,834,239)   (13,965,682)   (16,406,509)
Interest income....................................       654,041        217,551        554,587
Interest expense...................................       (89,063)       (83,892)       (95,360)
                                                     ------------   ------------   ------------
Net loss...........................................   (46,269,261)   (13,832,023)   (15,947,282)
Dividends imputed on preferred stock...............            --       (153,126)    (1,250,000)
                                                     ------------   ------------   ------------
Net loss applicable to common shares...............  $(46,269,261)  $(13,985,149)  $(17,197,282)
                                                     ============   ============   ============
Net loss per share, basic and diluted..............  $      (1.00)  $      (0.63)  $      (1.94)
Shares used in per share computation, basic and
  diluted..........................................    46,367,195     22,304,902      8,842,367
</TABLE>

                            See accompanying notes.

                                       37
<PAGE>   39

                               MESSAGEMEDIA, INC.

    CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>

                                     PREFERRED STOCK       COMMON STOCK        ADDITIONAL                   DEFERRED
                                     ---------------   --------------------     PAID-IN                     COMPENSA-
                                     SHARES   AMOUNT     SHARES     AMOUNT      CAPITAL       WARRANTS        TION
                                     ------   ------   ----------   -------   ------------   -----------   -----------
<S>                                  <C>      <C>      <C>          <C>       <C>            <C>           <C>
Balance at December 31, 1996.......     --     $--      8,794,812   $8,795    $ 25,758,015   $ 3,017,115   $   (44,305)
Deferred compensation and related
  amortization.....................     --      --             --       --         128,888            --      (110,930)
Acceleration of stock options......     --      --             --       --          52,137            --            --
Extension of warrants..............     --      --             --       --          50,000            --            --
Issuance of Series A preferred
  stock, net of issuance cost......    250       1             --       --       1,137,999            --            --
Employee stock purchase plan.......     --      --         22,160       22          74,958            --            --
Issuance of common stock for
  services rendered................     --      --          1,193        1           8,052            --            --
Issuance of common stock for
  exercise of stock option.........     --      --         85,690       86          27,679            --            --
Dividend imputed on Series A
  convertible preferred stock,
  classified outside if
  stockholders' equity (net capital
  deficiency)......................     --      --             --       --        (937,500)           --            --
Net loss...........................     --      --             --       --              --            --            --
                                      ----     ---     ----------   -------   ------------   -----------   -----------
Balance at December 31, 1997.......    250       1      8,903,855    8,904      26,300,228     3,017,115      (155,235)
Issuance of stock dividends to
  Series A preferred
  stockholders.....................     --      --        108,125      108         153,020            --            --
Issuance of common stock for the
  exercise of warrants.............     --      --        947,495      947       1,604,426    (1,501,628)           --
Issuance of common stock for
  exercise of stock options........     --      --        659,637      660         270,648            --            --
Conversion of Series A preferred
  stock............................   (250)     (1)     1,752,141    1,752         473,249            --            --
Issuance of common stock for
  services rendered................     --      --         59,009       59          87,049            --            --
Charge associated with extending
  option terms.....................     --      --             --       --         405,718            --            --
Deferred compensation and related
  amortization.....................     --      --             --       --         165,779            --       119,221
Common stock issued to SOFTBANK and
  affiliates.......................     --      --     20,784,883   20,785      15,338,039            --            --
Dividend imputed on Series A
  convertible preferred stock,
  cancelled upon buyout of Series A
  convertible preferred by
  SOFTBANK.........................     --      --             --       --         937,500            --            --
Employee stock purchase plan.......     --      --         17,907       18          43,949            --            --
Common stock issued for Email
  Publishing, Inc. acquisition.....     --      --      5,582,676    5,583      20,257,720            --      (583,101)
Common stock and warrants issued
  for Distributed Bits, L.L.C.
  acquisition......................     --      --      1,305,320    1,305       4,926,330       350,000       (38,605)
Net loss...........................     --      --             --       --              --            --            --
                                      ----     ---     ----------   -------   ------------   -----------   -----------
Balance at December 31, 1998.......     --      --     40,121,048   40,121      70,963,655     1,865,487      (657,720)
Issuance of common stock for
  exercise of stock options........     --      --      1,700,049    1,700       3,286,825            --            --
Issuance of common stock for the
  exercise of warrants.............     --      --      1,280,074    1,280       2,581,969    (1,544,415)           --
Deferred compensation and related
  amortization.....................     --      --             --       --          29,565            --      (674,091)
Acceleration of stock options......     --      --             --       --         916,007            --            --
Common stock issued for Revnet
  acquisition......................     --      --      3,262,120    3,262      41,031,639            --            --
Common stock issued for Decisive
  acquisition......................     --      --      2,054,498    2,055      39,158,901            --            --
Common stock issued for Private
  Offerings........................     --      --      6,448,066    6,448      49,956,618            --            --
Employee stock purchase plan.......     --      --         47,348       47         271,960            --            --
Issuance of common stock for
  forgiveness of stockholder
  debt.............................     --      --          7,295        7         146,097            --            --
Net loss...........................     --      --             --       --              --            --            --
                                      ----     ---     ----------   -------   ------------   -----------   -----------
Balance at December 31, 1999.......     --     $--     54,920,498   $54,920   $208,343,236   $   321,072   $(1,331,811)
                                      ====     ===     ==========   =======   ============   ===========   ===========

<CAPTION>
                                                        TOTAL
                                                    STOCKHOLDERS'
                                                       EQUITY
                                     ACCUMULATED    (NET CAPITAL
                                       DEFICIT       DEFICIENCY)
                                     ------------   -------------
<S>                                  <C>            <C>
Balance at December 31, 1996.......  $(13,795,600)  $ 14,944,020
Deferred compensation and related
  amortization.....................            --         17,958
Acceleration of stock options......            --         52,137
Extension of warrants..............            --         50,000
Issuance of Series A preferred
  stock, net of issuance cost......            --      1,138,000
Employee stock purchase plan.......            --         74,980
Issuance of common stock for
  services rendered................            --          8,053
Issuance of common stock for
  exercise of stock option.........            --         27,765
Dividend imputed on Series A
  convertible preferred stock,
  classified outside if
  stockholders' equity (net capital
  deficiency)......................            --       (937,500)
Net loss...........................   (15,947,282)   (15,947,282)
                                     ------------   ------------
Balance at December 31, 1997.......   (29,742,882)      (571,869)
Issuance of stock dividends to
  Series A preferred
  stockholders.....................      (153,128)            --
Issuance of common stock for the
  exercise of warrants.............            --        103,745
Issuance of common stock for
  exercise of stock options........            --        271,308
Conversion of Series A preferred
  stock............................            --        475,000
Issuance of common stock for
  services rendered................            --         87,108
Charge associated with extending
  option terms.....................            --        405,718
Deferred compensation and related
  amortization.....................            --        285,000
Common stock issued to SOFTBANK and
  affiliates.......................            --     15,358,824
Dividend imputed on Series A
  convertible preferred stock,
  cancelled upon buyout of Series A
  convertible preferred by
  SOFTBANK.........................            --        937,500
Employee stock purchase plan.......            --         43,967
Common stock issued for Email
  Publishing, Inc. acquisition.....            --     19,680,202
Common stock and warrants issued
  for Distributed Bits, L.L.C.
  acquisition......................            --      5,239,030
Net loss...........................   (13,832,023)   (13,832,023)
                                     ------------   ------------
Balance at December 31, 1998.......   (43,728,033)    28,483,510
Issuance of common stock for
  exercise of stock options........            --      3,288,525
Issuance of common stock for the
  exercise of warrants.............            --      1,038,834
Deferred compensation and related
  amortization.....................            --       (644,526)
Acceleration of stock options......            --        916,007
Common stock issued for Revnet
  acquisition......................            --     41,034,901
Common stock issued for Decisive
  acquisition......................            --     39,160,956
Common stock issued for Private
  Offerings........................            --     49,963,066
Employee stock purchase plan.......            --        272,007
Issuance of common stock for
  forgiveness of stockholder
  debt.............................            --        146,104
Net loss...........................   (46,269,261)   (46,269,261)
                                     ------------   ------------
Balance at December 31, 1999.......  $(89,997,294)  $117,390,123
                                     ============   ============
</TABLE>

