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

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

                                FORM 10-K/A

                              Amendment No. 3

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

  For fiscal year ended December 31, 2000

                                       OR

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

  For the transition period from        to

                     Commission File Number: 000-28133

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

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

<TABLE>
<S>                                            <C>
                  Delaware                                       52-1990403
        (State or other jurisdiction                          (I.R.S. Employer
      of incorporation or organization)                     Identification No.)
</TABLE>

       13530 Dulles Technology Drive, Suite 500, Herndon, Virginia 20171
                    (Address of principal executive offices)

                                 (703) 793-8210
              (Registrant's telephone number, including area code)

                               ----------------
          Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
<S>                                    <C>
         Title of each class             Name of each exchange on which registered
                 None                                       None
</TABLE>

          Securities registered pursuant to Section 12(g) of the Act:

                    Common Stock, Par Value $0.01 Per Share

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

   Indicated by a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (((S))229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [_]

   The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of Common Stock on February 28,
2001, as reported on the Nasdaq National Market, was approximately $34,496,510
(affiliates being, for these purposes only, directors, executive officers and
holders of more than 5% of the Registrant's Common Stock).

   As of February 28, 2001, the Registrant had 25,959,316 outstanding shares of
Common Stock.

                      DOCUMENTS INCORPORATED BY REFERENCE

None

                     PORTIONS AMENDED/EXPLANATORY NOTE

The registrant previously anticipated incorporating by reference in Part III of
this Form 10-K portions of the definitive proxy statement for the registrant's
2001 Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A, which the registrant had anticipated
filing within 120 days after the end of the fiscal year covered by this Report.
In the alternative, pursuant to Instruction G(3) to the Report on Form 10-K, the
registrant filed Amendment No. 1 on April 30, 2001 to amend and restate Part III
of this Report in its entirety. Registrant filed Amendment No. 2 on May 2, 2001
to correct certain errors in Amendment No. 1. and to amend and restate the Form
10-K in its entirety. This Amendment No. 3 reinserts Items 8 and 9 and Financial
Statement Schedule II which were included in the original Form 10-K filed on
April 2, 2001 but inadvertently excluded from Amendment No. 2.
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                                     PART I

ITEM 1. BUSINESS.

   This annual report contains forward-looking statements that involve
substantial risks and uncertainties. You can identify these statements by
forward-looking words such as "may," "will," "expect," "intend," "anticipate,"
"believe," "estimate," "continue" and other similar words. You should read
statements that contain these words carefully because they discuss our future
expectations, make projections of our future results of operations or our
financial condition or state other "forward-looking" information. We believe
that it is important to communicate our future expectations to our investors.
However, there may be events in the future that we are not able to accurately
predict or control. The factors listed in the sections captioned "Risk Factors"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as any cautionary language in this annual report, 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.

Business Overview

   We are an online direct marketing company. Through our two current business
units, consumer and outsourcing, we send personalized email messages to more
than 20 million members and provide direct marketing services and products to
business customers. Over the past two years, we have built a large permission-
based membership to which we distribute our direct marketing messages via
email. The technology and infrastructure that were developed to provide
services and products to our member base have enabled us to expand into
outsourcing message delivery for other companies. During 2000, we also operated
a wireless business, which, in the fourth quarter of 2000, we decided not to
pursue.

Consumer Unit

   Our consumer unit sends to our members personalized email messages, or
newsletters, in 20 categories, based on member information that is obtained
during the registration process as well as by capturing behavioral information
through member interaction with our emails. Our email messages contain helpful
reminders and tips directed towards our members' interests and hobbies. For
example, LifeMinders messages sent to members in our Pet category include
information personalized to the members' pet breeds. Members in our Auto
category receive timely tips and information about maintenance needs and recall
information on their cars. This personalized content results in a targeted
environment for advertisers.

   Our consumer unit enables our partners to reach our members through
placements of targeted, direct marketing advertisements and content in our
emails and through our registration program. In our advertising program, we
place advertisements provided by our advertising partners in the individual
email messages sent to our members who may have an interest in the product or
service being advertised. From each placement, our members can link directly to
our advertising partners' own Web sites or other designated areas, thus
providing our partners an opportunity to interact directly with interested
members. Clients such as Gateway, BMG Direct, Discovery Communications and JC
Penney have elected to target these advertisements across several LifeMinders
categories. We also source advertisements from advertising agencies such as
Phase2Media.

   In our content program, we place relevant information provided by our
content partners in individual email messages sent to our members that have an
interest in the subject matter. From each placement, our members again can link
directly to our content partners' own Web sites or other designated areas, thus
providing our partners another opportunity to interact directly with interested
members. Our content partners include iVillage, HomeStore and CondeNet.


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<PAGE>

   In our registration program, we place in our new member registration page
product and service promotions provided by our registration partners. From each
placement, our members can opt-in to receive information directly from those
registration partners. Our registration partners include DoubleDay, Omaha
Steaks and MCI.

   The information we have about our members and our precise targeting
capabilities provide our partners the opportunity to effectively reach specific
audiences through the categories below.

<TABLE>
<CAPTION>
         Category                          Description
         --------                          -----------
<S>                      <C>
LifeMinders Auto........ Maintenance notification, recall notices,
                         driving tips and safety information specific to
                         the make, model, year and mileage of members'
                         vehicles.

LifeMinders Cash-N-      Sweepstakes offers, bargain products and free
 Prizes................. items targeted to members' interests.

LifeMinders Computers &  Product reviews and additional information based
 Tech................... on members' specific computers and areas of
                         interest.

LifeMinders Family...... Insights on family relationships, pregnancy and
                         parenting including month-by-month or year-by-
                         year development of children, from prenatal to
                         teen.

LifeMinders Food........ Menu planning tips, dining out advice and
                         recipes for the novice chef or grand gourmet.

LifeMinders Health &     Exercise and diet tips for all fitness levels to
 Fitness................ help members get in shape or lose weight.

LifeMinders Holidays.... Reminders and tips for holidays throughout the
                         year.

LifeMinders Home........ Advice tailored to type of dwelling, interests
                         and region about members' homes, yards and
                         gardens including fix-it projects, decorating
                         ideas and gardening tips.

LifeMinders Member       Special offers to LifeMinders members.
 Rewards................

LifeMinders Member       Notifications about new products, feature
 Update................. upgrades and service improvements.

LifeMinders for Men..... Online men's club, including tips and deals for
                         men.

LifeMinders Mind &       Horoscopes, quizzes and stories that relate to
 Spirit................. members' beliefs about spirituality.

LifeMinders Personal     Reminders for personal events, including
 Events................. birthdays and anniversaries.

LifeMinders Pet......... Health and training information for members'
                         pets by type, breed, gender and age.

LifeMinders Shopping.... Coupons, deals and shopping tips customized to
                         match members' profiles including special
                         buyers' guides and shopping secrets for members
                         only.

LifeMinders Small        Expert ideas, productivity tools and news alerts
 Business............... for all business levels and interests for
                         successful small business owners and aspiring
                         entrepreneurs.

LifeMinders Today....... Local weather, coupons and events, timely news
                         headlines, games, horoscopes, daily inspirations
                         and jokes.

LifeMinders Travel...... Getaways targeted to members' home regions and
                         deals for their favorite destinations. Also,
                         tips by travel style, such as business, student,
                         family and retiree.

LifeMinders for Women... Fashion, beauty, health ideas and trends for
                         women of all ages.

LifeMinders Work &       Advice about personal finances, career choices,
 Money.................. job opportunities, managing money and other work
                         and finance-related topics.
</TABLE>

                                       3



<PAGE>

   Our consumer unit offerings are characterized by the following:

  .  Targeted, relevant content. Our technology matches content and
     advertisements to individual member interests at a detailed level. Each
     piece of information and each advertising placement may be targeted to a
     separate variable in our database, providing a personalized experience
     for members and a rich environment for advertisers. For example, each
     morning, subscribers to the LifeMinders Today newsletter can receive
     their local weather and the latest national and local news headlines.
     Within the same email, our partners may run advertisements for gifts
     targeted to a particular member's birthday or place a coupon for a
     retailer located within the member's zip code.

  .  Enhanced user efficiency. Our personalized, content-rich emails on
     specific interests enable our members to efficiently access information
     on the web. We deliver each message in a brief, user-friendly email
     format, either text or HTML, that we determine is most appropriate for
     each member's mail client. Our targeted messages contain embedded links
     that go directly to full-text articles and helpful information. These
     links supplement the content within the messages and provide easily
     accessible information to our members.

  .  Member trust and confidence. We are certified by TRUSTe, a leading,
     independent, non-profit organization whose mission is to build Internet
     users' trust and confidence in the Internet by promoting the principles
     of disclosure and informed consent. As a result, our members are able to
     exercise a significant amount of control over their experiences. Our
     service also allows members to modify their profiles or subscription
     information or unsubscribe at any time by clicking through a link in our
     email messages or by accessing their account information on our website.

  .  Detailed reporting and data mining technology. Our capabilities include
     sophisticated data mining techniques and timely reporting technology to
     evaluate the results of our advertising partners' marketing campaigns.
     This information can be easily accessed in a timely reporting
     environment, allowing us to quickly adjust our programs to improve the
     member experience or advertiser performance.

Outsourcing Unit

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

   Our outsourcing unit provides services and products for companies such as
the Weather Channel, Fingerhut, Johnson and Johnson and Bell South. In
addition, we were chosen to be the exclusive email provider for the 2000 Summer
Games in Sydney, Australia.

   We typically provide the following services and products to our outsourcing
partners:

  .  Hosting of the registration site where the partners' customers can sign-
     up for the partners' emails;

  .  Development of the initial email templates as well as ongoing creative
     services for the emails;

  .  Dynamic assembly of individual emails for the partners' customer bases,
     including targeted content (provided by LifeMinders or the partner) and
     advertising placements;

  .  Delivery of emails at the appropriate times of each day;

  .  Customer service functions including undeliverable email management,
     processing unsubscribe requests and responses to general customer
     inquiries;

  .  Timely reporting and analysis of results associated with the partners'
     email programs; and

  .  Management of the partners' customer databases, including data storage
     and analysis, data security and data transport.

                                       4



<PAGE>

Sales and Marketing

   We acquire members through online and offline media, and currently have
eight employees dedicated to this function. These marketing efforts consist
primarily of large-scale on-line advertising campaigns and strategic
partnerships with a variety of Web sites including large portals, networks,
affiliate sites and smaller vertical sites. We continue to test different
advertising vehicles and attempt to optimize our marketing dollars according to
the latest results.

   We sell our services through a direct sales organization, currently
consisting of 13 employees, dedicated to developing and maintaining close
relationships with top advertisers and leading advertising agencies nationwide.
A dedicated account management team of ten employees works regularly with our
advertising partners to design and place their advertisements, report the
results of their campaigns and optimize future campaigns.

Research and Development

   In the year ended December 31, 2000, we spent approximately $7.8 million on
research and development efforts on new or improved technologies designed to
enhance the performance of our services. Our research and development costs
include the salaries, stock-based compensation and related expenses for our
engineering department, as well as costs for contracted services and co-
location facilities and depreciation on equipment.

Technology and Infrastructure

   Our consumer and outsourcing service and product offerings are supported by
three core technology components:

  . Email Creation and Management Software;

  . Member Targeting and Behavior Tracking System; and

  . Data Warehouse.

Email Creation and Management Software

   Our email creation and management software has four components: content
entry, targeting, personalization and formatting. The content entry component
allows our editorial staff to input, revise and test email content items. The
content entry software runs on the Windows platform using an interface similar
to the Windows Explorer program. The targeting component allows email content
items to be sent to members based on explicit data that members have provided,
including important dates and special interests as well as implicit data based
on demographic and psychographic groups defined by our editorial staff. The
personalization component allows our editorial staff to enhance content by
personalizing it for each individual member. For example, the email content
items could contain the name of the child or use gender specific pronouns. The
software will automatically insert the proper pronoun or name based on the
gender or name provided by the member.

   The formatting component allows our editorial staff to compose each email
content item in a single, rich text format which will automatically adjust to
one of three formats in order to provide optimum presentation of the content.
Members with HTML email, supported by most current email services and email
clients, will receive the highest quality presentation of our content because
it includes images as well as text. Members using America Online or plain text
email receive a version of our content that is more textual in presentation,
but is designed to be attractive and easy to read.

                                       5



<PAGE>

 Member Targeting and Behavior Tracking System

   This system allows category managers to improve and adjust our email content
over time to reflect the needs and interests of our members. Category managers
can personalize the subject lines, content titles and physical displays of our
email messages.

   Our content targeting and behavior tracking system uses standard Internet
data transmission protocols, combined with proprietary application software, to
measure a wide range of possible member behaviors in our emails. These
behaviors may include: opening one of our HTML email messages, clicking through
to content links or clicking through to advertisements and online coupons. This
system has been built to be scalable, to allow new categories to be brought
online without additional programming. In addition, this system is based on
member profile data that allows categories and subcategories to be changed to
reflect member preferences and lifestyles.

   Tracking individual member activity in our emails allows our category
managers to measure the effectiveness and interest level of members in our
editorial content. At the same time, the tracking systems support the
measurement of the effectiveness and efficiency of our advertising and
promotional campaigns on behalf of our advertising partners.

 Data Warehouse

   The advanced data warehouse is a scalable decision support system that
currently contains over 900 gigabytes of historical data. The data is refreshed
daily and accessed through SAS, SQL, and other sophisticated analysis tools.
Individual member behavior and preferences are tracked in our emails at the
click and email level.

   Overall our technology platform is designed to be:

  .Scalable;

  .Secure; and

  .Reliable.

 Scalability

   We have designed our technology platform to be scalable to accommodate
additional members. We typically send emails in most of our categories to our
members on a weekly, bi-weekly or monthly basis. Our operating plan is intended
to ensure that we have sufficient capacity to meet demand. As we add new
members, we are increasing our capacity and replicating our infrastructure to
provide increasingly parallel operations.

 Security

   Our technology incorporates a variety of security techniques designed to
protect confidential member data. We limit member activity, data transmission
and Internet access to our information to the individual member and to
authorized company representatives. We monitor and protect all outside access
to our resources and data and all suspicious activity is logged and analyzed by
qualified staff. Our data center is co-hosted at two major third-party Internet
data center operations, which are constantly monitored and provide both
physical and logistical security. These facilities provide redundant network
connections and redundant connections to power grids and diesel generators to
help ensure continuous operations. In addition, the facilities provide physical
security, around-the-clock operations support and monitoring, and network
diagnostic support as needed.

 Reliability

   Our technology platform uses industry standard technologies to maximize
reliability. We attempt to ensure hardware reliability by a combination of
redundancy at the component level and hot spares for groups of components. We
attempt to ensure software and data reliability through a variety of processes
and quality

                                       6



<PAGE>

assurance procedures. We have incorporated standard procedures, including daily
database backups, off site storage of critical archives and incremental backup
of ongoing database modifications into our standard operating discipline.
Additional reliability is provided by our fault tolerant and redundant platform
architecture, which utilizes clustering technology designed to ensure that
access to our system is not interrupted by any single machine failure.

Corporate History

 Overview

   We were incorporated in Maryland on August 9, 1996 under the name of
MinderSoft, Inc. In January 1999, we changed our name to LifeMinders.com, Inc.
We reincorporated in Delaware on July 2, 1999. In June 2000, by way of merger,
we changed our name to LifeMinders, Inc. From 1996 to 1998, we entered into
arrangements with national retailers to distribute our reminder products in
software form on disk. In late 1998, we shifted our focus to the Internet. We
completed our initial public offering of common stock on November 19, 1999,
raising approximately $62 million. On February 11, 2000, we completed a follow-
on public offering of common stock, raising approximately $86 million.

Mergers and Acquisitions

   On March 14, 2000, we acquired PleaseRSVP.com,Inc., an on-line invitation
web site, in a purchase business combination for a purchase price of
approximately $3,538,000, consisting of $500,000 in cash, 40,000 shares of our
common stock valued at $3,008,000 and $30,000 in acquisition costs.

   On March 29, 2000, we acquired WITI Corporation, a web and wireless weather
forecasting company, in a purchase business combination for a purchase price of
approximately $29,403,000, consisting of approximately $3,500,000 in cash,
345,796 shares of our common stock valued at $23,004,000, the assumption of
options that are exercisable to acquire 38,266 shares of our common stock with
a fair value of $2,488,000, the assumption of $224,000 in liabilities and
$187,000 in acquisition costs.

   On August 31, 2000, we acquired smartRay Network, Inc., a web and wireless
alerting company, in a purchase business combination for a purchase price of
approximately $32,632,000, consisting of $2,318,000 in cash, 1,252,198 shares
of our common stock valued at $22,493,000, the assumption of options that are
exercisable to acquire 251,447 shares of our common stock with a fair value of
$6,860,000, the assumption of $527,000 in liabilities and $434,000 in
acquisition costs.

   On December 4, 2000, we acquired eCoupons, Inc., an electronic couponing
service, in a purchase business combination for a purchase price of
approximately $4,911,000, consisting of 612,529 shares of our common stock
valued at $2,641,000, the assumption of options that are exercisable to acquire
110,239 shares of our common stock with a fair value of $459,000, the
assumption of restricted stock convertible to 114,748 shares of our common
stock valued at $495,000, the assumption of $916,000 in liabilities and
approximately $400,000 in acquisition costs.

Recent Developments

   Prior to the third quarter of 2000, we operated in one segment: Internet and
related services. Beginning in the third quarter of 2000, we began evaluating
our operations by strategic business unit: consumer, outsourcing and wireless.
In December 2000, we made the decision not to pursue the development and
expansion of our wireless segment. This decision was based on changes in market
conditions and a determination that we could not generate positive cash flows
from the wireless segment in the foreseeable future. Fourth quarter results for
2000 include an impairment charge of $53,986,000, of which $49,020,000 is
related to the write-off of long-lived assets, including goodwill, related to
the acquisition of wireless technologies which occurred in the first and third
quarters of 2000.


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<PAGE>

   For financial reporting purposes, we currently have two revenue streams
within our business segments: delivery of advertisements within emails to our
members and delivery of opt-in names to our registration partners. During 2000,
we also reported consulting revenue which is not expected to continue. See Note
15 to the Consolidated Financial Statements for revenues and gross profit
attributable to each of our lines of business. Based on the decision to not
pursue the development and expansion of our wireless operation, for 2001, we
expect that our business units will be grouped into two segments.

Competition

   We face intense competition from all forms of advertising and direct
marketing businesses, both online and offline. We expect that online
competition will increase due to the lack of significant barriers to entry in
the advertising market and the attention the Internet continues to receive as a
means of advertising and direct marketing. We face competition for marketing
dollars from online portals and community Web sites such as AOL, Yahoo!, and
networks such as DoubleClick. In addition, other companies offer competitive
email direct marketing services, including coolsavings.com, MyPoints.com,
NetCreations (affiliated with SEAT Pagine Gialle SpA), YesMail.com (affiliated
with CMGI, Inc.), Digital Impact and Exactis.com (affiliated with 24/7 Media,
Inc.). Competitors to our outsourcing business include Exactis.com, FloNetwork
(proposed to be acquired by DoubleClick), MessageMedia and Responsys.

   Our ability to compete effectively depends upon many factors, including:

  .  The effectiveness of our sales and marketing efforts and those of our
     competitors;

  .  The pricing of our services to advertisers;

  .  Our ongoing ability to demonstrate the effectiveness of our service to
     advertisers;

  .  Our ability to sustain a large, active member database;

  .  Our ability to increase the depth of information in our database by
     capturing demographic, behavioral and transactional data about our
     members; and

  .  The capacity of our technology infrastructure to meet the needs of
     members and advertisers.

   Many of our customers 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
have. These advantages may allow them to respond more quickly to new or
emerging technologies and changes in customer requirements. It may also allow
them to engage in more extensive research and development, undertake more far-
reaching marketing campaigns, adopt more aggressive pricing policies, and make
more attractive offers to potential employees, strategic partners and
advertisers. In addition, current and potential competitors have established or
may establish cooperative relationships among themselves or with third parties
to increase the ability of their products or services to address the needs of
our prospective advertisers and advertising agency customers. As a result, it
is possible that new competitors may emerge and rapidly acquire significant
market share. Increased competition may result in price reductions, reduced
gross margins and loss of our market share. Any of these occurrences could harm
our ability to compete effectively. As a result, we cannot assure you that we
will compete effectively with our current or future competitors or that
competitive pressures will not harm our business.

Intellectual Property and Proprietary Rights

   Our success and ability to compete are substantially dependent on our
internally developed technologies and trademarks, which we seek to protect
through a combination of patents, copyrights, trade secrets, service marks and
trademarks. We have one registered patent. We regularly enter into
confidentiality or license agreements with our employees, consultants and
corporate and strategic partners and generally seek to control access to and
distribution of our documentation and other proprietary information. We pursue
the registration of

                                       8



<PAGE>

our trade and service marks in the United States and internationally. We have
registered trademarks for "MinderSoft," "HomeMinder," "EntertainmentMinder,"
"GrowthMinder," "CarcareMinder," "PersonalMinder" and "backslashSanity" in the
United States and have filed 20 pending trademark applications in the United
States and one in the United Kingdom, including the name and logo for
"LifeMinders". Effective trademark, service mark, copyright and trade secret
protection may not be available in every country in which our services are
distributed or made available through the Internet, and policing unauthorized
use of our proprietary information is difficult.

Current and Potential Government Regulation

   Laws and regulations directly applicable to Internet-based communications,
commerce and advertising are becoming increasingly prevalent. In addition to
laws and regulations applicable to businesses generally, the nature of our
business may subject us to specialized regulation. Accordingly, in addition to
the areas discussed below, we may be subject to existing laws and regulations
relating to issues such as defamation, advertising, sweepstakes, promotions,
content regulation, and intellectual property ownership and infringement.

User Privacy Issues

   The Federal Trade Commission adopted regulations effective, April 21, 2000,
regarding the collection and use of personal identifying information obtained
from minors when accessing Web sites. These regulations also include
enforcement and redress provisions. We have implemented programs designed to
comply with these regulations. We do not believe that these regulations will
result in significant additional costs or that they will materially affect our
ability to obtain new members.

   The European Union, or EU, has adopted a directive that imposes restrictions
on the collection and use of personal data. Under the directive, EU citizens
are guaranteed rights to access their data, to know where the data originated,
to have inaccurate data corrected, to take recourse in the event of unlawful
processing and to withhold permission to use their data for direct marketing.
In addition, the directive restricts entities from transmitting personal
information to countries that do not maintain an adequate level of privacy
protection. The directive does not, however, define what standards of privacy
are adequate. The directive could, among other things, affect U.S. companies
that collect information over the Internet from individuals in EU member
countries, and may impose restrictions that are more stringent than current
Internet privacy standards in the United States. The U.S. Department of
Commerce, or DOC, has negotiated a "safe harbor" with the EU. Under the safe
harbor, U.S. companies that follow, and certify that they follow, certain
principles with respect to personal data may collect this personal information
without violating the directive. The EU approved the safe harbor in July 2000,
and in November 2000, the DOC made available the initial list of companies
certifying compliance with the safe harbor. Although the safe harbor includes
enforcement provisions, the practical effect of enforcement has not been
realized. As a result, the directive and the safe harbor may adversely affect
the activities of entities like us that engage in data collection from users in
EU member countries.

Internet Taxation

   There are currently pending a number of legislative proposals at the
federal, state and local level, and by certain foreign governments, that would
impose additional taxes on the sale of goods and services over the Internet,
and certain states already have taken measures to tax Internet-related
activities. Although Congress recently placed a temporary moratorium on state
and local taxes on Internet access or on discriminatory taxes on e-commerce,
existing state or local laws were expressly excepted from this moratorium.
Further, once this moratorium is lifted, one or more federal and/or state taxes
may be imposed upon Internet commerce. Currently states are considering
adoption of simplified sales and use tax laws as a step to encourage Congress
to authorize state sales and use taxation of interstate commerce. This
legislation, or other attempts at regulating commerce over the Internet, may
substantially impede the growth of commerce on the Internet and, therefore,
adversely affect our opportunity to derive financial benefit from those
activities.


