<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   -----------

                                    Form 10-K

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

(Mark One)

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

            For   the fiscal year ended December 31, 1999, 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: 0-27253

                                   -----------

                                NETCENTIVES INC.
             (Exact Name of Registrant as Specified in Its Charter)

              Delaware                                        93-1213291
    (State or Other Jurisdiction                           (I.R.S. Employer
  of Incorporation or Organization)                       Identification No.)

            475 Brannan Street
             San Francisco, CA                                   94107
 (Address of Principal Executive Offices)                      (Zip Code)

       Registrant's telephone number, including area code: (415) 538-1888

                                   -----------

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $.001 par value
                                (Title of Class)

                                   -----------

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

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K 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 the Registrant's Common
Stock on the Nasdaq National Market on March 17, 2000 was approximately
$926,913,112. Shares of Common Stock held by each executive officer and
director and by each person who owns 10% or more of the outstanding Common Stock
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.

      There were 34,581,469 shares of Registrant's Common Stock issued and
outstanding as of March 17, 2000.
================================================================================

                       DOCUMENTS INCORPORATED BY REFERENCE

      Part III incorporates information by reference from the definitive Proxy
Statement for the Registrant's 2000 Annual Meeting of Stockholders scheduled to
be held on Wednesday, May 24, 2000 (the "2000 Proxy Statement").
<PAGE>

REFERENCES AND FORWARD-LOOKING STATEMENTS

References made in this Annual Report on Form 10-K to "NCNT," the "Company" or
the "Registrant" refer to Netcentives and its subsidiaries. Netcentives,
ClickRewards, ClickMiles, Custom Loyalty Programs, Enterprise Incentive
Solutions, RewardBroker, Secure Value Transfer Protocol, SecureReward
Architecture, the Netcentives logo and the ClickRewards logo are trademarks of
Netcentives.

This Annual Report on Form 10-K contains forward-looking statements. In some
cases, readers can identify forward-looking statements by terminology such as
"may," "will," "should," "could," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," or "continue." These statements involve
known and unknown risks, uncertainties and other factors that may cause
Netcentives' actual results, performance, or achievements to be materially
different from those stated herein. Although management of Netcentives believes
the expectations reflected in the forward-looking statements are reasonable, the
Company cannot guarantee future results, performance, or achievements. Factors
that could cause actual results to differ materially include, but are not
limited to, the risks detailed below and included from time to time in the
Company's other SEC reports and press releases, copies of which are available
from the Company upon request. The Company assumes no obligation to update any
forward-looking statements contained herein.

                                     PART I

Item 1. BUSINESS

Company Overview

Netcentives is a leading provider of marketing infrastructure technologies and
services designed to help businesses acquire, motivate and retain customers,
partners and employees. Netcentives offers an array of technologies and services
that enable companies to offer incentive-based promotions and electronic direct
marketing campaigns that build loyalty and maximize the long-term value of
customer and employee relationships. We differentiate our offerings by combining
proprietary technologies, both Internet-based and offline, with significant
marketing and technical service expertise across a variety of product
categories.

The products and services offered by Netcentives include:

      Rewards and recognition programs based on our technology infrastucture,
      are designed to address the sales, marketing and employee recognition
      objectives for a spectrum of business customers. Programs currently
      include:

          o Custom Loyalty Programs are large-scale, private label rewards
            programs developed for major brands, portals and financial
            institutions using their own branded currency.

          o ClickRewards is a network developed on behalf of dozens of online
            merchants that enables them to reward their consumers with
            ClickMiles, a recognizable, branded awards currency for making
            purchases at their websites.

          o Enterprise Incentives Solutions are used by businesses that wish to
            reward and recognize employees and channel partners.

      Technical and marketing consulting services. Through Netcentives
      Professional Services we develop e-commerce technologies and provide
      "brick and mortar" businesses with the expertise to migrate legacy systems
      and databases to web-based

                                      -3-
<PAGE>

      solutions. In addition, as part of our rewards and recognition programs,
      we provide a broad mix of marketing and operational services.

Through our recent acquisitions, Netcentives has commenced offering new products
and services, including:

      Through the acquisition of MaxMiles, Inc. in January 2000, personal
      information aggregation technology that, with the consumers' permission,
      collects and consolidates frequent flier account information and other
      data, allowing websites to publish personalized content that increases the
      frequency and length of consumer visits.

      Through the acquisition of UVN Holdings, Inc. in March 2000, offline
      transaction-processing technology that allows us to enable businesses to
      recognize and reward purchase behavior both online and offline in
      permission-based programs.

In addition, in February 2000 Netcentives entered into an agreement to acquire
Post Communications, Inc. The closing of the acquisition is subject to numerous
closing conditions, including the consent of the Post Communications, Inc.
shareholders. Upon the closing of the transaction, Netcentives intends to offer
customized e-mail marketing programs that help companies achieve and sustain
higher e-mail response rates and maximize the lifetime value of customers.

Company Background

Netcentives was incorporated in June 1996. From inception until March 1998, our
operations consisted primarily of various start-up activities, such as research
and development, personnel recruiting, capital raising and trial sales of our
products with initial customers. We launched the ClickRewards program in March
1998 and began recognizing revenue from non-trial program sales in April 1998.
In December 1998, we acquired Netcentives Professional Services (formerly the
Panttaja Consulting Group, Inc.), a provider of technical consulting services to
e-commerce merchants and other businesses. We launched our first Enterprise
Incentive Solutions program in January 1999 and our first Custom Loyalty Program
in July 1999.

As of December 31, 1999, we had derived substantially all of our revenues from
the ClickRewards Network and Netcentives Professional Services.

Industry Background

The Internet has emerged as a unique global communications medium, enabling
millions of people to interact and conduct business electronically. Angus Reid
Group estimates that there are approximately 300 million Internet users
worldwide as of the end of 1999, and that this number will grow to 450 million
by the end of 2000. International Data Corporation, or IDC, estimates that the
total value of commerce over the Internet will increase from approximately $32
billion in 1998 to $425 billion in 2002. Similarly, Forrester Research estimates
that U.S. business e-commerce revenue will grow from $109 billion in 1999 to
$1.3 trillion in 2003. Internet commerce transactions are often faster, less
expensive and more convenient for both buyers and sellers, and the opportunity
to take advantage of these business efficiencies has attracted a broad group of
participants.

During the early stages of development of e-commerce, merchants were focused on
building general brand awareness and acquiring customers. Consequently, the
rapidly growing market for Internet marketing was heavily dominated by banner
advertising. However, the low barriers to entry for new competitors, the
emergence of below-cost online retailers and the ease with which consumers can
switch between Internet retailers have intensified online commerce competition.
As a result, several industry reports have concluded that banner advertising
alone is either insufficient or ineffective. For example, Nielsen NetRatings, an
online market research firm, found that the consumer response rate for banner
advertising during February 2000 had declined to 0.23%. We believe that
businesses are realizing that customer acquisition is not enough - that it is
more important to engage and retain customers in order to increase market share
and maximize the long-term economic value of each and every customer
relationships.


                                      -4-
<PAGE>

Because of continuing corporate interest in using the Internet to acquire
customers, and because of the need for online businesses to find effective ways
to retain customers, we believe there is a significant opportunity for a company
that can offer marketing technologies and services to deliver cost-effective,
integrated direct marketing and loyalty solutions to the online market.

According to the Direct Marketing Association, offline expenditures on direct
marketing, including promotions, reached $163 billion in 1998. Jupiter
Communications estimates that online spending for Internet-based advertising
alone will total $7.7 billion in the U.S. by 2002. As e-commerce web sites
increasingly focus on customer retention and loyalty, we believe that spending
for online marketing will shift away from advertising toward promotions and
direct marketing. For example, Forrester Research predicts that by 2003, 50% to
70% of all Internet marketing budgets will be spent on promotional marketing as
opposed to advertising, with the largest growth coming from membership, rewards
and loyalty programs. We believe that there will be an increasing demand for
both online and offline promotional products and services as businesses expand
their distribution channels and enter new markets.

As businesses and employers increase their promotional activities, we believe
they face a number of challenges that require additional capabilities and skills
outside of their traditional competencies. Specifically, any of the following
operational requirements could pose problems for these entities:

o     Enabling both the web-enabled and offline consumer segments;

o     Integration of new online promotions with existing offline promotion
      programs;

o     Integration of point of purchase promotional capabilities;

o     Attraction and retention of consumers with an attractive demographic
      profile;

o     Establishment of a network of earning and award opportunities that is
      significant enough to make promotions appealing to consumers;

o     Creation of a transaction processing system designed for use on the
      Internet;

o     Development of web site enhancements necessary to track consumer
      participation in and satisfaction with online promotional programs;

o     Investment necessary to develop online promotions capabilities; and

o     Possession of the expertise required to develop and administer promotion
      programs and the associated financial liabilities.

We believe that businesses and employers recognize the benefits of deploying
online promotion programs and/or combined offline and online programs, but have
not been able to justify the resources required to build and maintain their own
programs independently.

The Netcentives Solution

Our objective is to be the leading provider of marketing infrastructure
technologies and services used by businesses to drive customer, employee and
partner behavior and maximize the long-term economic value of these
relationships. We intend to achieve this objective by providing a technology
platform, as well as marketing and technical services, that enable our business
clients to optimize their customer, employee and partner relationships through
reward and recognition.

Program Elements

Our customers may select from a broad array of technology, intellectual
property, products and marketing and technical services to complement their
existing marketing programs. They may retain Netcentives to develop and manage
entire loyalty programs end-to-end, or license specific products and services
separately:

o     Overall Program Management. We offer turnkey management services for
      implementing and operating loyalty programs from the definition phase to
      design, launch and on-going operations.


                                      -5-
<PAGE>

o     Loyalty Program Design Services. We offer, on a discrete basis, loyalty
      and rewards program design services that take advantage of our significant
      advertising, promotions and technology experience.

o     Technology Licensing. We offer customers the ability to license our
      intellectual property, including our proprietary software platform and
      patents, that enable certain types of promotions.

o     Currency Creation. We work with customers to create unique promotional
      currencies that specifically target the customer's consumer base and
      utilize the customer's brand identity.

o     Currency and Liability Management. We have experience with the complex
      financial management of rewards programs. We offer these services to
      customers to allow them to focus on their core business.

o     Awards Transaction Processing and Data Center Services. We offer reliable,
      secure and fault-tolerant transaction processing services to support the
      tracking and monitoring of electronically recorded transactions, the
      issuance of currencies, and the exchange of awards. We also offer reliable
      data center services for the storage of account information for a
      particular customer's program.

o     Consumer Services. We offer customers software that enables their consumer
      service representatives to have access to real-time consumer information.
      In addition, we offer complete outsourcing of the loyalty program consumer
      service function.

o     Risk Management/Fraud Control. Through technical and operational
      processes, we offer comprehensive risk management and fraud control
      services to address and prevent potential fraudulent activity.

o     Database Marketing Consulting. We offer data analysis based on our
      understanding of consumer behavior. Database marketing consulting can
      provide our customers with the opportunity to design and modify their
      program based on demonstrated consumer behavior.

o     Direct Email Services. We offer a wide range of direct email services
      including database marketing, promotion development and management,
      targeted e-mail communications, and promotions design and implementation
      services. We believe that these services are complementary to our loyalty
      marketing offerings, allowing our customers to maximize the return from
      their rewards programs.

Netcentives Professional Services

o     Technical and marketing consulting services are an integral part of our
      programs. Through the Netcentives Professional Services group, we provide
      systems integration and technical consulting services to clients who are
      deploying our programs or are acquiring other products or services from
      us. We also offer software-related training and educational services in
      the Internet and client/server market sectors through this group.

Program Descriptions

Program solutions are assembled from our suite of loyalty products and services
to deliver a ClickRewards solution, a customized solution or an
enterprise-specific program, depending on our customers' various needs for
either online and/or offline programs. The following is a description of the key
characteristics of our program solutions:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
 Program                Program Scope         Target Customers       Program Members    Program Branding          Rewards
-------------------------------------------------------------------------------------------------------------------------------
<S>                     <C>                   <C>                    <C>                <C>                   <C>
ClickRewards            Templated,            Internet commerce      Current shoppers   ClickRewards          Frequent flyer
Network                 turnkey; fairly       merchants              and ClickRewards   branded               miles, branded
                        consistent from                              members                                  merchandise and
                        merchant to                                                                           travel-related
                        merchant                                                                              awards
-------------------------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------------------------
Custom Loyalty          Private-label,        Portals,               Customer's user    Customer branded      Brand name merchandise
Programs                customized to         companies with         base                                     and ClickMiles and
                        the customer's        major brands and                                                customer-specific
                                                                                                              merchandise
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      -6-
<PAGE>

<TABLE>
-------------------------------------------------------------------------------------------------------------------------------
<S>                     <C>                   <C>                    <C>                <C>                   <C>
                        market and            other large scale
                        legacy systems;       websites
                        ranging from
                        technology
                        platform to full
                        service, turnkey
                        programs
-------------------------------------------------------------------------------------------------------------------------------

-------------------------------------------------------------------------------------------------------------------------------
Enterprise              Ranges from           Businesses             Employees and      Customer and          Frequent flyer
Incentive Solutions     ClickRewards                                 channel partners   ClickRewards          miles, branded
                        template to                                                     co-branded            merchandise and
                        custom loyalty                                                                        travel-related
                        private label                                                                         awards
                        structure
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

ClickRewards Network - the ClickRewards Network is a prime example of a
fully-configured online loyalty rewards program. The ClickRewards Network was
developed for a broad spectrum of merchants who wished to utilize a branded
digital rewards currency developed and supported by Netcentives. Netcentives
sells these merchants ClickMiles, a branded digital promotions currency specific
to the ClickRewards Network. Merchants then award the ClickMiles to consumers
for activities such as making purchases, winning sweepstakes and completing
surveys. Members can earn ClickMiles from merchants across the ClickRewards
Network and can track their award balances online. The ClickRewards model is
representative of the functional characteristics of the full-service loyalty
programs developed by Netcentives, operating on the same platform and using many
of the same elements offered to our private-label and enterprise clients.