                            See accompanying notes.

                                       38
<PAGE>   40

                               MESSAGEMEDIA, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31,
                                                              ------------------------------------------
                                                                  1999           1998           1997
                                                              ------------   ------------   ------------
<S>                                                           <C>            <C>            <C>
OPERATING ACTIVITIES
Net loss....................................................  $(46,269,261)  $(13,832,023)  $(15,947,282)
Adjustments to reconcile net loss to net cash used in
  operating activities:
  Depreciation and amortization.............................    28,923,515      2,185,917      1,079,758
  Amortization of Deferred Compensation.....................       430,864        285,000         17,958
  In-process technology charge..............................            --      1,300,000             --
  Loss on disposal of assets................................            --         33,943         11,249
  Common stock issued for services..........................            --         87,108          8,053
  Compensation expense for stock options....................       916,007        405,718         52,137
  Changes in operating assets and liabilities:
    Accounts receivable.....................................    (3,144,845)      (132,555)      (119,707)
    Prepaid expenses and other..............................      (316,549)        23,145       (334,775)
    Deposits and other......................................      (267,144)       115,983        (71,098)
    Accounts payable........................................       385,063       (371,721)      (185,974)
    Accrued compensation and related liabilities............     1,476,634       (262,261)        (1,998)
    Deferred revenue........................................       (51,224)      (537,790)       473,107
    Accrued interest........................................       (15,226)      (274,677)        93,564
    Deferred Rent...........................................       (13,083)            --             --
    Amount due to stockholders..............................            --        (97,500)      (220,000)
    Other accrued liabilities...............................    (1,062,726)      (833,077)        25,223
                                                              ------------   ------------   ------------
Net cash flows used in operating Activities.................   (19,007,975)   (11,904,790)   (15,119,785)
INVESTING ACTIVITIES
Additions to furniture, equipment and software..............    (3,775,019)      (436,474)      (929,641)
Proceeds from sales of fixed assets.........................            --         14,733         11,769
Cash and cash equivalents acquired with acquisitions........     2,053,541             --             --
Maturity of short term investment...........................            --             --        200,000
                                                              ------------   ------------   ------------
Net cash flows used in investing activities.................    (1,721,478)      (421,741)      (717,872)
FINANCING ACTIVITIES
Proceeds from issuance of redeemable preferred stock, net of
  issuance costs............................................            --             --      4,888,000
Proceeds from issuance of common stock, net of issuance
  costs.....................................................    50,235,073      8,908,444         74,980
Proceeds from issuance/extension of warrants................     1,038,834        103,745         50,000
Proceeds from borrowings from stockholders and bank.........            --      1,411,578             --
Proceeds from exercise of stock options.....................     3,288,525        271,308         27,765
Repayment of amount due to stockholders.....................      (395,000)            --             --
Repayment of loan from Bank.................................       (91,509)            --             --
Repayment of capital lease obligations......................       (85,568)       (40,228)            --
                                                              ------------   ------------   ------------
Net cash flows provided by financing activities.............    53,990,355     10,654,847      5,040,745
                                                              ------------   ------------   ------------
Net increase/(decrease) in cash and cash equivalents........    33,260,902     (1,671,684)   (10,796,912)
Cash and cash equivalents at the beginning of year..........     4,659,375      6,331,059     17,127,971
                                                              ------------   ------------   ------------
Cash and cash equivalents at the end of year................  $ 37,920,277   $  4,659,375   $  6,331,059
                                                              ============   ============   ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Interest paid.............................................  $     89,063   $     83,892   $     95,360
                                                              ============   ============   ============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
  ACTIVITIES:
Issuance of common stock for forgiveness of stockholder
  debt......................................................  $    146,104   $  1,533,764   $         --
                                                              ============   ============   ============
Conversion of Series A redeemable convertible preferred
  stock.....................................................  $         --   $  3,233,730   $         --
                                                              ============   ============   ============
Issuance of common stock for forgiveness of SOFTBANK loan...  $         --   $  1,411,578   $         --
                                                              ============   ============   ============
</TABLE>

                            See accompanying notes.

                                       39
<PAGE>   41

                               MESSAGEMEDIA, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Organization and business activity

     MessageMedia Inc. (the "Company" or "MessageMedia") is a leading provider
of permission-based, comprehensive e-messaging solutions. E-messaging is the
term used to describe the Company's suite of services that utilize the medium of
e-mail to develop and foster permission-based relationships with customers. The
Company's suite of services and products, including Internet-based marketing,
customer care, survey and information distribution solutions, enable businesses
to use e-messaging as a strategic tool to increase sales, improve customer
communication and develop long-term customer loyalty. The Company's e-messaging
solutions, available either on an outsourced-subscription basis or as packaged
software licensed on a hosted or client in-house basis, allow businesses to
establish and enhance two-way customer dialogue across the extended enterprise,
from marketing to sales to customer service.

     On December 13, 1996, the Company completed an initial public offering (the
"Offering") of 2,000,000 shares of its common stock under the name First Virtual
Holdings Incorporated, with an offering price of $9.00 per share, resulting in
gross proceeds of $18.0 million and net proceeds (less the underwriters'
discount and offering expenses) of approximately $15.0 million. Upon completion
of the offering, all of the then outstanding preferred stocks were converted to
common stock.

     On June 23, 1998, at the Company's Annual Meeting of Stockholders, the
Company's stockholders approved an investment in the Company by SOFTBANK
Holdings Inc., SOFTBANK Technology Ventures IV, L.P. (together "SOFTBANK") and
E*Trade Group Inc. SOFTBANK and affiliates purchased approximately 19.2 million
shares of the Company's common stock and became a majority stockholder of the
Company. On September 10, 1998, SOFTBANK purchased approximately 1.6 million
additional shares of the Company's common stock.

     On December 9, 1998, the Company changed its name to MessageMedia and its
Nasdaq National Market symbol to "MAIL" and amended the Company's Certificate of
Incorporation increasing the number of authorized shares of the Company's common
stock from 40,000,000 to 100,000,000 shares. On March 30, 1999, the Company
changed its Nasdaq symbol to "MESG".