                                       9



<PAGE>

Jurisdictional Issues

   Although our email transmissions over the Internet originate primarily in
Virginia, due to the global nature of the Internet, it is possible that the
governments of other states, the federal government and governments of foreign
countries might attempt to regulate our transmissions or prosecute us for
purported violations of their laws. These laws may be modified, or new laws
enacted, in the future. Any of the foregoing developments could harm our
business, results of operations and financial condition. In addition, as our
service is available over the Internet in multiple states and foreign
countries, these jurisdictions may claim that we are required to qualify to do
business as a foreign corporation in each of these states or foreign countries.
Our failure to qualify as a foreign corporation in a jurisdiction where we are
required to do so could subject us to penalties and could result in our
inability to enforce contracts in these jurisdictions.

Seasonality and Cyclicality

   We believe that our business may be subject to seasonal fluctuations.
Advertisers historically have placed fewer advertisements during the first and
third calendar quarters of each year. Further, Internet user traffic typically
drops during the summer months, which potentially could reduce the amount of
advertising placed during that period. In addition, expenditures by advertisers
and direct marketers tend to vary in cycles that reflect overall economic
conditions as well as budgeting and buying patterns. Our revenue has in the
past been, and may in the future be, materially affected by a decline in the
economic prospects of our customers or in the economy in general, which could
alter our current or prospective customers' spending priorities or budget
cycles or extend our sales cycle.

Employees

   As of March 30, 2001, through a co-employment relationship with Administaff
Companies, Inc., we employed 138 people, with 17 people allocated to sales and
marketing, 47 to technology and production, 47 to member experience/marketing
and analysis, and 27 to support, administration, finance, management and human
resources. All employees except four are full-time. As of April 1, 2001, we
will terminate our co-employment relationship with Administaff in favor of
employing all people directly, which includes self-administering all benefits
and payroll matters.

                                       10



<PAGE>

Executive Officers of the Registrant

   The following individuals were our executive officers as of March 30, 2001:

<TABLE>
<CAPTION>
   Name                     Age                            Position
   ----                     ---                            --------
   <S>                      <C> <C>
   Jonathan B. Bulkeley....  40 Chief Executive Officer and Chairman of the Board of Directors
   Allison H. Abraham......  38 President
   Joseph S. Grabias.......  51 Vice President and Chief Financial Officer
   David N. Mahony.........  40 Vice President and Chief Operating Officer
   Munish Gandhi...........  34 Chief Technology Officer
   Thomas Stockmeyer.......  41 Vice President of Sales
</TABLE>

   Jonathan B. Bulkeley was appointed our Chief Executive Officer and Chairman
of the Board of Directors in January 2001, and has served as a director since
August 1999. From January 1999 to January 2000, Mr. Bulkeley was the Chief
Executive Officer of barnesandnoble.com. From July 1995 to January 1999, he
served as Managing Director of America Online, Inc.'s joint venture with
Bertelsmann Online to provide interactive online services in the United
Kingdom. Prior to July 1995, Mr. Bulkeley was Vice President of Business
Development at America Online in the United States, and prior to that, served
as General Manager of Media at America Online. Before joining America Online in
March 1993, Mr. Bulkeley worked at Time Inc. in a variety of roles, including
Director of Marketing and Development for Money magazine and sales and
marketing positions at Time and Discover magazines. Mr. Bulkeley is a director
of Rocket Networks and Milliken & Co.

   Allison H. Abraham was named as our President and a member of the Board of
Directors in June 2000. From June 1998 to June 2000, Ms. Abraham served as
Chief Operating Officer of iVillage. From August 1996 to June 1998, she was
President and Chief Operating Officer of Shoppers Express, an online grocery
service. She was Vice President of Marketing at Ameritech from January 1992 to
August 1996 and a Marketing Director with American Express Travel Related
Services from July 1988 to January 1992.

   Joseph S. Grabias joined us in August 1999 as Vice President and Chief
Financial Officer. From October 1997 to July 1999, Mr. Grabias was the Vice
President and Chief Financial Officer of CommSite International, Inc., a
provider of tower related services to the U.S. wireless communications
industry. Mr. Grabias was the Chief Financial Officer and Vice President of KMR
Power Corporation, an independent power developer, from January 1994 to
September 1997. Prior to working for KMR Power Corporation, Mr. Grabias was a
self-employed business consultant for seven years.

   David N. Mahony joined us in November 1999 as Vice President and Chief
Operating Officer. From June 1994 to November 1999, Mr. Mahony was the Senior
Vice President, Finance at First USA, Inc., a financial services company. From
December 1988 to June 1994, Mr. Mahony was an Engineering Manager at
E.I. Dupont de Nemours & Co., Inc.

   Munish Gandhi has served as our Chief Technology Officer since March 2001.
Beginning in September 2000, Dr. Gandhi was the senior engineer for our
wireless business unit. From March 2000 until our acquisition of smartRay
Networks, Inc. in August 2000, Dr. Gandhi was the Vice President of Engineering
at smartRay, where he led the engineering team to develop a real-time wireless
messaging technology. From 1995 to 2000, Dr. Gandhi worked at CNET Networks,
Inc. in a number of technology roles.

   Thomas Stockmeyer has served as our Vice President of Sales since December
1999. From 1995 to November of 1999, Mr. Stockmeyer served as Regional Vice
President, Service Sales, of Inacom Corporation, a provider of annuity service
contracts. He served as General Manager, National Sales Division of AmeriData
from 1994 to 1995.

                                       11



<PAGE>

ITEM 2. PROPERTIES.

   We hold a ten-year prime lease on 132,000 square feet of office space at one
location in Herndon, Virginia. The lease expires in January 2011. We currently
occupy and use 33,000 square feet as our corporate headquarters. We also lease
additional office space totaling 24,500 square feet under four agreements
expiring at various dates through August 2004. As of March 31, 2001, we have
sublet 66,000 square feet of our office space to unrelated third parties and
are actively seeking subtenants for the balance of our excess office space. We
believe that this existing space will meet our requirements for the near
future.

ITEM 3. LEGAL PROCEEDINGS.

   As of March 30, 2001, we were not a party to any material litigation.

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

   No matters were submitted to a vote of the security holders during the
fourth quarter of 2000.

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

   Our common stock has been quoted on the Nasdaq National Market under the
symbol "LFMN" since our initial public offering on November 19, 1999. Prior to
the initial public offering, there had been no public market for our common
stock. The following table lists the high and low per share sales prices for
our common stock as reported by the Nasdaq National Market for the periods
indicated. These quotations represent inter-dealer prices, without retail mark-
up, markdown or commission, and may not necessarily represent actual
transactions.

<TABLE>
<CAPTION>
                                                         2000          1999
                                                     ------------- -------------
                                                      High   Low    High   Low
                                                     ------ ------ ------ ------
   <S>                                               <C>    <C>    <C>    <C>
   First quarter.................................... $94.81 $26.13    --     --
   Second quarter................................... $70.00 $22.63    --     --
   Third quarter.................................... $33.25 $16.25    --     --
   Fourth Quarter................................... $23.00 $ 2.50 $62.50 $15.00
</TABLE>

   As of March 29, 2001, there were approximately 396 holders of record of our
common stock.

   We have never declared or paid cash dividends on our capital stock. We
currently intend to retain any earnings for use in our business and do not
anticipate paying any cash dividends in the foreseeable future. Future
dividends, if any, will be determined by our Board of Directors.

   On December 6, 2000, we issued 727,277 shares of our unregistered common
stock to the stockholders and noteholders of eCoupons.com, Inc. in connection
with our acquisition of that company. We believe that these issuances were
exempt from registration pursuant to Section 4(2) of the Securities Act of
1933, as amended. The recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to, or for sale in connection with, any distribution thereof
and appropriate legends were affixed to the share certificates issued in each
such transaction.

   There are several requirements for continued listing on the Nasdaq National
Market including, but not limited to, maintaining a minimum stock price of
$1.00 per share. Our stock has recently been trading below $1.00 and we may
fail to meet these continued listing requirements, with the result being that
our common stock might be delisted. If that were to occur, our stock may become
subject to special rules applicable to low priced stocks, which may reduce the
liquidity of our shares.

                                       12



<PAGE>

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" in Item 7 and our consolidated financial statements and the notes
to those statements included in Item 14 of this Form 10-K.

<TABLE>
<CAPTION>
                                                                     Period from
                                                                    August 9, 1996
                               Year Ended December 31,          (Date of Inception) to
                          ------------------------------------       December 31,
                            2000       1999     1998     1997            1996
                          ---------  --------  -------  ------  ----------------------
                                   (In thousands, except per share data)
<S>                       <C>        <C>       <C>      <C>     <C>
Consolidated Statement
 of Operations Data:
Revenue:
 Advertising............  $  45,814  $  9,446  $    57  $   67          $  --
 Opt-in.................      6,573     4,573      --      --              --
 Consulting (1).........      1,539       --       --      --              --
                          ---------  --------  -------  ------          ------
   Total revenue........     53,926    14,019       57      67             --
Cost of revenue:
 Cost of revenue
  (including stock-based
  compensation of $58,
  $--, $--, $-- and $--,
  respectively) (1).....      6,873       966       60      37             --
 Impairment of long-
  lived assets (2)......      5,969       --       --      --              --
                          ---------  --------  -------  ------          ------
   Total cost of
    revenue.............     12,842       966       60      37             --
                          ---------  --------  -------  ------          ------
Gross margin (loss).....     41,084    13,053       (3)     30             --
                          ---------  --------  -------  ------          ------
Operating expenses:
 Sales and marketing
  (including stock-based
  compensation of $586,
  $232, $--, $-- and $--
  , respectively).......     70,897    38,648      869     147              16
 Research and
  development (including
  stock-based
  compensation of $668,
  $139, $--, $-- and $--
  , respectively).......      7,758     1,963      374     241              10
 General and
  administrative
  (including stock-based
  compensation of $418,
  $254, $--, $-- and $--
  , respectively).......     17,274     4,396      718     127               9
 Amortization of
  goodwill (1)..........      9,571       --       --      --              --
 Depreciation and
  amortization (1)......      2,829       185        8     --              --
 Impairment of long-
  lived assets (2)......     48,017       --       --      --              --
                          ---------  --------  -------  ------          ------
   Total operating
    expenses............    156,346    45,192    1,969     515              35
                          ---------  --------  -------  ------          ------
Loss from operations....   (115,262)  (32,139)  (1,972)   (485)            (35)
Interest income, net....      5,779       529       25       6             --
Loss from unconsolidated
 entities...............        (25)      --       --      --              --
                          ---------  --------  -------  ------          ------
Net loss................   (109,508)  (31,610)  (1,947)   (479)            (35)
Accretion on mandatorily
 redeemable convertible
 preferred stock........        --     (1,155)    (157)    --              --
                          ---------  --------  -------  ------          ------
Net loss available to
 common stockholders....  $(109,508) $(32,765) $(2,104) $ (479)         $  (35)
                          =========  ========  =======  ======          ======
Basic and diluted net
 loss per common share..  $   (4.59) $  (6.26) $ (0.64) $(0.19)         $(0.04)
                          =========  ========  =======  ======          ======
Weighted average common
 shares outstanding
 (basic and diluted)....     23,855     5,231    3,275   2,530             798
                          =========  ========  =======  ======          ======

<CAPTION>
                                                December 31,
                          ------------------------------------------------------------
                            2000       1999     1998     1997            1996
                          ---------  --------  -------  ------  ----------------------
                                               (In Thousands)
<S>                       <C>        <C>       <C>      <C>     <C>
Balance Sheet Data:
Cash and cash
 equivalents............  $  42,771  $ 55,524  $   232  $  793          $  --
Working capital
 (deficit)..............     67,469    60,628     (245)    744             (25)
Total assets............    114,536    76,857      278     797             --
Long-term obligations...        712     1,020      --      --              --
Mandatorily redeemable
 convertible preferred
 stock..................        --        --     2,023     866             --
Stockholders' equity
 (deficit)..............  $ 103,169  $ 65,677  $(2,222) $ (118)         $  (25)
</TABLE>
--------
(1)  We acquired four businesses in 2000. The acquisitions were accounted for
     using the purchase method of accounting, which resulted in the recording
     of $51,216,000 of goodwill and $15,050,000 of other intangible assets. In
     addition to the amortization of goodwill, cost of revenue and depreciation
     and amortization expense include $813,000 and $1,640,000, respectively, of
     amortization expense related to other intangible assets. Revenue generated
     from the acquired businesses during 2000 was $1,539,000. See Note 13 to
     Consolidated Financial Statements.
(2)  In December 2000, we recorded an impairment charge of $53,986,000, in
     connection with our decision not to pursue the development and expansion
     of our wireless segment and write-down of other long-lived impaired
     assets. See Note 3 to Consolidated Financial Statements.

                                       13



<PAGE>

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


   The following discussion should be read in conjunction with the consolidated
financial statements and related notes, which appear in Item 14 of this Form
10-K. The following discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those discussed below and in the section entitled "Risk Factors" of
this Form 10-K.

Overview

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

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

   We were incorporated in Maryland on August 9, 1996 under the name of
MinderSoft, Inc. In January 1999, we changed our name to LifeMinders.com, Inc.
and reincorporated in Delaware on July 2, 1999. In June 2000, by way of merger,
we changed our name to LifeMinders, Inc. See "Business" for a more
comprehensive discussion.

Comparability of Results

 Business Combinations

   During 2000, we completed four acquisitions that, in the aggregate, had a
significant effect on our results of operations and financial condition.
However, during December 2000, we evaluated the operating performance and
expected results of operations of these acquisitions and decided not to pursue
and develop certain technology and products acquired in these business
combinations. As a result, of a total impairment charge of $53,986,000 recorded
in the fourth quarter of 2000, $51,673,000 related to certain businesses
acquired during 2000.

 PleaseRSVP

   On March 14, 2000, we acquired PleaseRSVP.com, Inc., an online invitation
website, in a purchase business combination for a purchase price of
approximately $3,538,000, consisting of $500,000 in cash, 40,000 shares of our
common stock valued at $3,008,000, and $30,000 in acquisition costs. We
allocated the entire purchase price to goodwill, which was amortized over three
years. In December 2000, however, we decided not to pursue the development and
expansion of the operations of PleaseRSVP. See "Impairment of Long-Lived
Assets" below.

 WITI

   On March 29, 2000, we acquired WITI Corporation, a web and wireless weather
forecasting company, in a purchase business combination for approximately
$29,403,000, consisting of $3,500,000 in cash, 345,796 shares of our common
stock valued at $23,004,000, the assumption of options that are exercisable to
acquire 38,266 shares of our common stock with a fair value of $2,488,000, the
assumption of $224,000 in liabilities and $187,000 in acquisition costs. The
acquisition was intended to combine WITI's advanced weather products

                                       14


<PAGE>

with our subscriber base and provide us with a platform to offer high-
resolution weather forecasting and alerts to our wireless customers, as well as
a daily weather product to our existing members. In connection with the
acquisition, we assumed a consulting contract that provided $1,539,000 in
revenue for 2000. The consulting contract was completed in October 2000. In
December 2000, however, we decided not to pursue the development and expansion
of our wireless operations, which resulted in the write down of the assets
acquired in this transaction. See "Impairment of Long-Lived Assets" below.

 smartRay

   On August 31, 2000, we acquired smartRay Network, Inc., a web and wireless
alerting company, in a purchase business combination for approximately
$32,632,000, consisting of $2,318,000 in cash, 1,252,198 shares of our common
stock valued at $22,493,000, the assumption of options that are exercisable to
acquire a total of 251,447 shares of our common stock with a fair value of
$6,860,000, the assumption of $527,000 in liabilities and $434,000 in
acquisition costs. The acquisition was intended to enhance our wireless message
delivery capabilities to provide intelligent content and commerce messages to
our wireless subscriber base. The smartRay technology was expected to
complement the technology previously acquired from WITI by employing an alert-
based, wireless platform that we expected to be able to support our wireless
subscriber base. In December 2000, however, we decided not to pursue the
development and expansion our wireless operations, which resulted in the write
down of the assets acquired in this transaction. See "Impairment of Long-Lived
Assets" below.

 eCoupons

   On December 4, 2000, we acquired eCoupons, Inc., an electronic couponing
service, in a purchase business combination for approximately $4,911,000,
consisting of 612,529 shares of our common stock valued at $2,641,000, the
assumption of options that are exercisable to acquire 110,239 shares of our
common stock with a fair value of $459,000, the assumption of restricted stock
convertible to 114,748 shares of our common stock valued at $495,000, the
assumption of $916,000 in liabilities and $400,000 in acquisition costs. As a
result of the acquisition, we expect to be able to enhance our ability to
provide locally relevant electronic coupons to our subscriber base. Results of
eCoupons have been included with our results for the period subsequent to the
date of acquisition.

Impairment of Long-Lived Assets

 Wireless Segment

   As part of the development of our wireless business strategy, we acquired
WITI and smartRay in the first and third quarters of 2000, respectively. In
December 2000, we evaluated the wireless segment's historical operating
performance and expected results of operations. Due to changes in market
conditions and a change in our assessment of the wireless segment's ability to
generate revenues and profits and in a continued effort to reduce costs and
reach profitability, we decided not to pursue the development and expansion of
our wireless operations and to renew our focus on our core advertising
business. In conjunction with this decision, we recorded an impairment charge
of $49,020,000 in the fourth quarter of 2000, of which $5,969,000 is included
as a component of cost of sales.

   The major components of the impairment charge related to the wireless
segment are as follows (in thousands):

<TABLE>
   <S>                                                                   <C>
   Fixed assets......................................................... $   617
   Technology...........................................................   5,969
   Assembled workforce..................................................     578
   Other identifiable intangible assets.................................   1,895
   Goodwill.............................................................  39,961
                                                                         -------
     Total impairment charge related to wireless segment................ $49,020
                                                                         =======
</TABLE>

                                       15



<PAGE>

 Investment in PleaseRSVP

   In the fourth quarter of 2000, we decided not to pursue the development and
expansion of the operations of our consolidated subsidiary PleaseRSVP,
resulting in an impairment charge of $2,653,000 primarily related to the write-
off of goodwill associated with this business acquisition completed in the
first quarter of 2000. Our decision not to pursue the development and expansion
of the PleaseRSVP operations was based on our evaluation of PleaseRSVP's
historical operating performance and expected future operating results. The
fair value of the impaired assets was determined based on a discounted cash
flow analysis.

 Non-Marketable Equity Securities

   We periodically evaluate the carrying value of our investments in non-
marketable equity securities to determine if a loss in value of the
investments, which would be considered a permanent decline, should be
recognized. During the fourth quarter of 2000, based on our evaluation of the
operating losses of our investees, changes in market conditions and other
relevant factors, we recorded a charge of $2,313,000 for a permanent decline in
value of certain non-marketable equity securities.

 Subsequent Event

   In the first quarter of 2001, we terminated 50 employees, or approximately
24% of our total workforce as of December 31, 2000, and recorded a one-time
charge of approximately $1.1 million, which also included severance for Stephen
R. Chapin, Jr. who stepped down as Chairman and CEO. We expect to pay all
severance for all of these terminated employees during 2001.

Results of Operations

 Segment Information

   Prior to the third quarter of 2000, we operated in one segment: Internet and
related services. Beginning in the third quarter of 2000, we began evaluating
our operations by strategic business unit: consumer, outsourcing and wireless.
In December 2000, however, we made the decision not to pursue and develop our
wireless segment. This decision was based on changes in market conditions and a
determination that we could not generate positive cash flows from the wireless
segment in the foreseeable future. Fourth quarter results for 2000 include an
impairment charge of $53,986,000, of which $49,020,000 is related to the write-
off of long-lived assets, including goodwill, related to the acquisition of
wireless technologies which occurred in the first and third quarters of 2000.

   For financial reporting purposes, we have two revenue streams: delivery of
advertisements within emails to our members and delivery of opt-in names to our
registration partners. The segment operating loss is revenue less direct and
allocable expenses. Segment identifiable assets are those that are directly
used in or identified to segment operations.

   Financial information by segment for the year ended December 31, 2000
follows (in thousands):

<TABLE>
<CAPTION>
                          Consumer  Outsourcing Wireless  Corporate    Total
                          --------  ----------- --------  ---------  ---------
<S>                       <C>       <C>         <C>       <C>        <C>
Revenue.................  $51,415    $    972   $  1,539  $    --    $  53,926
Impairment of long-lived
 assets.................   (4,966)        --     (49,020)      --      (53,986)
Operating profit
 (loss).................    4,601     (14,081)   (57,471)  (48,311)   (115,262)
Total assets............    6,429       2,571        --    105,536     114,536
Depreciation and
 amortization...........    2,937         926      1,139    13,405      18,407
</TABLE>

                                       16



<PAGE>

Revenue

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

 Advertising

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

   Periodically, we enter into barter/reciprocal transactions, where we
exchange advertising space within our emails for reciprocal advertising space
or traffic on other Web sites. Revenue from barter transactions is recognized
in accordance with APB Opinion No. 29, Accounting for Nonmonetary Transactions
(APB No. 29), and EITF Issue No. 99-17, Accounting for Advertising Barter
Transactions, during the period in which the advertisements are displayed in
our emails. In the absence of sufficient evidence of fair value, the acquired
assets are recorded at the book value of the surrendered assets. No gain or
loss is recorded from barter transactions as the revenue recognized equals the
advertising costs incurred. For the years ended December 31, 1999 and 1998, we
did not enter into any barter arrangements. For the year ended December 31,
2000, we entered into several barter arrangements for which no revenue or
expense was recognized as sufficient evidence of fair value was indeterminable
and our carrying cost of the surrendered assets was insignificant.

 Opt-in

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

                                       17



<PAGE>

future estimates. For the years ended December 31, 2000 and 1999, revenue was
recorded net of $913,000 and $618,000, respectively, for estimated duplicate
member responses to our opt-in partners' newsletters and other promotions.

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

 Consulting Revenue

   Consulting revenue consists of revenue earned under a contract, assumed in
connection with our acquisition of WITI Corporation, relating to services for
the development of weather related content. Under this contract, which was
completed in October 2000, we provided consulting services for customization
and modification of our customer's current software systems. Revenue was
recognized under the percentage-of-completion method of accounting, based on
the ratio of costs incurred to total estimated costs. The percentage-of-
completion method was deemed the most appropriate method of revenue recognition
for this contract as we were generally entitled to payment for work performed
to date even though it may not have coincided with a specific billing
milestone. The billing milestones were considered to be interim billing points
for the purposes of providing funding to us for our efforts and not true output
measures of our progress to completion. Additionally, the ratio of costs
incurred to total estimated costs has a direct relationship to the performance
of services specified in the arrangement due to the types of costs that were
incurred. Costs incurred relating to performance of the services specified in
the arrangement consisted primarily of costs for consulting services and
payroll relating to individuals performing the software modification and
customization procedures. The consultant and payroll costs incurred directly
coincided with the input of effort into the modification and customization
process. Direct material costs on this project were insignificant. Project-
related overhead costs included within the calculation of the percentage
complete were consistent with industry practice and there were no significant
to up-front costs charged to the contract. Cash received in advance of services
be provided was recorded as deferred revenue and recognized upon the completion
of the related services.

Expenses

 Cost of Revenue

   Cost of revenue consists of salaries, stock-based compensation, employee
benefits and related expenses of our Member Experience personnel, fees paid to
freelance writers of our content and depreciation of and co-location costs
associated with the computer equipment necessary to run our operations. We
believe that a significant increase in these expenses will be necessary if we
expand the number of email categories offered to our members.

 Sales and Marketing

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

   In August 2000, we entered into an agreement for future distribution
services valued at $3,500,000 of which we paid $2,500,000. Subsequent to
December 31, 2000, the contract was terminated and we are no longer obligated
to pay the remaining $1,000,000 of the original contract amount.