The full-service loyalty programs offered by Netcentives include many of the
same basic elements - members are encouraged to join the program, shop or earn
the rewards currency, track their balances and then redeem for frequent flyer
mileage or other merchandise, goods or services:

o     Join. Consumers become ClickRewards members in a variety of ways,
      including by enrolling in the ClickRewards program on our Web site,
      earning ClickMiles from participating merchants, entering sweepstakes in
      which ClickMiles are a prize and enrolling through third-party Web sites.
      Because our merchants pay us for ClickMiles prior to awarding them to
      members, substantially all of our merchants also require that a consumer
      elect to become a ClickRewards member at the time of a qualifying purchase
      in order to earn ClickMiles. Membership in ClickRewards is free and
      protected by a strict privacy policy. Launched in March 1998, as of March
      17, 2000, there were over 4.2 million ClickRewards members who have
      earned, in the aggregate, over 513 million ClickMiles.

o     Shop. We have targeted Web sites in each major shopping category as
      merchants. Currently we have 85 e-commerce shopping sites in the
      ClickRewards Network. A representative sample of merchants who have
      offered ClickRewards promotions during the past twelve months or are
      currently developing ClickRewards promotions include:

<TABLE>
<CAPTION>
      ------------------------------------------------------------------------------------------------------
                                The AIDS Foundation of
      @Backup                   St. Louis                    American Hand Art         AreYouGame.com
      ------------------------------------------------------------------------------------------------------
      <S>                       <C>                          <C>                       <C>
      ArtSelect                 BananaRepublic.com           barnesandnoble.com        Bizzed
      ------------------------------------------------------------------------------------------------------
      Bluefly.com               Capital One                  CDNOW                     The Children's Place
      ------------------------------------------------------------------------------------------------------
      CitiWallet                Compaq                       CompuBank                 Cooking.com
      ------------------------------------------------------------------------------------------------------
      Dads and Daughters        DealDeal                     DefenseNow                DisneyStore.com
      ------------------------------------------------------------------------------------------------------
      Disney Travel             eBags                        Edwards Luggage           eframes.com
      ------------------------------------------------------------------------------------------------------
      enews.com                 eNutrition.com               E*TRADE                   Eve.com
      ------------------------------------------------------------------------------------------------------
      Fossil                    FTD.COM                      gap.com                   garden.com
      ------------------------------------------------------------------------------------------------------
      HBO                       iGo.com                      iOwn.com                  iPrint.com
      ------------------------------------------------------------------------------------------------------
</TABLE>


                                      -7-
<PAGE>

<TABLE>
      ------------------------------------------------------------------------------------------------------
      <S>                       <C>                          <C>                       <C>
      KBkids.com                The Knot                     Laptop Travel             Miadora
      ------------------------------------------------------------------------------------------------------
      MotherNature.com          NetMiles                     OfficeMax.com             OnMoney.com
      ------------------------------------------------------------------------------------------------------
      Outpost                   PC World                     Petstore.com              PlanetRx
      ------------------------------------------------------------------------------------------------------
      Qpass                     Rainforest Action Network    Red Herring               SelfCare
      ------------------------------------------------------------------------------------------------------
      ShopSports.com            shop.theglobe.com            skymall.com               SmarterKids.com
      ------------------------------------------------------------------------------------------------------
      SmartShip                 Someone Special              Sparks.com                Stacks & Stacks
      ------------------------------------------------------------------------------------------------------
      StatusFactory.com         Toys for Tots                XOOM.com                  WebFlyer
      ------------------------------------------------------------------------------------------------------
      WIRED                     WorldSpy                     World Wildlife Fund
     -------------------------------------------------------------------------------------------------------
</TABLE>


                                      -8-
<PAGE>

o     Track and Redeem. Once a member has accumulated the minimum balance
      required for redemption, which is currently 250 ClickMiles, he or she can
      redeem them by visiting the ClickRewards Web site, logging into his or her
      personal account, and selecting the redemption option of their choice.
      Members can choose to redeem their ClickMiles one-for-one and add them
      into their existing frequent flyer account with American Airlines, America
      West, British Airways (USA), Canadian Airlines, Air Continental Airlines,
      Delta Air Lines, Northwest Airlines, TWA, United Airlines, or US Airways.
      ClickMiles can also be redeemed for other travel awards such as car rental
      and hotel certificates, and for a wide range of merchandise.

Custom Loyalty Programs - Portals, financial institutions and major companies
with major brands possess their own considerable scale, traffic and brand.
Therefore, we have leveraged our experience in building and operating the
ClickRewards Network to offer these major companies the ability to implement
custom loyalty programs. Not only do our Custom Loyalty Program products and
services offer many of the same features as our ClickRewards Network, but they
are also designed around the customer's brand, existing consumer base and
partners. Our Custom Loyalty Program products and services can be implemented as
a full turn-key solution or on an unbundled basis to enable these companies to
award their members with their own private label currency points and customized
redemption options. Custom programs include supplying Internet-based front-end
transaction processing platforms that are interconnected with a customer's
legacy offline rewards architecture to full-service programs with Netcentives
providing complete full-service operational design, implementation and
management. We launched our first Custom Loyalty Program for Looksmart in July
1999 and launched the GO Network, Lycos and American Express in the fourth
quarter of 1999. We anticipate launching the AOL/Aadvantage program in the
second quarter of 2000.

Enterprise Incentive Solutions - The market for enterprise incentives is
estimated to be greater than $20 billion per year by the Incentive Federation,
an independent trade organization. We believe that this market, traditionally
managed offline, can be more efficiently automated using Internet technology
that leverages the enterprise's investment in intranets and extranets. For
example, incentives can be offered to sales forces as additional compensation
for the adoption of sales force automation systems, for performance-based
programs and for other motivational programs. Incentives can also be offered to
other employees to increase loyalty, improve job performance, increase
information sharing, encourage self-improvement training and refer employees.

We believe that, in most cases, the ClickRewards Network program has many
attributes that make it an effective platform for enterprise solutions. In these
cases, we package our offerings as ClickRewards@Work; in cases where a
proprietary solution best serves the customer's needs, a private label program
with customized currency can be provided. We launched our first Enterprise
Incentive Solutions program in late 1998 and operate programs for adauction.com,
Cisco Systems, Event Source, Novell and Exceptional People.

                                      -9-
<PAGE>

Technology Platform and Software Products

We have built a technology platform and software applications for the management
of online marketing applications. We license elements of our software and
technology independently as well as in connection with our programs. As a fully-
configured platform, our SecureReward Architecture(TM) consists of a set of
software and protocols that interact across the Internet to create a network
among businesses, rewards suppliers and consumers. We designed this system for
security and high volume transaction processing, with the ability to handle
hundreds of thousands of transactions per day. Our system uses a high
performance database design and architecture designed with security in mind.

The design of our SecureReward Architecture allows businesses to host
applications and manage promotions safely at their own site. The following is a
description of the modules within the SecureReward Architecture:

o     RewardBroker resides at the client's site and initiates promotional
      currency transfers in real time. We provide businesses with a range of
      integration options with RewardBroker, including application programming
      interfaces and integration services to enable rapid customization and
      integration with the client's own unique e-commerce environment.

o     Payment System resides at our data center and receives and processes all
      transaction requests from RewardBroker. It first determines if the
      requestor is legitimate and that the request has not been modified. It
      then passes the request through the Fraud Detection System, and finally
      fulfills the request.

o     Secure Value Transfer Protocol ensures the privacy and origin of all
      messages in the network. RewardBroker and Payment System communicate
      through the protocol, which supports a wide variety of message types. It
      employs financial transaction-grade cryptography to sign and encrypt
      messages.

o     Fraud Detection System provides both per-transaction and aggregate fraud
      detection and prevention. The system applies a combination of business
      rules about each promotion and monitors activity based on past behavior to
      determine if activity is fraudulent.

o     Account Management Systems provides consumer/employee, client and reward
      supplier services, such as account creation and reactivation, promotion
      funding and transaction inquiries, as well as a consumer support
      information.

o     Member Relationship Systems presents the current promotions, rewards and
      account balance information to individual consumers through a Web-based
      interface. Each request to manipulate an individual consumer's account
      requires authentication to prevent fraudulent activity. Member
      Relationship Systems also include the Customer Contact Module and the
      Targeting and Segmentation Database.

o     Consumer Contact Module provides consumers with instant receipts of
      account activity and periodic account statements. We have developed the
      capability to use the Consumer Contact Module to provide consumers with
      relevant promotions and award opportunities based on self-identified
      interests and past behavior in the network.

                                      -10-
<PAGE>

o     Targeting and Segmentation Database has been developed to provide relevant
      promotions and rewards opportunities by tracking consumer preferences. It
      is currently being used in conjunction with the Consumer Contact Module to
      personalize each consumer's experience.

o     Redemption Systems reside at our data center and processes all requests by
      consumers to redeem promotional currency for goods or services. The
      requests pass through the Fraud Detection System and are then formatted
      for transmission as fulfillment requests to the various rewards suppliers.
      Responses to fulfillment requests are also processed by the Redemption
      Systems.

o     Netcentives Central provides businesses and their account managers with
      up-to-date information via the Web on current promotions, including
      promotion balances and transactional history.

All elements of the SecureReward Architecture are designed to operate on a wide
range of merchant systems. This design also helps us to deploy new technologies
without needing to re-write the entire system. Much of the SecureReward
Architecture is written in Java. The SecureReward Architecture is the
technological foundation for the Custom Loyalty Programs, ClickRewards Network,
and Enterprise Incentive Solutions.

We designed all elements of the SecureReward Architecture from the ground up
with security in mind. RewardBroker and Payment System, in particular, utilize
private key cryptography with highly secure financial transaction grade
techniques to authenticate merchants and encrypt transactions. Each request to
manipulate an individual consumer's account requires authentication to prevent
fraudulent activity and encryption to enhance consumer security. We have
implemented additional fraud prevention mechanisms to track unusual behavior.

In addition, Netcentives recently acquired technology through the acquisition of
MaxMiles, Inc. which will enable the aggregation of personal account information
on the Internet. The technology acquired through the recent purchase of UVN
Holdings, Inc. will be integrated with our SecureReward Architecture to enable
our clients to offer the same marketing programs both online and offline.

Marketing, Sales and Member Service

We have a direct sales force that sells our entire portfolio of products and
services and includes individuals focused on distinct markets and specific
products and services. Our sales force is based out of our San Francisco
headquarters, with sales offices in Chicago and New York. An internal telesales
team responds to inbound inquiries and provides additional support to our direct
sales force. We plan to increase our direct sales force and open additional
sales offices in the United States and internationally. We will also pursue
distribution relationships with advertising agencies, systems integrators,
consulting firms and others in order to allow third parties to sell ClickMiles.
Our marketing department supports our sales efforts and coordinates attendance
at industry events and pursues trade advertising and media relations.

We believe that to sell high volumes of loyalty currencies to merchants we need
to offer them a large, attractive base of potential consumers. We believe that
our ability to create a loyal and valuable membership base for our programs
depends on high quality member service. The member service team is responsible
for providing phone support during business hours and e-mail support with a
24-hour response time. Representatives are responsible for resolving general
inquiries about programs, and inquiries relating to the status of orders and
redemption requests. To customers of our Custom Loyalty Networks and Enterprise
Incentive Solutions products, we offer the option of outsourcing member service
support for inquiries related to their program, or utilizing the member service
module of our software platform for their internal member service
representatives.

To date, we have focused on pursuing opportunities in the United States and
Canada. However, we believe that international markets present an attractive
marketplace for our network loyalty infrastructure. We expect to begin our
international efforts by expanding the ClickRewards Network into Europe. Our
alliance with British Telecommunications PLC in November of 1999 marks the
ClickRewards Network's first international entry. Netcentives manages all
aspects of ClickRewards at the British Telecom Internet site, including
integration with participating e-retailers. In addition, we announced an
agreement on January 31, 2000 to run Netcentives' rewards program under the
brand name ICQ ClickRewards on an exclusive basis for ICQ, a subsidiary of AOL
with over 50 million members, two-thirds of which reside outside of the United
States. ICQ ClickRewards will offer ICQ registrants worldwide the ability to
earn ClickMiles and redeem them for valuable brand-name products. We will also
expand our Custom Loyalty Programs products to portals and online merchants
based in other countries and our Enterprise Incentive Solutions products to
large multinational corporations.

Competition

As a provider of marketing infrastructure technologies and services, we
generally compete with other advertising and promotional programs for a portion
of a customer's total marketing budget. In addition, we compete with a variety
of business within the online promotions market. We believe that the Internet
promotion and electronic direct marketing industry includes over 45 companies,
of which we are one of the leaders. Our primary competition can be categorized
as follows.

o     Stand-alone loyalty programs and promotional tools developed by and/or for
      e-commerce sites, such as Autobytel.com Mobalist Rewards, CDnow
      FastForward Rewards, CBS SportsLine Rewards; and

o     Other points-based programs from companies such as Cybergold, Beenz and
      MyPoints.

Our Enterprise Incentive Solutions products and services compete with existing,
offline incentive products provided by parties such as Maritz Marketing
Research, Carlson Marketing Group, Loyalty Group, a division of Alliance Data
Systems and BI Performance Services. Our Custom Loyalty Network and Enterprise
Incentive Solution products and services also compete with products offered by
third parties, such as MyPoints.com.

For each of our programs, we expect competition to intensify as more competitors
enter our market. We believe that such future competition could come from newly
formed companies and, more importantly, from traditional offline promotions and
loyalty companies such as Carlson Marketing Group, Brierley & Partners and
Signature Group, a division of GE Capital. In order to compete in our market,
companies will need to develop the necessary Internet-based technology
infrastructure, enter into relationships with key suppliers and obtain access to
appropriate business processes. We believe that large offline promotions and
loyalty companies have the necessary resources and expertise to do so. While we
currently have contractual relationships with many rewards suppliers, such as
airline, frequent flyer programs, any of these suppliers could themselves enter
our markets and provide us with substantial competition. Additionally, as we
increasingly offer program elements to our customers on a stand-alone basis, we
expect to encounter additional competition from companies outside of the loyalty
promotions market.

Many of our potential competitors, and in particular offline companies and
offline rewards programs, have longer operating histories, stronger brand names
and significantly greater financial, technical, marketing and other resources
than we do. In addition, these companies may have existing relationships with
our potential customers and may be able to respond to changes in market dynamics
and technology faster than we can. We cannot assure you that we will be able to
compete successfully against these potential competitors.

Proprietary Rights

We currently rely on a mixture of patents, copyrights, trademarks, trade secrets
and agreements with third parties and employees to protect our proprietary
rights. We have patents which relate generally to online incentive award
programs. One aspect of our patents is directed to a computer system for
implementing an incentive award program, with the computer system including an
online product catalog, an online awards catalog and a database for storing
account information for each user of the incentive award program. Netcentives,
ClickRewards, ClickMiles, Custom Loyalty Programs, Enterprise Incentive
Solutions, RewardBroker, Secure Value Transfer Protocol, SecureReward
Architecture, the Netcentives logo and the ClickRewards logo are trademarks of
Netcentives. We copyright our Web site content, our software and our sales and
promotional literature. Despite our efforts to protect our proprietary rights,
unauthorized parties may use aspects of our business model and products and
obtain and use information we regard as proprietary. In addition, other parties
may breach confidentiality agreements or other protective contracts with us, and
we may not be able to enforce our rights in the event of such breaches. We
believe that each of these proprietary rights is important to our business in
our effort to prevent unauthorized use of our technology and processes and
protect our investment in establishing and maintaining our brand. Our
competitors may independently develop technologies or business models that are
substantially equivalent or superior to ours. We have licensed our patents to
MyPoints.com and The Sperry and Hutchinson Company, competitors of ours, who may
use these licenses to develop programs which may compete with programs we
develop or manage. We may decide to license our patents to other competitors.
Furthermore, we may expand internationally, and many countries do not protect
intellectual property rights to the same extent as the laws of the United
States. In the event that we are unable to protect our proprietary rights, our
business, financial condition and results of operations could be materially
adversely affected.