     On December 9, 1998, the Company acquired all of the common stock and all
outstanding rights of the common stock of Email Publishing, Inc. ("EPub") in
exchange for 5,582,676 shares of MessageMedia common stock and the assumption by
MessageMedia of options and warrants to acquire up to approximately 417,324
additional shares of MessageMedia common stock at a weighted average exercise
price of $.04 per share.

     On December 11, 1998, the Company acquired all equity interests, including
options, warrants or other purchase rights, if any, in Distributed Bits, L.L.C.
("DBits"), in exchange for 1,305,320 shares of MessageMedia common stock and
warrants to purchase an additional 250,000 shares of MessageMedia common stock
at an exercise price of $6.00 per share and an additional 250,000 shares of
MessageMedia common stock at $8.00 per share.

     On March 26, 1999, the Company issued 2,352,942 shares of the Company's
common stock in a private placement for net proceeds to the Company of
$9,902,082.

     On August 9, 1999, the Company acquired all of the common stock and all
outstanding rights to acquire shares of the common stock of Revnet Systems, Inc.
in exchange for 3,262,120 shares of MessageMedia common stock and the assumption
of options to acquire up to approximately 681,675 additional shares of
MessageMedia common stock, at a weighted average exercise price of $1.36 per
share. (See Note 3 for details of this acquisition.)

                                       40
<PAGE>   42
                               MESSAGEMEDIA, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     On August 16, 1999, the Company acquired all of the common stock and all
outstanding rights to acquire shares of the common stock of Decisive Technology
Corporation in exchange for 2,054,498 shares of MessageMedia common stock and
the assumption of options to acquire up to approximately 466,818 additional
shares of MessageMedia common stock, at a weighted average exercise price of
$2.69. (See Note 3 for details of this acquisition.)

     On October 21, 22, and 25, 1999, in three separate closings, the Company
completed a private placement of 4,095,124 shares of the Company's common stock
for net proceeds to the Company of $40,060,984.

  Principles of Consolidation

     The consolidated financial statements include the accounts of MessageMedia
and its majority owned subsidiaries in which the Company has a controlling
interest. All significant intercompany transactions and balances have been
eliminated in consolidation.

  Use of Estimates

     The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.

  Reclassifications of Prior Year Amounts

     Certain 1998 and 1997 balances have been reclassified to conform to the
1999 presentation.

  Cash and Cash Equivalents

     The Company considers all highly liquid investments with an original
maturity of less than three months to be cash equivalents. The Company maintains
its cash in bank deposit accounts and commercial paper, which at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts and believes it is not subject to any significant credit risk on
cash.

  Fair Value of Financial Instruments

     SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosures of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. The Company's financial instruments include current assets
and liabilities. The carrying amount of the Company's financial instruments
reported in the balance sheets approximates their fair value.

  Off Balance Sheet Risk and Concentration of Credit Risk

     Financial instruments that potentially subject the Company to concentration
of credit risk consists primarily of cash and cash equivalents and accounts
receivable. The Company maintains its cash and cash equivalents in high quality
U.S. financial institutions. The Company extends credit to various customers and
establishes an allowance for doubtful accounts for specific customers that it
determines to have a significant credit risk.

  Furniture, Equipment and Software

     Furniture, equipment and software are stated at cost and depreciated over
the estimated useful lives of the assets (three to five years) using the
straight-line method. Depreciation expense was $1,291,944, $1,116,232,
$1,051,590 for the years ended December 31, 1999, 1998 and 1997 respectively.

                                       41
<PAGE>   43
                               MESSAGEMEDIA, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Intangible Assets

     Intangible assets arose primarily from the acquisition of two entities in
December 1998 and two entities in August of 1999. (See Note 3). The excess of
cost over the fair value of the net assets acquired has been allocated to
goodwill and developed technology. These intangible assets are being amortized
over their useful lives of two years.

  Asset Impairment

     In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" (SFAS 121), the Company recognizes impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. SFAS 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. To date,
the Company has not recorded any impairment losses.

  Stock-Based Compensation

     The Company accounts for stock option grants to employees in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) and related Interpretations because the Company believes the
alternative fair value accounting provided for under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation",
requires the use of option valuation models that were not developed for use in
valuing employee stock options. Deferred compensation is recorded only when the
fair value of the stock on the date of the option grant exceeds the exercise
price of the option. The deferred compensation is amortized over the vesting
period of the option.

  Revenue Recognition

     The Company derives its revenue from outsourced e-messaging services and
licenses of software products and related support services. The company's
outsourced e-messaging services include information distribution, e-mail
marketing, e-customer care, e-commerce messaging and e-survey. Our software
products provide e-messaging and e-survey capabilities for clients desiring
their own "in house" solution. Prior to July 1998, the Company derived its
revenue from its First Virtual Internet Payment System ("FVIPS") and related
consulting services. In the third quarter of 1998, the Company phased out the
operations of the FVIPS and launched its e-messaging services.

     Messaging revenue is recognized as earned in accordance with individual
customer contracts, which typically provide for monthly minimums and varying
revenue on a per message basis, depending upon monthly message volumes and
message complexity. Revenue from e-survey service agreements is typically
recognized on a percentage completion basis.

     Statement of Position 97-2, "Software Revenue Recognition" (SOP 97-2), was
issued in October 1997 and was amended by Statement of Position 98-4 (SOP 98-4).
The Company's revenue recognition policies and practices for software license
fees are consistent with SOP 97-2 and SOP 98-4. Additionally, the American
Institute of Certified Public Accountants (AICPA) issued SOP 98-9 and is
effective for transactions entered into beginning January 1, 2000. The
pronouncement is not expected to materially impact the Company's revenue
recognition practices. Software products and support services revenue is
recognized at the time of shipment of the related software products. Typically,
no significant post shipment obligations exist after the software sale. A
substantial number of our customers that purchase our software products also
enter into annual support and maintenance contracts. Revenue attributable to
annual support and maintenance contracts is recognized ratably over the term of
the respective agreement.

                                       42
<PAGE>   44
                               MESSAGEMEDIA, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     FVIPS revenue consists of consumer and merchant registrations, transaction
revenue and marketing revenue. Consumer registration fees and merchant
registration fees were recognized over a twelve month period. Also, the related
direct costs of processing such registrations and renewals were deferred and
amortized over a 12-month period. Transaction revenue and marketing revenue were
recognized when earned. The operation of the Internet payment system was
discontinued in the third quarter of 1998.

  Net Loss Per Share

     Basic and diluted earnings per share is calculated in accordance with FASB
Statement No. 128, "Earnings Per Share." All earnings per share amounts for all
periods, have been represented, and where appropriate, restated to conform to
the SFAS 128 requirements. Due to the antidilutive effect, options, warrants,
and preferred shares were not included in the calculation of diluted earnings
per share.

  Impact of Recently Issued Accounting Standards

     In June 1998, the FASB issued Statements No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The Statement requires the
Company to recognize all derivatives on the balance sheet at fair value. The
Company does not anticipate that the adoption of this Statement will have a
significant effect on its results of operations or financial position.