                                       18



<PAGE>

 Research and Development

   Research and development costs include expenses for the development of new
or improved technologies designed to enhance the performance of our offerings,
including the salaries, stock-based compensation and related expenses for our
engineering department, as well as costs for contracted services and co-
location facilities and depreciation on equipment. In 2000, we incurred
significant costs associated with the development and expansion of our systems
infrastructure to support our rapid member growth. We do not expect the same
level of development in 2001. As such, we expect research and development costs
to decrease in the coming year.

 General and Administrative

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

 Stock-Based Compensation

   In connection with the grant of stock options to employees during the year
ended December 31, 1999, deferred compensation of $5,702,000 was recorded as a
reduction to stockholders' equity. This deferred compensation represented the
difference between the estimated fair value of our common stock and the
exercise price of these options at the date of grant prior to our initial
public offering. Additionally, in accordance with FIN 44 effective July 1,
2000, $2,624,000 and $622,000 of deferred compensation was recognized upon the
assumption of outstanding options that are exercisable to acquire our common
stock associated with the acquisitions of smartRay Networks and eCoupons,
respectively. Deferred compensation is amortized over the vesting periods of
the applicable options. In 2000 and 1999, $58,000 and $0 of amortization of
deferred compensation, respectively, was included in cost of revenue, $585,000
and $232,000, respectively, was included in sales and marketing expense,
$668,000 and $139,000, respectively, was included in research and development
expense, and $418,000 and $254,000, respectively, was included in general and
administrative expense.

 Inflation

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

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

   Revenue. Revenue increased 285% from $14,019,000 for the year ended December
31, 1999 to $53,926,000 for the year ended December 31, 2000. Advertising
revenue increased $36,368,000, opt-in revenue increased $2,000,000 and
consulting revenue increased $1,539,000. The increase in advertising and opt-in
revenue was due to significant expansion and sale of advertising resulting from
a 209% increase in our membership base. Consulting revenue resulted from a
contract assumed in the WITI acquisition in the first quarter 2000. Performance
under this contract was substantially complete as of December 31, 2000 and the
contract will not be renewed.

   Cost of revenue. Total cost of revenue was $12,842,000 and $966,000, or 24%
and 7% of total revenue, for the years ended December 31, 2000 and 1999,
respectively. Cost of revenue for the year ended December 31, 2000 included an
impairment charge of $5,969,000, or 11% of total revenue, related to the write
off of WITI and smartRay technologies acquired. Cost of revenue excluding the
impairment charge was $6,873,000 and $966,000, or 13% and 6% of total revenue,
for the years ended December 31, 2000 and 1999, respectively.

                                       19



<PAGE>

Of the $5,907,000 increase in cost of revenue from the prior year, 45% is due
to the housing and depreciation of additional computer equipment required for
our operations resulting from our rapid growth in membership, 16% is associated
with an increase in the personnel in our Member Experience department, which is
responsible for identifying, composing and editing the content delivered in our
emails, 10% is due to the consulting revenue acquired in the WITI acquisition
and 22% is attributable to the amortization of the WITI and smartRay
technologies acquired.

   Sales and marketing. Sales and marketing expense was $70,897,000 and
$38,648,000, or 131% and 276% of total revenue, for the years ended December
31, 2000 and 1999, respectively. Of the $32,249,000 increase in sales and
marketing expenses from the prior year, 64% is associated with an expansion in
our efforts to acquire new members through the purchase of banner
advertisements and similar services on the web, 20% is due to an increase in
our sales and marketing staff, and 11% related to an increase in housing fees
and depreciation associated with computer systems used to analyze customer
metrics.

   Research and development. Research and development expense was $7,758,000
and $1,963,000, or 14% and 14% of total revenue, for the years ended December
31, 2000 and 1999, respectively. Of the $5,795,000 increase in research and
development expenses from the prior year, 67% is attributable to expansion of
technical personnel and related recruiting fees and 21% relates to professional
fees incurred to further develop and enhance our service. Additionally, 9% of
the increase is due to research and development associated with our PleaseRSVP
operations.

   General and administrative. General and administrative expense was
$17,274,000 and $4,396,000, or 32% and 31% of total revenue, for the years
ended December 31, 2000 and 1999, respectively. Of the $12,878,000 increase in
general and administrative expenses from the prior year, 45% is the result of
our rapid growth and expansion, requiring additional office space, insurance,
personnel and related fringe benefit expenses, relocation and recruiting; 2% is
attributable to the outsourcing of the processing of bounty payments related to
an advertising campaign; and 12% is directly related to increases in
professional fees as a result of becoming a public company. Additionally, 26%
is due to an increase in bad debt expense directly attributable to the downturn
in economic conditions, which has impacted our customers' ability to pay.

   Impairment of Long-Lived Assets. In December 2000, in a continued effort to
reduce costs and reach profitability, we made the decision not to pursue and
develop our wireless operations. In conjunction with this decision, we recorded
an impairment charge of $49,020,000 in the fourth quarter of 2000, of which
$5,969,000 is included as a component of cost of sales. Also in the fourth
quarter of 2000, we decided not to pursue and develop the operations of our
consolidated subsidiary Please RSVP, resulting in an impairment charge of
$2,653,000. Additionally, an evaluation of our carrying value in our
investments in non-marketable equity securities in the fourth quarter of 2000
indicated that a permanent loss in value of the investments existed. As a
result, we recorded a charge of $2,313,000 for a permanent decline in value of
certain non-marketable equity securities.

   Depreciation and amortization. Depreciation and amortization expense was
$2,829,000 and $185,000, or 5% and 1% of total revenue, for the years ended
December 31, 2000 and 1999, respectively. Of the $2,644,000 increase in
depreciation and amortization expenses from the prior year, 54% relates to the
depreciation of new leasehold improvements, furniture, computer equipment and
software and 46% is related to amortization of certain intangibles associated
with business acquisitions.

   Amortization of goodwill. As part of the smartRay, WITI and PleaseRSVP.com,
Inc. acquisitions, we recorded goodwill totaling $51,216,000. Goodwill was
amortized over three-year periods, which resulted in charges totaling
$9,571,000, or 18% of revenue, for the year ended December 31, 2000. In
December 2000, however, we decided not to pursue the development and expansion
of our wireless segment or the PleaseRSVP operations. As a result, we wrote off
the goodwill associated with these acquisitions. See "Impairment of Long-Lived
Assets," above.


                                       20



<PAGE>

   Interest income, net. Interest income was $6,253,000 for the year ended
December 31, 2000, partially offset by $474,000 of interest expense. Interest
income was $560,000 for the year ended December 31, 1999, partially offset by
$31,000 of interest expense. The increase from the prior year is due to an
increase in funds available for investment in short term investments. The
majority of the increase in funds was attributable to the $147,614,000 in net
proceeds from our initial public offering in November 1999 and follow-on
offering in February 2000. The increase in interest expense was due to the
financing of equipment purchased during the first half of 2000 under notes
payable or capital lease arrangements. Interest income, net in future periods
may fluctuate as a result of the average cash, investments and future debt
balances we maintain as well as changes in the yields of our investments.

   Loss from unconsolidated entities. Loss from unconsolidated entities
consists of losses attributable to an investment in an Internet-related
business acquired on March 15, 2000 and accounted for on the equity basis as we
exercised significant influence over the investee's operations. Before selling
the investment in June 2000, we recorded losses totaling $25,000.

   Income taxes. No income tax provision or benefit has been recorded for any
of the periods presented since we have not generated taxable income to date. A
valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Management
believes it is more likely than not that we will not have sufficient taxable
income in the years over which the majority of temporary differences will
reverse to realize the deferred tax assets. As a result, we recorded a full
valuation allowance in the accompanying consolidated financial statements as of
December 31, 2000 and 1999.

   Accretion on mandatorily redeemable convertible preferred stock. Accretion
on mandatorily redeemable convertible preferred stock decreased from $1,155,000
for the year ended December 31, 1999 to $0 for the year ended December 31,
2000. The preferred stock dividends and direct issuance costs on Series A,
Series B and Series C preferred stock resulted in the accretion. During the
year ended December 31, 1999, shares of Series A, Series B, Series C, Series D
and Series E preferred stock were outstanding until they were converted into
common shares concurrent with our initial public offering in November 1999. No
shares of preferred stock were outstanding during the year ended December 31,
2000.

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

   Revenue. Revenue increased 24,495% from $57,000 for the year ended December
31, 1998 to $14,019,000 for the year ended December 31, 1999. Advertising
revenue increased $9,389,000 as a result of our decision to revise our strategy
from entering into arrangements with national retailers as distributors of our
software-based product to an online direct marketing company that provides
personalized content and advertisements via email. As a new source of revenue
in 1999, opt-in revenue added $4,573,000 to revenue.

   Cost of revenue. Cost of revenue was $966,000 and $60,000, or 7% and 105% of
total revenue, for the years ended December 31, 1999 and 1998, respectively. In
1999, we changed the product from a software-based minder to an Internet-based
direct marketing offering. The $906,000 increase in cost of revenue from 1998
to 1999 reflects a 50% increase in costs associated with our Member Experience
personnel, who are responsible for identifying, composing and editing the
content delivered in our emails, and 39% increase in costs associated with the
depreciation of the computer systems necessary to operate our service.

   Sales and marketing. Sales and marketing expense was $38,648,000 and
$869,000, or 276% and 1525% of total revenue, for the years ended December 31,
1999 and 1998, respectively. Of the $37,779,000 increase in sales and marketing
expenses from 1998 to 1999, 75% resulted from a major expansion in our efforts
to acquire new members through the purchase of banner advertisements on the Web
and in print and 8% relates to an increase in our sales and marketing staff and
commissions related to the increase in revenue.

   Research and development. Research and development expense was $1,963,000
and $374,000, or 14% and 656% of total revenue, for the years ended December
31, 1999 and 1998, respectively. Of the $1,589,000

                                       21



<PAGE>

increase from 1998 to 1999, 48% was attributable to the expansion of technical
personnel and related recruiting fees, 32% relates to the outsourcing of
certain internal-use software costs in the pre-development stage and 8% relates
to supplies used by our technical personnel.

   General and administrative. General and administrative expense was
$4,396,000 and $718,000, or 31% and 1260% of total revenue, for the years ended
December 31, 1999 and 1998, respectively. Of the $3,678,000 increase from 1998
to 1999, 54% relates to our rapid growth and expansion, requiring additional
personnel and related fringe benefit expenses, rent and legal services.
Additionally, 11% is due to an increase in bad debt expense.

   Depreciation and amortization. Depreciation and amortization expense was
$185,000 and $8,000, or 1% and 14% of total revenue, for the years ended
December 31, 1999 and 1998, respectively. The increase of $177,000 from 1998 to
1999 resulted from purchases of furniture and computer equipment for additional
personnel.

   Interest income, net. Interest income, net was $529,000 and $25,000 for the
years ended December 31, 1999 and 1998, respectively. The increase of $504,000
from 1998 to 1999 is due to an increase in funds available for investment in
short term investments. The majority of the increase in funds was attributable
to the $61,715,000 in net proceeds from our initial public offering in November
1999.

   Interest expense for the years ended December 31, 1999 and 1998 was $31,000
and $0, respectively.

   Income taxes. No income tax provision or benefit has been recorded for any
of the periods presented since we have not generated taxable income to date. A
valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Management
believes it is more likely than not that we will not have sufficient taxable
income in the years over which the majority of temporary differences will
reverse to realize the deferred tax assets. As a result, we have recorded a
full valuation allowance in the accompanying financial statements as of
December 31, 1999 and 1998.

   Accretion on mandatorily redeemable convertible preferred stock. Accretion
on mandatorily redeemable convertible preferred stock increased 636% from
$157,000 for the year ended December 31, 1998 to $1,155,000 for the year ended
December 31, 1999. The preferred stock carrying value for cumulative dividends
and a portion of direct issuance costs on Series A, Series B, Series C, Series
D and Series E preferred stock resulted in the increase. During the year ended
December 31, 1998, only shares of Series A and Series B preferred stock were
outstanding. During the year ended December 31, 1999, shares of Series A,
Series B, Series C, Series D and Series E preferred stock were all outstanding
for a portion of the year. All shares of Series A, Series B, Series C, Series D
and Series E preferred stock were converted into common stock concurrent with
the our initial public offering in November 1999.

                                       22



<PAGE>

Quarterly Results of Operations

   The following table sets forth unaudited quarterly consolidated statement of
operations data for the four quarters of 2000 and 1999. We derived this data
from unaudited consolidated financial statements, and, in the opinion of our
management, they include all adjustments, which consist only of normal
recurring adjustments, necessary to present fairly the financial results for
the periods. The results of operations for any quarter are not necessarily
indicative of the results of operations for any future period.

<TABLE>
<CAPTION>
                          March 31, June 30,  Sept. 30, Dec. 31,  March 31,  June 30,  Sept. 30, Dec. 31,
                            1999      1999      1999      1999      2000       2000      2000      2000
                          --------- --------  --------- --------  ---------  --------  --------- --------
                                                        (In Thousands)
<S>                       <C>       <C>       <C>       <C>       <C>        <C>       <C>       <C>
Revenue:
 Advertising............   $    10  $   886    $ 3,169  $  5,381  $  7,826   $ 12,236   $14,680  $ 11,072
 Opt-in.................        13      533      1,368     2,659     3,178      1,915     1,340       140
 Consulting.............       --       --         --        --        --         520       657       362
                           -------  -------    -------  --------  --------   --------   -------  --------
   Total revenue........        23    1,419      4,537     8,040    11,004     14,671    16,677    11,574
Cost of revenue:
 Cost of revenue........        99      147        226       494       800      1,495     1,730     2,848
 Impairment of long-
  lived assets..........       --       --         --        --        --         --        --      5,969
                           -------  -------    -------  --------  --------   --------   -------  --------
   Total cost of
    revenue.............        99      147        226       494       800      1,495     1,730     8,817
                           -------  -------    -------  --------  --------   --------   -------  --------
Gross margin (loss).....       (76)   1,272      4,311     7,546    10,204     13,176    14,947     2,757
Operating expenses:
 Sales and marketing....     1,081    5,170     10,275    22,122    24,715     19,686    14,745    11,751
 Research and
  development...........       230      322        525       886     1,415      1,862     2,170     2,311
 General and
  administrative........       256      806      1,354     1,980     2,807      4,109     3,456     6,902
 Amortization of
  goodwill..............       --       --         --        --        --       2,309     2,942     4,320
 Depreciation and
  amortization..........         5        2         58       120       188        562       896     1,183
 Impairment of long-
  lived assets..........       --       --         --        --        --         --        --     48,017
                           -------  -------    -------  --------  --------   --------   -------  --------
   Total operating
    expenses............     1,572    6,300     12,212    25,108    29,125     28,528    24,209    74,484
                           -------  -------    -------  --------  --------   --------   -------  --------
Loss from operations....    (1,648)  (5,028)    (7,901)  (17,562)  (18,921)   (15,352)   (9,262)  (71,727)
Interest income, net....        23       45         56       405     1,373      1,606     1,566     1,234
Loss from investment in
 unconsolidated
 entities...............       --       --         --        --        (25)       --        --        --
                           -------  -------    -------  --------  --------   --------   -------  --------
Net loss................    (1,625)  (4,983)    (7,845)  (17,157)  (17,573)   (13,746)   (7,696)  (70,493)
Accretion on mandatorily
 redeemable convertible
 preferred stock........      (100)    (132)      (433)     (490)      --         --        --        --
                           -------  -------    -------  --------  --------   --------   -------  --------
Net loss available to
 common stockholders....   $(1,725) $(5,115)   $(8,278) $(17,647) $(17,573)  $(13,746)  $(7,696) $(70,493)
                           =======  =======    =======  ========  ========   ========   =======  ========
Basic and diluted net
 loss per average number
 of shares outstanding..   $ (0.53) $ (1.56)   $ (2.48) $  (1.60) $  (0.80)  $  (0.58)  $ (0.32) $  (2.77)
                           =======  =======    =======  ========  ========   ========   =======  ========
</TABLE>

Seasonality and Quarterly Fluctuations in Operating Results

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

Recent Events

   In December 2000, in a continued effort to reduce costs and reach
profitability, we made the decision not to pursue and develop our wireless
operations. In conjunction with this decision, we recorded an impairment charge
of $49,020,000 in the fourth quarter of 2000, of which $5,969,000 is included
as a component of cost of sales. Also in the fourth quarter of 2000, we decided
not to pursue and develop the operations of our

                                       23



<PAGE>

consolidated subsidiary Please RSVP, resulting in an impairment charge of
$2,653,000. Additionally, an evaluation of our carrying value in our
investments in non-marketable equity securities in the fourth quarter of 2000
indicated that a permanent loss in value of the investments existed. As a
result, we recorded a charge of $2,313,000 for a permanent decline in value of
certain non-marketable equity securities.

   In the first quarter of 2001, we terminated 50 employees, or approximately
24% of our total workforce as of December 31, 2000, and recorded a one-time
charge of approximately $1.1 million, which also included severance for Stephen
R. Chapin, Jr. who stepped down as Chairman and CEO. We expect to pay all
severance for all of these terminated employees during 2001.

Liquidity and Capital Resources

   Prior to our initial public offering in November 1999, we funded our
operations primarily through the private placement of preferred equity
securities. Our initial public offering raised $61,715,000 in net proceeds. In
February 2000, we completed a follow-on offering that raised $85,899,000 in net
proceeds. As of December 31, 2000, we had $62,710,000 in cash, cash equivalents
and marketable securities. Outstanding equipment financing, comprising both
notes payable and capital leases, totaled $2,821,000 at December 31, 2000. The
outstanding principal balances of the various equipment financings must be
repaid in equal monthly installments through August 2002. Additionally, we had
outstanding commitments to lease office and computer co-location space totaling
$43,913,000 as of December 31, 2000. The commitments have various terms
expiring through January 2011. As of March 31, 2001, we have sublet 66,000
square feet of the office space to unrelated third parties and are actively
seeking subtenants for the balance of our excess office space. We believe that
this existing space will meet our requirements for the near future. Associated
with our acquisition of WITI, we assumed two notes payable totaling $1,573,000:
$1,000,000 was due to us before the acquisition of WITI, which was included in
the purchase price, and $573,000 was repaid out of cash flows from operations
associated with consulting revenue. Upon our acquisition of smartRay, we
assumed a note of $1,318,000, which was due to us before the acquisition of
smartRay and included in the purchase price.

   Net cash used in operating activities was $1,510,000 for the year ended
December 31, 1998, $35,505,000 for the year ended December 31, 1999 and
$40,731,000 for the year ended December 31, 2000. Cash used in operating
activities for the year ended December 31, 1998 was primarily the result of net
losses, which were partially offset by increases in deferred revenue. Cash used
in operating activities for the year ended December 31, 1999 resulted from net
losses and increases in accounts receivable and prepaid expenses, which were
partially offset by increases in accounts payable and accrued expenses. Cash
used in operating activities for the year ended December 31, 2000 principally
resulted from net losses adjusted for non-cash items, including impairment of
long-lived assets, an increase in trade receivables and reductions in accounts
payable and accrued expenses. In August 2000, we entered into an agreement for
future distribution services valued at $3,500,000 of which we paid $2,500,000.
Subsequent to December 31, 2000, the contract was terminated and we are no
longer obligated to pay the remaining $1,000,000 of the original contract
amount.

   In August 2000, we entered into an agreement for future distribution
services valued at $3,500,000 of which we paid $2,500,000. Subsequent to
December 31, 2000, the contract was terminated and we are no longer obligated
to pay the remaining $1,000,000 of the original contract amount.

   Net cash used in investing activities was $50,000 for the year ended
December 31, 1998, $6,210,000 for the year ended December 31, 1999 and
$58,430,000 for the year ended December 31, 2000. Cash used in investing
activities for the year ended December 31, 1998 was related to purchases of
property and equipment. Cash used in investing activities for the year ended
December 31, 1999 was related to the purchases of property and equipment and
the purchases of marketable securities. Cash used in investing activities for
the year ended December 31, 2000 was related to business acquisitions,
investments in unconsolidated entities, purchases of marketable securities net
of proceeds from maturities, cash deposits collateralizing letters of credit,
and purchases of property and equipment. The increase in the year ended
December 31, 1999 is attributable to the purchase of computer equipment needed
to maintain our database and deliver targeted emails to our rapidly

                                       24



<PAGE>

growing member base. The increase from 1999 to 2000 is attributable to
additional purchases of computer equipment to service our continuing member
growth, purchases of marketable securities, business acquisitions and
investments in unconsolidated entities, and cash deposits collateralizing
letters of credit.

   Net cash provided by financing activities was $1,000,000 for the year ended
December 31, 1998, $97,007,000 for the year ended December 31, 1999 and
$86,408,000 for the year ended December 31, 2000. Cash provided by financing
activities for the year ended December 31,1998 resulted almost entirely from
the sale of preferred stock. Cash provided by financing activities for the year
ended December 31, 1999 resulted from the sale of preferred stock and the sale
of common stock in our initial public offering in November 1999. Cash provided
by financing activities for the year ended December 31, 2000 resulted primarily
from our follow-on offering in February 2000. Concurrent with the initial
public offering, all series of preferred stock were converted into 1.25 shares
of our common stock. As of December 31, 2000, there were 4,434,437 options
outstanding with a weighted-average exercise price of $16.05. This may result
in substantial dilution in the future.

   During 2000 and prior, our focus was on growing our member base and
enhancing the infrastructure associated with a rapidly expanding membership,
resulting in significant advertising expenditures and costs associated with the
development of internal software systems and the hardware to support and
service our member database. We do not currently plan to continue the same
level of activity in 2001. As a result, we do not anticipate that we will
continue to experience significant capital expenditures nor do we expect
significant growth in our operating expenses for 2001. In a continued effort to
reach profitability, we terminated 50 employees, or approximately 24% of our
total workforce as of December 31, 2000, in the first quarter of 2001. The
reduction is expected to have a significant impact on future results of
operations because approximately 17% of our total expenses in 2000, including
cost of sales but excluding impairment of long-lived assets, related to
salaries and related benefits, including stock-based compensation. We will
continue to evaluate possible acquisitions of companies and investments in
businesses, products and technologies that are complementary to us, which may
require the use of cash. We believe that our existing cash, cash equivalents
and available credit facilities, will be sufficient to meet anticipated cash
needs for working capital, member acquisition expenses, investment or
acquisition related expenditures and capital expenditures for the forseeable
future.

Recent Accounting Pronouncements

   In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
which delays the effective date of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which will be effective for the Company's
fiscal year 2001. This statement establishes accounting and reporting standards
requiring that every derivative instrument, including certain derivative
instruments embedded in other contracts, be recorded in the balance sheet as
either an asset or liability measured at its fair value. The statement also
requires that changes in the derivative's fair value be recognized in earnings
unless specific hedge accounting criteria are met. In June 2000, FASB issued
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities--An Amendment of FAS 133," further amending SFAS No. 133.
The Company has not entered into derivative contracts and does not have plans
to enter into such contracts, accordingly the adoption of SFAS Nos. 133, 137
and 138 will not have a material effect on our consolidated financial
statements.

                                       25



<PAGE>

                                  RISK FACTORS

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

                 Risks Related to Our Company and Our Business

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

   We have never achieved profitability and expect to continue to incur
operating losses for the foreseeable future. As of December 31, 2000, we had an
accumulated deficit of $143,579,000. We incurred net losses of $109,508,000,
$31,610,000 and $1,947,000 for the years ended December 31, 2000, 1999 and
1998, respectively. We will need to generate significant revenue to achieve
profitability, and we cannot be certain that we will ever do so. If our revenue
is lower than we anticipate or our operating expenses exceed our expectations,
our losses will significantly increase. Moreover, even if we do achieve
profitability, we may not be able to sustain or increase profitability on a
quarterly or annual basis.

We may not be able to achieve or sustain revenue growth or achieve or sustain
profitability if we have to refine or change our business strategy.