The Internet, and specifically the market for e-commerce and online advertising,
direct marketing and promotions, is characterized by a rapidly evolving legal
landscape. A variety of patents relating to this market have been issued in the
past year, including our business method patents. We believe that several
additional, related patents are

                                      -11-
<PAGE>

currently pending. We believe that there will continue to be substantial
activity in this area and that litigation may arise due to our attempts or a
third party's efforts to enforce patent rights.

We may incur substantial expenses, and the attention of our management may be
diverted if such litigation occurs. In addition, whether or not any claims
against us are meritorious, we may be required to enter into license agreements
or be subject to injunctive or other equitable relief, any of which would
materially adversely affect our business, results of operations and financial
condition.

Employees

As of December 31, 1999, Netcentives had 225 full time employees, including 119
in marketing and sales, 57 in research and development, and 49 in finance and
administration. Our employees are not represented by any collective bargaining
unit or labor union and we have never experienced a work stoppage. We believe
our relations with our employees are good.

Item 2. PROPERTIES

In 1999, the Company entered into a seven-year operating lease for a new 70,000
square foot headquarters facility located in San Francisco, California, which
commenced in March 2000 and expires in March 2007. We also lease approximately
1,000 square feet in Chicago, Illinois, approximately 500 square feet in New
York, New York, approximately 18,000 square feet in San Francisco and
approximately 4,000 square feet in Healdsburg, California under leases that are
month-to-month.

Item 3. LEGAL PROCEEDINGS

From time to time, the Company is involved in various legal proceedings in the
normal course of business. The Company is not currently involved in any
litigation which, in management's opinion, would have a material adverse effect
on its business, operating results or financial condition.

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

No matters were submitted for a vote of security holders during the fourth
quarter of the fiscal year covered in this Report.

                                     PART II

Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
INFORMATION

(a) Market Information

The Company's Common Stock is traded on the NASDAQ Stock Market under the ticker
symbol NCNT.

The following table shows the high and low bid prices of the Company's Common
Stock for the period from October 13, 1999 (effective date of the initial public
offering) through December 31, 1999 as reported by NASDAQ Stock Market:

         High                 $96.00
         Low                  $10.25

The closing price of the Company's Common Stock on the NASDAQ Stock Market on
March 17, 2000 was $45.56.


                                      -12-
<PAGE>

Future stock prices may be subject to volatility, particularly on a quarterly
basis. Any shortfall in revenues or net income from amounts expected by
securities analysts could have an immediate and significant adverse effect on
the trading price of the Company's stock.

(b)   Holders

As of March 17, 2000, the Company had approximately 207 shareholders of record.
This number excludes shareholders whose stock is held in nominee or street name
by brokers.

(c)   Dividends

      We have never paid cash dividends on our common stock. We currently intend
to retain any future earnings to fund the development and growth of our
business. Therefore, we do not currently anticipate paying any cash dividends in
the foreseeable future.

(d)   Report of offering securities and use of proceeds therefrom

      On October 13, 1999, in connection with the Company's initial public
offering, a Registration Statement on Form S-1 (No. 333-83443) was declared
effective by the Securities and Exchange Commission (and closed on October 19,
1999), pursuant to which 6,000,000 shares of the Company's Common Stock were
offered and sold for the account of the Company at a price of $12.00 per share.
In addition, on November 9, 1999 the Company sold an additional 335,937 shares
under the underwriters' overallotment option. The managing underwriters were
Credit Suisse First Boston Corporation, Hambrecht & Quist LLC and Thomas Weisel
Partners LLC. After deducting approximately $5.3 million in underwriting
discounts and $1.9 million in other related expenses, the net proceeds of the
offering were approximately $68.8 million. Of such amount, approximately $10.8
million has been used for working capital, approximately $200,000 has been used
for debt repayment, and the remainder has been invested in investment grade,
interest bearing securities. The Company intends to use the remaining proceeds
for capital expenditures and for general corporate purposes, including working
capital to fund anticipated operating losses.

(e)   Sales of Unregistered Securities

      During 1999, we granted stock options to purchase 3,040,335 shares of
Common Stock, with exercise prices ranging from $.10 to $62.313 per share, to
employees and officers pursuant to our 1996 Stock Option Plan and stock options
to purchase 120,000 shares of Common Stock at an exercise price of $12.00
pursuant to our 1998 Directors Stock Plan. During 1999, options to purchase
442,745 shares of Common Stock were exercised, with exercise prices ranging from
$.10 to $6.82. The sales and issuances of these securities were exempt from
registration under either Rule 701 under the Securities Act of 1933 or under
Section 4(2) of the Securities Act of 1933.

                                      -13-
<PAGE>

Item 6. SELECTED FINANCIAL DATA

The following table sets forth summary consolidated financial information and
data for the years indicated.

<TABLE>
<CAPTION>
                                                                 Inception
                                                              (June 21, 1996)
                                                              to December 31,                Years Ended December 31,
                                                                    1996              1997            1998              1999
                                                             ----------------------------------------------------------------
                                                                           (In thousands, except per share amounts)
<S>                                                              <C>              <C>              <C>              <C>
Consolidated Statements of Operations Data:
Revenues:
    Product                                                      $     --         $     --         $     64         $    859
    Program-related services                                           --                9              583            2,672
    Technical consulting services                                      --               --               --            4,310
                                                             ---------------------------------------------------------------
                Total revenues                                         --                9              647            7,841
                                                             ---------------------------------------------------------------

Costs and expenses:

    Cost of product revenues                                           --               --               59              968
    Program-related services, marketing and support costs             102            1,496            7,293           23,425
    Cost of technical consulting services revenues                     --               --               --            3,056
    Research and development                                           63            1,505            3,383            5,321
    Selling, general and administrative                               108            1,210            3,134            9,139
    Amortization of deferred stock compensation,
      supplier stock awards and intangibles                            --               63            1,186           14,433
                                                             ---------------------------------------------------------------
                      Total costs and expenses                        273            4,274           15,055           56,342
                                                             ---------------------------------------------------------------

    Loss from operations                                             (273)          (4,265)         (14,408)         (48,501)
    Interest income, net                                                7               85              297            1,673
                                                             ---------------------------------------------------------------

    Net loss                                                     $   (266)        $ (4,180)        $(14,111)        $(46,828)
                                                             ===============================================================

    Net loss per share- basic and diluted                        $  (0.97)        $  (5.70)        $  (8.58)        $  (4.99)
                                                             ===============================================================

    Shares used in computing per share amounts - basic
         and diluted                                                  273              734            1,644            9,376
                                                             ===============================================================

    Pro forma net loss per share on a converted basis-
        basic and diluted (1)                                                                      $  (1.05)        $  (1.95)
                                                                                                   =========================
    Shares used in computing pro forma per share amounts
        on a converted basis (1)                                                                     13,422           24,019
                                                                                                   =========================
</TABLE>

(1) Gives retroactive effect to the conversion of all outstanding of preferred
stock into common stock, which occurred upon the consummation of the initial
public offering, had occurred as of the beginning of 1998.

<TABLE>
<CAPTION>
                                                               As of December 31,
Consolidated Balance Sheet Data:               1996          1997          1998          1999
                                             --------------------------------------------------
                                                              (in thousands)
<S>                                          <C>           <C>           <C>           <C>
Cash and equivalents                         $  1,118      $  6,608      $ 13,651      $ 75,290
Working capital                                 1,027         6,348         9,923        71,771
Total assets                                    1,255         8,549        21,935       104,701
Deferred revenues--product and services            --            59         1,906        10,061
Long-term obligations                              --           196         1,233         1,234
Total stockholders' equity                      1,146         7,128        14,334        84,264
</TABLE>


                                      -14-
<PAGE>

Additional Operating Data:

A reconciliation of loyalty currencies activity for the ClickRewards program,
deferred revenue-product and and non-revenue points awarded by Netcentives
follows:

<TABLE>
<CAPTION>
                                                                  Years Ended December 31,
                                                             1997            1998             1999
                                                           ---------       ---------       ---------
                                                                       (in thousands)
<S>                                                        <C>             <C>             <C>
Loyalty currencies activities (number of points): (5)
   Beginning balance                                              --           2,130          62,495
   Awarded by merchants                                          236          48,554         203,050
   Redeemed by members                                            (3)         (3,184)        (42,441)
   Sold to merchants not yet awarded, net (1)                  1,897          24,895          86,429
   Expired (2)                                                    --          (9,900)         (1,593)
                                                           ---------       ---------       ---------
   Ending balance                                              2,130          62,495         307,940
                                                           =========       =========       =========
   In circulation (3)                                            233          45,603         223,171
                                                           =========       =========       =========

Deferred Revenues--Product:
   Beginning balance                                       $      --       $      43       $   1,250
   Awarded by merchants                                            5             971           4,063
   Redeemed by members                                            --             (64)           (849)
   Sold to merchants not yet awarded, net (1)                     38             498           1,728
   Expired (2)                                                    --            (198)            (32)
                                                           ---------       ---------       ---------
   Ending balance                                          $      43       $   1,250       $   6,160
                                                           =========       =========       =========

Non-revenue points awarded by Netcentives (4):
   Points outstanding at end of period                            --          27,508         121,946
                                                           =========       =========       =========
   Accrued redemption costs                                $      --       $     509       $   2,256
                                                           =========       =========       =========
</TABLE>

A reconciliation of loyalty currencies activity for the Custom Loyalty programs,
deferred revenue-product follows:

<TABLE>
<CAPTION>

                                                                      Year Ended
                                                                     December 31,
Loyalty currencies activities (number of points): (6)                    1999
                                                                    ------------
<S>                                                                    <C>
   Beginning balance                                                         --
   Awarded by merchants                                                   9,012
   Redeemed by members                                                   (1,114)
   Sold to merchants not yet awarded, net (1)                            56,283
                                                                       --------
   Ending balance                                                        64,181
                                                                       ========
    In circulation (3)                                                    7,898
                                                                       ========

Deferred Revenues--Product:
   Beginning balance                                                   $     --
   Awarded by merchants                                                      78
   Redeemed by members                                                      (11)
   Sold to merchants not yet awarded, net (1)                               262
                                                                       --------
   Ending balance                                                      $    329
                                                                       ========
</TABLE>

----------

(1)   Merchants are required to purchase points in advance before awarding them
      to consumers. This represents the buying activity, net of awards to
      members, of our merchants.

(2)   Some points purchased by merchants must be awarded within specified
      periods and cannot be refunded. This represents the number of points which
      expired unawarded and the amounts recorded as revenue at that time.

(3)   In circulation represents that portion of the outstanding loyalty currency
      points awarded by merchants and still held by members. Upon redemption of
      these points, Netcentives will recognize the related product revenue
      component.

(4)   In addition to points purchased and awarded by merchants, Netcentives has
      issued points to its merchants and directly to its members in connection
      with promotional campaigns and in lieu of cash for other expenses. These
      points are accounted for as an expense and an accrued obligation at the
      time of award. This represents the number of points outstanding at the end
      of each period and the amount of related liability.

(5)   The ClickRewards program began in 1997.

(6)   The Custom Loyalty programs began in 1999.


                                      -15-
<PAGE>

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

Overview

Netcentives was incorporated in June 1996. From inception until March 1998, our
operations consisted primarily of various start-up activities, such as research
and development, personnel recruiting, capital raising and trial sales of our
products with initial customers. We launched the ClickRewards Network in March
1998 and began recognizing revenue from non-trial program sales in April 1998.
In December 1998, we acquired Netcentives Professional Services (formerly the
Panttaja Consulting Group, Inc.), a provider of technical consulting services to
e-commerce merchants and other businesses. We launched our first Enterprise
Incentive Solutions program in January 1999 and our first Custom Loyalty program
in July 1999.

How our Programs Work

Netcentives is a leading provider of marketing infrastructure technologies and
services to drive greater customer loyalty and maximize lifetime customer value
for its clients. We have focused our business strategy around maximizing the
full lifetime value of customers for our clients both online and offline. In our
turn-key, end-to-end solutions, we sell rewards currencies to electronic
retailers, portals and other Internet sites. Our primary rewards currency is
ClickMiles, which we sell to merchants who become part of the ClickRewards
Network. These merchants, in turn, award these ClickMiles to consumers as
purchase, loyalty and other incentives. ClickMiles are redeemable for, among
other things, frequent flyer miles on major airlines at a ratio of one frequent
flyer mile for each ClickMile. We have also developed and continue to develop
customer branded loyalty and rewards currencies for large Internet merchants,
portals, community sites and other business customers. We sell these custom
currencies to our customers, who then distribute them under their own brands.
The custom loyalty currencies are redeemable for items specific to the customer
for whom the currency has been developed and, in certain cases, are exchangeable
for ClickMiles.

ClickRewards. Merchants who participate in the ClickRewards Network receive the
benefit of our promotion of the ClickRewards brand and network, which includes
direct links to the merchants' sites from our ClickRewards web page. We also
provide merchants who participate in the ClickRewards Network with a variety of
related marketing and promotional services. These services include promotional
consulting, direct marketing services to our member base and integration and
maintenance of our enabling software. Depending on the specific relationship we
have with the merchant, we may either include some of these services in our
ClickMiles pricing or we may price them separately. To the extent that services
are bundled with ClickMiles, we increase the price of the ClickMiles package to
reflect the value of these services.

Custom Loyalty Programs and Enterprise Incentive Solutions. In 1999, we expanded
the flexible technology platform of our ClickRewards program to meet the
marketing needs of large portals and financial institutions with large
constituencies, and to enable large enterprises to motivate and reward their
employees, vendors and other stakeholders via intranets and extranets. These
Custom Loyalty programs and Enterprise Incentive Solutions are delivered on both
a bundled and separately-priced basis, and are powered by Netcentives' secure
and scalable technology. We may separately charge for relationship management
services to these customers including promotional consulting, direct marketing
services and integration and maintenance of our enabling software.

Each of Netcentives' solutions can be supported by our promotional management
services such as account monitoring, reporting, reward fulfillment, customer
service support, customized e-mail communication services and rewards program
aggregation services. In the case of reward fulfillment, we purchase the
relevant awards and either have the merchandise delivered to the consumer
through third-party fulfillment houses, or in the case of frequent flyer miles
offered through the ClickRewards Network, electronically credit their chosen
frequent flyer account. We also provide members with ongoing support to assist
them in managing and redeeming their currency.


                                      -16-
<PAGE>

How We Recognize Revenues

Currency-related revenues; product and program-related services

The revenues we receive from the sale of currencies are made up of two
components: product revenues and program-related services revenues. Product
revenues reflect the value of the reward our members will ultimately receive
upon redemption of the promotion currency. Program-related services revenues
reflect the value of services that we perform for custom loyalty clients,
merchants and members. As a result, our revenues related to sale of currencies
are recognized at various times.