2. BALANCE SHEET DETAILS

     Accounts Receivable, net consist of the following:

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              ---------------------
                                                                 1999        1998
                                                              ----------   --------
<S>                                                           <C>          <C>
Trade Accounts Receivable...................................  $4,545,228   $647,584
Other receivables...........................................     304,283     33,343
Less allowance for doubtful accounts........................    (571,834)        --
                                                              ----------   --------
                                                              $4,277,677   $680,927
                                                              ==========   ========
</TABLE>

     Furniture, equipment and software consist of the following:

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                             -------------------------
                                                                1999          1998
                                                             -----------   -----------
<S>                                                          <C>           <C>
Equipment..................................................  $ 5,689,292   $ 2,942,430
Software...................................................    2,121,497     1,068,635
Furniture..................................................      223,661         6,922
Less accumulated depreciation..............................   (3,306,611)   (2,542,267)
                                                             -----------   -----------
                                                             $ 4,727,839   $ 1,475,720
                                                             ===========   ===========
</TABLE>

                                       43
<PAGE>   45
                               MESSAGEMEDIA, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Intangible assets consist of the following:

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                            --------------------------
                                                                1999          1998
                                                            ------------   -----------
<S>                                                         <C>            <C>
Developed technology-EPub.................................  $    900,000   $   900,000
Goodwill-EPub.............................................    18,200,259    18,200,259
Goodwill-DBits............................................     5,833,357     5,833,357
Goodwill-Revnet...........................................    39,404,967            --
Goodwill-Decisive.........................................    39,428,361            --
Less accumulated amortization.............................   (28,604,723)   (1,038,901)
                                                            ------------   -----------
                                                            $ 75,162,221   $23,894,715
                                                            ============   ===========
</TABLE>

     Other accrued liabilities consist of the following:

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              ---------------------
                                                                 1999        1998
                                                              ----------   --------
<S>                                                           <C>          <C>
Directors and officers insurance payable....................  $       --   $147,187
Accrued Sales Taxes.........................................     390,667         --
Reserve for payment system shutdown (Note 8)................      65,376    198,410
Other accrued liabilities...................................     565,343    238,173
                                                              ----------   --------
                                                              $1,021,386   $583,770
                                                              ==========   ========
</TABLE>

3. ACQUISITIONS

  Acquisition of Email Publishing, Inc.

     On December 9, 1998, the Company acquired all of the common stock and all
outstanding rights of the common stock of Email Publishing, Inc. ("EPub") in
exchange for 5,582,676 shares of MessageMedia common stock and the assumption by
MessageMedia of options and warrants to acquire up to approximately 417,324
additional shares of MessageMedia common stock at a weighted average exercise
price of $0.04 per share. The purchase price was calculated to be $20,763,300
based on the fair market value of $3.38 per share of MessageMedia common stock.
The purchase price includes estimated merger costs of $500,000. The transaction
was accounted for using the purchase method of accounting and as a result
intangible assets of $18,200,259 in goodwill and $900,000 of developed
technology was recorded related to this acquisition.

  Acquisition of Distributed Bits, L.L.C.

     On December 11, 1998, the Company acquired all equity interests, including
options, warrants or other purchase rights, if any, in Distributed Bits, L.L.C.
("DBits"), in exchange for 1,305,320 shares of MessageMedia common stock and
warrants to purchase an additional 250,000 shares of MessageMedia common stock
at an exercise price of $6.00 per share and an additional 250,000 shares of
MessageMedia common stock at $8.00 per share. The purchase price was calculated
to be $5,577,635 based on the fair market value of $3.65 per share of
MessageMedia common stock. The purchase price includes estimated merger costs of
$300,000 and the value of warrants of $350,000. The transaction was accounted
for using the purchase method of accounting and as a result intangible assets of
$5,833,357 in goodwill was recorded related to this acquisition.

  Acquisition of Revnet Systems, Inc.

     On August 9, 1999, MessageMedia acquired all of the common stock and all
outstanding rights to acquire shares of the common stock of Revnet Systems, Inc.
in exchange for 3,262,120 shares of MessageMedia

                                       44
<PAGE>   46
                               MESSAGEMEDIA, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

common stock and the assumption of options to acquire up to approximately
681,675 additional shares of MessageMedia common stock, at a weighted average
exercise price of $1.36. The purchase price was calculated to be $41,834,901
based on the fair market value of $10.64 per share of MessageMedia common stock.
The purchase price also includes estimated acquisition costs of $800,000. The
transaction was accounted for using the purchase method of accounting. The
purchase price has been allocated as follows:

<TABLE>
<S>                                                       <C>
Current assets acquired................................   $ 2,279,472
Furniture, equipment and software......................       175,867
Other long term assets.................................           591
Goodwill...............................................    39,404,967
Liabilities assumed....................................    (1,101,385)
Deferred Compensation..................................     1,075,389
                                                          -----------
                                                          $41,834,901
                                                          ===========
</TABLE>

  Acquisition of Decisive Technology Corporation

     On August 16, 1999, MessageMedia acquired all of the common stock and all
outstanding rights to acquire shares of the common stock of Decisive Technology
Corporation in exchange for 2,054,498 shares of MessageMedia common stock and
the assumption of options to acquire up to approximately 466,818 additional
shares of MessageMedia common stock, at a weighted average exercise price of
$2.69. The transaction was accounted for using the purchase method of accounting
and goodwill was recorded. The purchase price was calculated to be $39,635,955
based on the fair market value of $16.03 per share of MessageMedia common stock.
The purchase price also includes estimated acquisition costs of $475,000. The
transaction was accounted for using the purchase method of accounting. The
purchase price has been allocated as follows:

<TABLE>
<S>                                                       <C>
Current assets acquired................................   $   519,671
Furniture, equipment and software......................       607,500
Other assets...........................................        57,104
Goodwill...............................................    39,428,361
Liabilities assumed....................................      (976,681)
                                                          -----------
                                                          $39,635,955
                                                          ===========
</TABLE>

     On the date of the acquisition, the Company implemented a plan to relocate
the Decisive facility to Colorado. The Company estimated the cost of the
relocation as approximately $328,000 which includes costs associated with
employee relocation or termination costs and other miscellaneous facility
closure costs. As of December 31, 1999, approximately $165,000 of termination
and relocation costs have been incurred and expensed against this reserve.