   We have only a limited operating history upon which to evaluate our business
and prospects and the online direct marketing industry is relatively new and
rapidly evolving. This presents many risks and uncertainties that could require
us to further refine or change our business strategy. These risks and
uncertainties include:

  .  our potential inability to compete effectively against other companies;

  .  our need to attract, retain and motivate qualified personnel;

  .  our ability to anticipate and adapt to the changing Internet advertising
     and direct marketing industries;

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

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

   We also depend on the growing use of the Internet for advertising, commerce
and communications, and on general economic conditions. We cannot assure you
that our business strategy will be successful or that we will successfully
address these risks and uncertainties. If we are unsuccessful in addressing
these risks and uncertainties, we may not be able to generate sufficient
revenue to achieve or sustain profitability and our revenue may fall short of
expectations of market analysts and investors, which could negatively affect
the price of our stock.

We may not be able to generate sufficient revenue if the acceptance of online
advertising, which is new and unpredictable, does not develop and expand as we
anticipate.

   We derive a substantial portion of our revenue from online advertising and
direct marketing, including both email and Web-based programs. The profit
potential for this business model is unproven. If these services do not
continue to achieve market acceptance, we may not generate sufficient revenue
to support our continued

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operations. The Internet has not existed long enough as an advertising medium
to demonstrate its effectiveness relative to traditional advertising.
Advertisers and advertising agencies that have historically relied on
traditional advertising may be reluctant or slow to adopt online advertising.
Many potential advertisers have limited or no experience using email or the Web
as an advertising medium. They may have allocated only a limited portion of
their advertising budgets to online advertising, or may find online advertising
to be less effective for promoting their products and services than traditional
advertising media. If the market for online advertising fails to develop or
develops more slowly than we expect, we may not sustain revenue growth or
achieve or sustain profitability. Further, our email and Web-based programs
must generate sufficient user traffic with demographic characteristics
attractive to our advertisers. We are affected by general industry conditions
governing the supply and demand of Internet advertising. The intense
competition among Internet advertising sellers has led to the creation of a
number of pricing alternatives for Internet advertising. These alternatives
make it difficult for us to project future levels of advertising revenue and
applicable gross margin that can be sustained by us or the Internet advertising
industry in general.

   The market for email advertising in general is vulnerable to the negative
public perception associated with unsolicited email, known as "spam." Public
perception, press reports or governmental action related to spam could reduce
the overall demand for email advertising in general, which could reduce our
revenue and prevent us from achieving or sustaining profitability.

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

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

If we do not maintain an engaged member base, we may not be able to compete
effectively for advertisers and we may not be able to generate sufficient
revenue.

   Our revenue has been derived primarily from advertisers seeking an engaged,
targeted audience for their advertisements. If we are unable to maintain an
engaged member base by keeping our current members active (i.e., opening our
email newsletters and responding to the advertisements contained in those
newsletters) and acquiring new active members, advertisers could find our
audience less attractive and effective for promoting their products and
services and we could experience difficulty retaining our existing advertisers
and attracting additional advertisers.

   We could also experience difficulty retaining our existing advertisers and
attracting additional advertisers if a significant number of our current
members stopped using our service. Members may discontinue using our service if
they object to having their online activities tracked or they do not find our
content useful. Members may also discontinue using our service if they have
been saturated by our email newsletters or advertisements or other
advertisements or promotions in their emails or on the Internet. Our service
allows our members to

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<PAGE>

easily unsubscribe at any time by clicking through a link appearing at the
bottom of our email newsletters and selecting the particular categories from
which they want to unsubscribe.

   To date, we have relied on referral-based marketing activities to attract a
portion of our members and will continue to do so for the foreseeable future.
This type of marketing is largely outside of our control and there can be no
assurance that it will generate rates of growth in our member base comparable
to what we have experienced to date.

   A significant portion of our revenue is derived from performance-based and
revenue sharing arrangements. Under these arrangements, our advertisers pay us
in part based on member responses to advertisements and promotions placed in
our email newsletters. If our members do not respond to advertisements and
promotions placed in our email newsletters, our revenue could be materially and
adversely affected.

Competition in the online advertising market industry is intense, and if we do
not respond to this competition effectively it may reduce our ability to retain
and attract advertisers, which would reduce our revenue and harm our financial
results.

   We face intense competition from both traditional and online advertising and
direct marketing businesses. If we do not respond to this competition
effectively, we may not be able to retain current advertisers or attract new
advertisers, which would reduce our revenue and harm our financial results. We
expect that competition will increase due to the lack of significant barriers
to entry in the online advertising market and the attention the Internet
continues to receive as a means of advertising and direct marketing. We face
competition for marketing dollars from online portals and community Web sites
such as AOL, Yahoo!, and CNET Networks, Inc. In addition, several other
companies offer competitive email direct marketing services for our consumer
products, including coolsavings.com, MyPoints.com, NetCreations (affiliated
with SEAT Pagine Gialle SpA), YesMail.com (affiliated with CMGI, Inc.), Digital
Impact and Exactis.com (affiliated with 24/7 Media Inc.). Principal competitors
to our outsourcing business include providers of eMarketing solutions such as
Exactis.com, FloNetwork (proposed to be acquired by Doubleclick), MessageMedia,
Responsys.com, and Netcentives Inc. Additionally, traditional advertising
agencies and direct marketing companies may seek to offer online products or
services that compete with ours.

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

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

  . customer service and support efforts;

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

  . sales and marketing efforts;

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

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

   Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than us. These factors may allow them to respond more quickly than we
can to new or emerging technologies and changes in customer requirements. It
may also allow them to devote greater resources than we can to the development,
promotion and sale of their products and services. These competitors may also
engage in more extensive research and development, undertake more far-reaching
marketing campaigns, adopt more aggressive pricing policies and make more
attractive offers to existing and potential

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employees, strategic partners, advertisers and direct marketers. We cannot
assure you that our competitors will not develop products or services that are
equal or superior to ours or that achieve greater acceptance than ours. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase
the ability of their products or services to address the needs of our current
or prospective members or advertising customers. As a result, it is possible
that new competitors may emerge and rapidly acquire significant market share.
Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share. We cannot assure you that we will be able to
compete successfully or that competitive pressures will not materially and
adversely affect our business, results of operations or financial condition.

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

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

If our outsourcing business fails to develop as we expect, we may not be
successful.

   We commenced operations of our outsourcing unit, which sells direct
marketing services and products to business customers, only recently, late in
the second quarter of 2000. We expect to derive an increasing percentage of our
revenues in the future from this unit. Accordingly, our future success depends,
in part, on the acceptance of our outsourcing services and products by business
customers, which is highly dependent on the success of the online advertising
market. We have very limited experience marketing and selling these types of
services and products to business customers, and cannot assure you that our
outsourcing services and products will be widely adopted by these customers.
Our inability to successfully sell our outsourcing services and products, or
the failure of our target customers to adopt and subsequently expand their use
of these services and products, could have a significant negative impact on our
business.

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

   Our success and ability to compete are substantially dependent on our
internally developed technologies and trademarks, which we seek to protect
through a combination of patent, copyright, trade secret and trademark law, as
well as confidentiality or license agreements with our employees, consultants,
and corporate and strategic partners. If we are unable to prevent the
unauthorized use of our proprietary information or if our competitors are able
to develop similar technologies independently, the competitive benefits of our
technologies, intellectual property rights and proprietary information will be
diminished.

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

   Our ability to successfully create and deliver our email newsletters depends
in large part on the capacity, reliability and security of our networking
hardware, software and telecommunications infrastructure. Failures of our
network infrastructure could result in unanticipated expenses to address such
failures and could prevent our members from effectively utilizing our services,
which could prevent us from retaining and attracting members and advertisers.
We do not currently have fully redundant systems or a formal disaster recovery
plan. Our system is susceptible to natural and man-made disasters, including
earthquakes, fires, floods, power loss and vandalism. Further,
telecommunications failures, computer viruses, electronic break-ins or other
similar

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<PAGE>

disruptive problems could adversely affect the operation of our systems. Our
insurance policies may not adequately compensate us for any losses that may
occur due to any damages or interruptions in our systems. Accordingly, we could
be required to make capital expenditures in the event of unanticipated damage.

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

Our current management team has only worked together for a short period of time
and the inability of our management team to function effectively or the loss of
any other officers or key employees could seriously harm our business by
impairing our ability to implement our business model.

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

We depend on our key personnel to manage our business effectively in a rapidly
changing market and we may not be able to hire or retain skilled employees,
which could prevent us from effectively growing and operating our business.

   Our ability to support the growth of our business will depend, in part, on
our ability to attract and retain highly skilled employees, particularly
management, editorial, sales and technical personnel. Furthermore, we rely on
highly skilled editorial personnel to create our email newsletters, sales and
marketing personnel to maintain and expand our member base and the number of
advertisers, and technical personnel to maintain and improve our technological
capabilities. If we are unable to hire or retain key employees, our ability to
operate our business will be adversely affected. Competition for employees with
these skills and experience is intense. As a result, we may be unable to retain
our key employees or to attract other highly qualified employees in the future.
We have experienced difficulty from time to time in attracting the personnel
necessary to operate our business, and we may experience similar difficulty in
the future.

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

   We believe that our business may be subject to seasonal fluctuations.
Advertisers historically have placed fewer advertisements during the first and
third calendar quarters of each year. Further, Internet user traffic typically
drops during the summer months, which potentially could reduce the amount of
advertising placed during that period. Expenditures by advertisers and direct
marketers tend to vary in cycles that reflect overall economic conditions as
well as budgeting and buying patterns. Our revenue has in the past been, and
may in the future be, materially affected by a decline in the economic
prospects of our customers or in the economy in general, which could alter our
current or prospective customers' spending priorities or budget cycles or
extend our sales cycle. Due to these and other factors, our revenues and
operating results may vary significantly from quarter-to-quarter. If we do not
successfully anticipate or adjust to quarterly fluctuations in revenue, our
operating results could fall below the expectations of public market analysts
and investors, which could negatively impact our stock price.

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<PAGE>

Our results of operations and financial condition may be adversely affected if
we do not successfully integrate current and future acquisitions into our
operations.

   In order to respond to the competitive pressures of the online direct
marketing industry or to grow our revenue base, we may acquire, or make
significant investments in, other companies, products, services or technologies
that complement our business. We do not have any present understanding, nor are
we having any discussions, relating to any significant acquisition or
investment not disclosed herein. Acquiring companies, products, services or
technologies involves many potential difficulties and risks, including:

  . difficulty in assimilating them into our operations;

  . disruption of our ongoing business and distraction of our management and
    employees;

  . negative effects on reported results of operations due to acquisition-
    related charges and amortization of acquired technology and other
    intangibles; and

  . potential dilutive issuances of equity or equity-linked securities.

   These potential difficulties and risks could adversely affect our ability to
realize the intended benefits of an acquisition or investment and could result
in unanticipated expenses and disruptions in our business, which could harm our
operations, cash flows and financial condition.

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

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

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

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

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

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services. Any indemnification provided to us in our agreements with these
parties, if available, may not adequately protect us.

   Concerns about, or breaches of, the security of our member database could
prevent us from sustaining revenue growth and achieving or sustaining
profitability by adversely affecting our ability to attract and retain members
and develop our member profiles, resulting in significant expenses to prevent
breaches, and subjecting us to liability for failing to protect our members'
information.

   We maintain a database containing information on our members, including
their account balances. Unauthorized users accessing our systems remotely may
access our database. If the security of our database is compromised, current
and potential members may be reluctant to use our services or provide us with
the personal data we need to adequately develop and maintain individual member
profiles, which could prevent us from retaining and attracting the advertisers
we require to sustain revenue growth. In addition, as a result of these
security and privacy concerns, we may incur significant costs to protect
against the threat of security breaches or to alleviate problems caused by
security breaches, and we may be unable to effectively target direct marketing
offers to members or may be subject to legal claims of members if unauthorized
third parties gain access to our system and alter or destroy information in our
database. Also, any public perception that we engaged in the unauthorized
release of member information, whether or not correct, would adversely affect
our ability to attract and retain members.

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

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

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

   Our business may be adversely affected by the adoption by computer users of
technologies that harm the performance of our products and services. For
example, our business may be adversely affected by the increased use of
technologies that allow domain administrators on the aggregate level, or
individual users managing their own electronic email accounts, to block, filter
or otherwise prevent the delivery of Internet advertising or commercial emails,
or to block access to any services that use cookies or other tracking
technologies. We cannot assure you that the number of domains or individual
computer users who employ these or other similar technologies will not
increase, thereby diminishing the efficacy of our, or our customer's, services.
In the case that one or more of these technologies are widely adopted, our
business, financial condition and results of operations could be materially and
adversely affected.

Sweepstakes regulation may limit our ability to conduct sweepstakes and other
contests, which could negatively impact our ability to attract and retain
members.

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

If our stock price remains volatile, we may become subject to securities
litigation, which is expensive and could divert our resources.

   In the past, following periods of market volatility in the price of a
company's securities, security holders have instituted class action litigation.
Many companies in our industry have been subject to this type of

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

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

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

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

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

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

   There are several requirements for continued listing on the Nasdaq National
Market including, but not limited to, maintaining a minimum stock price of
$1.00 per share. We may fail to meet these continued listing requirements, with
the result being that our common stock might be delisted. If that were to
occur, we may apply for listing on the Nasdaq Smallcap Market, subject to
Nasdaq's approval. If our stock were to be delisted from the Nasdaq National
Market, and we were unable to list our stock on the Nasdaq Smallcap Market, it
is likely that public trading, if any, in our common stock would thereafter be
conducted in the over-the-counter market in the so-called "pink sheets," or on
the NASD's "Electronic Bulletin Board." In addition, our stock would become
subject to the penny stock rules of the Securities and Exchange Commission,
which generally are applicable to equity securities with a price of less than
$5.00 (other than securities registered on certain national securities
exchanges or quoted on the Nasdaq system, provided that current price and
volume information with respect to transactions in such securities is provided
by the exchange or system). The penny stock rules require a broker-dealer,
prior to a transaction in a penny stock not otherwise exempt from the rules, to
deliver a standardized risk disclosure document prepared by the SEC that
provides information about penny stocks and the nature and level of risks in
the penny stock market. The broker-dealer also must provide the customer with
bid and offer quotations for the penny stock, the compensation of the broker-
dealer and its salesperson in the transaction, and monthly account statements
showing the market value of each penny stock held in the customer's account. In
addition, the penny stock rules require that prior to executing a transaction
in a penny stock, not otherwise exempt from such rules, the broker-dealer must
make a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser's written agreement to
the transaction. These disclosure requirements may have the effect of reducing
the level of trading activity in the secondary market for a stock that becomes
subject to the penny stock rules. If our common stock were to be delisted and
become subject to the penny stock rules, investors may find it more difficult
to sell their shares or to obtain quotations as to the price of our stock.
Delisting could also have a long-term negative impact on our ability to raise
future capital through a sale of common stock.


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                         Risks Related to Our Industry

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

   Our future success is highly dependent on an increase in the use of the
Internet as an advertising medium. The Internet advertising industry is new and
rapidly evolving, and it cannot yet be compared with traditional advertising
media to gauge its effectiveness. As a result, demand and acceptance for
Internet advertising solutions is uncertain. Many of our current or potential
advertising customers have limited experience using the Internet for
advertising purposes and they have allocated only a limited portion of their
advertising budgets to Internet advertising. The adoption of Internet
advertising, particularly by those entities that have historically relied upon
traditional media for advertising, requires the acceptance of a new way of
conducting business, exchanging information and advertising products and
services. These customers may find Internet advertising to be less effective
for promoting their products and services relative to traditional advertising
media. We cannot assure you that current or potential advertising customers
will continue to allocate a portion of their advertising budget to Internet
advertising or that the demand for Internet advertising will continue to
develop to sufficiently support Internet advertising as a significant
advertising medium. If the demand for Internet advertising decreases or
develops more slowly than we expect, then our business, results of operations
and financial condition could be materially and adversely affected.

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

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

Our business is in the online direct marketing industry and if we fail to adapt
to rapid change in this industry our services may become obsolete and
unmarketable.

   The online direct marketing industry is characterized by rapid change. The
introduction of products and services embodying new technologies, the emergence
of new industry standards and changing consumer needs and preferences could
render our existing services obsolete and unmarketable. If we do not respond
effectively to rapidly changing technologies, industry standards and customer
requirements, the quality and reliability of the services we provide to our
members and advertisers may suffer. We may experience technical difficulties
that could delay or prevent the successful development, introduction or
marketing of new products and services. In addition, any new enhancements to
our products and services must meet the requirements of our current and
prospective users. As a result, we could incur substantial costs to modify our
services and products or infrastructure to adapt to rapid change in our
industry, which could harm our financial results and cash flows.

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The unauthorized access of confidential member information that we transmit
over public networks could adversely affect our ability to attract and retain
members.

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

Problems with the performance and reliability of the Internet infrastructure
could adversely affect the quality and reliability of the products and services
we offer our members and advertisers, which could prevent us from sustaining
revenue growth.

   We depend significantly on the Internet infrastructure to deliver
attractive, reliable and timely email newsletters to our members. If Internet
usage grows, the Internet infrastructure may not be able to support the demands
placed on it by this growth, and its performance and reliability may decline,
which could adversely affect our ability to sustain revenue growth. Among other
things, continued development of the Internet infrastructure will require a
reliable network backbone with necessary speed, data capacity and security.
Currently, there are regular failures of the Internet network infrastructure,
including outages and delays, and the frequency of these failures may increase
in the future. These failures may reduce the benefits of our products and
services to our members and undermine our advertising partners' and our
members' confidence in the Internet as a viable commercial medium. In addition,
the Internet could lose its viability as a commercial medium due to delays in
the development or adoption of new technology required to accommodate increased
levels of Internet activity or due to government regulation.

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

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

Changes in government regulation could decrease our revenue and increase our
costs.

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

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

                                       35


<PAGE>

protection laws, both in the United States and abroad, that may impose
additional burdens on companies conducting business over the Internet.

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

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

   New limitations on the collection and use of information relating to
Internet users are currently being considered by legislatures and regulatory
agencies in the United States and internationally. We are unable to predict
whether any particular proposal will pass, or the nature of the limitations in
those proposals that do pass. Since many of the proposals are in their
developmental stages, we cannot yet determine the impact these may have on our
businesses. In addition, it is possible that changes to existing law, including
new interpretations of existing law, could have a material and adverse impact
on our business, financial condition and results of operations.

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

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

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

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   We do not currently hold any derivative instruments and do not engage in
hedging activities and currently do not enter into any transactions denominated
in a foreign currency. Thus, our exposure to foreign exchange fluctuations is
minimal.

Interest Rate Risk

   Our exposure to market risk for changes in interest rates relates primarily
to our marketable securities, which generally have maturities of one year or
less. We do not use derivative financial instruments for speculative or trading
purposes. We invest our excess cash in short-term, fixed income financial
instruments with an investment strategy to buy and hold to maturity. These
fixed rate investments are subject to interest rate risk and may fall in value
if market interest rates increase. If market interest rates were to increase
immediately and uniformly by ten percent from the levels at December 31, 2000,
the fair value of the portfolio would decline by an immaterial amount. We have
the ability to hold our fixed income investments until maturity, and therefore
we do not expect our operating results or cash flows to be materially affected
by a sudden change in market interest rates on our investment portfolio.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

   The financial statements required by this item are included in Part IV Item
14(a)(1) and (2). The quarterly financial data required by this item are
included in Item 7.

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

None.

                                       36


<PAGE>


                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

   The following table and biographical information sets forth certain
information regarding our directors and executive officers as of March 31, 2001.
The biographical information regarding our executive officers required by this
Item is contained under the heading "Executive Officers of the Registrant" in
Item 1 of this Report.

<TABLE>
<CAPTION>
      Name                            Age                        Principal Position
---------------------------         -------             ---------------------------------------------
<S>                                  <C>                <C>
Jonathan B. Bulkeley                   40                Chief Executive Officer and Chairman of the Board of Directors

Allison H. Abraham                     38                Director and President

Philip D. Black                        33                Director

Douglas A. Lindgren                    38                Director

Sunil Paul                             35                Director

Gene Riechers                          44                Director

Joseph S. Grabias                      51                Vice President and Chief Financial Officer

David N. Mahony                        40                Vice President and Chief Operating Officer

Munish Gandhi                          34                Chief Technology Officer

Thomas Stockmeyer                      41                Vice President of Sales
</TABLE>

Jonathan B. Bulkeley was appointed our Chief Executive Officer and Chairman of
the Board of Directors in January 2001, and has served as a director since
August 1999.  From January 1999 to January 2000, Mr. Bulkeley was the Chief
Executive Officer of barnesandnoble.com.  From July 1995 to January 1999, he
served as Managing Director of America Online, Inc.'s joint venture with
Bertelsmann Online to provide interactive online services in the United Kingdom.
Prior to July 1995, Mr. Bulkeley was Vice President of Business Development at
America Online in the United States, and prior to that, served as General
Manager of Media at America Online.  Before joining America Online in March
1993, Mr. Bulkeley worked at Time Inc. in a variety of roles, including Director
of Marketing and Development for Money magazine and sales and marketing
positions at Time and Discover magazines.  Mr. Bulkeley is a director of Rocket
Networks and Milliken & Co.  Mr. Bulkeley holds an undergraduate degree from
Yale University.

Allison H. Abraham was named as our President and a member of the Board of
Directors in June 2000.  From June 1998 to June 2000, Ms. Abraham served as
Chief Operating Officer of iVillage.  From August 1996 to June 1998, she was
President and Chief Operating Officer of Shoppers Express, an online grocery
service.  She was Vice President of Marketing at Ameritech from January 1992 to
August 1996 and a Marketing Director with American Express Travel Related
Services from July 1988 to January 1992. Ms. Abraham holds a MBA degree with a
concentration in Marketing from the Darden School at the University of Virginia
(1988) and a BA in Economics from Tufts University (1984).

Philip D. Black has served as a director of LifeMinders since May 1999. Since
March 1999, Mr. Black has been a Managing Member of Calvert Capital L.L.C. and
Calvert Capital II, L.L.C., which are both venture capital investment firms and
the general partners of ABS Ventures LM L.L.C., ABS Ventures IV, L.P. and ABX
Fund, L.P. From March 1995 to March 1999, Mr. Black was a General Partner of
Weiss, Peck & Greer Venture Partners, a venture capital investment firm, and
from 1988 to 1995, was a Senior Associate at Summit Partners, also a venture
capital firm. Mr. Black currently serves on the boards of directors of Personify
Incorporated and Zilliant.com. Mr. Black holds an undergraduate degree from
Stanford University.
                                      37


Douglas A. Lindgren has served as a director of LifeMinders since February 1999.
Mr. Lindgren is a Managing Director of United States Trust Company of New York
and is the Chief Investment Officer of Excelsior Private Equity Fund II, Inc.
Prior to joining U.S. Trust in April 1995, Mr. Lindgren served in various
capacities for Inco Venture Capital Management, Inc. from May 1988 through March
1995, including the positions of President and Managing Principal from January
1993 through March 1995. Before joining Inco Venture Capital Management, Inc.,
Mr. Lindgren was employed at Salomon Brothers Inc. and Smith Barney, Harris
Upham & Co., Inc. He is an Adjunct Professor of Finance at Columbia University's
Graduate School of Business, where he has been teaching courses on venture
capital since 1993. Mr. Lindgren currently serves on the boards of directors of
Zeus Wireless, Inc., Constellar Corporation, ReleaseNow.com, PowerSmart, Inc.,
On the Go Software, Inc. and MarketFirst Software, Inc. Mr. Lindgren holds an
undergraduate degree and a Masters in Business Administration from Columbia
University.