A merchant or custom loyalty client typically purchases currencies from us
before awarding them. Upon the sale of our loyalty currencies, we allocate these
revenues between the product component, and the program-related services
components. The product component of revenues is deferred until the member
redeems the currency for his or her selected reward. At the time of redemption,
we recognize the product component of revenues and the associated cost of
revenue based on the actual cost of the redemption reward. The revenue related
to the services component of the currency sale is deferred until the sale of the
currency becomes non-refundable, which in the ClickRewards program has
historically been upon award of the currency to a consumer by the merchant.
Services revenues relating to separately-priced services are recognized when
these services are delivered. The remaining portion of services revenues is
recognized ratably over the period during which these services are provided. For
all ClickMiles sold through December 31, 1999, this service period has been
initially calculated for the maximum life of the ClickMile based on its
expiration date. To the extent ClickMiles are redeemed prior to expiration, the
remaining unamortized amount of deferred services revenues is recognized at the
time of redemption.

Currently, ClickRewards merchants buy ClickMiles in advance based on their
anticipated needs. New merchants are required to purchase a minimum of 450,000
ClickMiles. On an ongoing basis, each merchant is required to purchase
ClickMiles in quantities at least equal to its expected monthly usage and to
maintain a minimum balance generally equal to its expected bi-weekly usage. We
determine each merchant's expected usage based on past trends and forecasted
requirements in active promotions. These ClickMiles are non-refundable and will
expire if not awarded by the merchant within a six-month period. The merchant
services portion of revenues of any ClickMiles sold under these arrangements is
amortized over the maximum period during which the merchant may use the
ClickMiles, resulting in a shorter amortization period than has historically
been used. The member services component of revenues continues to be amortized
over the expected life of the ClickMile. This change did not have a significant
impact on revenues in the year ended December 31, 1999.

If loyalty currency points expire or are forfeited, we recognize the remaining
amount of deferred product and program-related services revenues at the time of
expiration or forfeiture. Since we do not have sufficient experience concerning
the redemption or forfeiture of currency points, we cannot currently predict in
which periods we will recognize these revenues.

We typically sell our loyalty currency products and related services to
merchants or custom clients for cash. However, from time to time, in connection
with promoting the ClickRewards Network, we also sell ClickMiles to our
merchants for non-cash consideration, such as advertising and merchandise. The
revenue from the sale of these ClickMiles is accounted for on the same basis as
cash sales and the value of the advertising or merchandise is recorded as an
expense or a prepaid asset as appropriate. In 1998, approximately $956,000 of
advertising expense was recorded under these arrangements, of which 74% was
transacted with two merchants. In 1999, approximately $1.0 million of
advertising expense was recorded under these arrangements, of which 86% was
transacted with three merchants.

We also derive program-related service revenues from the initial set-up fees
received from some of our Custom Loyalty programs. We recognize these set-up
fees and related costs over the minimum life of the Custom Loyalty program
contract. In 1999, we recognized $140,000 of set-up fee revenue related to the
launch of three programs. Additionally, we derive program-related service
revenues from advertising and other direct marketing services provided to third
parties. In 1999, we recognized $1.1 million of revenues related to these
activities.


                                      -17-
<PAGE>

Technical consulting services revenues

We provide systems integration and technical consulting services to a variety of
clients, including ClickRewards merchants and Custom Loyalty and Enterprise
Incentive customers, to help them deploy our programs. These revenues are
recognized as the services are provided.

Results of Operations

Years Ended December 31, 1997, 1998, and 1999

Revenues

We began test marketing the ClickRewards Network during December 1997. Total
revenues increased from $9,000 in 1997 to $647,000 in 1998 to $7.8 million in
1999. These increases in revenues were primarily a result of increased technical
consulting service revenues related to the acquisition of Panttaja Consulting
Group in December 1998 and the growth of our ClickRewards Network launched in
March 1998. Merchants awarded 236,000 ClickMiles in 1997, 48.6 million
ClickMiles in 1998 and 203.1 million ClickMiles in 1999, respectively, which was
principally attributable to increases in the number of merchants and members
participating in the ClickRewards Network. Product revenues reflect the
redemption of ClickMiles for awards during the year. Consumers redeemed 3,000
ClickMiles in 1997, 3.2 million ClickMiles in 1998 and 42.4 million ClickMiles
in 1999. Program-related service revenues in the year ended December 31, 1998
included $296,000 relating to the expiration of ClickMiles owned by a merchant
which were not distributed to consumers as well as $84,000 of consulting
services revenues attributable to a non-recurring consulting contract with Visa
International. Program-related service revenues in the year ended December 31,
1999 included $140,000 arising from set-up fees related to launching the Custom
Loyalty programs and $1.1 million from advertising and other direct marketing
services provided to our ClickRewards merchants.

Cost of Product Revenues

Cost of product revenues represents the actual cost of awards selected by
members in exchange for ClickMiles or for the Custom Loyalty currencies. Cost of
product revenues were $59,000 in 1998 and $968,000 in 1999, respectively. These
cost of product revenues represented 92% and 113% of product revenues for the
years ended December 31, 1998 and 1999, respectively. The increase in cost of
product revenues was a result of the increased redemption of ClickMiles by
members which was principally related to the increased number of ClickMiles
outstanding as well as a special promotion offered in July 1999 during which we
offered our members the ability to redeem their outstanding ClickMiles for
frequent flyer miles on a two-for-one basis. As a result of this offer, we
incurred approximately $138,000 of additional product costs during the year
ended December 31, 1999.

Program-Related Services, Marketing and Support Costs

Program-related services, marketing and support costs represents the cost of
marketing services provided for the ClickRewards Network, Custom Loyalty
programs, and Enterprise Incentive Solutions, as well as costs incurred to
support merchants and members in the Network. These costs consist primarily of
compensation and related costs for marketing and sales personnel, advertising
and marketing for the ClickRewards Network, Custom Loyalty programs and
Enterprise Incentive Solutions, merchant account and rewards supplier
management, product management activities and ClickMiles issued to acquire new
members for the ClickRewards Network. Program-related marketing and support
costs were $1.5 million in 1997, $7.3 million in 1998 and $23.4 million in 1999.
The increase between 1997 and 1998 was primarily the result of increased
marketing and consumer support personnel expenses of $1.2 million, member
acquisition costs of $500,000, and advertising and promotions expenses of $3.0
million associated with the launch of the ClickRewards Network. The increase
from 1998 to 1999 was primarily the result of increased marketing and consumer
support personnel expenses of $3.7 million, member acquisition costs of $2.2
million, and advertising and promotions expenses of $5.2 million associated with


                                      -18-
<PAGE>

the promotion of the ClickRewards Network. We expect to substantially increase
our marketing expenditures, particularly those related to acquiring members for
the ClickRewards Network, advertising and promoting our brands and products,
recruiting additional marketing personnel and managing programs for our Custom
Loyalty programs and Enterprise Incentive Solutions customers.

Cost of Technical Consulting Services Revenues

Cost of technical consulting services consists of the personnel and overhead
costs incurred in connection with providing technical consulting services. There
were no technical consulting services provided in 1997 and 1998 and therefore no
cost of technical consulting services revenues during these years. Cost of
technical consulting services totaled $3.1 million for the year ended December
31, 1999 and were related to technical consulting services provided by
Netcentives Professional Services.

Research and Development

Research and development expenses consist primarily of compensation and related
costs for research and development personnel, including independent contractors
and consultants, software licensing expenses and allocated operating expenses
such as site hosting, Web site production, facilities expenses, and equipment
costs. Research and development expenses were $1.5 million in 1997, $3.4 million
in 1998 and $5.3 million in 1999, respectively. These increases were primarily
the result of an increase in expenses for enhancements to the ClickRewards
Network, as well as initial development efforts relating to our Custom Loyalty
Programs. The largest component of the increases was the growth in compensation
and related staff expenses. These expenses increased by $1.2 million from 1997
to 1998 and $1.3 million from 1998 to 1999. We expect to continue to increase
substantially research and development spending in absolute dollars as we
develop new products and expand our resources to maintain existing products.

Selling, General and Administrative

Selling, general and administrative expenses consist primarily of salaries and
related expenses, sales commissions, treasury expenses, accounting and
administrative expenses, professional fees, and other selling and corporate
expenses. Selling, general and administrative expenses were $1.2 million in
1997, $3.1 million in 1998 and $9.1 million in 1999. The increases from period
to period were primarily the result of increased sales efforts to enroll
merchants into the ClickRewards Network, increased business development efforts
for our Custom Loyalty Programs and increased general and administrative
personnel. The largest component of these increases was the growth in
compensation expense and related staff costs as a result of increased staffing
levels. The number of employees in the Company grew from 16 in 1997 to 101 in
1998 to a total of 225 in 1999. Compensation expense and related staff costs
increased by $1.1 million from 1997 to 1998 and $6.3 million from 1998 to 1999.
We expect selling, general and administrative expenses to increase in absolute
amounts as we add personnel and incur additional costs related to the
anticipated growth of our ClickRewards Network and Custom Loyalty programs, our
expansion into international markets and our operation as a public company.

Amortization of Deferred Stock Compensation, Supplier Stock Awards and
Intangibles

Amortization of deferred stock compensation represents the difference between
the purchase or exercise price of certain restricted stock and stock option
grants, and the deemed fair market value of our common stock at the time of
these grants. This difference is amortized over the vesting period for such
grants, which is typically four years. Amortization of deferred stock
compensation was $296,000 in 1998 and $4.1 million in 1999. These amounts
resulted from amortization of deferred stock compensation related to stock
option grants and stock awards granted in 1998 and 1999.

Amortization of supplier stock awards represents the cost of warrants granted to
certain airlines and other rewards suppliers in return for exclusivity. Expenses
related to contingent stock warrants granted to certain airlines and other
partners was $63,000 in 1997, $811,000 in 1998 and $8.6 million in 1999. Because
the vesting of these


                                      -19-
<PAGE>

awards is subject to these rewards suppliers maintaining the exclusivity of the
arrangement with Netcentives, the valuation of the warrants is not finalized
until the vesting date. Accordingly, the amount of the expense recognized for
these warrants increased as the value of our stock increased. A substantial
number of these warrants had not yet vested as of December 31, 1999. As a
result, we expect that the charge relating to supplier stock awards to increase
over remaining vesting periods through 2002.

In December 1998, we acquired the Panttaja Consulting Group (now known as
Netcentives Professional Services) in a transaction that was accounted for as a
purchase. The resulting goodwill of $3.5 million recorded in the acquisition
will be amortized over two years. In 1998 and 1999, we incurred $79,000 and $1.8
million, respectively, of expense related to amortization of this goodwill.

Interest Income, Net

Interest income primarily represents interest earned on short-term investments
in highly-liquid debt instruments with a maturity at time of purchase of three
months or less. Interest income, net, was $85,000 in 1997, $297,000 in 1998 and
$1.7 million in 1999. The increase was a result of increased cash balances from
the private placement of preferred equity securities in 1998 and 1999 and from
the initial public offering in October 1999, offset in part by an increase in
interest expense relating to capital leases and other financing arrangements.
Interest income increased from $121,000 to $441,000 to $2.0 million for the
years ended December 31, 1997, 1998 and 1999, respectively. Interest expense
increased from $36,000 to $144,000 to $305,000 for the years ended December 31,
1997, 1998 and 1999, respectively.

Income Taxes

We have recorded losses since inception, and anticipate losses for the
foreseeable future. We have therefore recorded no provision for income taxes for
the years ended December 31, 1997, 1998 and 1999.

Net Loss

Net loss increased from $4.2 million in 1997 to $14.1 million in 1998 to $46.8
million in 1999. The increases in net loss were primarily due to an increase in
operating costs and expenses of $10.8 million from December 31, 1997 to December
31, 1998 and an increase of $41.3 million from the year ended December 31, 1998
to December 31, 1999.

Liquidity and Capital Resources

We have funded our operations since inception primarily through the private
placement of preferred equity securities, through which we had raised net
proceeds of $63.7 million through December 31, 1999, and from an initial public
offering in October and November 1999 which raised net proceeds of $68.8
million. We have also financed our operations through equipment lease financing
and bank borrowings. As of December 31, 1999, we had outstanding equipment lease
financing and bank borrowings totaling $2.2 million. We have no other available
lines of credit or credit available under existing arrangements.

Cash used in operations was $9.5 million and $22.0 million in the years ended
December 31, 1998 and 1999, respectively. The cash used was primarily the result
of our operating losses in these periods. Cash used in operations primarily
reflected cash received from customers of $1.3 million and $13.7 million in the
years ended December 31, 1998 and 1999, respectively, offset by cash paid to
suppliers and employees of $11.2 million and $37.3 million in the same periods.

We initially defer recording revenue at the time we sell our loyalty currencies,
even though we have received cash up front from our customers for these sales. A
significant portion of revenue is not recognized until the currency is redeemed
by the consumer. The remaining revenue is recognized on a ratable basis over the
periods in which marketing and support services are provided to merchants and
members. As a result of this accounting method, the cash received from customers
is substantially greater than the amount of revenues reported for these periods.
The


                                      -20-
<PAGE>

difference in these amounts is reflected primarily as an increase in the amount
of deferred revenues for products and services shown on our consolidated balance
sheet. Total deferred revenues increased on a net basis from cash transactions
by $848,000 for year ended December 31, 1998 and $7.1 million during the year
ended December 31, 1999. The growth in deferred revenues in the year ended
December 31, 1999 was offset in part by an increase in accounts receivable of
$1.3 million.

Cash paid to suppliers and employees was significantly less than costs and
expenses reported for these same periods. This resulted from non-cash charges
relating to depreciation, the amortization of deferred stock compensation,
supplier stock awards and intangible assets arising from the Panttaja Consulting
Group acquisition, and the use of ClickMiles in lieu of cash to pay for certain
expenses. Non-cash amortization charges totaled $1.8 and $17.1 million in the
years ended December 31, 1998 and 1999, respectively. The use of ClickMiles in
lieu of cash to pay for certain expenses resulted in the deferral of cash
payments of $1.5 million and $3.9 million during the years ended December 31,
1998 and 1999, respectively.

Investments in property and equipment were $1.2 million and $9.7 million in the
years ended December 31, 1998 and 1999, respectively. Cash provided by financing
activities was $17.9 million and $104.2 million in the years ended December 31,
1998 and 1999, respectively. Cash was provided by sales of preferred stock of
$17.2 million and $34.9 million in the years ended December 31, 1998 and 1999,
respectively, and through the Company's initial public offering in October 1999.
Total net proceeds received from the sales of stock in connection with the
initial public offering were approximately $68.8 million.

At December 31, 1999, in the ClickRewards Network we had 307.9 million
ClickMiles outstanding which had been sold to merchants (of which 223.2 million
had been awarded to members and are in circulation). The December 31, 1999
balance sheet includes approximately $6.2 million of deferred revenues relating
to the product component of this currency, which will be recognized as revenue
at the time of redemption. Other than barter exchanges, we have already received
cash from our merchants relating to these points, which is unrestricted and
which we can use for any corporate purpose. In addition, an additional 121.9
million ClickMiles which had been issued by us to pay for expenses in lieu of
cash were outstanding. As of December 31, 1999, we had an accrued liability of
approximately $2.3 million for the estimated cost of redemption of these points.
All of these points expire if not redeemed by December 31, 2001. Although we
have purchased some frequent flyer miles in advance, most of the funding to pay
for the costs associated with these product redemption liabilities must come
from available cash resources at the time of redemption. Although these
liabilities are reflected as current liabilities in our balance sheet, the
timing of the related liability is controlled by the actual redemptions, which
could occur in irregular patterns over the next 2 years until expiration.
Because we cannot control the timing of our members' decision to redeem points,
should the rate of redemption of points exceed our estimates, it could be
necessary for us to obtain additional working capital and our results of
operations could be materially and adversely affected.