     The accompanying statements of operations reflect the operating results of
Revnet and Decisive since the date of their respective acquisitions. The pro
forma unaudited results of operations for the years ended December 31, 1999 and
1998, assuming the purchase of Revnet and Decisive had occurred on January 1, of
the respective years, are as follows:

<TABLE>
<CAPTION>
                                                               1999           1998
                                                           ------------   ------------
                                                                   (UNAUDITED)
<S>                                                        <C>            <C>
Net revenues.............................................  $ 13,635,029   $  5,527,825
                                                           ============   ============
Net loss attributable to common stockholders.............  $(73,831,406)  $(59,800,653)
                                                           ============   ============
Net loss per share attributable to common stockholders,
  basic and diluted......................................  $      (1.49)  $      (2.17)
                                                           ============   ============
</TABLE>

                                       45
<PAGE>   47
                               MESSAGEMEDIA, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. RELATED PARTY TRANSACTIONS

     In conjunction with the sale of 1,250,000 shares of common stock to a
stockholder on September 16, 1994 for $200,000, the Company obtained an
unsecured line of credit from the stockholder for borrowings up to $800,000. The
Company also had an unsecured line of credit from a stockholder which allowed
for maximum borrowings of $400,000. The borrowings plus interest at 8% were due
upon the earlier of (i) January 31, 1998 or (ii) the closing of an underwritten
public offering (other than the IPO) of the Company's common stock. At December
31, 1997, $1,200,000 had been drawn against these lines of credit. On February
5, 1998, these two stockholders filed civil actions against the Company seeking
to recover the principal and interest due. The total amount of principal and
interest was approximately $1.5 million which was reflected as current
liabilities in the 1997 financial statements. On June 23, 1998, the two
stockholders signed a release for this lawsuit and the debt was settled. (See
Note 7)

     On August 20, 1996, the Company entered into an agreement with the Series B
stockholder for the waiver of a previous agreement to use the Series B
stockholder as an exclusive services provider. In return for the waiver, the
Company agreed to pay the Series B stockholder facility fees totaling $500,000
and transaction surcharges of no less than $500,000 during the 40-month period
beginning September 1, 1996, dependent upon the number of transactions processed
through service providers other than the Series B stockholder. The Company
charged the $1,000,000 associated with this agreement to general and
administrative expenses during 1996. At December 31, 1998, the Company had an
outstanding balance of $395,000 due to this stockholder. As of December 31, 1999
the outstanding balance of the amount due to this stockholder had been paid in
full. There was no interest charged on the outstanding balance.

     The Company's credit card transaction services were provided by Paymentech,
Inc., a stockholder. Fees for these services amounted to $151,284 and $58,520
for the years ended December 31, 1997 and 1998, respectively. Fees paid in 1998
are significantly less compared to prior years, due to the Company's decision in
December 1997, to focus its efforts on its messaging platform and move away from
its payment system operations. The operations of the payment system ceased in
the third quarter of 1998.

     Marketing and Sales expense for the year ended December 31, 1999 includes a
one-time charge of approximately $855,000 in compensation expense from
acceleration of stock options. This compensation expense relates to an
employment agreement with a former officer which included an option vesting
acceleration clause that was triggered upon the company obtaining certain sales
contracts and/or certain sales levels.

5. NOTE PAYABLE

     In connection with the acquisition of EPub in December 1998, MessageMedia
assumed a note owed to a bank with an interest rate of the bank's prime rate
plus 1%, and monthly principal payments of $6,250, due through the note's
maturity date of June 2000. The note was secured by certain assets of the
Company. As of December 31, 1999, the note has been paid in full. In connection
with the note, detachable warrants were issued by EPub. (See Note 7)

6. COMMITMENTS

  Leases

     The Company leases its office facilities and certain equipment under
non-cancelable operating lease agreements. The facility leases require the
Company to pay standard common area maintenance fees and are subject to certain
minimum escalation provisions. Rent expense for all operating leases was
approximately $885,331, $635,923 and $523,214 for the years ended December 31,
1999, 1998 and 1997, respectively.

                                       46
<PAGE>   48
                               MESSAGEMEDIA, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company acquired certain equipment capital lease obligations when it
acquired Decisive in August 1999. Cost and accumulated depreciation of equipment
under capital leases were $95,853 and $39,103 respectively at December 31, 1999.

     Annual future minimum lease payments for operating and capital leases as of
December 31, 1999, are as follows:

<TABLE>
<CAPTION>
                                                           OPERATING LEASES   CAPITAL LEASES
                                                           ----------------   --------------
<S>                                                        <C>                <C>
     2000................................................     1,086,469           35,977
     2001................................................       635,836           20,693
     2002................................................       574,378           18,525
     2003................................................       523,533            6,175
     2004 and thereafter.................................       539,598               --
                                                              ---------          -------
Total minimum lease payments.............................     3,359,814           81,370
                                                              =========
Less amount representing interest........................                        (20,140)
                                                                                 -------
Present value of future minimum lease payments...........                         61,230
Less current portion.....................................                        (25,422)
                                                                                 -------
Long-term portion of obligations under capital leases....                         35,808
                                                                                 =======
</TABLE>

7. STOCKHOLDERS' EQUITY

  Preferred Stock

     On October 22, 1997, the Company completed a private placement of preferred
stock and received net proceeds of $4.9 million. Under the private placement
agreement, 1,000 shares of Series A redeemable convertible preferred stock were
issued at $5,000 per share. The Series A redeemable convertible preferred stock
was convertible into common stock at the option of the investors at a per share
conversion price equal to the lesser of $5.50 or 80% of the average closing bid
price of the common stock for the prior ten days. At December 31, 1997, the
Company recorded imputed dividends on the Series A preferred redeemable
convertible stock totaling $1,250,000 for discounted conversion terms. The
Series A redeemable convertible preferred stock was redeemable for cash under
certain circumstances and carried an annual dividend of 7% payable quarterly, in
cash or shares of common stock. The Series A preferred stockholders converted
345 shares into common stock during 1998.

     In June 1998, the Company issued approximately 9.8 million shares of common
stock to SOFTBANK and 833,333 shares of common stock to E*Trade for approximate
net proceeds of $6.6 million. In addition, SOFTBANK purchased $5.8 million of
the Company's outstanding debt and preferred stock, which were subsequently
converted into approximately 8.5 million shares of the Company's common stock.
The $5.8 million amount includes a settlement to two stockholders of the Company
who, on February 5, 1998 had filed civil actions against the Company seeking to
recover the principal and interest due under unsecured lines of credit. The
total amount of principal and interest paid out as settlement was approximately
$1.5 million. Also included in the transaction was the purchase of the 655
remaining outstanding shares from the Series A redeemable convertible preferred
stock.

  Warrants

     In connection with the sale of Series B preferred stock in December 1995 to
a financial institution, the Company issued warrants to purchase shares of
Series A and Series B preferred stock. In April 1996, the Series B preferred
stockholder partially exercised this warrant by purchasing 465,000 shares of
Series B preferred stock at $3.189 per share. In addition, the Series B
preferred stockholder paid the Company $3,017,115 for warrants to purchase
852,272 shares of Series A preferred stock and 475,734 shares of Series B

                                       47
<PAGE>   49
                               MESSAGEMEDIA, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

preferred stock at $0.01 per share. In March 1998, the Series B shareholder
exercised their warrant to purchase 852,272 shares of Series A preferred stock,
which was immediately converted into shares of the Company's common stock. In
December 1999, the warrant for 475,734 series B preferred shares was exercised,
and immediately converted into common stock. The Company received net proceeds
of approximately $4.4 million in connection with the original transaction.