Sunil Paul was appointed to the Board in March 2000. In October 1997, Mr. Paul
founded Brightmail, Inc., an email-enhancement Internet company, and has served
as its Chairman of the Board since that time. In January 1996, Mr. Paul founded
FreeLoader, Inc., a Web-based push service provider company. Mr. Paul served as
that company's Chief Executive Officer from January 1996 to June 1996, when it
was acquired by Individual, Inc. From June 1996 to July 1997, he served as the
President of Individual, Inc.'s FreeLoader division. From February 1994 to
October 1995, Mr. Paul worked at America Online, Inc., serving as its first
Internet Product Manager. From 1990 until January 1994, Mr. Paul was a policy
analyst at the U.S. Congress' Office of Technology Assessment, where he
specialized in information technology and telecommunications, including the
then-emerging Internet. Mr. Paul is on the board of directors of Livemind, Inc.,
a company that he founded in March 1999. Mr. Paul holds an undergraduate degree
in electrical engineering from Vanderbilt University.

Gene Riechers has served as a director of LifeMinders since November 1997.  Mr.
Riechers was a managing director of FBR Technology Venture Partners L.P., a
venture capital investment firm which he joined in December 1996, until April
2001.  Prior to joining FBR Technology Venture Partners L.P., Mr. Riechers
served as the Chief Financial Officer of CyberCash, a leader in Internet payment
systems, from December 1995 to December 1996. From September 1993 to December
1995, Mr. Riechers served as the Chief Financial Officer and Vice President of
Development of Online Resources and Communications Corp., a provider of
electronic home banking services.  He currently serves on the boards of
directors of webMethods, Inc., Equal Footing.com, Inc. and Varsitybooks.com,
Inc. Mr. Riechers graduated from Pennsylvania State University and received his
Masters in Business Administration from Loyola College.

Section 16(a) Beneficial Ownership Reporting Compliance

   The rules promulgated under Section 16(a) of the Securities Exchange Act of
1934, as amended, require our executive officers and directors, and persons who
own more than 10% of a registered class of our equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission and to furnish us with copies. Based solely upon a review of Forms 3,
4 and 5 furnished to us during the fiscal year ended December 31, 2000, we
believe that our executive officers, directors and 10% stockholders have timely
filed all reports required by Section 16(a) to be filed during that period,
except that Stephen R. Chapin, Jr. inadvertently failed to timely file Form 4s
for two dispositions of our common stock, Mark Bryant inadvertently failed to
timely file Form 4s for one disposition of our common stock and two acquisitions
of our common stock, John Chapin inadvertently failed to timely file a Form 4
for one disposition of our common stock, Dave Meade inadvertently failed to
timely file Form 4s for one disposition of our common stock and four
acquisitions of our common stock, Sunil Paul inadvertently failed to timely file
a Form 4 for one acquisition of our common stock and Gene Riechers inadvertently
failed to timely file a Form 4 for one disposition of our common stock.

                                    38


ITEM 11.  EXECUTIVE COMPENSATION

Summary Compensation Table

   The following table provides certain summary information regarding the
compensation earned by our Chief Executive Officer during the fiscal year ended
December 31, 2000, and by each of our four other most highly compensated
executive officers whose total annual compensation exceeded $100,000 (the "Named
Executive Officers") during that fiscal year:

<TABLE>
<CAPTION>
                                                                                          Long-Term
                                                                                      Compensation Awards
                                                                 -------------------------------------------------------------
                                                                                                Number of
                                                                   Annual Compensation(1)         Shares
                                                                 --------------------------     Underlying          Other
       Name and Principal Position                     Year       Salary ($)    Bonus ($)       Options (#)      Compensation
------------------------------------------             ----      -----------    -----------     -----------      -------------
<S>                                            <C>          <C>         <C>                <C>              <C>
Stephen R. Chapin, Jr.                                  2000     $194,412       $ 97,500           700,000               -
  President, Chief Executive Officer and Chairman       1999     $172,917       $ 97,500           301,428      $56,532 (2)
   of the Board (1)                                     1998     $131,250              -                 -               -

Mark F. Bryant                                          2000     $199,999       $218,100            30,000
  Senior Vice President, Business Development (3)       1999     $135,000       $216,000            50,000               -
                                                        1998     $125,000              -           125,000               -

Thomas Stockmeyer                                       2000     $199,999       $ 91,875            85,000
  Vice President, Sales

David N. Mahony                                         2000     $160,000       $ 96,000            17,500      $   16,254 (5)
  Chief Operating Officer                               1999     $ 18,265 (4)                      187,500

John A. Chapin                                          2000     $150,000       $ 75,000            81,250
  Senior Vice President, Member Experience,             1999     $129,659       $ 75,000            50,000
   Secretary (6)
</TABLE>
(1)  Mr. Chapin resigned as an officer and director of the Company in January
     2001.
(2)  This amount consists of payment of Mr. Chapin's relocation expenses.
(3)  Mr. Bryant resigned as an officer of the Company in March 2001.
(4)  Mr. Mahony joined the Company in November 1999.
(5)  This amount consists of Mr. Mahony's relocation expenses.
(6)  Mr. Chapin resigned as an officer of the Company in January 2001.

Option Grants in Fiscal Year 2000

   The following table provides information concerning options to purchase our
common stock that we granted to our Chief Executive Officer and the other Named
Executive Officers during the fiscal year ended December 31, 2000.  We did not
grant any stock appreciation rights to these individuals during 2000.
<TABLE>
<CAPTION>
                                                                                                   Potential
                                                            Individual Grants                   Realizable Value
                                               -----------------------------------------       at Assumed Annual
                               Number of        Percentage of                                   Rates of Stock
                               Securities       Total Options                                 Price Appreciation
                               Underlying         Granted to       Exercise                   for Option Term (2)
                             Options Granted    Employees in      Price Per   Expiration     ---------------------------
     Name                          (1)           Fiscal 2000        Share        Date            5%              10%
-------------------------    ---------------   ---------------   ----------    --------      --------          --------
<S>                          <C>                  <C>             <C>          <C>          <C>              <C>
Stephen R. Chapin, Jr.         700,000              20.00%          $18.75      08/07/10    $ 8,254,241.98    $20,917,869.79
Mark F. Bryant.                  5,000               *              $34.75      01/18/10    $   109,270.44    $   276,912.75
Mark F. Bryant.                 25,000               *              $26.00      05/15/10    $   408,781.51    $ 1,035,932.60
Thomas Stockmeyer               60,000               1.71%          $35.50      01/01/10    $ 3,068,209.98    $ 6,147,280.63
Thomas Stockmeyer               12,500               *              $26.00      05/15/10    $   204,390.75    $   517,966.30
Thomas Stockmeyer               12,500               *              $17.25      08/15/10    $   135,605.40    $   343,650.72
David N. Mahony                 17,500               *              $17.25      08/15/10    $   189,961.59    $   481,292.57
John A. Chapin                  81,250               2.32%          $18.75      08/07/10    $   958,081.66    $ 2,427,967.03
</TABLE>

                                      39

*  Less than 1% of the Total Options Granted to Employees in Fiscal Year 2000.

(1) All of the options listed were granted under our 2000 Stock Incentive Plan
    except the first stock option grant to Mr. Thomas Stockmeyer which was
    granted under our 1998 Stock Incentive Plan.  See "Employment Contracts,
    Termination of Employment and Change-in-Control Arrangements".

(2) Potential Realizable Value assumes that the common stock appreciates at the
    indicated annual rate (compounded annually) from the grant date until the
    expiration of the option term and is calculated based on the rules
    promulgated by the SEC. Potential Realizable Value does not represent our
    estimate of future stock price performance.  The potential realizable value
    at 5% and 10% appreciation is calculated by assuming that the estimated fair
    market value on the date of grant appreciates at the indicated rate for the
    entire term of the option and that the option is exercised at the exercise
    price and sold on the last day of its term at the appreciated price.  These
    amounts represent assumed rates of appreciation in the value of our common
    stock from the fair market value on the date of grant.  Actual gains, if
    any, on stock option exercises are dependent on the future performance of
    our common stock.  The amounts reflected in the table may not be achieved.

   Except as described in "Employment Contracts, Termination of Employment and
Change-in-Control Arrangements", all option shares vest over a four year period
with 25% vesting after 12 months of service and the remaining shares vesting
proportionately on a monthly basis over the subsequent 36 months, except Mr.
Stephen R. Chapin Jr.'s grant had 25% immediate vesting upon grant then it
vested normally for the residual amount of option shares, and Mr. Mark Bryant's
5,000 option share grant and one of Mr. Thomas Stockmeyer's option share grants
of 12,500 shares vested in full upon the grant date.

Aggregated Options Exercises and Fiscal Year-End Values

  The following table provides summary information regarding the value realized
by our Chief Executive Officer and each other Named Executive Officer upon
exercise of stock options during the fiscal year ended December 31, 2000 and the
value of options held by our Chief Executive Officer and each other Named
Executive Officer on December 31, 2000.

<TABLE>
<CAPTION>
                        Number of Shares                         Number of Securities                Value of Unexercised
                           Acquired on                          Underlying Unexercised                  "In-the-Money"
                            Exercise                         Options at December 31, 2000      Options at December 31, 2000(1)
                           ----------                       ------------------------------   ---------------------------------
          Name                           Value Realized     Exercisable     Unexercisable    Exercisable        Unexercisable
------------------------   ----------    --------------     ------------    -------------    -----------        -------------
<S>                       <C>            <C>                <C>             <C>             <C>                <C>
Stephen R. Chapin, Jr.      100,000       $  925,000.00       376,428         525,000        $      -           $      -
Mark F. Bryant               90,104       $3,358,151.49        28,958          60,938        $ 42,687           $121,747
Thomas Stockmeyer                --                  --        27,500          62,250        $      -           $      -
David N. Mahony                  --       $          --        50,781         154,219        $      -           $      -
John A. Chapin                   --       $          --        13,541         117,709        $      -           $      -
</TABLE>

(1) Value for ``in-the-money'' options represents the positive spread between
    the exercise price of outstanding options and the fair market value of $3.50
    per share on December 29, 2000.

                                      40


Employment Contracts, Termination of Employment and Change-in-Control
Arrangements

   In November 1999, the compensation committee of the Board of Directors
approved a fiscal year 2000 bonus of 25% of Stephen Chapin's then-current base
salary if the Company's revenues were to exceed $31 million in fiscal 2000, and
another 25% of his then-current base salary if the company were to have acquired
at least 12 million members by the end of 2000.

   On February 2, 2001, we entered into a Separation Agreement and General
Release with Stephen R. Chapin, Jr., in connection with his resignation as
Chairman, Chief Executive Officer and a Board member of LifeMinders. Under the
Separation Agreement and Release, Mr. Chapin surrendered options to purchase
901,428 shares of our common stock and agreed to be bound by the terms of the
agreement, including, among other things, a mutual release of claims, a 12 month
covenant-not-to-compete and a 12 month non-solicitation agreement. Under the
Separation Agreement and Release we agreed to continue Mr. Chapin's base salary
for 12 months from his resignation date, pay Mr. Chapin in one lump sum an
amount equal to his base salary for six months and pay for continuation of his
health benefits through COBRA for six months from his resignation date.

   On February 2, 2001, we entered into a Separation Agreement and General
Release with John A. Chapin in connection with his resignation as Senior Vice
President and Secretary of LifeMinders. Under the Separation Agreement and
Release, Mr. Chapin surrendered options to purchase 205,262 shares of our common
stock and agreed to be bound by the terms of the agreement, including, among
other things, a mutual release of claims, a six month covenant-not-to-compete
and a six month non-solicitation agreement. Under the Separation Agreement and
Release we agreed to continue Mr. Chapin's base salary for six months from his
resignation date, pay Mr. Chapin in one lump sum an amount equal to his base
salary for two months and pay for continuation of his health benefits through
COBRA for six months from his resignation date.

   On March 20, 2001, we entered into a Separation Agreement and General Release
with Mark Bryant in connection with the termination of his employment with
LifeMinders effective March 31, 2001.  Under the Separation Agreement and
Release, Mr. Bryant agreed to be bound by the terms of the agreement, including,
among other things, a mutual release of claims, a six month covenant-not-to-
compete and a six month non-solicitation agreement.  Under the Separation
Agreement and Release we agreed to pay Mr. Bryant in one lump sum an amount
equal to his base salary for six months and pay for continuation of his health
benefits through COBRA for six months from his resignation date.  We also agreed
to pay Mr. Bryant a commission in an amount equal to three percent of revenues
booked by us for the period January 1, 2001 through March 31, 2001 that are
directly attributable to Mr. Bryant's sales efforts during that period and that
are received from certain named customers.

   If we are acquired in a stockholder-approved transaction, whether by merger
or asset sale (a "Corporate Transaction"), then (i) all of the outstanding
options granted under our 1998 Stock Option Plan, including those held by our
executive officers, will terminate, unless those options are assumed by the
successor company and our repurchase rights with respect to unvested option
shares are assigned to that company and (ii) all of the outstanding options
granted under our 2000 Stock Incentive Plan, including those held by our
executive officers, other than any options which are assumed by the successor
company, shall become immediately exercisable for the lesser of (i) the number
of shares which are unvested and unexercised or (ii) the number of shares equal
to the shares that would have otherwise vested had the optionee provided
services to us for an additional 12 months from the effective date of the
Corporate Transaction. In addition, in the event that options under the 2000
Stock Incentive Plan are assumed and the optionee's employment is subsequently
terminated not for cause within six months following the effective date of the
Corporate Transaction, such optionee's outstanding options shall become
immediately exercisable for the lesser of (i) the number of shares which are
unvested and unexercised or (ii) the number of shares equal to the shares that
would have otherwise vested had the optionee provided services to us for an
additional 12 months from the effective date of the acquisition.

                                      41

   Mr. David Mahony has received four stock option grants. Two grants, for
17,500 shares made in August 2000 and for 48,076 made in January 2001, have the
terms described above. Mr. Mahony received an option grant for 187,500 shares in
November 1999. In addition to the terms described above, 50% of the shares
covered by this grant will become immediately exercisable in the event of a
change in control of LifeMinders. Mr. Mahony also received an option grant for
500,000 shares in March 2001. Under this grant, in the event that these options
are assumed in a Corporate Transaction and Mr. Mahony's employment is
subsequently terminated within 18 months following the effective date of the
Corporate Transaction, all outstanding options under this grant will become
immediately exercisable. Additionally, in the event of a change in control of
LifeMinders caused by an acquisition of 50% of the total combined voting power
of LifeMinders or a change in the composition of the Board of Directors of
LifeMinders, (a) 50% of the shares covered by the grant (less any shares that
vested as a result of Corporate Transaction occurring prior to or concurrently
with the change in control) will become immediately exercisable and (b) in the
event that Mr. Mahony's employment is subsequently terminated within 18 months
following the effective date of the change in control, all outstanding options
under this grant will become immediately exercisable.


Compensation of Directors

     Members of our board of directors do not receive cash compensation for
attendance at board meetings or board committee meetings.  However, our
directors are reimbursed for all reasonable out-of-pocket expenses incurred in
connection with their attendance at board and board committee meetings.

     Pursuant to our 2000 Stock Incentive Plan, each non-employee director may
be automatically granted a non-qualified stock option to purchase 5,000 shares
of our common stock upon such director's initial election to the board of
directors, and an additional option to purchase 1,000 shares of our common stock
on the date of each annual stockholders meeting thereafter, provided that such
person shall have served on the board for at least six months as of the annual
meeting date.  Such options are immediately exercisable with respect to all
shares subject thereto, but are subject to repurchase by us, at the per share
exercise price, if the director ceases to serve on the board prior to vesting in
those shares.  The shares subject to each initial 5,000-share grant vest, and
our repurchase right lapses, in a series of four successive equal annual
installments upon the optionee's completion of each year of service as a board
member over the four-year period measured from the option grant date.  The
shares subject to each annual 1,000-share option grant vest in full upon the
optionee's completion of the one-year period of service measured from the grant
date.

     In addition, from time to time certain directors who are not our employees
have received grants of options to purchase shares of our Common Stock.  During
2000, the Company granted Sunil Paul an option to purchase 20,000 shares of
Common Stock, at an exercise price of $26.00 per share.  Those shares vest over
a four year period with 25% of the shares vesting after 12 months of service and
the remaining shares vesting proportionately on a monthly basis over the
subsequent 36 months.

Compensation Committee Interlocks and Insider Participation

     The compensation committee of our board of directors currently consists of
Messrs. Black and Riechers.  No interlocking relationship exists between any
member of the board or the board's compensation committee and any member of the
board of directors or compensation committee of any other company, and no
interlocking relationship has existed in the past.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The following table sets forth certain information known to us regarding
the beneficial ownership of our common stock as of March 31, 2001 by:

     .  each person or group known by us to own beneficially more than 5% of our
        outstanding common stock;
     .  each Named Executive Officer;
     .  each director; and
     .  all directors and current executive officers as a group.

                                      42


     We have determined beneficial ownership in accordance with the rules of the
Securities and Exchange Commission.  Unless otherwise indicated, the persons
included in the table have sole voting and investment power with respect to all
shares beneficially owned.  Shares of common stock subject to options that are
currently exercisable or are exercisable within 60 days of March 31, 2001 are
treated as outstanding and beneficially owned with respect to the person holding
these options for the purpose of computing the percentage ownership of that
person.  However, these shares are not treated as outstanding for purposes of
computing the percentage ownership of any other person.
<TABLE>
<CAPTION>
                                                                                            Shares
                                                                                         Beneficially
                                                                                            Owned
------------------------------------------------------------------------------------------------------------------------------
                        Name and Address of Beneficial Owner                                Number            Percentage
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>                 <C>
Munder Capital Management                                                                  1,608,300 (1)               6.19%
480 Pierce Street, Suite 300
P.O. Box 3043
Birmingham, MI 48012-3043
------------------------------------------------------------------------------------------------------------------------------
Douglas A. Lindgren                                                                           3,526,685               13.58%
Excelsior Private Equity Fund II, Inc.(2)
114 West 47th Street,
New York, New York 10036
------------------------------------------------------------------------------------------------------------------------------
Philip D. Black                                                                               2,574,035                9.91%
Entities affiliated with ABS Ventures (3)
1 South Street, Suite 2150,
Baltimore, Maryland 21202
------------------------------------------------------------------------------------------------------------------------------
Gene Riechers                                                                                 2,462,967                9.48%
Entities affiliated with FBR Technology Venture Partners, L.P. (4)
1001 19th Street North, 10th Floor,
Arlington, Virginia 22209
------------------------------------------------------------------------------------------------------------------------------
Stephen R. Chapin, Jr. (5)                                                                            0                 *
13530 Dulles Technology Dr., Suite 500
Herndon, VA 20171
------------------------------------------------------------------------------------------------------------------------------
Jonathan B. Bulkeley(6)                                                                         487,268                1.85%
13530 Dulles Technology Dr., Suite 500
Herndon, VA 20171
------------------------------------------------------------------------------------------------------------------------------
Mark F. Bryant (7)                                                                               99,964                 *
13530 Dulles Technology Dr., Suite 500
Herndon, VA 20171
------------------------------------------------------------------------------------------------------------------------------
Thomas Stockmeyer (8)                                                                            47,766                 *
13530 Dulles Technology Dr., Suite 500
Herndon, VA 20171
------------------------------------------------------------------------------------------------------------------------------
David N. Mahony (9)                                                                              88,672                 *
13530 Dulles Technology Dr., Suite 500
Herndon, VA 20171
------------------------------------------------------------------------------------------------------------------------------
John A. Chapin (10)                                                                                   0                 *
13530 Dulles Technology Dr., Suite 500
Herndon, VA 20171
------------------------------------------------------------------------------------------------------------------------------
Allison H. Abraham (11)                                                                         265,104                 *
13530 Dulles Technology Dr., Suite 500
Herndon, VA 20171
------------------------------------------------------------------------------------------------------------------------------
Sunil Paul (12)                                                                                  19,333                 *
13530 Dulles Technology Dr., Suite 500
Herndon, VA 20171
------------------------------------------------------------------------------------------------------------------------------
All directors and executive officers as a group                                               9,666,939               35.85%
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
                                    43

  *  Less than 1% of the outstanding common stock.
(1) Based on a Form 13G filed on February 14, 2001 with the Securities and
Exchange Commission.

(2) Represents shares held of record by Excelsior Private Equity Fund II, Inc.
Mr. Lindgren, one of the Company's directors, is the Chief Investment Officer of
Excelsior Private Equity Fund II, Inc. Mr. Lindgren disclaims beneficial
ownership of these shares except to the extent of his pecuniary interest in
Excelsior Private Equity Fund II, Inc.

(3) Represents (a) 15,653 shares held by Philip D. Black directly, (b) 1,744,015
shares held of record by ABS Ventures LM L.L.C. (which shares were transferred
from Pyramid Ventures, Inc., an affiliate of ABS Ventures LM L.L.C., in
September 1999), the Managing Member of which is Calvert Capital II L.L.C., (c)
625,951 shares held of record by ABS Ventures IV, L.P., the general partner of
which is Calvert Capital L.L.C. and (d) 188,416 shares held of record by ABX
Fund, L.P., the general partner of which is Calvert Capital II L.L.C. Mr. Black,
one of the Company's directors, is a Manager of Calvert Capital L.L.C. and
Calvert Capital II L.L.C. Except for the 15,653 shares held directly by him, Mr.
Black disclaims beneficial ownership of all these shares except to the extent of
his pecuniary interest in the named entities.

(4) Represents (a) 1,995 shares held by Gene Riechers directly and (b) 2,460,972
shares held of record by FBR Technology Venture Partners, L.P., the general
partner of which is FBR Venture Capital Managers, Inc.  Mr. Riechers, one of the
Company's Directors, is the Managing Director of FBR Technology Venture
Partners, L.P.  Mr. Riechers disclaims beneficial ownership of the shares held
of record by FBR Technology Venture Partners, L.P., except to the extent of his
pecuniary interest in FBR Technology Venture Partners, L.P.

(5) Mr. Chapin was the President and Chairman of the Board as of December 31,
2000 and resigned from both positions in January 2001.  As of December 31, 2000,
Mr. Chapin beneficially owned 1,776,764 shares of common stock as to which he
had sole voting and dispositive power, including 376,428 shares issuable upon
the exercise of stock options.  In addition, as of such date 200,000 shares of
common stock were held by The Chapin 2000 GRAT, a grantor retained annuity
trust.  Mr. Chapin may thus have been deemed to beneficially own such shares.
Accordingly, as of December 31, 2000 Mr. Chapin may have been deemed to
beneficially own an aggregate of 1,976,764 shares of common stock, representing
7.6% of the class.  Subsequently, as of January 29, 2001, in connection with Mr.
Chapin's separation from the company, Mr. Chapin surrendered his rights to all
stock options previously granted, and as of February 6, 2001, Mr. Chapin and the
trust sold all of the shares previously held by them.

(6) Represents (a) 102,136 shares owned directly, (b) 367,187 exercisable option
shares and (c) 17,945 option shares exercisable within 60 days of March 31,
2001.

(7) Represents (a) 90,001 exercisable option shares and (b) 9,963 option
shares exercisable within 60 days of March 31, 2001.

(8) Represents (a) 43,514 exercisable option shares and (b) 4,252 option shares
exercisable within 60 days of March 31, 2001.

(9) Represents (a) 1,000 shares owned directly, (b) 77,189 exercisable option
shares and (c) 10,483 option shares exercisable within 60 days of March 31,
2001.

(10) As of January 29, 2001, in connection with Mr. Chapin's separation from the
company, Mr. Chapin surrendered his rights to all stock options previously
granted, and as of January 31, 2001, Mr. Chapin sold all of the shares
previously held by him.

(11) Represents (a) 150,000 exercisable option shares and (b) 115,104 option
shares exercisable within 60 days of March 31, 2001.

(12) Represents (a) 13,500 shares owned directly, (b) 5,000 exercisable option
shares and (c) 833 option shares exercisable within 60 days of March 31, 2001.

                                      44
<PAGE>


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     For the year ended December 31, 2000, there was no transaction or series of
similar transactions to which we were or are to be a party in which the amount
involved exceeded or will exceed $60,000 and in which any of our directors,
executive officers, holder of more than 5% of our common stock or any member of
the immediate family of these persons had or will have a direct or indirect
material interest, other than the employment agreements, compensation agreements
and other arrangements described under the heading "Employment Contracts,
Termination of Employment and Change-in-Control Arrangements" in Item 11 of this
Report, which information is incorporated herein by this reference.  For the
year ended December 31, 2000, no executive officer, director or any relative of
such persons has been indebted to us in an amount in excess of $60,000.