At December 31, 1999, in the Custom Loyalty programs we had 64.2 million custom
loyalty currency points outstanding which had been sold to Custom Loyalty
clients (of which 7.9 million had been awarded to members and are in
circulation). The December 31, 1999 balance sheet includes approximately
$329,000 of deferred revenues relating to the product component of these
currencies, which will be recognized as revenue at the time of redemption. Other
than barter exchanges, we have already received cash from our merchants relating
to these points, which is unrestricted and which we can use for any corporate
purpose. Most of the funding to pay for the costs associated with these product
redemption liabilities must come from available cash resources at the time of
redemption. Although these liabilities are reflected as current liabilities in
our balance sheet, the timing of the related liability is controlled by the
actual redemptions, which could occur in irregular patterns over the next 2
years until expiration. Because we cannot control the timing of our members'
decision to redeem points, should the rate of redemption of points exceed our
estimates, it could be necessary for us to obtain additional working capital and
our results of operations could be materially and adversely affected.

At December 31, 1999, we had cash and equivalents totaling $75.3 million.


                                      -21-
<PAGE>

We anticipate that our available cash resources will be sufficient to meet our
presently anticipated working capital and capital expenditure needs for at least
the next twelve months.

Our future liquidity and capital requirements will depend on numerous factors.
For example, our pace of expansion will affect our future capital requirements,
as may our decision to acquire or invest in complementary businesses and
technologies. Therefore, we may be required to raise additional funds in the
future through the issuance of debt or equity securities. If additional funds
are raised through the issuance of equity securities, our existing stockholders
may experience significant dilution. Furthermore, additional financing may not
be available when needed or, if available, such financing may not be on terms
favorable to us or our stockholders. If financing is not available when required
or is not available on acceptable terms, we may be unable to develop or enhance
our programs or other services. In addition, we may be unable to take advantage
of business opportunities or to respond to competitive pressures. Any of these
events could harm our business and financial condition.

Recent Accounting Pronouncements

In June 1998 and June 1999, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging Activities" and Statement of Financial
Accounting Standards No. 137 (SFAS 137), "Deferral of the Effective Date of SFAS
133," respectively. SFAS 133 and SFAS 137 require the recognition of all
derivatives as either assets or liabilities in the statement of financial
position, and to measure those instruments at its fair value, and are effective
for all fiscal years beginning after June 15, 2000 with earlier adoption
encouraged. As of December 31, 1999, the company did not engage in derivative
instruments or hedging activities that would require the application of SFAS
133.


                                      -22-
<PAGE>

Quarterly Results of Operations

<TABLE>
<CAPTION>

                                                                         Quarters Ended
                                                    ------------------------------------------------------
                                                     Mar. 31,       June 30,       Sept. 30     Dec. 31,
                                                      1998            1998            1998        1998
                                                    ----------------------------------------    --------
                                                    (in thousands, except per share amounts)
<S>                                                 <C>             <C>             <C>         <C>
Revenues:

  Product                                           $      2        $      8        $     15    $     39
  Program-related services                                13             104             349         117
  Technical consulting services                           --              --              --          --
                                                    --------        --------        --------    --------
   Total revenues                                         15             112             364         156
                                                    --------        --------        --------    --------

Costs and expenses:

  Cost of product revenues                                 2               7              14          36
  Program-related services, marketing
  and support costs                                      684           1,755           1,640       3,214
  Cost of technical consulting services revenues          --              --              --          --
  Research and development                               685             716             804       1,178
  Selling, general and administrative                    704             615             715       1,100
  Amortization of deferred stock compensation,            73              91             290         732
    supplier stock awards and intangibles
                                                    --------        --------        --------    --------
    Total costs and expenses                           2,148           3,184           3,463       6,260
                                                    --------        --------        --------    --------
Loss from operations                                  (2,133)         (3,072)         (3,099)     (6,104)
Interest  income, net                                     53              21              82         141
                                                    --------        --------        --------    --------
Net loss                                            $ (2,080)       $ (3,051)       $ (3,017)   $ (5,963)
                                                    ========        ========        ========    ========
Pro forma net loss per share--basic
  and diluted (1)                                   $  (0.19)       $  (0.27)       $  (0.21)   $  (0.35)
                                                    ========        ========        ========    ========
Pro forma shares used in computing per share
 amounts--basic and diluted (1)                       10,968          11,208          14,072      17,263
                                                    ========        ========        ========    ========

<CAPTION>
                                                -----------------------------------------------
                                                  Mar. 31,    June 30,    Sept. 30     Dec. 31,
                                                    1999        1999        1999         1999
                                                   --------    --------    --------    --------
<S>                                                <C>         <C>         <C>         <C>
Revenues:

  Product                                          $    103    $    113    $    464    $    179
  Program-related services                              117         320         454       1,781
  Technical consulting services                       1,436         932       1,085         857
                                                   --------    --------    --------    --------
   Total revenues                                     1,656       1,365       2,003       2,817
                                                   --------    --------    --------    --------

Costs and expenses:

  Cost of product revenues                               92          93         553         230
  Program-related services, marketing
  and support costs                                   4,538       5,394       7,059       6,434
  Cost of technical consulting services revenues        817         679         880         680
  Research and development                            1,087         903       1,663       1,668
  Selling, general and administrative                 1,318       1,791       1,842       4,188
  Amortization of deferred stock compensation,        1,508       1,397       1,970       9,558
    supplier stock awards and intangibles
                                                   --------    --------    --------    --------
    Total costs and expenses                          9,360      10,257      13,967      22,758
                                                   --------    --------    --------    --------
Loss from operations                                 (7,704)     (8,892)    (11,964)    (19,941)
Interest  income, net                                    96         351         376         850
                                                   --------    --------    --------    --------
Net loss                                           $ (7,608)   $ (8,541)   $(11,588)   $(19,091)
                                                   ========    ========    ========    ========
Pro forma net loss per share--basic
  and diluted (1)                                  $  (0.41)   $  (0.36)   $  (0.48)   $  (0.64)
                                                   ========    ========    ========    ========
Pro forma shares used in computing per share
 amounts--basic and diluted (1)                      18,647      23,777      24,158      29,783
                                                   ========    ========    ========    ========
</TABLE>

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

(1) Gives retroactive effect to the conversion of all outstanding shares of
preferred stock into common stock, which occurred upon the consummation of the
initial public offering, had occurred as of the beginning of 1998.


                                      -23-
<PAGE>

RISK FACTORS

Business and Financial Risks

We have a history of losses and expect increasing future losses.

We incurred losses of $4.2 million in 1997, $14.1 million in 1998 and $46.8
million in 1999. Our net loss was 46,444%, 2,181% and 597% of our revenues for
the years ended December 31, 1997, 1998 and 1999, respectively. As of December
31, 1999 we had an accumulated deficit of $65.4 million. We currently expect
that we will continue to incur losses for the foreseeable future and that the
magnitude of these losses will increase substantially. We cannot assure you of
when or if we will become profitable. We believe that our ability to become
profitable will be based on a number of factors, including the other risk
factors listed in this section.

Because we have a limited operating history, it is difficult to evaluate our
business and prospects.

We were incorporated in June 1996 and launched our first product in March 1998.
Therefore, we have a limited operating history on which you can base an
investment decision. Furthermore, the Internet promotion and direct marketing
industry is a new industry. As such, our business is subject to certain
challenges that a more mature company or a company operating in a more mature
industry may not face, such as:

o     we have an unproven business model;
o     members may not redeem loyalty currencies in regular patterns;
o     redemptions may exceed our available cash resources and cause fluctuations
      in our operating results;
o     we are substantially dependent upon the expansion of the Internet and the
      growth of e-commerce;
o     we expect competition to intensify as new competitors emerge and existing
      competitors offer new products and services;
o     we may be unsuccessful in establishing or maintaining our brand;
o     we depend on the promotional efforts of our merchants and other third
      parties; and
o     our sales cycles are unpredictable and may result in quarterly
      fluctuations in our operating results which could lower our stock price.

If the market for e-commerce fails to grow, our revenues will not grow.

Our success will depend in large part on the continued growth in the use of the
Internet for commerce. We do not have direct control over the expansion of
e-commerce, and to the extent that the market for e-commerce does not increase,
our customer base and revenues will not grow.

In addition, critical and unresolved issues concerning the commercial use of the
Internet may affect the development of the market for our products and services,
including:

o     the ability of consumers, sellers and other intermediaries to conduct
      e-commerce on a secure basis;
o     the reliability of the Internet for e-commerce, including the regular
      availability of e-commerce sites;
o     the availability of low-cost access to the Internet for consumers; and
o     availability of sufficient telecommunications bandwidth to consumers to
      enhance their ability to interact in the e-commerce shopping process.

If our supplier relationships become non-exclusive or are terminated, our
competitive position will be harmed.

We believe that our relationships with major airlines and their frequent flyer
programs are a source of competitive advantage, particularly to the extent that
they remain exclusive in the area of points-based Internet promotions networks.
While we believe that we have established a broad scope of exclusivity within
our agreements with


                                      -24-
<PAGE>

airlines, our competitors could circumvent the terms of these agreements.
Furthermore, in some cases, airlines may terminate the exclusivity provisions
contained in these agreements following notice periods ranging from 45 to 90
days. If Netcentives ceases to be the sole company offering frequent flyer miles
for multiple airlines for use in points-based Internet promotions networks, our
business would be harmed. Additionally, some of our airline agreements may be
terminated in their entirety following notice periods ranging from 90 to 180
days without any termination fee. To the extent that Netcentives can no longer
offer frequent flyer miles from one or more of our current rewards suppliers,
our business would be harmed.

If our merchants terminate their relationships with us, our competitive position
and financial results may suffer.

Our merchants may generally terminate their relationships with us on 30 days
prior notice if changes we implement to the ClickRewards Network materially
impact the merchant's ability to participate in the program. Any termination of
merchant relationships could harm our business and financial results either
directly through the loss of revenues we generate through these merchants or,
more generally, through a perception of decreased value by our members or other
merchants participating in the ClickRewards Network.

We are subject to intense competition, and we expect to face increased
competition in the future.

As a provider of marketing infrastructure technologies and services, we
generally compete with advertising and promotional programs for a portion of a
customer's total marketing budget. In addition, we compete with a variety of
businesses within the online promotions market. We believe that the Internet
promotion and electronic direct marketing industry includes over 45 companies.
For branded loyalty networks, our primary competition can be categorized as
follows:

o     Stand-alone loyalty programs and promotional tools developed by and/or for
      e-commerce sites, such as Autobytel.com Mobalist Rewards, CDnow Fast
      Forward Rewards, and CBS SportsLine Rewards.

o     Other points-based programs from companies such as Cybergold, Beenz and
      MyPoints.

Our Enterprise Incentive Solutions products and services compete with existing,
offline incentive products provided by parties such as Maritz Marketing
Research, Carlson Marketing Group, Loyalty Group, a division of Alliance Data
Systems and BI Performance Services. Our Custom Loyalty Network and Enterprise
Incentive Solution products and services also compete with products offered by
third parties, such as MyPoints.com.

For each of our programs, we expect competition to intensify as we expand our
products and services and as more competitors enter our market. We believe that
such future competition could come from newly formed companies and, more
importantly, from traditional offline promotions and loyalty companies such as
Carlson Marketing Group, Brierley & Partners and Signature Group, a division of
GE Capital. In order to compete in our market, companies will need to develop
the necessary Internet- based technology infrastructure, enter into
relationships with key suppliers and obtain access to appropriate business
processes. We believe that large offline promotions and loyalty companies have
the necessary resources and expertise to do so. While we currently have
contractual relationships with many rewards suppliers, such as airline frequent
flyer programs, any of these suppliers could themselves enter our markets and
provide us with substantial competition. Additionally, as we increasingly offer
program elements to our customers on a stand-alone basis, we expect to encounter
additional competition from companies outside of the loyalty promotions market.

Many of our potential competitors have greater resources than we do, which may
impair our ability to compete.


                                      -25-
<PAGE>

Many of our potential competitors, and in particular offline promotions
companies and offline rewards programs, have longer operating histories,
stronger brand names and significantly greater financial, technical, marketing
and other resources than we do. In addition, these companies may have existing
relationships with our potential customers and may be able to respond to changes
in market dynamics and technology faster than we can. We cannot assure you that
we will be able to compete successfully against any potential competitors. If we
are unable to compete successfully against any potential competitors, our
business would suffer.

Because our business model is unproven, we cannot assure you that our revenue
will grow or that we will become profitable.

Our business model depends upon our ability to leverage and to expand our
network of ClickRewards Network merchants, Custom Loyalty Network customers,
Enterprise Incentive Solutions customers, rewards suppliers and members to
generate multiple revenue streams. The potential profitability of this business
model is unproven, and to be successful we must, among other things, develop and
market additional products and services to existing customers effectively.
Finally, we may be forced by competitive pressures, industry consolidation or
otherwise, to change our business model for certain or all of our customers, in
which case our financial results could be harmed. Our business model may not be
successful and we may not sustain revenue growth or achieve or sustain
profitability.

Consumers may not redeem loyalty currencies in regular patterns. If redemptions
are higher than we anticipate, our available cash resources could be depleted
and our operating results could fluctuate.

A significant element of our business model is based on the effective management
of the potential financial liabilities associated with our points-based loyalty
products. We typically receive cash from a merchant for loyalty currencies
months before the consumer earns and subsequently redeems the currency point.
However, we typically do not pay for the redemption reward until the consumer
redeems the currency point. Therefore, we do not control when we will incur this
cash expenditure. As a result, over time, as the number of currency points in
circulation increases, we will have increasing liabilities for the potential
eventual redemption of these points, and consequently we will need to maintain
adequate cash balances for any such future redemptions. Because we have very
limited historical data with respect to redemption behavior, we cannot assure
you that members will redeem their points in predictable patterns. If redemption
requests are inconsistent with our expectations or exceed our available cash
resources, our financial condition could be harmed. We do not currently have
unused and available credit facilities or similar sources of external financing.
Therefore, if we do not maintain adequate cash reserves we will be obligated to
raise additional funds. In addition, because we recognize a portion of our
revenues upon redemption by the consumer, unexpected redemptions could cause
fluctuations in our operating results and cause our stock price to fluctuate.

If the market for marketing infrastructure technologies and services does not
evolve as we anticipate, our business will be harmed.