     In connection with a consulting agreement, an incentive warrant to purchase
300,000 shares of common stock at $5.63 per share was issued on September 24,
1997 to a third party. The first 100,000 shares of common stock can be exercised
when the third party produces $10 million of net sales through the use of
technology and services provided by the Company. The second 100,000 shares of
common stock can be exercised when the third party produces $25 million of net
sales through the use of technology and services provided by the Company and the
third 100,000 shares of common stock can be exercised when the third party
produces $50 million of net sales through the use of technology and services
provided by the Company. These warrants expire on December 20, 2003. As of
December 31, 1999 no sales have been attributed to the third party's efforts.

     Under a certain consulting agreement, dated September 8, 1997, a warrant to
purchase 65,000 shares of common stock at $5.63 per share was granted to a third
party as payment for consulting services rendered. Under the terms of the
September 8, 1997 warrant agreement, 20,000 shares became exercisable upon
completion (as defined in the agreement) with the remaining 45,000 shares to be
exercisable when the third party delivers to the Company, two catalog merchants
who execute agreements with the Company in regards to either licensing of
VirtualPINS or interactive messaging services. These warrants expire on December
30, 2002. On September 29, 1997, the warrant to purchase 20,000 of the Company's
common stock became exercisable and accordingly, the Company estimated the fair
value of the warrant using the Black-Scholes option pricing model. However, no
value was allocated to the warrant as the estimated fair value was nominal. This
warrant expires on December 30, 2002. In June 1998, the warrant to purchase
45,000 of the Company's common stock expired as the incentive terms of this
portion of the agreement were not met. On March 3, 1999, an additional warrant
for 10,000 common shares at $5.63 was granted to the third party and are
exercisable through December 2002. The Company estimated the fair value of the
warrant using the Black-Scholes option pricing model. However, no value was
allocated to the warrant as the estimated fair value was nominal.

     In connection with the sale of Series A redeemable convertible preferred
stock in October 1997, warrants to purchase up to 850,000 shares of common stock
at $5.75 per share were issued to the Series A preferred stockholders. These
warrants will expire on October 15, 2001. In June 1998, the original Series A
preferred stockholders were granted a reduction in the exercise price of these
warrants from $5.75 per share to $1.00 per share. Such warrants carry
restrictions as to their exercisability. As of December 31, 1999, all of these
warrants, with the exception of 17,000, have been exercised.

     In connection with the Company's acquisition of EPub in December 1998, the
Company assumed a warrant issued to a financial institution which was
convertible into 25,564 shares of the Company's common stock at an exercise
price of $0.40 per share. This warrant was exercised in February 1999.

     In connection with the Company's acquisition of DBits in December 1998, the
Company issued warrants to purchase an aggregate of 500,000 shares of the
Company's common stock, of which 250,000 may be exercised for $6.00 per share
and 250,000 may be exercised for $8.00 per share. These warrants are exercisable
immediately with the $6.00 warrants expiring on May 11, 2001 and the $8.00
warrants expiring on May 11, 2002. The Company estimated the fair value of these
warrants to be $350,000 using the Black-Scholes option pricing model. 40,340 of
the warrants were exercised on April 5, 1999, and 1,000 of the warrants were
exercised on June 23, 1999.

                                       48
<PAGE>   50
                               MESSAGEMEDIA, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Stock Option Plans

     The Company's 1994 Incentive and Non-Statutory Stock Option Plan ("1994
Plan"), under which options to purchase 482,300 shares of common stock were
granted, was replaced with the 1995 Stock Plan ("1995 Plan"). Under the 1995
Plan, the Company is authorized to issue up to 7,000,000 common shares to
officers, employees, directors and certain other individuals providing services
to the Company. In 1999, a non-officer plan ("1999 Plan") was authorized under
which the Company can issue up to 1,158,000 common shares to employees. Options
granted under the 1995 and 1999 Plans generally vest over four years and are
exercisable for a period of up to ten years from the date of grant. Incentive
and non-qualified stock options are granted at prices which approximate the fair
value of the shares at the date of grant. In 1998, the Company assumed 391,760
options with the acquisition of EPub, and in 1999, the Company assumed 681,675
options with the acquisition of Revnet and 466,818 with the acquisition of
Decisive. The following table summarizes stock option activity, including the
options assumed in the EPub, Revnet and Decisive acquisitions:

<TABLE>
<CAPTION>
                                                                              WEIGHTED
                                                                              AVERAGE
                                                                SHARES     EXERCISE PRICE
                                                              ----------   --------------
<S>                                                           <C>          <C>
Balance at December 31, 1996................................   1,743,170       $ 4.82
  Options granted...........................................   1,115,600         4.54
  Options exercised.........................................     (85,690)        0.32
  Options canceled..........................................    (504,987)        7.49
                                                              ----------       ------
Balance at December 31, 1997................................   2,268,093       $ 4.14
  Options granted...........................................   4,145,919         1.87
  Option assumed in acquisitions............................     391,760         0.02
  Options exercised.........................................    (659,637)        0.41
  Options canceled..........................................  (2,021,348)        4.48
                                                              ----------       ------
Balance at December 31, 1998................................   4,124,787       $ 2.01
  Options granted...........................................   4,156,644        10.90
  Option assumed in acquisitions............................   1,148,493         1.90
  Options exercised.........................................  (1,700,049)        1.96
  Options canceled..........................................  (1,444,273)        5.11
                                                              ----------       ------
Balance at December 31, 1999................................   6,285,602       $ 7.07
                                                              ==========       ======
</TABLE>

  Other Option Activity

     Pursuant to the terms of the December 22, 1995 Series B preferred stock
Purchase Agreement, on April 11, 1996, the Company's board of directors granted
options to purchase 1,000,000 shares of common stock to officers, directors and
key employees of the Company at $6.30 per share. All of these options are fully
vested and as of December 31, 1999, none have been exercised. In 1999, the
Company's board of directors granted additional options to purchase 2,173,000
shares of common stock to officers and directors at a weighted average exercise
price of $7.86. As of December 31, 1999, 254,832 of these options were vested.
All of these options were granted outside of the Company's stock option plans
and therefore, are not included in the table above.

     On April 29, 1998, the Company offered all employees of record the
opportunity to re-price their option grants under the 1995 Stock Option Plan to
the fair market value of the stock on that date which was $0.94 per share. The
Company cancelled 1,363,876 at a weighted-average exercise price of $4.75 and
re-issued the same number of options at $0.94.

                                       49
<PAGE>   51
                               MESSAGEMEDIA, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     As of December 31, 1999, the 1995 and 1999 Plans, as well as the options
assumed under the Revnet and Decisive acquisitions, include 1,515,886 options
which are exercisable. There are 820,838 options available for future grant
under the 1995 and 1999 Plans.