                                      45

<PAGE>


                                    PART IV

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

   (a) The following documents are filed as part of this Form 10-K:

   1. Financial Statements. The following consolidated financial statements of
LifeMinders, Inc. are filed as a part of this Form 10-K on the pages indicated:

<TABLE>
<CAPTION>
                                                                           Page
                                                                           ----
   <S>                                                                     <C>
   Report of Independent Accountants.....................................  F-1
   Consolidated Balance Sheets as of December 31, 2000 and 1999..........  F-2
   Consolidated Statements of Operations for the years ended December 31,
    2000, 1999 and 1998..................................................  F-3
   Consolidated Statements of Changes in Stockholders' Equity (Deficit)
    for years ended December 31, 2000, 1999 and 1998.....................  F-4
   Consolidated Statements of Cash Flows for the years ended December 31,
    2000, 1999 and 1998..................................................  F-5
   Notes to Consolidated Financial Statements............................  F-6
</TABLE>

   2. Financial Statement Schedule. The following financial statement schedule
of LifeMinders, Inc. is filed as a part of this Form 10-K on the pages
indicated:

<TABLE>
   <S>                                                                       <C>
   Report of Independent Accountants on Financial Statement Schedule........ S-1
   Schedule II--Valuation and Qualifying Accounts........................... S-2
</TABLE>

   3. Exhibits required by Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
   Exhibit
     No.                                Description
   -------                              -----------
   <C>     <S>
     3.1   Restated Certificate of Incorporation.*

     3.2   Bylaws.*

     4.1   Second Amended and Restated Registration Rights Agreement, dated as
           of September 23, 1999, among the Company and the Series E
           investors.**

     4.2   Form of Common Stock Certificate***

    10.1   E-Commerce Agreement between the Company and Lycos, Inc. dated as of
           August 25, 1999. (Portions of this exhibit have been omitted
           pursuant to a request for confidential treatment and have been filed
           separately with the Commission)**

    10.2   Office Building Lease Agreement between the Company and Sovran
           Limited Company dated June 11, 1999.**

    10.3   Trustee License Agreement between the Company and Trust Universal
           Standards in Electronic Transactions dated March 12, 1999.**

    10.4   Starter Kit Loan and Security Agreement, as amended, between the
           Company and Imperial Bank dated November 10, 1998.**

    10.5   Employment Agreement between the Company and Stephen R. Chapin, Jr.
           dated November 12, 1997.**

    10.6   Employment Agreement between the Company and John Chapin dated
           November 1, 1997.**

    10.7   Release and Settlement dated July 15, 1999 among the Company, Frans
           Kok and Johan Hekeelar, Inc.**
</TABLE>
                                      46


<PAGE>


<TABLE>

<CAPTION>
   Exhibit
     No.                                Description
   -------                              -----------
   <S>     <C>
    10.8   Consulting Agreement between the Company and Lordhill Company dated
           June 1, 1997, as amended on November 18, 1997, as amended on March
           27, 1998, and as amended on January 29, 1999.**

    10.9   The Company's 1998 Stock Option Plan.**

    10.10  Form of Lock-up Agreement between the Company and Hambrecht & Quist
           LLC, FleetBoston Robertson Stephens Inc., Thomas Weisel Partners LLC
           and PaineWebber Incorporated.**

    10.11  Agreement and Plan of Merger dated March 29, 2000, among the
           Company, WITI Acquisition Corp., the WITI Corporation and the
           stockholders of the WITI Corporation.****

    10.12  The Company's 2000 Stock Incentive Plan.*****

    10.13  The Company's Employee Stock Purchase Plan.*****

    10.14  WITI Corporation 1996 Stock Option Plan.*****

    10.15  Form of Option Assumption Agreement.*****

    10.16  Agreement and Plan of Merger dated August 2, 2000, among the
           Company, SRNI Acquisition Corp., smartRay Networks, Inc. and the
           stockholders of smartRay Networks, Inc., including the First
           Amendment, dated August 31, 2000, to the Agreement and Plan of
           Merger.******

    10.17  smartRay Networks, Inc. Stock Option and Restricted Stock Purchase
           Plan.*******

    10.18  Form of Incentive Stock Option Agreement.*******

    10.19  Form of Stock Option Assumption Plan.*******

    10.20  Lease Agreement, dated May 18, 2000, by and between the Company and
           DTC Associates, LLC.********

    10.21  Employment Agreement between the Company and Allison Abraham dated
           June 23, 2000.*********

    10.22  Separation Agreement and General Release between the Company and
           Stephen R. Chapin, Jr. dated February 2, 2001.*********

    10.23  Separation Agreement and General Release between the Company and
           John A. Chapin dated February 2, 2001.*********

    10.24  Employment Agreement between the Company and Jonathan B. Bulkeley
           dated March 16, 2001.*********

    10.25  Separation Agreement and General Release between the Company and
           Mark Bryant dated March 20, 2001.*********

    10.26  Sublease, dated December 13, 2000, by and between the Company and
           Cisco Systems, Inc.*********

    10.27  Sublease, dated October 31, 2000, by and between the Company and
           NETEX, Inc.*********

    10.28  Credit Agreement, entered into on May 22, 2000, by and between the
           Company and First Union National Bank.*********

    23.1   Consent of PricewaterhouseCoopers LLP, independent accountants
</TABLE>

                                      47



<PAGE>

--------
*        Incorporated by reference to the Company's Registration Statement on
         Form S-1 as filed with the SEC on September 24, 1999. (File No. 333-
         87785).

**       Incorporated by reference to Amendment No. 1 to the Company's
         Registration Statement on Form S-1 as filed with the SEC on October
         29, 1999 (File No. 333-87785).

***      Incorporated by reference to Amendment No. 3 to the Company's
         Registration Statement on Form S-1 as filed with the SEC on November
         17, 1999 (File No. 333-87785).

****     Incorporated by reference to the Company's Current Report on Form 8-K
         as filed with the SEC on April 13, 2000.

*****    Incorporated by reference to the Company's Registration Statement on
         Form S-8 as filed with the SEC on June 27, 2000 (File No. 333-40190).

******   Incorporated by reference to the Company's Current Report on Form 8-K
         filed with the SEC on September 15, 2000.

*******  Incorporated by reference to the Company's registration Statement on
         Form S-8 as filed with the SEC on September 29, 2000 (File No. 333-
         47052).

******** Incorporated by reference to the Company's Quarterly Report on Form
         10-Q for the quarter ended September 30, 2000, as filed with the SEC.

********* Incorporated by reference to the Company's Annual Report on Form 10-K
          for the fiscal year ended December 31, 2000, as filed with the SEC on
          April 2, 2001.

   You may obtain a copy of any of the exhibits to this Annual Report on Form
10-K at no cost by writing to LifeMinders, Inc., attention Corporate Secretary,
13530 Dulles Technology Drive, Herndon, VA, 20170. You can also access these
documents via the Internet through the SEC's EDGAR database, available at the
SEC's web site at www.sec.gov.

   (b) Reports filed on Form 8-K:

   On November 14, 2000, we filed a Current Report on Form 8-K/A, amending a
previously filed Current Report to include certain financial statements
required in connection with our acquisition of SmartRay Network, Inc.

                                       48


<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
LifeMinders, Inc.:

   In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders' equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of LifeMinders, Inc. and its subsidiaries at December 31,
2000 and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

                                          /s/ PricewaterhouseCoopers LLP

McLean, Virginia
March 27, 2001

                                      F-1



<PAGE>

                               LIFEMINDERS, INC.

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

<TABLE>
<CAPTION>
                                                               December 31,
                                                             -----------------
                                                               2000     1999
                                                             --------  -------
<S>                                                          <C>       <C>
                           Assets
Current assets:
  Cash and cash equivalents................................. $ 42,771  $55,524
  Marketable securities, held to maturity...................   19,939    1,968
  Accounts receivable, net of allowance for doubtful
   accounts of $1,678 and $493, respectively................    9,090    6,526
  Prepaid expenses and other current assets.................    6,324    6,770
                                                             --------  -------
    Total current assets....................................   78,124   70,788
  Property and equipment, net...............................   23,806    5,380
  Intangible assets, net....................................    4,159      --
  Restricted cash...........................................    7,700      --
  Other assets..............................................      747      689
                                                             --------  -------
    Total assets............................................ $114,536  $76,857
                                                             ========  =======

            Liabilities and stockholders' equity
Current liabilities:
  Accounts payable.......................................... $  5,411  $ 3,121
  Accrued advertising costs.................................      236    4,300
  Accrued employee costs....................................      766      657
  Accrued expenses..........................................    1,802    1,033
  Deferred revenue..........................................      288      244
  Notes payable.............................................      782       81
  Capital lease obligations.................................    1,370      724
                                                             --------  -------
    Total current liabilities...............................   10,655   10,160
Notes payable, net of current portion.......................      472       74
Capital lease obligations, net of current portion...........      197      906
Deferred rent...............................................       43       40
                                                             --------  -------
    Total liabilities.......................................   11,367   11,180
                                                             --------  -------
Commitments and contingencies
Stockholders' equity:
  Preferred stock, $.01 par value; 9,665,240 shares
   authorized, no shares issued and outstanding.............      --       --
  Common stock, $.01 par value; 60,000,000 shares authorized
   at December 31, 2000 and 1999; 25,932,217 and 20,299,039
   shares issued and outstanding at December 31, 2000 and
   1999, respectively.......................................      259      203
  Additional paid-in capital................................  251,393  104,622
  Deferred compensation on employee stock options...........   (4,904)  (5,077)
  Accumulated deficit....................................... (143,579) (34,071)
                                                             --------  -------
    Total stockholders' equity..............................  103,169   65,677
                                                             --------  -------
    Total liabilities and stockholders' equity.............. $114,536  $76,857
                                                             ========  =======
</TABLE>

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

                                      F-2



<PAGE>

                               LIFEMINDERS, INC.

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

<TABLE>
<CAPTION>
                                            For the year ended December 31,
                                           -----------------------------------
                                              2000         1999        1998
                                           -----------  ----------  ----------
<S>                                        <C>          <C>         <C>
Revenue:
  Advertising............................. $    45,814  $    9,446  $       57
  Opt-in..................................       6,573       4,573         --
  Consulting..............................       1,539         --          --
                                           -----------  ----------  ----------
    Total revenue.........................      53,926      14,019          57
                                           -----------  ----------  ----------
Cost of revenue:
  Cost of revenue (including stock-based
   compensation of $58,
   $-- and $--, respectively).............       6,873         966          60
  Impairment of long-lived assets.........       5,969         --          --
                                           -----------  ----------  ----------
    Total cost of revenue.................      12,842         966          60
                                           -----------  ----------  ----------
Gross margin (loss).......................      41,084      13,053          (3)
                                           -----------  ----------  ----------
Operating expenses:
  Sales and marketing (including stock-
   based compensation of $586, $232 and
   $--, respectively).....................      70,897      38,648         869
  Research and development (including
   stock-based compensation of $668, $139
   and $--, respectively).................       7,758       1,963         374
  General and administrative (including
   stock-based compensation of $418, $254
   and $--, respectively).................      17,274       4,396         718
  Amortization of goodwill................       9,571         --          --
  Depreciation and amortization...........       2,829         185           8
  Impairment of long-lived assets.........      48,017         --          --
                                           -----------  ----------  ----------
    Total operating expenses..............     156,346      45,192       1,969
                                           -----------  ----------  ----------
Loss from operations......................    (115,262)    (32,139)     (1,972)
Interest income, net of interest expense
 of $474, $31 and $--, respectively.......       5,779         529          25
Equity in net losses of investee..........         (25)        --          --
                                           -----------  ----------  ----------
    Net loss..............................    (109,508)    (31,610)     (1,947)
Accretion on mandatorily redeemable
 convertible preferred stock..............         --       (1,155)       (157)
                                           -----------  ----------  ----------
Net loss available to common
 stockholders............................. $  (109,508) $  (32,765) $   (2,104)
                                           ===========  ==========  ==========
Basic and diluted net loss per common
 share.................................... $     (4.59) $    (6.26) $    (0.64)
                                           ===========  ==========  ==========
Weighted average common shares and common
 share equivalents (basic and diluted)....  23,854,850   5,230,826   3,275,000
                                           ===========  ==========  ==========
</TABLE>

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

                                      F-3



<PAGE>

                               LIFEMINDERS, INC.

      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                      ($ in thousands, except share data)

<TABLE>
<CAPTION>
                                                         Deferred
                                                           stock
                            Common Stock    Additional compensation              Treasury stock
                          -----------------  Paid-in    on employee  Accumulated ---------------
                            Shares   Amount  Capital   stock options   deficit   Shares   Amount   Total
                          ---------- ------ ---------- ------------- ----------- -------  ------ ---------
<S>                       <C>        <C>    <C>        <C>           <C>         <C>      <C>    <C>
Balance, December 31,
 1997...................   3,274,998  $ 33   $    364     $   --      $    (514)     --    $--   $    (117)
Acquisition of treasury
 stock..................         --    --         --          --            --    62,500     (1)        (1)
Exercise of stock option
 in connection with the
 preferred stock
 offering...............         --    --          (1)        --            --   (62,500)     1        --
Accretion on mandatorily
 redeemable convertible
 preferred stock........         --    --        (157)        --            --       --     --        (157)
Net loss................         --    --         --          --         (1,947)     --     --      (1,947)
                          ----------  ----   --------     -------     ---------  -------   ----  ---------
Balance, December 31,
 1998...................   3,274,998    33        206         --         (2,461)     --     --      (2,222)
Accretion on mandatorily
 redeemable convertible
 preferred stock........         --    --      (1,155)        --            --       --     --      (1,155)
Exercise of stock
 options................     112,500     1         89         --            --       --     --          90
Issuance of stock
 options in exchange for
 services...............         --    --           9         --            --       --     --           9
Issuance of common
 stock, net of issuance
 costs of $5,905........   4,830,000    48     61,667         --            --       --     --      61,715
Conversion of Series A,
 B, C, D and E preferred
 stock to common stock..  12,081,541   121     38,104         --            --       --     --      38,225
Deferred compensation...         --    --       5,702      (5,702)          --       --     --         --
Amortization of deferred
 compensation...........         --    --                     625           --       --     --         625
Net loss................         --    --         --          --        (31,610)     --     --     (31,610)
                          ----------  ----   --------     -------     ---------  -------   ----  ---------
Balance, December 31,
 1999...................  20,299,039   203    104,622      (5,077)      (34,071)     --     --      65,677
Issuance of common
 stock, net of issuance
 costs of $5,429........   2,767,500    28     85,871         --            --       --     --      85,899
Issuance of common stock
 for business
 acquisitions...........   2,250,523    22     51,619         --            --       --     --      51,641
Fair value of options
 assumed in business
 acquisitions...........         --    --       9,806         --            --       --     --       9,806
Issuance of common stock
 pursuant to employee
 stock purchase plan....      15,019   --         148         --            --       --     --         148
Exercise of stock
 options................     600,136     6      1,016         --            --       --     --       1,022
Deferred compensation
 related to business
 acquisitions...........         --    --         --       (3,246)          --       --     --      (3,246)
Adjustment of deferred
 compensation for
 unvested stock options
 forfeited..............         --    --      (1,689)      1,689           --       --     --         --
Amortization of deferred
 compensation...........         --    --         --        1,730           --       --     --       1,730
Net loss................         --    --         --          --       (109,508)     --     --    (109,508)
                          ----------  ----   --------     -------     ---------  -------   ----  ---------
Balance, December 31,
 2000...................  25,932,217  $259   $251,393     $(4,904)    $(143,579)     --    $--   $ 103,169
                          ==========  ====   ========     =======     =========  =======   ====  =========
</TABLE>

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

                                      F-4



<PAGE>

                               LIFEMINDERS, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                      For the year ended
                                                         December 31,
                                                  ----------------------------
                                                    2000       1999     1998
                                                  ---------  --------  -------
<S>                                               <C>        <C>       <C>
Cash flows from operating activities:
Net loss........................................  $(109,508) $(31,610) $(1,947)
Adjustments to reconcile net loss to net cash
 used in operating activities:
 Impairment of long-lived assets................     53,986       --       --
 Depreciation and amortization..................      6,383       538        8
 Amortization of intangibles and goodwill.......     12,024       --       --
 Provision for doubtful accounts receivable.....      3,816       494      --
 Amortization of deferred compensation on
  employee stock options........................      1,730       625      --
 Equity in net losses of investee and loss on
  disposal of investment........................         64       --       --
 Issuance of common stock and stock options in
  exchange for services.........................        --          9      --
Changes in assets and liabilities, net of
 effects for acquisitions:
 Accounts receivable............................     (6,351)   (7,020)     --
 Prepaid expenses and other current assets......      2,032    (6,769)     --
 Other assets...................................        262      (689)     --
 Accounts payable...............................     (1,637)    3,079       42
 Accrued advertising costs......................     (4,064)    4,300      --
 Accrued bonuses................................        109       657      --
 Accrued expenses...............................        681       953       32
 Deferred revenue...............................       (261)     (112)     355
 Deferred rent..................................          3        40      --
                                                  ---------  --------  -------
   Net cash used in operating activities........    (40,731)  (35,505)  (1,510)
                                                  ---------  --------  -------
Cash flows from investing activities:
Acquisition of property and equipment...........    (23,181)   (4,242)     (50)
Purchase of marketable securities...............    (58,875)   (1,968)     --
Proceeds from maturities of marketable
 securities.....................................     40,904       --       --
Increase in restricted cash related to letters
 of credit......................................     (7,700)      --       --
Investments in unconsolidated entities..........     (5,759)      --       --
Distributions from unconsolidated entities......      1,647       --       --
Payments for business acquisitions, net of cash
 acquired.......................................     (5,466)      --       --
                                                  ---------  --------  -------
   Net cash used in investing activities........    (58,430)   (6,210)     (50)
                                                  ---------  --------  -------
Cash flows from financing activities:
Issuance of preferred stock.....................        --     37,200      --
Preferred stock issuance costs..................        --     (2,153)     --
Proceeds from the exercise of Series B preferred
 stock warrants.................................        --        --     1,000
Borrowings under notes payable..................      1,728       162      --
Payments of notes payable.......................     (1,203)       (7)     --
Repayment of principal on capital lease
 obligations....................................     (1,186)      --       --
Proceeds from issuance of common stock..........     91,328    67,620      --
Common stock issuance costs.....................     (5,429)   (5,905)     --
Proceeds from issuance of common stock under
 ESPP...........................................        148       --       --
Exercise of stock options.......................      1,022        90      --
                                                  ---------  --------  -------
   Net cash provided by financing activities....     86,408    97,007    1,000
                                                  ---------  --------  -------
Net increase (decrease) in cash and cash
 equivalents....................................    (12,753)   55,292     (560)
Cash and cash equivalents, beginning of year....     55,524       232      792
                                                  ---------  --------  -------
Cash and cash equivalents, end of year..........  $  42,771  $ 55,524  $   232
                                                  =========  ========  =======
Supplemental cash flow disclosures and non-cash
 investing and financing activities:
Cash paid for interest..........................  $     469  $     31  $   --
                                                  =========  ========  =======
Issuance of stock options in exchange for
 services.......................................  $     --   $      9  $   --
                                                  =========  ========  =======
Accretion of mandatorily redeemable convertible
 preferred stock................................  $     --   $  1,155  $   157
                                                  =========  ========  =======
Purchase of computer equipment through capital
 lease..........................................  $     999  $  1,630  $   --
                                                  =========  ========  =======
Sale of unconsolidated entity in exchange for a
 note receivable................................  $   1,450  $    --   $   --
                                                  =========  ========  =======
Liabilities assumed in the acquisition of
 businesses.....................................  $   1,667  $    --   $   --
                                                  =========  ========  =======
Issuance of common stock and assumption of stock
 options for business acquisitions..............  $  61,447  $    --   $   --
                                                  =========  ========  =======
</TABLE>

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

                                      F-5



<PAGE>

                               LIFEMINDERS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Business

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

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

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

   During 1998, the Company entered into arrangements with national retailers
to distribute reminder products in software form on disk. In late 1998, the
Company revised its strategy to become an online direct marketing company that
provides personalized content and advertisements via email to a loyal community
of members. Given this significant shift in strategy in late 1998, the
historical financial condition and results of operations prior to 1999 do not
necessarily reflect the Company's business as it is currently being conducted.

   On October 21, 1999, the Board of Directors approved a 5 for 4 common stock
split in connection with the filing of an initial public offering. The
conversion ratio of the mandatorily redeemable convertible preferred stock was
adjusted from a 1 for 1 conversion ratio to a 5 for 4 conversion ratio in
connection with the stock split. The consolidated financial statements of the
Company, including all share and per share data, have been retroactively
restated to reflect the 5 for 4 common stock split for all periods presented.

   On November 19, 1999, the Company completed its initial public offering
issuing 4,830,000 shares of common stock at an initial public offering price of
$14.00 and raised net proceeds of $61,715,000. On February 8, 2000, the Company
completed its follow-on public offering of 2,767,500 shares of common stock at
a price of $33.00 per share and raised net proceeds of $85,899,000.

   In December 2000, in a continued effort to reduce costs and reach
profitability, the Company made the decision not to pursue and develop its
wireless operations. In conjunction with this decision, the Company recorded an
impairment charge of $49,020,000 in the fourth quarter of 2000, of which
$5,969,000 is included as a component of cost of sales. Also in the fourth
quarter of 2000, the Company decided not to pursue and develop the operations
of its consolidated subsidiary PleaseRSVP, resulting in an impairment charge of
$2,653,000. Additionally, an evaluation of the Company's carrying value in its
investments in non-marketable equity securities in the fourth quarter of 2000
indicated that a permanent loss in value of the investments existed. As a
result, the Company recorded a charge of $2,313,000 for a permanent decline in
value of certain non-marketable equity securities.

   The Company believes that existing cash, cash equivalents and available
credit facilities, will be sufficient to meet anticipated cash needs for
working capital, member acquisition expenses, investment or acquisition related
expenditures and capital expenditures for the forseeable future.

2. Summary of Significant Accounting Policies

   The significant accounting policies followed by the Company in the
preparation of these consolidated financial statements are as follows:

                                      F-6



<PAGE>

                               LIFEMINDERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Basis of Presentation

   The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. Investments in which the Company
exercises significant influence, but does not exercise unilateral operating and
financial control are accounted for using the equity method. If the Company
does not have the ability to exercise significant influence over an investee,
the investment is accounted for using the cost method. All significant
intercompany transactions have been eliminated in consolidation.

 Use of Estimates

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

 Cash and Cash Equivalents

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

 Marketable Securities

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

 Accounts Receivable, Net

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

 Property and Equipment

   Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
generally three to five years. When property and equipment are retired or
otherwise disposed of, the cost and related accumulated depreciation are
removed from the accounts and the resulting gain or loss is included in
operations.

 Internal-use Software and Website Development Costs

   Internal use software and web site development costs are capitalized in
accordance with Statement of Position (SOP) No. 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use," and Emerging
Issues Task Force (EITF) Issue No. 00-02, "Accounting for Web Site Development
Costs." Qualifying costs incurred during the application development stage,
which consist primarily of outside services and consultants, are capitalized
and amortized over the estimated useful life of the asset. All other costs are
expensed as incurred. For the year ended December 31, 2000, costs qualifying
for capitalization total $1,465,000 net of amortization of $235,000. No costs
qualified for capitalization in 1999 and 1998. Amortization is computed using
the straight-line method over the estimated useful lives of the assets,
generally three years.