The market for Internet-based promotion and direct marketing products and
services has only recently developed and is rapidly changing. As is typical for
a new and rapidly evolving industry, demand and market acceptance is uncertain,
and few proven offerings exist. Moreover, since the market for our promotion
products and services is new and evolving, it is difficult to predict the size
of this market or its future growth rate, if any. We cannot assure you that a
sufficient volume of merchants will accept online loyalty programs and
promotions as a consumer attraction and retention device. If the market for
Internet-based promotion and direct marketing fails to develop, develops more
slowly than expected, or becomes saturated with competitors, or if our products
fail to achieve market acceptance, our business would be harmed.

If factors outside of our control, or our member policies, cause loyalty
currencies, frequent flyer miles or other redemption options to become less
valuable, we may lose merchants and members.

                                      -26-
<PAGE>

We have based the ClickRewards Network, in part, on the assumption that frequent
flyer miles of major airlines and similar rewards from other suppliers have a
high perceived value for e-commerce shoppers. Furthermore, we have established
ClickMiles as being redeemable one-for-one for the frequent flyer miles of
several major airlines. To the extent that the airlines who provide us with
frequent flyer miles reduce the value of such miles by increasing the number of
miles required to achieve free travel, or by reducing the number of seats
available for free travel, the perceived value of ClickMiles to consumers and,
consequently, to merchants would be correspondingly reduced, which could harm
our business. We have no control over the policies of these airlines. In
addition, while we believe that e-commerce Web sites and shoppers currently have
a high perceived value for frequent flyer miles and the other awards that we
offer, if our belief is false, or if the perceptions of consumers shift over
time, our business could be adversely affected. Finally, to the extent that we
change the terms on which we offer or redeem ClickMiles, this may result in
dissatisfaction with the ClickRewards Network or in lawsuits, either of which
would harm our business or result in management distraction. For example, we
have recently added an expiration provision to our ClickMiles rewards currency,
such that consumers must redeem ClickMiles within 24 to 36 months of their
award. We cannot assure you that this or other changes to our ClickRewards
policies will not result in member or merchant dissatisfaction with, or reduced
acceptance of, our products and services.

We depend on the ClickRewards Network and Netcentives Professional Services for
most of our revenue; if we cannot develop revenues from new products, our
financial results will be harmed.

Substantially all of our revenues have come from the ClickRewards Network and
Netcentives Professional Services. Until we are able to develop revenues from
additional products, any reduction in revenues from ClickRewards or any material
unanticipated change in professional service-related revenues would harm our
results of operations. While we hope that our Custom Loyalty Networks and
Enterprise Incentive Solutions programs will account for a significant portion
of our future revenues, we have had only limited experience with these programs.
Therefore, we cannot assure you that we will be successful in establishing these
products as sources of revenue or profitability, or that these are the
appropriate programs on which we should be focusing our efforts. For year ended
December 31, 1999, technical consulting services and currency related revenues
were 55% and 45% of total revenues, respectively.

If we do not successfully establish or maintain our brands, our results of
operations will suffer.

We believe that establishing and maintaining the Netcentives and ClickRewards
brands are critical aspects of our efforts to attract, retain and expand our
merchant and member base and traffic, and to increase ClickMiles revenues. As a
result, we incurred $3.7 million and $7.8 million in advertising expenses for
the year ended December 31, 1998 and 1999, respectively. We also believe that
the importance of brand recognition will increase as the number of Internet
marketing and promotions companies increases. In order to attract and retain
merchants and members, we continue to increase our financial commitment to
creating and maintaining brand loyalty. We are doing this using
Internet-specific means, as well as more traditional means, such as media
advertising campaigns via print, radio and billboards. If we do not generate a
corresponding increase in revenues as a result of our branding efforts or
otherwise fail to promote our brand successfully, or if we incur excessive
expenses in an attempt to promote and maintain our brand, our results of
operations will suffer.

If our merchants or other customers fail to promote the ClickRewards Network or
other loyalty programs effectively, our revenues could suffer.

Our business model is substantially dependent upon the promotional efforts of
our merchants and other loyalty customers. For example, if our merchants do not
prominently display ClickRewards offers or do not work with us to create
promotional offers that are attractive and understandable to consumers, their
ClickRewards promotions may not be successful, and as a result, we may not be
successful. We cannot assure you that our merchants will continue to allocate
sufficient technical resources and promotional budgets and efforts to make their
ClickRewards promotions successful. If our merchants' promotional programs are
not successful, our revenues could suffer.

Any delays in our normally lengthy sales cycles could result in significant
fluctuations in our operating results.


                                      -27-
<PAGE>

The typical cycle to attract a new merchant to the ClickRewards Network is
between three to six months and the cycle for attracting Custom Loyalty Network
customers extends up to one year. Our sales are also unpredictable and involve
significant strategic marketing decisions by prospective customers. Our sales
process often requires us to educate potential customers about the uses and
benefits of our products and services and promotion tools more generally. In
particular, our Custom Loyalty Networks require customers to reconsider their
business in fundamental ways and often involve large financial commitments.
Finally, our prospective customers typically do not have personnel dedicated to
the implementation of promotion products such as ours either at a technical or
operational level. As a result, our customers typically spend substantial time
before purchasing our programs in performing internal reviews and obtaining
corporate approvals. We cannot be certain that this cycle will not lengthen in
the future. Any delay in sales of our programs could cause our operating results
to be significantly impaired.

Our future revenues are unpredictable, and our quarterly financial results may
fluctuate significantly.

We expect that our revenues will vary substantially from quarter to quarter as a
result of a variety of factors outside of our control. For example, because the
majority of our products and services are related to e-commerce, we expect that
ClickRewards merchants and Custom Loyalty Network customers will award more
ClickMiles and custom loyalty currencies during the holiday shopping season.
Similarly, at any given time, a limited number of customers conducting
particularly large issuance or redemption promotions may account for a large
fraction of our revenues. We will recognize the associated product and service
revenues from these transactions over a period of up to 36 months. To the extent
a large promotion ends or begins, or to the extent we begin or end recognizing
revenue associated with the holiday season in a given quarter, our results for
that quarter could be disproportionately affected. In addition we expect other
factors outside of our control to affect our quarterly results, such as:

o     fluctuations in the growth rate of e-commerce;
o     changes in currency redemption and expiration patterns; and
o     the concentration of our Custom Loyalty and Enterprise Incentive products
      and services among a limited number of customers.

Salaries, wages, and facilities-related expenses, which are relatively fixed in
the short term, comprised 50% of our total operating costs and expenses in the
year ended December 31, 1999. We expect such costs to continue to be a
significant percentage of total expenses in future periods. In addition, other
expenses, such as advertising and promotion, are incurred in advance of the
associated expected revenues. As a result, fluctuations in revenues may have a
disproportionate effect on our quarterly results of operations and consequently
our stock price.

We do not currently have any unused credit or other external financing
facilities. If we are unable to raise additional capital, our business and
financial condition would suffer.

Since our inception, we have experienced negative cash flow from operations and
we expect to continue to experience significant negative cash flow from
operations for the foreseeable future. We believe that our current capital
resources will be sufficient to meet our anticipated cash requirements for at
least the next twelve months. After that time, we may be required to raise
additional capital, and there can be no assurance that we will be able to raise
these funds on reasonable terms, or at all. If we are unable to raise additional
capital on reasonable terms, our current stockholders could suffer substantial
dilution. In addition, we may be unable to pursue our current strategy, respond
to competitive pressures or otherwise conduct our business in the manner in
which we would like. Any of these events would harm our business and financial
condition.

If we are unable to recover the amounts relating to intangible assets that we
have recorded, our financial results would be harmed.

We recorded a $3.5 million asset relating to the value of consulting
relationships acquired in connection with our acquisition of Panttaja Consulting
Group, Inc. We are amortizing this amount over the two-year period beginning


                                      -28-
<PAGE>

in December 1998, and our December 31, 1999 balance sheet includes $1.5 million
relating to this intangible asset. We cannot assure you that the business
associated with those relationships will not deteriorate or that this business
will not be terminated. If this business or these relationships are terminated,
we would be forced to write down the value of this intangible asset, which would
harm our financial results.

We do not intend to pay dividends.

We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for funding growth and therefore
do not expect to pay any cash dividends in the foreseeable future.

Technical Risks

If our systems do not prevent fraudulent transactions, our business and
financial condition could suffer.

Even though we have implemented network security measures, our servers are
vulnerable to computer viruses, break-ins and similar disruptions from
unauthorized tampering. If a third party is able to conduct fraudulent
transactions on our servers or tamper with transactions that occur between our
servers and our suppliers, members or merchants, we could be financially liable
for such transactions. In addition, our reputation and business could suffer.

Our network infrastructure may be compromised or damaged, which could harm our
business and financial condition.

We utilize the services of Exodus Communications to host our production servers
and provide us with telecommunications links. The successful delivery of our
services is substantially dependent on our ability and the ability of Exodus to
protect our server and network infrastructure against damage from:

o     human error;
o     fire;
o     flood;
o     power loss;
o     telecommunications failure;
o     on-line or physical sabotage; and
o     intentional acts of vandalism.

In addition, our primary server and network infrastructure is located in a
single location in Northern California, an area susceptible to earthquakes,
which could cause system outages or failures if one should occur. Although we
have redundant systems for our server and network infrastructure, they are all
located at a single site. Despite precautions taken by Exodus and us, the
occurrence of other natural disasters or other unanticipated problems at our
respective facilities could result in interruption in the services we provide or
significant damage to our server and network infrastructure. If any of these
events occur, interruptions, delays, or the loss or corruption of critical data
or cessations in service may result, which could harm our business and financial
condition. In addition, our reputation and the Netcentives and ClickRewards
brands could suffer.

The failure of our computing systems could result in financial losses or impair
our reputation.

The performance of our hardware and software is critical to our business,
reputation and ability to attract members, merchants and rewards suppliers to
the ClickRewards Network and our Custom Loyalty Networks. Although we have
designed our system to continue operating despite software or physical failures,
system failures that cause an interruption in service or a decrease in
responsiveness of our transaction processing or data storage capabilities could
impair our reputation and the attractiveness of our brands. We rely on Exodus
for a significant portion of our Internet connectivity as well as monitoring and
managing of power and operating environment for our server and networking
equipment. Periodically, we experience unscheduled downtime which results in our
members and


                                      -29-
<PAGE>

merchants being unable to check their statements or request redemptions. For
example, a power failure at Exodus in March 1999 caused approximately eight
hours of interruption in our network. To date, these interruptions have not had
a material impact on our financial results. However, any future interruptions in
service could result in financial losses or impair our reputation.

Delays in integrating our services with customer systems could result in
fluctuations in financial results or the loss of potential customers.

In order for our customers to utilize our products, they usually must install
our software on their computer systems and implement promotions on their Web
sites. For customers implementing Custom Loyalty Networks, substantial systems
integration may be required. Our software is not designed for every available
platform and system. Many of our potential customers have older computer systems
and manual processes that were not designed with promotion products in mind.
Therefore, the integration process may become so complex as to delay a
customer's implementation of a program and potentially prevent the sale of a
promotion product altogether. In addition, many of our potential customers have
limited technical resources and promotion budgets. They may not have the
capacity to install and maintain our software in order to use our products
effectively or implement them at all. To the extent that the software component
of our products cannot be integrated with the computer platforms and software
currently used by our potential customers, or these customers do not have the
technical or financial resources to implement our software effectively, our
potential customer base and revenues would be reduced.

System capacity constraints may result in a loss of revenues.

An increase in the use of our products could strain the capacity of our systems,
which could lead to slower response time or system failures. System failures or
slowdowns adversely affect the speed and responsiveness of our rewards
transaction processing. These would diminish the experience for our members and
reduce the number of transactions, and, thus, could reduce our revenue. Although
we have designed and tested our system to handle at least 100 times the highest
daily transaction volume we have experienced to date, the ability of our systems
to manage this volume of transactions in a production environment is unknown. As
a result, we face risks related to our ability to scale up to our expected
transaction levels while maintaining satisfactory performance. If our usage of
telecommunications bandwidth increases, we will need to purchase additional
servers and networking equipment and rely more heavily on Exodus and its
services to maintain adequate data transmission speeds. The availability of
these products or services may be limited or their cost may be significant.

Software defects or errors could damage our reputation or result in a loss of
revenues.

The software that we have developed is complex and may contain undetected errors
or defects, especially when newer versions are released. Any errors or defects
that are discovered after commercial release or that delay a commercial release
could result in lost revenues, errors in member account information, delays in
the introduction of new products or services, delays in implementation of
promotions, customer or member dissatisfaction and damage to our reputation.


                                      -30-
<PAGE>

Legal Risks

We could become involved in disputes regarding the validity of our patents which
would result in unexpected expenses and management distraction.

The Internet, and specifically the market for e-commerce and online advertising,
direct marketing and promotions, is characterized by a rapidly evolving legal
landscape. A variety of patents relating to this market have been issued in the
recent past, including our own patents which relates generally to online
incentive award programs. One aspect of our patents is directed to a computer
system for implementing an incentive award program, with the computer system
including an online product catalog, an online awards catalog and a database for
storing account information for each user of the incentive award program. Our
patents protect the architecture on which all of our online loyalty products
and services are based. We also believe that many current and potential
competitive products may use the architecture covered by our patents. Therefore,
we believe these patents are important to our business. We believe that several
additional, related patents are currently pending. We believe that there will
continue to be substantial activity in this area and that litigation may arise
due to our attempts or a third party's efforts to enforce their respective
patent rights.

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

We may be subject to claims as a result of our database marketing efforts which
could result in a loss of members and revenues.

A component of our strategy is leveraging our database marketing technologies.
We have designed our technology infrastructure and services to allow us to
aggregate data regarding specific member behavior throughout the network. We
have a strict privacy policy that governs how we use information about our
members. We currently do not sell this information to third parties and have no
plans to do so in the future. Furthermore, our communications are not sent to
members who have declined to be contacted. However, we cannot assure you that
certain persons who receive promotional materials from us will not be
dissatisfied with being contacted. In addition, while we strictly protect the
identity of individual members on our networks, we do provide merchants and
rewards suppliers with aggregate information regarding network participation,
and we cannot ensure that such aggregated information will not be the cause of
dissatisfaction among our members. There has been substantial publicity
regarding privacy issues surrounding the Internet, and to the extent that our
database marketing efforts conflict with any privacy protection initiatives, or
if any private information is inadvertently made public, we may be subject to
legal claims. If members of our networks become dissatisfied as a result of our
database marketing efforts, or if we become the subject of legal proceedings in
this regard, our business and results of operations would suffer.

Federal, state and local governments may further regulate e-commerce and travel
awards which could reduce our ability to become profitable.

The frequent flyer miles and other travel awards that we currently award are the
subject of substantial government regulation, including excise taxes. In
addition, our rewards are frequently used as prizes in sweepstakes operated by
our customers, which are subject to substantial regulation. Finally, as a result
of the increasing popularity of the Internet and e-commerce, a number of
legislative and regulatory proposals that affect e-commerce are under
consideration by federal, state, local and foreign governmental organizations.
Thus it is possible that a number of laws or regulations may be adopted with
respect to the Internet, e-commerce and online database marketing. In the event
that our rewards, the promotions operated by our merchants or e-commerce
generally becomes the subject of further regulation or taxation, including the
taxation of frequent flyer miles received by consumers, this regulation or
taxation could have a negative effect on our financial results or our ability to
sell our products.