  Summary of Outstanding Options

     Exercise prices and weighted average remaining contractual life for all
options outstanding as of December 31, 1999 are as follows:

<TABLE>
<CAPTION>
                                 OPTIONS OUTSTANDING                     OPTIONS EXERCISABLE
                   -----------------------------------------------   ----------------------------
                                 WEIGHTED AVERAGE      WEIGHTED                       WEIGHTED
     RANGE OF        NUMBER         REMAINING          AVERAGE         NUMBER         AVERAGE
  EXERCISE PRICE   OUTSTANDING   CONTRACTUAL LIFE   EXERCISE PRICE   EXERCISABLE   EXERCISE PRICE
  --------------   -----------   ----------------   --------------   -----------   --------------
  <S>              <C>           <C>                <C>              <C>           <C>
   $  0.01-0.32       276,717          6.85             $ 0.08          123,729        $ 0.10
   $  0.33-0.99     1,386,607          6.40             $ 0.92          746,092        $ 0.92
   $  1.00-5.00       794,607          7.67             $ 2.81          347,363        $ 2.84
   $ 5.01-10.00     3,436,190          8.33             $ 6.42        1,519,078        $ 6.46
   $10.01-15.00     3,367,981          9.54             $11.54           34,456        $11.77
   $15.01-20.00       196,500          9.84             $17.01               --        $   --
                    ---------                                         ---------
                    9,458,602                                         2,770,718
                    =========                                         =========
</TABLE>

     Prior to the EPub and Revnet acquisitions, these companies had granted
stock to certain of their employees at a per share value below the then current
fair market value of such shares. As a result, when the company acquired EPub
and Revnet, the Company assumed the deferred compensation balances that were
recorded on their respective books. Deferred compensation expense amounted to
$430,864, $285,000 and $17,958 for the years ended December 31, 1999, 1998 and
1997.

     Pro forma information regarding net loss is required by SFAS 123, and has
been determined as if the Company had accounted for its employee stock options
under the fair value method of that Statement. The fair value for the 1999
options was estimated at the date of grant, using the Black-Scholes option
pricing model, with the following assumptions: risk-free interest rate of
5.875%; dividend yield of 0%; and a weighted-average expected life of the option
of five years with a volatility factor of 1.25. The fair value for the 1998
options was estimated at the date of grant, using the Black-Scholes option
pricing model, with the following assumptions: risk-free interest rate of 5.0%;
dividend yield of 0%; and a weighted-average expected life of the option of five
years with a volatility factor of .75. The fair value for the 1997 options was
estimated at the date of grant, using the Black-Scholes option pricing model,
with the following assumptions: risk-free interest rate of 5.41%; dividend yield
of 0%; and a weighted-average expected life of the option of five years with a
volatility factor of .50.

     The weighted average fair values of the options granted during 1999, 1998
and 1997 were $9.80, $2.17, and $4.66 respectively.

     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

     For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The effects of
applying Statement 123 for pro forma disclosure purposes are not

                                       50
<PAGE>   52
                               MESSAGEMEDIA, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

likely to be representative of the effects on pro forma net income (loss) in the
future years because they do not take into consideration pro forma compensation
expense related to grants made prior to 1995. The Company's pro forma
information follows:

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                             ------------------------------------------
                                                 1999           1998           1997
                                             ------------   ------------   ------------
<S>                                          <C>            <C>            <C>
Pro forma net loss applicable to common
  shares...................................  $(59,609,658)  $(16,513,358)  $(17,889,405)
Pro forma net loss per common share, basic
  and diluted..............................  $      (1.29)  $      (0.74)  $      (2.02)
</TABLE>

  Employee Stock Purchase Plan

     In 1996, the Company adopted an Employee Stock Purchase Plan (the "ESPP"),
whereby employees, at their option, can purchase shares of Company common stock.
This is done through a payroll deduction at the lower of 85% of the fair market
value on the first day of each ESPP offering period or the end of each period.
The ESPP expires at the earlier of December 31, 2006 or the date on which all
shares available for issuance have been sold. The Company has reserved 100,000
shares of common stock for issuance under the ESPP. At December 31, 1999
employees have purchased 87,415 shares through the ESPP and 12,585 shares are
available for future purchases.

  Shares Reserved for Future Issuance

     As of December 31, 1999, the Company has reserved shares of common stock
for future issuance as follows:

<TABLE>
<S>                                                        <C>
Stock options............................................  10,279,440
Warrants.................................................     805,660
Employee stock purchase plan.............................      12,585
                                                           ----------
                                                           11,097,685
                                                           ==========
</TABLE>

8. RESTRUCTURE CHARGE

     In the second quarter 1998, the Company recorded a restructuring charge of
$812,166 as a result of the Company's decision to focus its efforts on its
messaging platform, initiate efforts to cease operations of its FVIPS and better
align its cost structure with expected revenue projections. The restructuring
charge included the elimination of job responsibilities company wide, resulting
in approximately $545,000 of employee severance pay other related expenses for
21 employees, and approximately $267,000 related to relocating the Company's
corporate office and termination fees for cancellation of certain contracts
related to FVIPS

     In the first quarter of 1999, the Company recorded a charge of $1,025,000
as a result of the Company's decision to relocate its corporate headquarters
from San Diego, California to a new facility in Boulder Colorado. This decision
was made to create efficiencies in the Company's messaging services operations,
reduce overhead by centralizing the Company's offices to one facility and
eliminate duplication of efforts from similar positions in the separate offices.
The merger integration and restructuring activity of MessageMedia, Distributed
Bits, L.C.C., and Email Publishing, Inc. included the elimination of job
responsibilities company wide, resulting in approximately $632,000 of employee
severance pay other related expenses for 17 employees and, approximately
$393,000 in moving expenses and costs related to closing our facility.

                                       51
<PAGE>   53
                               MESSAGEMEDIA, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. INCOME TAXES

     Significant components of the Company's deferred tax assets as of December
31, 1999 and 1998 are shown below. Valuation allowances of $30,365,000 and
$7,620,000 have been recognized for 1999 and 1998, respectively, to offset the
net deferred tax assets, as realization of such assets is uncertain.

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                              --------------------------
                                                                  1999          1998
                                                              ------------   -----------
<S>                                                           <C>            <C>
Deferred tax liabilities:
  Acquired Intangibles......................................  $   (329,000)  $  (370,000)
                                                              ------------   -----------
          Total deferred tax liabilities....................      (329,000)     (370,000)
Deferred tax assets:
  Net operating losses carryforwards........................    28,230,000     6,590,000
  R & D credit..............................................     1,329,000       810,000
  Other net.................................................     1,135,000       590,000
                                                              ------------   -----------
          Total deferred tax assets.........................    30,694,000     7,990,000
Valuation allowance for deferred tax assets.................   (30,365,000)   (7,620,000)
                                                              ------------   -----------
Net deferred tax assets.....................................  $         --   $        --
                                                              ============   ===========
</TABLE>

     At December 31, 1999, approximately $4,000,0000 of the valuation allowance
for deferred tax assets relates to stock option deductions which, when
recognized, will be allocated directly to paid in capital.

     At December 31, 1999, the Company has federal, California, and Colorado tax
net operating loss carryforwards of approximately $74,700,000, $17,500,000, and
$14,200,000. These federal, California and Colorado carryforwards will begin to
expire in 2010, 2000, and 2019, respectively, unless previously utilized. The
Company also has federal and California state research credit carryforwards of
approximately $875,000 and $455,000, respectively, which will begin expiring in
2010, unless previously utilized.