                                      F-7



<PAGE>

                               LIFEMINDERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Intangible Assets

   The cost of business acquisitions accounted for using the purchase method is
allocated first to identifiable assets and liabilities based on estimated fair
values. The excess of cost over identifiable assets and liabilities is recorded
as goodwill. Identifiable intangible assets related to the acquisition of
assembled workforces are amortized on a straight-line basis over one year, the
approximate length of employment contracts. Goodwill, technology, patents and
other identifiable intangible assets are amortized on a straight-line basis
over three years. The carrying amounts of intangible assets and goodwill are
reviewed if facts or changes in circumstances suggest that they may be
impaired. If this review indicates that the carrying amounts of intangible
assets and goodwill will not be recoverable, as determined based on estimated
undiscounted future cash flows of the acquired assets, the carrying amounts of
the intangible assets and goodwill are reduced accordingly based on the
difference between the carrying value and fair market value. Fair market value
is determined using discounted cash flows or other methods. During 2000, the
Company recorded an impairment of certain intangible assets (see Note 3).

 Revenue Recognition

   The Company recognizes revenue when persuasive evidence of an arrangement
exists, terms are fixed or determinable, services are performed or products are
delivered, and collection is probable. During 1998, the Company's revenue was
generated from distribution agreements for software-based products. Revenue
from these agreements was recognized as the services were performed.

   During 2000 and 1999, revenue was generated primarily by delivery of
advertisements within emails to the Company's members and delivery of names to
its opt-in partners.

   During 2000, the Company adopted Staff Accounting Bulletin No. 101 with no
material impact.

 Advertising

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

   Periodically, the Company enters into barter/reciprocal transactions, where
it exchanges advertising space within its emails for reciprocal advertising
space or traffic on other Web sites. Revenue from barter transactions is
recognized in accordance with APB Opinion No. 29, Accounting for Nonmonetary
Transactions (APB No. 29), and EITF Issue No. 99-17, Accounting for Advertising
Barter Transactions, during the period in which the

                                      F-8



<PAGE>

                               LIFEMINDERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

advertisements are displayed in the Company's emails. In the absence of
sufficient evidence of fair value, the acquired assets are recorded at the book
value of the surrendered assets. No gain or loss is recorded from barter
transactions as the revenue recognized equals the advertising costs incurred.
For the years ended December 31, 1999 and 1998, the Company did not enter into
any barter arrangements. For the year ended December 31, 2000, the Company
entered into several barter arrangements for which no revenue or expense was
recognized as sufficient evidence of fair value was indeterminable and the
Company's carrying cost of the surrendered assets was insignificant.

 Opt-in

   Revenue is recognized as affirmative member responses to advertisers'
newsletters and other promotions offered during the Company's sign up process
are delivered to the Company's opt-in partners. The Company derives opt-in
revenue through fees that its opt-in advertising partners pay for member
registrations. The Company records revenue net of estimated duplicate member
responses to its opt-in partners' newsletters and other promotions. Duplicate
member responses are names, generally in the form of email addresses, that the
Company provides to opt-in advertising partners for which the Company's members
have previously registered either through the Company's sign up process or with
the Company's opt-in advertising partners directly. Historically, opt-in
partners have immediately notified the Company of duplicate member responses
upon receipt of member registration information, which is transmitted to opt-in
partners twice a week. The Company issues credits upon notification of
duplicate member responses and, therefore, has not experienced significant
differences between the actual and estimated amounts of duplicate member
responses. Opt-in partners pay a fixed rate per registration and, upon delivery
of the registrations, the Company has no further obligation under the
agreements. The Company does not currently anticipate any significant change in
the nature of the fees it charges its opt-in partners or in its customer base
and believes its historical experience with its opt-in product is predictive of
future estimates. For the years ended December 31, 2000 and 1999, revenue was
recorded net of $913,000 and $618,000, respectively, for estimated duplicate
member responses to the Company's opt-in partners' newsletters and other
promotions.

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

 Consulting Revenue

   Consulting revenue consists of revenue earned under a contract relating to
services for the development of weather related content. Under this contract,
which was completed in 2000, the Company provided consulting services for
customization and modification of our customer's current software systems.
Revenue was recognized under the percentage-of-completion method of accounting,
based on the ratio of costs incurred to total estimated costs. The percentage-
of-completion method is deemed the most appropriate method of revenue
recognition as the Company is generally entitled to payment for work performed
to date even though it may not coincide with a specific billing milestone. The
billing milestones are considered to be interim billing points for the purposes
of providing funding to the Company for its efforts and not true output
measures of the Company's progress to completion. Additionally, the ratio of
costs incurred to total estimated costs has a direct relationship to the
performance of services specified in the arrangement due to the types of costs
that are incurred. Costs incurred relating to performance of the services
specified in the arrangement consist primarily of costs for consulting services
and payroll relating to individuals performing the software modification and
customization procedures. The consultant and payroll costs incurred directly
coincide with the input of effort into the modification and customization
process. Direct material costs on this project were insignificant. Project-
related overhead costs included within the calculation of the percentage
complete are consistent with industry practice and there are no significant up-
front costs charged to the contract. Cash received in advance of services to be
provided was recorded as deferred revenue and recognized upon the completion of
the related services.

                                      F-9



<PAGE>

                               LIFEMINDERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Concentration of Credit Risk

   Financial instruments that potentially subject the Company to concentration
of credit risk consist of cash and cash equivalents, marketable securities and
accounts receivable.

   The Company's cash and cash equivalents are maintained at five U.S.
financial institutions. Deposits held with banks may exceed the amount of
insurance provided on such deposits. The majority of the Company's cash
equivalents are invested in short-term commercial paper.

   Approximately 88% of the revenue for the year ended December 31, 1998 were
concentrated with one customer. No one customer exceeded 10% of the Company's
revenue or accounts receivable at December 31, 2000 and 1999 and for the years
then ended.

 Advertising Costs

   Advertising costs are charged to sales and marketing expense as the
contractual terms of the advertising contracts are fulfilled. Cash paid in
advance of advertising services received is recorded as prepaid expenses that
are amortized as services are received. Advertising costs for the years ended
December 31, 1998 were insignificant. Advertising costs for the years ended
December 31, 2000 and 1999 were $49,491,000 and $33,906,000, respectively. At
December 31, 2000 and 1999, $1,917,000 and $6,312,000, respectively, of prepaid
advertising expense is included in prepaid expenses and other current assets.

 Research and Development Costs

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

 Income Taxes

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

 Stock-Based Compensation

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

                                      F-10



<PAGE>

                               LIFEMINDERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The Company measures compensation expense for its non-employee stock-based
compensation awards in accordance with SFAS No. 123 and EITF 96-18, "Accounting
for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
or in Conjunction with Selling Goods or Services." The fair value of the
options and warrants issued is used to measure the transaction when it is more
reliable than the fair value of the services received. The fair value is
measured on the date that the commitment for performance by the counterparty
has been reached or the counterparty's performance is complete. The fair value
of the equity instrument is charged directly to compensation expense and
additional paid-in capital. No options or warrants have been issued to non-
employees during the years ended December 31, 2000, 1999 and 1998.

   The Company follows FASB Interpretation No. 44 (FIN 44), "Accounting for
Certain Transactions Involving Stock Compensation--an Interpretation of APB
Opinion No. 25," to account for exchanges of stock options and awards in
purchase business combinations. Accordingly, the fair value of vested stock
options and awards issued in exchange for vested stock options and awards of
the acquiree is included as part of the purchase price. The fair value of
unvested options or awards issued in exchange for unvested options and awards
of the acquiree are accounted for as part of the purchase price, and an amount
equal to the portion of the intrinsic value of the unvested options or award
related to future vesting is allocated to deferred compensation and recognized
over the remaining vesting period.

 Impairment of Long-Lived Assets

   The Company evaluates the carrying amounts of long-lived assets when facts
or changes in circumstances suggest that they may be impaired. If this review
indicates that the carrying amounts of long-lived assets will not be
recoverable, as determined based on estimated undiscounted future cash flows of
the acquired assets, the Company will measure the amount of such impairment
based on the present value of estimated future cash flows using a discount rate
commensurate with the risks involved or other methods. During 2000, the Company
recorded an impairment of certain long-lived assets (see Note 3).

 Basic and Diluted Net Loss Per Common Share

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

 Certain Risks and Uncertainties

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

 Segment Reporting

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

                                      F-11



<PAGE>

                               LIFEMINDERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 Comprehensive Income

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

 Reclassifications

   Certain reclassifications have been made to conform prior years' financial
statements to the current presentation. These reclassifications had no effect
on reported earnings.

 Recent Accounting Pronouncements

   In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
which delays the effective date of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which will be effective for the Company's
fiscal year 2001. This statement establishes accounting and reporting standards
requiring that every derivative instrument, including certain derivative
instruments embedded in other contracts, be recorded in the balance sheet as
either an asset or liability measured at its fair value. The statement also
requires that changes in the derivative's fair value be recognized in earnings
unless specific hedge accounting criteria are met. In June 2000, FASB issued
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities--An Amendment of FAS 133," further amending SFAS No. 133.
The Company has not entered into derivative contracts and does not have plans
to enter into such contracts, accordingly the adoption of SFAS Nos. 133, 137
and 138 is not expected to have a material effect on the consolidated financial
statements.

3. Impairment of Long-Lived Assets

 Wireless Segment

   As part of the development of the Company's wireless business strategy, the
Company acquired WITI and smartRay in the first and third quarters of 2000,
respectively. In December 2000, in a continued effort to reduce costs and reach
profitability, the Company made the decision not to pursue and develop its
wireless operations. As a result, during the fourth quarter of 2000, the
Company determined the future undiscounted cash flows of these assets exceeded
the carrying value as of December 31, 2000, and recorded an impairment charge
of approximately $49,020,000 based on the discounted cash flows to be generated
from these assets. Of this impairment charge, approximately $5,969,000 has been
included as a component of cost of sales.

   In the fourth quarter of 2000, the Company evaluated the wireless segment's
historical operating performance and expected results of operations. Due to
changes in market conditions and a change in the Company's assessment of the
wireless segment's ability to generate revenues and profits, the decision was
made not to pursue and develop the Company's wireless operations and renew the
Companies' focus on its core advertising business. The estimated fair values of
wireless segment assets were determined based on a discounted cash flow
analysis.

   The major components of the wireless segment impairment charge are as
follows (in thousands):

<TABLE>
     <S>                                                                 <C>
     Fixed assets....................................................... $   617
     Technology.........................................................   5,969
     Assembled workforce................................................     578
     Other identifiable intangible assets...............................   1,895
     Goodwill...........................................................  39,961
                                                                         -------
         Total impairment charge related to the wireless segment........ $49,020
                                                                         =======
</TABLE>

                                      F-12



<PAGE>

                               LIFEMINDERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


 PleaseRSVP Acquisition

   In the fourth quarter of 2000, the Company decided not to pursue and develop
the operations of its consolidated subsidiary PleaseRSVP, resulting in an
impairment charge of $2,653,000 primarily related to the write-off of goodwill
associated with a business acquisition completed in the first quarter of 2000.
The Company's decision not to pursue and develop this investment was based on
the evaluation of PleaseRSVP's historical operating performance and expected
future operating results. The fair value of the impaired assets was determined
based on a discounted cash flow analysis. Prior to abandonment, PleaseRSVP
revenues and expenses were reported as part of the advertising segment.

 Non-marketable Equity Securities

   The Company periodically evaluates the carrying value of its investments in
non-marketable equity securities to determine if a loss in value of the
investments, which would be considered a permanent decline, should be
recognized. During the fourth quarter of 2000, based on the Company's
evaluation of the operating losses of its investees, changes in market
conditions and other relevant factors, the Company recorded a charge of
$2,313,000 for a permanent decline in value of certain non-marketable equity
securities.

4. Marketable Securities

   At December 31, 2000 and 1999, all marketable debt securities were
classified as held-to-maturity and carried at amortized cost, which
approximates their fair value. Investments consisted of the following (in
thousands):

<TABLE>
<CAPTION>
                                                                  December 31,
                                                                 --------------
                                                                  2000    1999
                                                                 ------- ------
     <S>                                                         <C>     <C>
     Commercial paper........................................... $11,939 $1,968
     U.S. Government securities.................................   8,000    --
                                                                 ------- ------
       Total.................................................... $19,939 $1,968
                                                                 ======= ======
</TABLE>

5. Property and Equipment

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

<TABLE>
<CAPTION>
                                                                 December 31,
                                                                ---------------
                                                                 2000     1999
                                                                -------  ------
     <S>                                                        <C>      <C>
     Furniture and fixtures.................................... $ 2,226  $  485
     Computer equipment and software...........................  24,856   4,918
     Leasehold improvements....................................   3,643     523
                                                                -------  ------
                                                                 30,725   5,926
     Less: accumulated depreciation............................  (6,919)   (546)
                                                                -------  ------
     Property and equipment, net............................... $23,806  $5,380
                                                                =======  ======
</TABLE>

6. Borrowings

 Line of Credit

   On August 19, 1999, the Company amended an existing $1,000,000 line of
credit to be increased to $1,350,000, which included $1,000,000 for working
capital expenditures, $250,000 for a business credit line,

                                      F-13



<PAGE>

                               LIFEMINDERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

and a $100,000 letter of credit for leased office space. The interest rate on
the line was the bank's prime rate plus 1.0% per annum (9.50% at December 31,
1999). The line of credit was collateralized by substantially all the Company's
assets, including intangible assets and future proceeds from the sale of such
assets. On November 19, 1999, the Company increased the line of credit to
$4,000,000, which included $3,650,000 for working capital expenditures,
$250,000 for a business credit line and a $100,000 letter of credit. The
amended line expired on November 17, 2000 and was not renewed. No borrowings
were outstanding under the line of credit as of December 31, 2000 and 1999.

 Notes Payable

   On March 3, 1999, the Company entered into a $200,000 promissory note for
the purpose of equipment and software purchases and working capital. The
Company could draw on the note through November 10, 1999. Interest during the
draw period was due monthly beginning December 10, 1999 at an annual interest
rate of 9.5%. On November 10, 1999, the outstanding principal balance of the
borrowings during the draw period was converted to a term note bearing interest
at 10.5% and payable in 24 equal monthly principal payments, which commenced on
December 10, 1999. All remaining principal and accrued but unpaid interest is
due upon maturity on November 9, 2001. The promissory note is collateralized
under the same terms of the line of credit discussed earlier and includes
financial and other covenants, including a requirement to maintain a minimum
monthly quick ratio of 1.25 to 1. At December 31, 2000 and 1999, $74,000 and
$155,000, respectively, was outstanding under this agreement. Interest expense
incurred on the term note was $13,000 and $12,000 for the years ended December
31, 2000 and 1999, respectively.

   On November 19, 1999, the Company entered into a $2,000,000 promissory note
for the purpose of equipment and software purchases and general working
capital. The Company could draw from the note through August 19, 2000 (draw
period). Interest during the draw period was due monthly beginning December 19,
1999 at an annual interest rate of the bank's prime rate plus 0.5%. On August
20, 2000, the outstanding principal balance was rolled into a term loan bearing
interest at 10% and payable monthly in 24 equal principal payments beginning
September 19, 2000. All remaining principal and accrued but unpaid interest is
due on maturity of August 19, 2002. The promissory note is collateralized by
the Company's accounts with the bank including checking, savings, or other
accounts and future accounts. At December 31, 2000 and 1999, $1,180,000 and $0,
respectively, was outstanding under the note. Interest expense incurred on the
term note was $133,000 and $0 for the years ended December 31, 2000 and 1999,
respectively.

   In connection with the acquisition of WITI, the Company assumed debt
incurred by WITI of approximately $573,000. Under the terms of the debt,
interest was paid on a quarterly basis at an annual rate of 9% until such time
as the principal was repaid. The Company repaid the note in full, with accrued
interest thereon, during 2000 for a total of $609,000 and subsequently retired
the debt.

7. Mandatorily Redeemable Convertible Preferred Stock and Stockholders' Equity
(Deficit)

 Common Stock

   In June 1998, the Company repurchased 62,500 shares of common stock at $0.01
per share from the founders of the Company. These treasury shares were re-
issued as result of one non-employee exercising a stock option granted during
1997 in the Series A mandatorily redeemable convertible preferred stock
issuance. The total exercise price was $1.00.

   On November 19, 1999, the Company sold 4,830,000 shares of common stock at
an initial offering price of $14.00 and raised net proceeds of $61,715,000.

                                      F-14



<PAGE>

                               LIFEMINDERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   On February 8, 2000, the Company completed its follow-on public offering of
2,767,500 shares of common stock at a price of $33.00 per share and raised net
proceeds of $85,899,000.

 Mandatorily Redeemable Convertible Preferred Stock

   As of December 31, 1998, the Company had authorized two classes of
mandatorily redeemable convertible preferred stock: Series A and Series B. The
Company issued 1,000,000 shares of Series A mandatorily redeemable convertible
preferred stock on November 12, 1997 for $1.00 per share. In conjunction with
this preferred stock sale, the Company issued warrants to purchase 1,000,000
shares of Series B mandatorily redeemable convertible preferred stock at $1.00
per share with an estimated fair value of $51 determined using the American
Black-Scholes Model. On June 17, 1998, the Company issued 1,000,000 shares of
Series B preferred stock at $1.00 per share for total proceeds of $1,000,000
resulting from the exercise of the Series B preferred stock warrants granted in
1997.

   On January 29, 1999, the Company issued 2,620,373 shares of Series C
convertible preferred stock at an approximate price of $1.53 per share and
total proceeds of $4,000,000.

   On May 28, 1999, the Company Amended and Restated its Articles of
Incorporation to authorize 2,252,874 shares of Series D mandatorily redeemable
convertible preferred stock and issued 2,252,874 shares of Series D convertible
preferred stock at an approximate price of $4.71 per share and total proceeds
of $10,600,000.

   On September 22, 1999, the Company amended and restated its Articles of
Incorporation to authorize 2,791,993 shares of Series E mandatorily redeemable
convertible preferred stock. On September 23, 1999, the Company issued
2,791,993 shares of Series E mandatorily redeemable convertible preferred stock
at an approximate price of $8.09 per share for total proceeds of approximately
$22,600,000.

   All series of mandatorily redeemable convertible preferred stock had the
same redemption date and rights. The redemption price was equal to the original
issuance price, plus all accrued but unpaid dividends. For the years ended
December 31, 1999 and 1998, the preferred stock carrying value was accreted to
increase the carrying value for cumulative dividends and a portion of direct
issuance costs. All series of mandatorily redeemable convertible preferred
stock had cumulative preferred dividends of $0.08 per share annually.

   On November 19, 1999, concurrent with the Company's initial public offering,
the Company converted all outstanding shares of Series A, B, C, D and E
preferred stock into its common stock. At December 31, 1998 the conversion
ratio was 1 to 1. During 1999, the conversion ratio was adjusted to 5 for 4,
giving effect to the October 21, 1999 common stock split.

 Stock Option Plans for Employees and Non-employees

   During 1998, the Company adopted the 1998 Stock Option Plan (the 1998 Plan),
under which incentive stock options and non-statutory stock options may be
granted to employees, directors and consultants of the Company. The 1998 Plan
is administered by a committee appointed by the Board of Directors. The options
are not transferable and are subject to various restrictions outlined in the
1998 Plan. The committee determines the number of options granted to employees,
directors, or consultants, the vesting period and the exercise price. The
exercise price for stock options granted shall not be less than the fair value
per share of common stock on the date of such grant for incentive stock options
and not less than 85% of the fair value per share of common stock on the date
of such grant for non-statutory stock options.

                                      F-15



<PAGE>

                               LIFEMINDERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The Board of Directors had originally reserved 776,250 shares of common
stock to grant options under the 1998 Plan. Options granted under the 1998 Plan
vest over a four-year period and expire ten years after the grant date. In the
January 29, 1999 and May 28, 1999 Amendments to the Articles of Incorporation,
the number of common stock shares reserved under the 1998 Plan was increased to
1,420,070 and 2,045,070 shares, respectively. The reserved shares were further
increased by 875,000 shares effective September 22, 1999 resulting in a total
of 2,920,070 shares of common stock available and reserved for issuance under
the 1998 Plan.

   On May 4, 2000, the Company adopted the 2000 Stock Incentive Plan (the 2000
Plan), under which incentive stock options and non-statutory stock options may
be granted to employees, directors and consultants of the Company. The 2000
Plan is administered by a committee appointed by the Board of Directors. The
options are not transferable and are subject to various restrictions outlined
in the 2000 Plan. The committee determines the number of options granted to
employees, directors, or consultants, the vesting period and the exercise
price. The exercise price for stock options granted shall not be less than the
fair value per share of common stock on the date of such grant for incentive
stock options and not less than 85% of the fair value per share of common stock
on the date of such grant for non-statutory stock options. The 4,600,000 shares
of common stock initially authorized for issuance under the 2000 Plan consist
of 1) the number of shares available for issuance under the preceding 1998
Plan, including the shares subject to outstanding options, and 2) an additional
increase of 1,700,000 shares. The number of shares of common stock available
under the 2000 Plan shall automatically increase on the 1st day of January each
calendar year during the term of the 2000 Plan, beginning with calendar year
2001, by an amount equal to 4% of the total number of shares of common stock
outstanding on the last trading day in December of the immediately preceding
calendar year, but in no event shall such annual increase exceed 1,500,000
shares.

   During July 2000, the Company adopted the Supplemental Stock Incentive Plan
(the Supplemental Plan), under which incentive stock options and non-statutory
options may be granted to employees. The Supplemental Plan is administered by a
committee appointed by the Board of Directors. The options are not transferable
and are subject to various restrictions outlined in the Supplemental Plan. The
committee determines the number of options granted to employees, the vesting
period and the exercise price. The exercise price for stock options granted
shall not be less than the fair value per share of common stock on the date of
such grant for incentive stock options and not less than 85% of the fair value
per share of common stock on the date of such grant for non-statutory stock
options. At December 31, 2000 the Company had reserved 750,000 common shares
for issuance under the Supplemental Plan.

 Assumed Stock Plans

   As a result of the Company's acquisition of WITI in March 2000, the Company
assumed the outstanding options under the WITI Stock Option Plan (the WITI
Plan) and recorded $2,488,000 as part of purchase price related thereto. The
WITI Plan provides for grants of either incentive or non-statutory stock
options to eligible employees and consultants. The term of each option was not
to exceed a period of ten years from the grant date and each option generally
vested over two to five years. At December 31, 2000, the Company had reserved
20,210 common shares for issuance under the WITI Plan. No additional grants
will be made under the WITI Plan.

   As a result of the Company's acquisition of smartRay in August 2000, the
Company assumed the outstanding options under the smartRay Stock Option and
Restricted Stock Purchase Plan (the smartRay Plan) and recorded $2,624,000 as
an addition to deferred compensation and $4,236,000 as part of purchase price
related thereto. The smartRay Plan provides for grants of either incentive or
non-statutory stock options to

                                      F-16



<PAGE>

                               LIFEMINDERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

eligible employees, directors and consultants. Stock purchase rights could also
have been granted under the smartRay Plan. Incentive stock options could only
have been granted to employees. The term of each option was not to exceed a
period of five years from the grant date and each option generally vests over
three years. Certain option agreements contained provisions for accelerated
vesting based on performance or change in control of smartRay. At December 31,
2000, the Company had reserved 189,373 common shares for issuance under the
smartRay Plan. No additional grants will be made under the smartRay Plan.

   As a result of the Company's acquisition of eCoupons in December 2000, the
Company assumed the outstanding options under the eCoupons Stock Option Plan
(the eCoupons Plan) and recorded $622,000 as an addition to deferred
compensation and $332,000 as part of the purchase price related thereto. The
eCoupons Plan provides for grants of either incentive or non-statutory stock
options to eligible employees and consultants. The term of each option was not
to exceed a period of 10 years from the grant date and each option generally
vested over 4 years. At December 31, 2000, the Company had reserved 110,241
common shares for issuance under the eCoupons Plan. No additional grants will
be made under the eCoupons Plan.