                                      -31-
<PAGE>

If we are unable to protect our proprietary rights adequately, our competitive
position would suffer.

We currently rely on a mixture of patents, copyrights, trademarks, trade secrets
and agreements with third parties and employees to protect our proprietary
rights. We have patents that relate generally to online incentive award
programs. One aspect of our patents is directed to a computer system for
implementing an incentive award program, with the computer system including an
online product catalog, an online awards catalog and a database for storing
account information for each user of the incentive award program. Netcentives,
ClickRewards, ClickMiles, Custom Loyalty Networks, Enterprise Incentive
Solutions, RewardBroker, Secure Value Transfer Protocol, SecureReward
Architecture, the Netcentives logo and the ClickRewards logo are trademarks of
Netcentives. We copyright our Web site content, our software and our sales and
promotional literature. Despite our efforts to protect our proprietary rights,
unauthorized parties may use aspects of our business model and products and
obtain and use information we regard as proprietary. In addition, other parties
may breach confidentiality agreements or other protective contracts with us, and
we may not be able to enforce our rights in the event of such breaches. We
believe that each of these proprietary rights is important to our business in
our effort to prevent unauthorized use of our technology and processes and
protect our investment in establishing and maintaining our brand. Furthermore,
we may expand internationally, and many countries do not protect intellectual
property rights to the same extent as the laws of the United States. In the
event that we are unable to protect our proprietary rights, our business,
financial condition and results of operations could be materially adversely
affected.

Our competitors may independently develop technologies or business models that
are substantially equivalent or superior to ours. We have licensed our patents
to MyPoints.com and The Sperry and Hutchinson Company, competitors of ours who
may use these licenses to develop programs which may compete with programs we
develop or manage. We may decide to license our patents to other competitors.
Licensees of our patents will be able to compete with us using our business
process. The royalties we receive from these licenses, if any, may not be
sufficient to offset the competitive damage caused by the competitors we enable.
If these competitors are more effective at exploiting our patents than we are,
our business, financial condition and results of operations would suffer.

Our officers and directors control a large percentage of our voting stock and
will be able to control matters requiring stockholder approval.

As of March 17, 2000, our executive officers and directors, and the venture
capital funds that some of our directors represent, beneficially own
approximately 41.2% of our outstanding common stock in the aggregate. As a
result, these stockholders are currently able to exercise effective control over
all matters requiring stockholder approval, including the election of directors
and approval of significant corporate matters, such as mergers and acquisitions
and amendments to our Certificate of Incorporation. This concentration of
ownership may delay, deter or prevent transactions that would result in the
change of control of Netcentives, which in turn could reduce the market price of
our common stock.

Our Certificate of Incorporation and Bylaws and Delaware law contain provisions
that could discourage a takeover.

Certain provisions of our Certificate of Incorporation and Bylaws and Delaware
law may delay, deter or prevent a merger or acquisition that a stockholder may
consider favorable. These provisions include:

o     authorizing the board to issue additional preferred stock;
o     prohibiting cumulative voting in the election of directors;
o     limiting the persons who may call special meetings of stockholders;
o     establishing a staggered board of directors;
o     prohibiting stockholder action by written consent; and
o     establishing advance notice requirements for nominations for election of
      the board of directors or for proposing matters that can be acted on by
      stockholders at stockholder meetings.


                                      -32-
<PAGE>

Management Risks

We may not be successful in integrating any businesses or technologies we have
acquired and may acquire in the future, which could harm our financial position
or result in management distraction.

We have acquired and may continue to acquire or make investments in
complementary businesses, products, services or technologies. For example, in
January 2000, we acquired MaxMiles Inc. and in March 2000, we acquired UVN
Holdings, Inc. We have also executed an agreement to purchase Post
Communications, Inc. From time to time we have had discussions with companies
regarding acquiring or investing in their businesses, products, services or
technologies. We cannot assure you that we will be able to identify suitable
acquisition or investment candidates. Even if we do identify suitable
candidates, we cannot assure you that we will be able to make acquisitions or
investments on commercially acceptable terms. We may have difficulty
assimilating the products, services or technologies of companies we have
acquired or may acquire into our operations. These difficulties could disrupt
our ongoing business, distract our management and employees, increase our
expenses and harm our results of operations due to accounting requirements such
as goodwill. Furthermore, we may incur debt or issue equity securities to pay
for any future acquisitions. The issuance of equity securities could be dilutive
to our existing stockholders.

Expanding internationally will create management and financial difficulties.

We intend to enter new international markets, including Canada and Europe. This
expansion will require significant management attention and financial resources.
International operations are subject to a number of risks and uncertainties,
including:

o     the difficulties and costs of staffing and managing international
      operations;
o     the need to establish relationships with distributors and the performance
      of these distributors;
o     the difficulties and costs of localizing products for international
      markets;
o     unexpected changes in regulatory requirements;
o     legal uncertainties regarding liability, Internet commerce restrictions,
      tariffs, the offering of purchase incentives and trade barriers;
o     inadequate protection of intellectual property in some countries;
o     increased difficulty in collecting delinquent or unpaid accounts;
o     fluctuations in the value of the U.S. dollar relative to other currencies;
o     potentially adverse tax consequences; and
o     political and economic instability.

Any of these factors could impair our ability to expand into international
markets. Similarly, we cannot accurately predict the impact that future
fluctuations in currency exchange rates may have on our business, operating
results or financial condition.


                                      -33-
<PAGE>

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We had no holdings of derivative financial or commodity instruments at December
31, 1999. However, we are exposed to financial market risks associated with
fluctuations in interest rates. Because all of the amounts in our portfolio have
expected maturities of three months or less, we believe that the fair value of
our investment portfolio or related income would not be significantly impacted
by increases or decreases in interest rates due mainly to the short- term nature
of our investment portfolio. If market rates were to increase immediately by 10
percent from levels on December 31, 1999, the fair value of this investment
portfolio would decline by an immaterial amount. A sharp decline in interest
rates could reduce future interest earnings of our investment portfolio. If
market rates were to decrease immediately by 10 percent from levels on December
31, 1999, the resultant decrease in interest earnings of our investment
portfolio would not have a material impact on our earnings as a whole.

The table below presents principal amounts (in thousands) and related weighted
average fixed interest rates for our investment portfolio.

<TABLE>
<CAPTION>
                                                     Expected Maturity       Estimated Fair Value
                                                           2000              at December 31, 1999
                                                     -----------------       --------------------
<S>                                                       <C>                       <C>
Federal instruments                                       $15,400                   $15,400
Weighted average fixed interest rate                         5.34%
Commercial paper & short-term obligations                  59,890                    59,890
Weighted average fixed interest rate                         5.99%
Total portfolio                                           $75,290                   $75,290
</TABLE>

As of December 31, 1999, we had $75.3 million of cash and cash equivalents
earning a weighted average variable interest rate of 5.85%.


                                      -34-
<PAGE>

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Netcentives Inc.:

      We have audited the accompanying consolidated balance sheets of
Netcentives Inc. and its subsidiary as of December 31, 1998 and 1999, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. Our
audits also included the consolidated financial statement schedule listed in
Item 14 (b). These financial statements and the financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the financial statement schedule
based on our audits.

      We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Netcentives Inc. and its
subsidiary as of December 31, 1998 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999 in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.


/s/ DELOITTE & TOUCHE LLP

San Jose, California
February 3, 2000
(March 3, 2000 as to the last two paragraphs of Note 16)


                                      -35-
<PAGE>

                                NETCENTIVES INC.

                           CONSOLIDATED BALANCE SHEETS
               (In thousands, except share and par value amounts)

<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                                     ------------------------
                                                                                        1998           1999
                                                                                     ---------      ---------
<S>                                                                                  <C>            <C>
ASSETS
Current assets:
     Cash and equivalents ........................................................   $  13,651      $  75,290
     Short-term investments ......................................................          --         10,812
     Accounts receivable (net of allowance for doubtful accounts of $0 and $50)...         893          2,169
     Prepaid incentive awards ....................................................       1,600          1,534
     Prepaid expenses and other current assets ...................................         147          1,169
                                                                                     ---------      ---------
        Total current assets .....................................................      16,291         90,974
Property and equipment--net ......................................................       1,858          8,963
Intangible assets--net ...........................................................       3,611          1,724
Other assets .....................................................................         175          3,040
                                                                                     ---------      ---------

        Total assets .............................................................   $  21,935      $ 104,701
                                                                                     =========      =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Bank loan payable ...........................................................   $     100      $      --
     Accounts payable ............................................................       1,324          1,134
     Accrued compensation and benefits ...........................................         667          1,818
     Accrued redemption costs ....................................................         509          2,256
     Other accrued liabilities ...................................................       1,198          2,926
     Deferred revenue--product ...................................................       1,250          6,489
     Deferred revenue--services ..................................................         656          3,572
     Current portion of long-term obligations ....................................         664          1,008
                                                                                     ---------      ---------
        Total current liabilities ................................................       6,368         19,203
Long-term obligations ............................................................       1,233          1,234

Commitments and contingencies (Notes 3, 5, 7, 12, 13 and 16)

Stockholders' equity:
     Preferred stock, $.001 par value--shares authorized:  1998, 16,050,000;
        1999, 5,000,000; shares outstanding: 1998, 15,168,652; 1999, none ........          15             --
     Common stock, $.001 par value--shares authorized: 1998 and 1999,
        30,000,000 and 100,000,000; shares outstanding: 1998 and 1999, 4,894,069
        and 32,355,099 ...........................................................           5             33
     Paid-in capital .............................................................      41,654        165,731
     Deferred stock expenses .....................................................      (8,433)       (15,665)
     Receivables from sales of stock .............................................        (350)          (450)
     Accumulated deficit .........................................................     (18,557)       (65,385)
                                                                                     ---------      ---------
        Total stockholders' equity ...............................................      14,334         84,264
                                                                                     ---------      ---------
        Total liabilities and stockholders' equity ...............................   $  21,935      $ 104,701
                                                                                     =========      =========
</TABLE>

                See notes to consolidated financial statements.


                                      -36-
<PAGE>

                                NETCENTIVES INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                    Years Ended
                                                                    December 31,
                                                                 1997          1998         1999
                                                                 ----          ----         ----
<S>                                                            <C>           <C>           <C>
Revenues:
     Product .............................................     $     --      $     64      $    859
     Program-related services ............................            9           583         2,672
     Technical consulting services .......................           --            --         4,310
                                                               --------      --------      --------
          Total revenues .................................            9           647         7,841
                                                               --------      --------      --------
Costs and expenses:
     Cost of product revenues ............................           --            59           968
     Program-related services, marketing and support costs        1,496         7,293        23,425
     Cost of technical consulting services revenues ......           --            --         3,056
     Research and development ............................        1,505         3,383         5,321
     Selling, general and administrative .................        1,210         3,134         9,139
     Amortization of deferred stock compensation .........           --           296         4,105
     Amortization of supplier stock awards ...............           63           811         8,551
     Amortization of intangibles .........................           --            79         1,777
                                                               --------      --------      --------
          Total costs and expenses .......................        4,274        15,055        56,342
                                                               --------      --------      --------
Loss from operations .....................................       (4,265)      (14,408)      (48,501)
Interest income ..........................................          121           441         1,978

Interest expense .........................................          (36)         (144)         (305)
                                                               --------      --------      --------
Net loss .................................................     $ (4,180)     $(14,111)     $(46,828)
                                                               ========      ========      ========

Net loss per share--basic and diluted ....................     $  (5.70)     $  (8.58)     $  (4.99)
                                                               ========      ========      ========

Shares used in computing per share amounts--basic
   and diluted ...........................................          734         1,644         9,376
                                                               ========      ========      ========
Pro forma net loss per share on a converted basis--
   basic and diluted .....................................                   $  (1.05)     $  (1.95)
                                                                             ========      ========
Shares used in computing pro forma per share amounts
   on a converted basis ..................................                     13,422        24,019
                                                                             ========      ========
</TABLE>

                 See notes to consolidated financial statements.


                                      -37-
<PAGE>

                                NETCENTIVES INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  Years ended December 31, 1997 , 1998 and 1999
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                             Preferred Stock         Common Stock
                                                             ---------------         ------------          Paid-In
                                                            Shares     Amount     Shares        Amount     Capital
                                                            ------     ------     ------        ------     -------
<S>                                                          <C>      <C>           <C>        <C>         <C>
BALANCES, December 31, 1996 .........................        1,938    $      2      2,050      $      2    $  1,408
  Sale of Series C preferred stock, at $1.30 per
    share, net of expenses of $17 ...................        7,755           8                               10,057
  Sale of common stock ..............................                               1,564             2         216
  Exercise of common stock options ..................                                 122                        13
  Stock warrants issued .............................                                                           386
  Amortization of stock warrant expenses ............
  Net loss ..........................................
                                                            ------    --------     ------      --------    --------
BALANCES, December 31, 1997 .........................        9,693          10      3,736             4      12,080
  Sale of Series D preferred stock, at $3.15 per
    share, net of expenses of $18 ...................        5,476           5                               17,226
  Sale of common stock to officer ...................                                 200                       630
  Common stock issued for patent ....................                                  35                        76
  Exercise of common stock options ..................                                 115                        19
  Stock warrants issued .............................                                                            31
  Increase in value of unvested warrants ............                                                         1,038
  Deferred stock compensation related to
    option grants ...................................                                                         7,071
  Shares issued in Panttaja acquisition .............                                 808             1       2,547
  Vested options issued in Panttaja
    acquisition .....................................                                                           936
  Amortization of deferred stock expenses ...........
  Net loss ..........................................
                                                            ------    --------     ------      --------    --------
BALANCES, December 31, 1998 .........................       15,169          15      4,894             5      41,654
  Sale of Series E preferred stock, at $6.82 per
    share, net of expenses of of $1,049 .............        5,278           6                               34,941
  Sale of common stock at $12.00 per share, net of
    expenses of $7,193 ..............................                               6,336             6      68,833
  Exercise of Series B preferred stock warrants .....          135                                              132
  Conversion of preferred  stock to common stock
    effective on the initial public offering ........      (20,582)        (21)    20,582            21
  Common stock issued to employee ...................                                 100                     2,046
  Issuance of receivable related to previously issued
    common stock ....................................