     Pursuant to Internal Revenue Code Sections 382 and 383, use of the
Company's net operating losses and tax credit carryforwards will be limited
because of a cumulative change in ownership of more than 50% which occurred
during 1999. Such tax net operating losses and credit carryforwards have been
reduced, including the related deferred tax assets.

10. 401(k) PROFIT SHARING PLAN

     The Company maintains a 401(k) profit sharing plan which allows
substantially all employees to contribute up to 15% of their salary, subject to
annual limitations and requirements set by the Company. The Board of Directors
may, at its sole discretion, approve Company contributions. To date, there have
been no Company contributions under the plan.

11. LEGAL PROCEEDINGS

     On October 19, 1998, Exactis.com, Inc, filed a complaint against our
subsidiary EPub in the Federal District Court of Colorado. The complaint alleged
infringement of a patent held by Exactis.com, Inc. and sought injunctive relief
and unspecified damages. On October 28, 1998, we filed a complaint in the U.S.
District Court for the Southern District of California against Exactis.com, Inc.
The complaint alleged infringement of a patent held by us and sought injunctive
relief and unspecified damages. On October 13, 1999 both parties agreed to a
settlement of theses actions which have subsequently been dismissed by the
courts with prejudice.

                                       52
<PAGE>   54
                               MESSAGEMEDIA, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. SUBSEQUENT EVENTS (UNAUDITED)

     On October 7, 1999, the Company entered into a non-binding agreement with
@viso, a strategic partnership between Vivendi and SOFTBANK, to create
MessageMedia Europe which will be a joint venture between the Company and @viso.
On March 13, 2000, the Company completed definitive agreements for the joint
venture between the Company and @viso, forming MessageMedia Europe. Under terms
of the joint venture agreement, MessageMedia will own 51% and @viso will own 49%
of the joint venture.

                                       53
<PAGE>   55

                                                                     SCHEDULE II

                               MESSAGEMEDIA, INC.
                       VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                  BALANCE AT                         ADDITIONS                   BALANCE AT
                                 BEGINNING OF   CHARGED TO COSTS     CHARGED TO                    END OF
DESCRIPTION                         PERIOD        AND EXPENSES     OTHER ACCOUNTS   DEDUCTIONS     PERIOD
-----------                      ------------   ----------------   --------------   ----------   ----------
<S>                              <C>            <C>                <C>              <C>          <C>
Reserve for Payment System
  Shutdown
  Year ended December 31,
     1998......................    $     --         $812,166          $     --       $613,756     $198,410
  Year ended December 31,
     1999......................    $198,410         $     --          $     --       $133,034     $ 65,376
Allowance for Bad Debt
  Year ended December 31,
     1999......................    $     --         $462,163          $153,187       $ 43,516     $571,834
</TABLE>

                                       54
<PAGE>   56

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
         NUMBER                                 EXHIBIT TITLE
         ------                                 -------------
<C>                      <S>
          2.1.1*****     -- Agreement and Plan of Merger and Reorganization dated
                            July 22, 1999 among the Registrant, Revnet Systems Inc.
                            and MM1 Acquisition Corporation.
          2.1.2*****     -- Agreement and Plan of Merger and Reorganization dated
                            July 22, 1999 among the Registrant, Decisive Technology
                            Corporation and MM2 Acquisition Corporation.
          3.1*           -- Amended and Restated Certificate of Incorporation of the
                            Company.
          3.2*           -- Bylaws of the Company.
         10.1*           -- Form of Indemnification Agreement entered into between
                            Company and its officers and directors.
         10.2*           -- The Company's 1994 Incentive and Non-Statutory Stock
                            Option Plan.
         10.3*           -- The Company's 1995 Stock Plan.
         10.4*           -- The Company's Employee Stock Purchase Plan.
         10.7*           -- Marshall T. Rose Employment Agreement.
         10.9*           -- Series A Preferred Stock Purchase Agreement dated as of
                            May 22, 1995 between the Company and the purchasers named
                            therein.
         10.10*          -- Series B Preferred Stock Purchase Agreement dated as of
                            December 22, 1995 between the Company and First USA
                            Merchant Services, Inc..
         10.11*          -- Securities Purchase Agreement between the Company and
                            General Electric Capital Corporation, dated July 3, 1996.
         10.12*          -- Warrant to Purchase 47,619 shares of Common Stock, issued
                            to General Electric Capital Corporation as of July 3,
                            1996.
         10.13*          -- Series D Preferred Stock Purchase Agreement between the
                            Company and First Data Corporation, dated August 26,
                            1996.
         10.14*          -- Amended and Restated Shareholder Rights Agreement dated
                            August 26, 1996 between the Company and First Data
                            Corporation.
         10.16*          -- Warrant to purchase 475,734 shares of Series B Preferred
                            Stock, issued to First USA Paymentech.
         10.25*          -- Master Lease Agreement dated as of October 24, 1996
                            between the Company and ComDisco, Inc.
         10.32*****      -- David Ehrenthal employment agreement
         10.33*****      -- Purchase Agreement dated April 30, 1998 among the
                            Company, SOFTBANK Holdings and SOFTBANK Technology
                            Ventures IV, LP
         10.34*****      -- Loan Agreement dated April 30, 1998 among the Company and
                            SOFTBANK Holdings, Inc.
         10.35*****      -- Form of Convertible Promissory Note issued to SOFTBANK
                            Holdings, Inc.
         10.36*****      -- Bert C. Klein employment agreement
         10.37*****      -- Philip Bane Severance Agreement
         10.38*****      -- Nathaniel Borenstein Severance Agreement
         10.39*****      -- John Stachowiak Severance Agreement
         10.40*****      -- Carolyn Turbyfill Severance Agreement
         10.41**         -- Dennis J. Cagan Employment Agreement
         10.42**         -- A. Laurence Jones Employment Agreement
         10.43***        -- Robin Green Employment Agreement
</TABLE>
<PAGE>   57

<TABLE>
<CAPTION>
         NUMBER                                 EXHIBIT TITLE
         ------                                 -------------
<C>                      <S>
         10.44***        -- Mary Beth Loesch Employment Agreement
         10.45***        -- Elizabeth Wallace Employment Agreement
         10.46***        -- Sue Morse Employment Agreement
         10.47***        -- Bert Klein Employment Agreement
         10.48****       -- Stuart Obermann Employment Agreement
         10.49****       -- Randy Bachmeyer Employment Agreement
         10.50****       -- Kelly Wood Employment Agreement
         10.51           -- Martin T. Johnson Employment Agreement
         10.52           -- Denis Cagan Separation Agreement
         21.1            -- List of Subsidiaries
         23.1            -- Consent of Ernst & Young, LLP, Independent Auditors
         27.1            -- Financial Data Schedule.
</TABLE>

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

*      Previously filed as exhibits to the Company's Registration Statement on
       Form S-1 (SEC File #333-14573).

**    Previously filed as exhibit to the Company's Form 10-Q, March 31, 1999
      (SEC File #000-21751).

***   Previously filed as exhibit to the Company's Form 10-Q, June 30, 1999 (SEC
      File #000-21751).

****  Previously filed as exhibit to the Company's Form 10-Q, September 30, 1999
      (SEC File #000-21751).

***** Previously filed.