 Employee Stock Purchase Plan

   In May 2000, the Company adopted the 2000 Employee Stock Purchase Plan (the
ESPP). The ESPP permits eligible employees to purchase common shares through
payroll deductions of up to 10% of their compensation in any year. The price of
common shares purchased under the ESPP will be 85% of the lower of the fair
market value of the Company's commons shares on the first or last day of each
offering period. A total of 250,000 shares are available for grant under the
ESPP; 15,019 common shares were issued under the ESPP through December 31,
2000.

   Option activity under the Company Plans, excluding employee stock purchase
plans, was as follows:

<TABLE>
<CAPTION>
                                                      Outstanding     Weighted
                                                       Number of      Average
                                                        Options    Exercise Price
                                                      -----------  --------------
     <S>                                              <C>          <C>
     December 31, 1997...............................        --        $  --
     Grants..........................................    469,000         0.80
     Exercises.......................................        --           --
     Cancellations...................................    (15,625)        0.80
                                                      ----------       ------
     December 31, 1998...............................    453,375         0.80
     Grants..........................................  2,971,684         7.15
     Exercises.......................................   (112,500)        0.80
     Cancellations...................................   (624,382)        1.99
                                                      ----------       ------
     December 31, 1999...............................  2,688,177         7.55
     Grants..........................................  3,498,307        20.22
     Exercises.......................................   (600,136)        1.53
     Cancellations................................... (1,151,911)       16.02
                                                      ----------       ------
     December 31, 2000...............................  4,434,437       $16.05
                                                      ==========       ======
</TABLE>

   As of December 31, 2000 and 1999, stock options were exercisable for
1,067,440 and 392,883 common shares, respectively.

                                      F-17



<PAGE>

                               LIFEMINDERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following table summarizes information about stock options outstanding
at December 31, 2000:

<TABLE>
<CAPTION>
                                     Options Outstanding                Options Exercisable
                          ------------------------------------------ --------------------------
                          Weighted Average               Weighted                   Weighted
                             Remaining       Number    Average Price   Number       Average
Range of Exercise Prices  Contractual Life Outstanding  Per Option   Exercisable Exercise Price
------------------------  ---------------- ----------- ------------- ----------- --------------
<S>                       <C>              <C>         <C>           <C>         <C>
$ 0.54--$ 3.86..........        8.6           907,248     $ 2.67       236,751       $ 2.56
$ 4.83--$10.40..........        9.0           612,599     $ 9.08       154,807       $ 9.13
$14.00--$18.75..........        9.5         1,608,721     $17.52       464,969       $16.31
$21.38--$26.00..........        9.3         1,131,669     $25.87       173,288       $25.80
$30.38--$35.50..........        9.2           174,200     $32.77        37,625       $34.63
</TABLE>

   Management estimated that the exercise price of stock options granted prior
to December 31, 1998 have been either equal to or in excess of the estimated
fair value of the underlying common stock and therefore no compensation expense
was recognized. During 1999 and prior to the Initial Public Offering, the
Company has estimated the fair value of the underlying common stock on the date
of grant was, in some instances, in excess of the exercise price for the
options granted during the year ended December 31, 1999. As a result, the
Company recorded deferred compensation of $5,702,000 for the year ended
December 31, 1999. This amount was recorded as a reduction to stockholders'
equity (deficit) and is being amortized as a charge to operations over the
vesting period of the stock options. During 2000, the Company recorded
additional deferred compensation of $3,246,000 related to options assumed in
business combinations and reduced deferred compensation by $1,689,000 for
unvested, forfeited stock options. For the years ended December 31, 1999 and
2000, the Company recognized $625,000 and $1,730,000 of employee stock
compensation expense related to these options.

   Pro forma information regarding net loss per share is required by SFAS No.
123 for awards granted as if the Company had accounted for its stock-based
awards to employees under the fair value method of SFAS No. 123. The fair value
of the Company's stock-based awards to employees was estimated as of the date
of grant using a Black-Scholes option-pricing model. The Black-Scholes option
pricing model was developed for use in estimating the fair value of traded
options, which have no vesting restrictions and are fully transferable. In
addition, the Black-Scholes model requires the input of highly subjective
assumptions including the expected stock price volatility. Because the
Company's stock-based awards to employees have characteristics significantly
different from those of traded options, and because changes in the subjective
input 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 stock-based awards to employees. The
fair value of the Company's stock-based awards to employees was estimated
assuming no expected dividends and the following weighted-average assumptions:

<TABLE>
<CAPTION>
                                                            Options
                                                         ----------------  ESPP
                                                         2000  1999  1998  2000
                                                         ----  ----  ----  ----
   <S>                                                   <C>   <C>   <C>   <C>
   Expected life (months)...............................   36    30    30     6
   Expected volatility..................................  200%  207%    0%  200%
   Risk-free interest rate.............................. 6.22% 5.72% 5.72% 5.97%
</TABLE>

                                      F-18



<PAGE>

                               LIFEMINDERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   For pro forma purposes, the estimated fair value of the Company's stock-
based awards to employees is amortized over the options' vesting period (for
options) and the six-month purchase period (for stock purchases under the
ESPP). The Company's pro forma net income and net income per share for 2000,
1999 and 1998 is as follows (in thousands except for net income per share):

<TABLE>
<CAPTION>
                                                    2000       1999     1998
                                                  ---------  --------  -------
   <S>                                            <C>        <C>       <C>
   Net loss:
     As reported................................. $(109,508) $(31,610) $(1,947)
     Pro forma................................... $(119,490) $(32,214) $(1,956)
   Basic and diluted net loss per common share:
     As reported................................. $   (4.59) $  (6.26) $ (0.64)
     Pro forma................................... $   (5.01) $  (6.38) $ (0.65)
</TABLE>

8. Income Taxes

   The provision (benefit) for income taxes consists of the following (in
thousands):

<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                                                      -------------------------
                                                        2000      1999    1998
                                                      --------  --------  -----
   <S>                                                <C>       <C>       <C>
   Current provision................................. $    --   $    --   $ --
   Deferred benefit..................................  (19,967)  (11,864)  (638)
                                                      --------  --------  -----
                                                       (19,967)  (11,864)  (638)
   Change in valuation allowance.....................   19,967    11,864    638
                                                      --------  --------  -----
   Total provision for income taxes.................. $    --   $    --   $ --
                                                      ========  ========  =====
</TABLE>

   Deferred income taxes as of December 31, 2000 and 1999, reflect the impact
of temporary differences between carrying amounts of assets and liabilities for
financial reporting purposes and such amounts for income tax purposes. The tax
effects of temporary differences that give rise to significant portions of the
net deferred tax assets (liabilities) are as follows:

<TABLE>
<CAPTION>
                                                               December 31,
                                                             ------------------
                                                               2000      1999
                                                             --------  --------
   <S>                                                       <C>       <C>
   NOL carryforwards........................................ $ 31,644  $ 10,657
   Allowances and reserves..................................      775       188
   Depreciation and amortization............................     (710)        1
   Accrued expenses and other...............................      914     1,810
                                                             --------  --------
     Total..................................................   32,623    12,656
     Less--valuation allowance..............................  (32,623)  (12,656)
                                                             --------  --------
   Net deferred tax asset................................... $    --   $    --
                                                             ========  ========
</TABLE>

   A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Management
believes it is more likely than not that the Company will not have sufficient
taxable income in the years over which the majority of temporary differences
will reverse to realize the deferred tax assets. As a result, the Company has
recorded a full valuation allowance in the accompanying financial statements as
of December 31, 2000 and 1999.

                                      F-19



<PAGE>

                               LIFEMINDERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The difference between the Federal income tax and the amount computed
applying the statutory Federal income tax rate for the years ended December 31,
2000, 1999 and 1998, is summarized as follows:

<TABLE>
<CAPTION>
                                                    Year Ended December
                                                            31,
                                                    ------------------------
                                                     2000     1999     1998
                                                    ------   ------   ------
   <S>                                              <C>      <C>      <C>
   Federal income tax (benefit) at statutory
    rates.......................................... (34.00)% (34.00)% (34.00)%
   State income tax (benefit) at statutory rates
    (net of Federal benefit).......................  (3.96)%  (3.96)%  (3.96)%
   Increase in valuation allowance related to net
    deferred tax assets............................  18.23%   37.53%   32.77%
   Goodwill and other non-deductible items.........  19.73%    0.43%    5.19%
                                                    ------   ------   ------
   Effective income tax rate.......................    -- %     -- %     -- %
                                                    ======   ======   ======
</TABLE>

   The Company's net operating loss carryforwards of approximately $83,300,000,
$28,074,000 and $1,922,000 at December 31, 2000, 1999 and 1998, respectively,
begin expiring in 2017. However, in accordance with the provisions of Internal
Revenue Code Section 382, the use of a portion of the Company's total operating
loss carryforwards may be limited.

9. Leases

   The Company has lease agreements for office space in Herndon, Virginia, with
initial terms ranging from one to ten years. Annual lease payments of
$3,714,000 escalate annually by approximately 3%. At December 31, 2000, the
Company maintained two letters of credit totaling $7,700,000 in connection with
two of the lease agreements. Both letters of credit are fully collateralized by
cash, which is recorded as Restricted Cash in the accompanying consolidated
financial statements. In November 2000, the Company sublet certain office space
to an unrelated party under a four-year lease agreement. Rent expense was
$511,000 (net of sublease income of $122,000), $178,000 and $38,000 for the
years ended December 31, 2000, 1999 and 1998, respectively.

   In July 2000, the Company entered into a collocation agreement for the
housing, security and maintenance of its production and data warehouse computer
servers. The contract totals $2,870,000 and has a term of 12 months.

   The Company financed certain purchases of server and other equipment
totaling $2,629,000 under capital lease agreements. The agreements have 24-
month terms and expire at various dates through July 2002. Upon expiration of
each lease, the Company has the option to purchase the leased equipment for $1;
as such, the agreements are accounted for as capital leases.

                                      F-20



<PAGE>

                               LIFEMINDERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Future minimum lease payments and sublease income under non-cancelable
operating and capital leases as of December 31, 2000 are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                          Operating  Operating
                                                Capital     Lease    Sublease
                                                Leases   Commitments  Income
                                                -------  ----------- ---------
   <S>                                          <C>      <C>         <C>
   2001........................................ $ 1,557    $ 7,664    $(1,241)
   2002........................................     242      4,853     (1,364)
   2003........................................     --       3,954     (1,405)
   2004........................................     --       3,990       (304)
   2005........................................     --       3,940        --
   2006 and thereafter.........................     --      22,027        --
                                                -------    -------    -------
   Total minimum lease payments................   1,799    $46,428    $(4,314)
                                                           =======    =======
     Less: amount representing interest........    (232)
     Less: current portion.....................  (1,370)
                                                -------
   Long-term portion of capital lease
    obligation................................. $   197
                                                =======
</TABLE>

10. Commitments

   In August 2000, the Company entered into an agreement for future
distribution services valued at $3,500,000 of which it paid $2,500,000.
Subsequent to December 31, 2000, the contract was terminated and the Company is
no longer obligated to pay the remaining $1,000,000 of the original contract
amount.

   In connection with its office lease, the Company entered into commitments to
build out its office space. Of the total contract price of $5,408,000, the
Company has paid approximately $3,200,000 as of December 31, 2000. The
remaining amount is expected to be paid in the first quarter of 2001.

11. Related Party Transactions

   During 1999 and 1998, the Company incurred $84,000 and $84,000,
respectively, in contractor expenses from a company in which a shareholder of
the Company is also the President of the company that provided the services.

   During 1999 and 1998, the Company incurred $203,000 and $18,000,
respectively, in consulting expenses from a company in which a shareholder of
the Company is also the President of the company that provided the services.
During 1999, the Company paid $150,000 to terminate the consulting agreement.

   The Company did not engage in any related party transactions in 2000.

12. Basic and Diluted Loss per Common Share

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

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

<TABLE>
<CAPTION>
                                               Year ended December 31,
                                          -----------------------------------
                                             2000         1999        1998
                                          -----------  ----------  ----------
   <S>                                    <C>          <C>         <C>
   Net loss available to common
    stockholders......................... $  (109,508) $  (32,765) $   (2,104)
                                          ===========  ==========  ==========
   Weighted-average shares of common
    stock shares outstanding.............  23,854,850   5,230,826   3,275,000
                                          ===========  ==========  ==========
   Basic and diluted net loss per common
    Share................................ $     (4.59) $    (6.26) $    (0.64)
                                          ===========  ==========  ==========
</TABLE>

                                      F-21



<PAGE>

                               LIFEMINDERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   For the years ended December 31, 2000, 1999 and 1998, options to purchase
4,434,437, 2,688,177 and 453,375 shares of common stock at weighted average
exercise prices of $16.05, $7.55 and $0.80 per share, respectively, are not
included in the computation of diluted earnings per share as they are
antidilutive. For the year ended December 31, 1998, 2,000,000 shares of
preferred stock, which were convertible into 2,500,000 shares of common stock,
were not included in the computation of diluted earnings per share as a result
of their antidilutive effect.

13. Acquisitions

   On March 14, 2000, the Company acquired PleaseRSVP.com, Inc., an online
invitation website, in a purchase business combination for a purchase price of
approximately $3,538,000, consisting of $500,000 in cash, 40,000 shares of the
Company's common stock valued at $3,008,000, and $30,000 in acquisition costs.
The Company allocated the entire purchase price to goodwill, which was being
amortized over three years. (See Note 3 for discussion of impairment).

   On March 29, 2000, the Company acquired WITI Corporation, a web and wireless
weather forecasting company, in a purchase business combination for
approximately $29,403,000, consisting of $3,500,000 in cash, 345,796 shares of
the Company's common stock valued at $23,004,000, the assumption of options
that are exercisable to acquire 38,266 shares of the Company's common stock
with a fair value of $2,488,000 (calculated using the Black-Scholes option
pricing model), the assumption of $224,000 in liabilities and $187,000 in
acquisition costs. Results of operations for WITI have been included with those
of the Company for periods subsequent to the date of acquisition.

   The total purchase price of $29,403,000, including acquisition costs of
$187,000, was allocated to the assets acquired and liabilities assumed based on
their estimated fair values as follows (in thousands):

<TABLE>
   <S>                                                                  <C>
   Tangible assets and liabilities..................................... $   298
   Assembled workforce.................................................     260
   Technology..........................................................   3,190
   Noncompete agreement................................................   1,830
   Patent..............................................................     710
   Goodwill............................................................  23,115
                                                                        -------
                                                                        $29,403
                                                                        =======
</TABLE>

   Tangible assets were depreciated on a straight-line basis over the estimated
useful lives of the assets, generally three to five years. Assembled workforce
was amortized on a straight-line basis over the term of the employment
contracts, which is one year. All other intangibles, including goodwill, were
being amortized on a straight-line basis over three years. (See Note 3 for
discussion of impairment).

   On August 31, 2000, the Company acquired smartRay Network, Inc., a web and
wireless alerting company, in a purchase business combination for approximately
$32,632,000, consisting of $2,318,000 in cash, 1,252,198 shares of the
Company's common stock valued at $22,493,000, the assumption of options that
are exercisable to acquire a total of 251,447 shares of the Company's common
stock with a fair value of $6,860,000 (calculated using the Black-Scholes
option pricing model), the assumption of $527,000 in liabilities and $434,000
in acquisition costs. Results of smartRay have been included with those of the
Company for periods subsequent to the date of acquisition.

                                      F-22



<PAGE>

                               LIFEMINDERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The total purchase price of $32,632,000, including acquisition costs of
$434,000, was allocated to the assets acquired and liabilities assumed based on
their estimated fair values as follows (in thousands):

<TABLE>
   <S>                                                                  <C>
   Tangible assets and liabilities..................................... $   675
   Assembled workforce.................................................     770
   Technology..........................................................   4,000
   Goodwill............................................................  24,563
   Deferred compensation...............................................   2,624
                                                                        -------
                                                                        $32,632
                                                                        =======
</TABLE>

   Tangible assets were depreciated on a straight-line basis over the estimated
useful lives of the assets, generally three to five years. Assembled workforce
was amortized on a straight-line basis over one year. Technology and goodwill
were amortized over three years. Deferred compensation was amortized on a
straight-line basis over the remaining vesting period, which approximated 1.5
years. (See Note 3 for discussion of impairment).

   On December 4, 2000, the Company acquired eCoupons, Inc., an electronic
couponing service, in a purchase business combination for approximately
$4,911,000, consisting of 612,529 shares of the Company's common stock valued
at $2,641,000, the assumption of options that are exercisable to acquire
110,239 shares of the Company's common stock with a fair value of $459,000
(calculated using the Black-Scholes option pricing model), the assumption of
restricted stock convertible to 114,748 shares of the Company's common stock
valued at $495,000, the assumption of $916,000 in liabilities and $400,000 in
acquisition costs. Results of eCoupons have been included with those of the
Company for the period subsequent to the date of acquisition.

   The total purchase price of $4,911,000, including acquisition costs of
$400,000, was allocated to the assets acquired and liabilities assumed based on
their estimated fair values as follows (in thousands):

<TABLE>
   <S>                                                                   <C>
   Assembled workforce.................................................. $  311
   Technology...........................................................    540
   Covenants not to compete.............................................    912
   Customer lists.......................................................  2,209
   Trademarks...........................................................    317
   Deferred compensation................................................    622
                                                                         ------
                                                                         $4,911
                                                                         ======
</TABLE>

   Assembled workforce is being amortized on a straight-line basis over 12 to
18 months. Technology, covenants not to compete, customer lists and trademarks
are amortized over three years. Deferred compensation is being amortized on a
straight-line basis over the remaining vesting period, which approximates 1.5
years.

                                      F-23



<PAGE>

                               LIFEMINDERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following unaudited pro forma results of operations for the years ended
December 31, 2000 and 1999 are presented as though smartRay, WITI,
PleaseRSVP.com and eCoupons had been acquired at the beginning of 1999, after
giving effect to purchase accounting adjustments relating to amortization of
intangible assets (in thousands, except shares and per share amounts).

<TABLE>
<CAPTION>
                                                             (Unaudited)
                                                         Year Ended December
                                                                 31,
                                                         ---------------------
                                                            2000       1999
                                                         ----------  ---------
   <S>                                                   <C>         <C>
   Revenue.............................................. $   54,926  $  15,084
                                                         ==========  =========
   Net loss............................................. $ (120,465) $ (34,386)
                                                         ==========  =========
   Basic and diluted net loss per share................. $    (4.61) $   (4.60)
                                                         ==========  =========
   Weighted average common shares outstanding........... 26,105,373  7,481,349
                                                         ==========  =========
</TABLE>

   The pro forma results of operations are not necessarily indicative of the
results that would have occurred had the smartRay, WITI, PleaseRSVP.com and
eCoupons acquisitions been consummated on January 1, 1999, nor are they
necessarily indicative of future operating results.

14. Investments in Unconsolidated Entities

   On March 15, 2000, the Company acquired a 12% interest in an Internet-
related astrology business for $1,489,000 in cash. The Company accounted for
this investment using the equity method since the Company could exercise
significant influence over the operations of the investee as it had an option
to purchase the remaining 88% of the investee on or before July 15, 2000. On
June 29, 2000, the Company sold its investment to an unrelated third party in
exchange for a note receivable in the amount of $1,450,000 included in prepaid
expenses and other current assets on the accompanying balance sheet.

   On March 24, 2000, the Company acquired a 9% interest in an Internet-related
shopping comparison business for $2,270,000 in cash. The Company accounts for
this investment using the cost method since it cannot exercise any influence
over the operations of the investee. The cost of the investment is reduced by
cash received from the investee related to advertising services provided by the
Company. To date, the Company has received $1,647,000 in cash from the
investee. The Company wrote off the remaining balance of $623,000 during the
fourth quarter of 2000 (see Note 3).

   On June 27, 2000, the Company acquired a 5% interest in an electronic
messaging company for $2,000,000 in cash. The Company accounts for this
investment using the cost method since it cannot exercise any influence over
the operations of the investee. The Company recorded an impairment charge of
$1,690,000 during the fourth quarter of 2000, reducing the investment to its
estimated fair value of $310,000 (see Note 3).

15. Segment Information

   Prior to the third quarter of 2000, the Company operated in one segment:
Internet and related services. Beginning in the third quarter of 2000,
management began evaluating the Company by strategic business unit. The Company
determined that it operates within three business units: business to consumer
marketing, wireless marketing and business to business marketing. The
reportable segments derive revenue either from the sale of advertising within
emails to our members or the delivery of names to the Company's opt-in
partners. The segment operating loss is revenue less direct and allocable
expenses. Segment identifiable assets are those that are directly used in or
identified to segment operations.

                                      F-24



<PAGE>

                               LIFEMINDERS, INC.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Financial information by segment for the year ended December 31, 2000
follows:

<TABLE>
<CAPTION>
                          Consumer  Outsourcing Wireless  Corporate    Total
                          --------  ----------- --------  ---------  ---------
<S>                       <C>       <C>         <C>       <C>        <C>
Revenue.................  $51,415    $    972   $  1,539  $    --    $  53,926
Impairment of long-lived
 assets.................   (4,966)        --     (49,020)      --      (53,986)
Operating profit
 (loss).................    4,601     (14,081)   (57,471)  (48,311)   (115,262)
Total assets............    6,429       2,571        --    105,536     114,536
Depreciation and
 amortization...........    2,937         926      1,139    13,405      18,407
</TABLE>

   In a continued focus to reach profitability in the near term, the Company
made the decision not to pursue and develop its wireless segment. This decision
was based on changes in market conditions and a determination that the Company
could generate positive cash flows from the wireless segment in the foreseeable
future. Fourth quarter results for 2000 include an impairment charge of
$53,986,000, of which $49,020,000 is related to the write-off of long-lived
assets, including goodwill, related to the acquisition of wireless technologies
which occurred in the first and third quarters of 2000.

16. Subsequent Events

   In the first quarter of 2001, the Company terminated 50 employees, or
approximately 24% of its total workforce as of December 31, 2000, and recorded
a one-time charge of approximately $1.1 million, which also included severance
for Stephen R. Chapin, Jr. who stepped down as Chairman and CEO of the Company.
The Company expects to pay all severance for all of these terminated employees
during 2001.

                                      F-25



<PAGE>

                      REPORT OF INDEPENDENT ACCOUNTANTS ON
                          FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Stockholders
of LifeMinders, Inc.

   Our audits of the consolidated financial statements referred to in our
report dated March 27, 2001, appearing in this Annual Report on Form 10-K of
LifeMinders, Inc. also included an audit of the financial statement schedule
listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial
statement schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.

                                          /s/ PricewaterhouseCoopers LLP

McLean, Virginia
March 27, 2001

                                      S-1



<PAGE>



                                  SCHEDULE II

                       VALUATION AND QUALIFYING ACCOUNTS
             FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                                (in thousands)

<TABLE>
<CAPTION>

Allowances for Doubtful Accounts
                                  Accounts    Interest     Notes       Other
Description                      Receivable  Receivable  Receivable  Receivable
-----------                      ----------  ----------  ----------  ----------
<S>                              <C>         <C>         <C>         <C>

Balance at December 31, 1997     $       --  $       --  $       --  $       --
Additions charged to expenses            --          --          --          --
Deductions                               --          --          --          --
                                 ----------  ----------  ----------  ----------
Balance at December 31, 1998     $       --  $       --  $       --  $       --
Additions charged to expenses           493          --          --          --
Deductions                               --          --          --          --
                                 ----------  ----------  ----------  ----------
Balance at December 31, 1999     $      493  $       --  $       --  $       --
Additions charged to expenses         3,453          19         250          94
Deductions                           (2,268)         --          --          --
                                 ----------  ----------  ----------  ----------
Balance at December 31, 2000     $    1,678  $       19  $      250  $       94
                                 ==========  ==========  ==========  ==========
</TABLE>

                                      S-2


<PAGE>

                                  SIGNATURES


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


                                               LIFEMINDERS, INC.


Date:  May 15, 2001                           By: /s/ Jonathan B. Bulkeley

                                                  ---------------------------
                                                  Chief Executive Officer and
                                                  Chairman of the Board of
                                                  Directors