  Exercise of common stock options ..................                                 443             1         239
  Stock warrants and options issued to non-employees                                                          8,098
  Increase in value of unvested warrants ............                                                         9,718
  Deferred stock compensation related to
    option grants ...................................                                                            70
  Amortization of deferred stock expenses ...........
  Net loss ..........................................
                                                            ------    --------     ------      --------    --------
BALANCES, December 31, 1999 .........................           --    $     --     32,355      $     33    $165,731
                                                            ======    ========     ======      ========    ========

<CAPTION>
                                                                Deferred    Receivables
                                                                 Stock      from Sales    Accumulated
                                                                Expenses     of Stock        Deficit        Total
                                                                --------     --------        -------        -----
<S>                                                            <C>           <C>            <C>           <C>
BALANCES, December 31, 1996 .........................          $     --      $     --       $   (266)     $  1,146
  Sale of Series C preferred stock, at $1.30 per
    share, net of expenses of $17 ...................                                                       10,065
  Sale of common stock ..............................                        $   (217)                           1
  Exercise of common stock options ..................                              (3)                          10
  Stock warrants issued .............................          $   (386)                                        --
  Amortization of stock warrant expenses ............                86                                         86
  Net loss ..........................................                                         (4,180)       (4,180)
                                                               --------      --------       --------      --------
BALANCES, December 31, 1997 .........................              (300)         (220)        (4,446)        7,128
  Sale of Series D preferred stock, at $3.15 per
    share, net of expenses of of $18 ................                                                       17,231
  Sale of common stock to officer ...................              (500)         (130)                          --
  Common stock issued for patent ....................                                                           76
  Exercise of common stock options ..................                                                           19
  Stock warrants issued .............................               (31)                                        --
  Increase in value of unvested warrants ............            (1,038)                                        --
  Deferred stock compensation related to
    option grants ...................................            (7,071)                                        --
  Shares issued in Panttaja acquisition .............              (630)                                     1,918
  Vested options issued in Panttaja
    acquisition .....................................                                                          936
  Amortization of deferred stock expenses ...........             1,137                                      1,137
  Net loss ..........................................                                        (14,111)      (14,111)
                                                               --------      --------       --------      --------
BALANCES, December 31, 1998 .........................            (8,433)         (350)       (18,557)       14,334
  Sale of Series E preferred stock, at $6.82 per
    share, net of expenses of of $1,049 .............                                                       34,947
  Sale of common stock at $12.00 per share, net of
    expenses of $7,193 ..............................                                                       68,839
  Exercise of Series B preferred stock warrants .....                                                          132
  Conversion of preferred  stock to common stock
    effective on the initial public offering ........                                                           --
  Common stock issued to employee ...................            (2,046)                                        --
  Issuance of receivable related to previously issued
    common stock ....................................                            (100)                        (100)
  Exercise of common stock options ..................                                                          240
  Stock warrants and options issued to non-employees             (8,098)                                        --
  Increase in value of unvested warrants ............            (9,718)                                        --
  Deferred stock compensation related to
    option grants ...................................               (70)                                        --
  Amortization of deferred stock expenses ...........            12,700                                     12,700
  Net loss ..........................................                                        (46,828)      (46,828)
                                                               --------      --------       --------      --------
BALANCES, December 31, 1999 .........................          $(15,665)     $   (450)      $(65,385)     $ 84,264
                                                               ========      ========       ========      ========
</TABLE>

                See notes to consolidated financial statements.


                                      -38-
<PAGE>

                                NETCENTIVES INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                Years Ended December 31,
                                                       -----------------------------------------
                                                          1997            1998            1999
                                                       ---------       ---------       ---------
<S>                                                    <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Cash received from customers                      $      45       $   1,294       $  13,680
     Cash paid to suppliers and employees                 (4,222)        (11,156)        (37,630)
     Cash paid for interest                                  (23)           (114)           (261)
     Cash paid for income taxes                               (2)                             --
     Interest received                                       121             441           1,978
                                                       ---------       ---------       ---------
        Net cash used in operating activities             (4,081)         (9,535)        (22,233)
                                                       ---------       ---------       ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchases of property and equipment                    (967)         (1,157)         (9,729)
     Purchases of short-term investments                                    (150)        (10,812)
     Other long-term assets                                                  (58)            110
                                                       ---------       ---------       ---------
        Net cash used in investing activities               (967)         (1,365)        (20,431)
                                                       ---------       ---------       ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Sales of common stock                                    11              19          69,079
     Issuance of receivable related to previous
        issuances of common stock                             --              --            (100)
     Bridge financing                                      1,321              --              --
     Sales of preferred stock                              8,744          17,231          35,079
     Borrowings on long-term debt                            279           1,141           1,366
     Principal payments on long-term debt                    (17)           (248)         (1,021)
     Principal payments on bank loan, net                    200            (200)           (100)
                                                       ---------       ---------       ---------
        Net cash provided by financing activities         10,538          17,943         104,303
                                                       ---------       ---------       ---------

NET INCREASE IN CASH AND EQUIVALENTS                       5,490           7,043          61,639
CASH AND EQUIVALENTS, Beginning of year                    1,118           6,608          13,651
                                                       ---------       ---------       ---------

CASH AND EQUIVALENTS, End of year                      $   6,608       $  13,651       $  75,290
                                                       =========       =========       =========

NONCASH INVESTING AND FINANCING ACTIVITIES:
     Conversion of debt to preferred stock             $   1,321       $     --        $      --
                                                       =========       =========       =========
     Stocks and warrants issued in exchange
       for patent                                      $      10       $     76        $      --
                                                       =========       =========       =========
     Sales of stock for notes and accounts
       receivable                                      $     217       $    130        $      --
                                                       =========       =========       =========
     Acquisition of Panttaja:
       Value of stock and options issued,
         net of deferred stock compensation                            $   2,854
       Cash paid                                                             194
       Liabilities assumed                                                 1,090
                                                                       ---------
          Assets acquired (including intangibles
             of $3,526)                                                $   4,138
                                                                       =========
</TABLE>

                See notes to consolidated financial statements.

                                      -39-
<PAGE>

                                NETCENTIVES INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  Years ended December 31, 1997, 1998 and 1999

1. Business and Operations

      Netcentives Inc. (the "Company") provides Internet-based merchants,
portals and community sites with promotion tools to drive consumer behavior,
loyalty, and sales on the Internet. The Company was incorporated in California
in June 1996 and was reincorporated in Delaware in February 1999. On October 13,
1999, the Company completed its initial public offering of common stock.

      The Company has developed an Internet-based network (the "ClickRewards
Network") of merchants ("Merchants"), consumers ("Members") and redemption award
suppliers ("Suppliers"). The Company has developed a promotional currency
("ClickMiles") which is used throughout the network. The Company sells
ClickMiles to Merchants who use them as promotional incentives to drive their
consumers' behavior in areas such as brand loyalty and increased transaction
size. As consumers are awarded ClickMiles, they establish accounts and become
Members of the Company's ClickRewards program. Consumers can accumulate and
manage ClickMiles on their personal online account and redeem these for frequent
flyer airline miles or other merchandise. ClickMiles expire if not redeemed
within specified periods. Members who do not record any activity for a
twelve-month period forfeit their accumulated ClickMiles. The Company also
offers its Merchants consulting, promotional, and direct marketing services for
a variety of fee arrangements. The Company also offers programs similar to the
ClickRewards Network for Enterprise Incentive clients ("Enterprise Incentive
Solutions") and to Custom Loyalty clients ("Custom Loyalty Programs").

      In December 1998 the Company acquired Panttaja Consulting Group, Inc. (see
Note 3). The Company now provides technical consulting services to its Merchants
as well as other customers through this wholly-owned subsidiary.

      In January 2000, the company acquired MaxMiles, Inc., a provider of
personal aggregation technologies. In February 2000, the company signed a
definitive agreement to acquire Post Communications, a provider of customized
email marketing services. In March 2000, the Company acquired UVN Holdings, Inc.
(UVN), which utilizes payment card data to recognize and reward online and
offline purchasing behavior (see Note 16).

2. Summary of Significant Accounting Policies

      Principles of Consolidation--The accompanying consolidated financial
statements include the accounts of Netcentives Inc. and its wholly-owned
subsidiary. All significant intercompany accounts and transactions have been
eliminated.

      Cash equivalents consist of highly-liquid debt instruments with a maturity
at time of purchase of three months or less.

      Short term investments consist of highly-liquid debt instruments with a
maturity at time of purchase of three months or greater but less than one year.

      Prepaid Incentive Awards--The Company has purchased frequent flyer airline
miles ("airmiles") under frequent flyer programs from several airlines. Such
airmiles are stated at cost determined on a weighted-average basis.


                                      -40-
<PAGE>

      Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over estimated useful
lives of three years.

      Income Taxes--The Company accounts for income taxes using an asset and
liability approach. Deferred income tax assets and liabilities result from
temporary differences between the tax basis of assets and liabilities and their
reported amounts in the financial statements that will result in taxable or
deductible amounts in future years. Valuation allowances are provided when
necessary to reduce deferred tax assets to the amount expected to be realized.

      Revenue Recognition--The Company allocates the sales price of ClickMiles
and the rewards points used in Custom Loyalty programs and Enterprise Incentive
Solutions (collectively "Reward Points") based on relative fair values between
the redemption component of the award ultimately provided to the Member (the
"product component") and its service components. These service components
consist of support services provided to Custom Loyalty clients; and ClickRewards
Members, as well as marketing services provided to Merchants in the ClickRewards
Network. The fair value of the product component of the ClickMile is determined
based on separate pricing offered by the Company as well as other objective
evidence; the product component of other Rewards Points is specified under the
arrangement with the Custom Loyalty client. Service component revenues represent
the difference between the product component and the amount received from the
sale of the Reward Points. The product component of revenues is deferred until
the Member redeems the Reward Points for frequent flyer miles or other awards,
or until the Reward Points expire. The service components of the Reward Points
sale are initially deferred until the sale of the Reward Points becomes non-
refundable, which typically is upon award of the currency by the Merchant to the
Member.

      Upon award of the Reward Points by the Merchant to a Member, revenues
attributable to the support service component generally are amortized over the
period from award through expected redemption or expiration (the life of the
Reward Points).  The expected life used to date has been the maximum life of the
Reward Point, which the Company has set as the third December following award
for ClickMiles and which Custom Loyalty clients have established for periods
generally of two to three years.  To the extent Reward Points are redeemed prior
to their expiration date, the remaining amount of deferred service revenue
associated with the support service is recognized at that time.  Revenues
attributable to the marketing services component of ClickMiles are recognized
over different periods based on the terms of the Merchant arrangement.  For
Merchants who purchase ClickMiles on a nonrefundable basis and which expire if
not awarded within a six-month period, the marketing service period is
determined to be that six-month period and revenue is amortized over that
period.  For Merchants who purchase ClickMiles on a refundable non-expiration
basis, the marketing service period is assumed to be the life of the ClickMile.
Upon termination of a Merchant relationship, unamortized deferred service
revenue attributable to the Merchant is recognized as revenue.

      Deferred revenues arising from non-refundable Reward Points which have not
been awarded by a Merchant are recognized as program-related service revenues at
the time the Reward Points are forfeited by the Merchant.

      The Company exchanges Reward Points with certain of its Merchants in
return for advertising and merchandise. Such advertising services are recorded
as an expense or prepaid asset, as appropriate, based on the lower of the
estimated fair value of the services received or the cash value of the Reward
Points issued. Revenues from such barter transactions are accounted for on the
same basis as cash transactions; i.e., the product component of revenues is
deferred until redemption and the marketing services component is recognized
over the service period. In 1999, approximately $1,040,000 of advertising
expense was recognized under these arrangements, of which 86% was transacted
with three Merchants. ClickMiles exchanged for advertising are non-returnable
and must be awarded by the Merchant within a specified time frame.
Program-related service revenues for 1998 include $296,000 from an Internet
portal which provided the advertising services but permitted the ClickMiles it
purchased to expire unissued.

      Program-related revenues are comprised of the service component of Reward
Points described above, as well as advertising and other direct marketing
services provided to Merchants, and are recognized as these services are
performed. In addition, program-related revenues include the initial set-up fees
on some of our Custom Loyalty programs. We recognize these set-up fees and
related costs related to these revenues over the minimum life of the Custom
Loyalty programs contracts.


                                      -41-
<PAGE>

      Technical consulting service revenues are provided by Netcentives
Professional Services (NPS) and are recognized as the services are performed.
NPS offers consulting services in relationship marketing, developing e-commerce
applications and implementing our promotion solutions.

      Accrued Redemption Costs--The Company issues ClickMiles to certain
Merchants in exchange for Member referrals and other cross-promotional
activities, and awards ClickMiles directly to Members in connection with
promotional and other activities. These ClickMiles are accounted for as expenses
and an accrual is recorded at the time they are exchanged for these services for
the expected costs to be incurred at redemption.

      Advertising Costs--Advertising costs are expensed as incurred. The Company
does not incur any direct-response advertising costs. Advertising expense was
approximately $534,000 in 1997, $3,652,000 in 1998 and $7,753,000 in 1999.

      Stock-Based Compensation--The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.

      The Company accounts for equity instruments issued to nonemployees in
accordance with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 123, Accounting for Stock-Based Compensation, and Emerging Issues
Task Force ("EITF") Issue No. 96-18, Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services, which requires that the fair value of such instruments be
recognized as an expense over the period in which the related services are
received.

      Comprehensive Income--For the periods presented, the Company's
comprehensive loss, as defined by SFAS No. 130, Reporting Comprehensive Income,
is equal to its net loss.

      Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses.
Actual results will differ from these estimates.

      Concentration of Credit Risk--Financial instruments that potentially
subject the Company to concentrations of credit risk consist of cash and
equivalents, short-term investments, and accounts receivable. Risks associated
with cash are mitigated by banking and creditworthy institutions. Cash
equivalents and short-term investments consist primarily of governmental
obligations, commercial paper and bank certificates of deposit and are regularly
monitored by management. Credit risk with respect to the trade receivables is
spread over diverse customers who make up the Company's customer base. At
December 31, 1998, one customer accounted for 17% of total accounts receivable.
At December 31, 1999, two customers accounted for 18% and 13% of total accounts
receivable.

      Recently Issued Accounting Standards--In March 1998, the American
Institute of Certified Public Accountants issued Statement of Position ("SOP")
98-1, Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use, which requires the capitalization of direct costs after management
commits to funding a project it believes will be completed and used to perform
the functions intended. The Company adopted SOP 98-1 in 1999 as it is applicable
to certain software systems internally developed by the Company. Through
December 31, 1998, no development costs had been capitalized. For the year ended
December 31, 1999, the Company capitalized $2,554,000 of development costs.

      In June 1998 and June 1999, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133 (SFAS 133),
Accounting for Derivative Instruments and Hedging Activities and Statement of
Financial Accounting Standards No. 137 (SFAS 137), Deferral of the Effective
Date of SFAS 133, respectively. SFAS 133 and SFAS 137 require the recognition of
all derivatives as either assets or liabilities in the statement of financial
position, and to measure those instruments at its fair value, and are effective
for all fiscal


                                      -42-
<PAGE>

years beginning after June 15, 2000 with earlier adoption encouraged. As of
December 31, 1999, the Company did not engage in derivative instruments or
hedging activities that would require the application of SFAS 133.

      Fair Value of Financial Instruments--The carrying amount of cash and cash
equivalents, accounts receivable, capital leases and long-term debt approximate
fair value, based on management's estimate.

      Reclassifications--Certain prior year amounts have been reclassified for
consistency with the current year presentation. Such reclassifications had no
impact to net loss or total stockholders' equity.

3. Acquisition of Panttaja

      On December 18, 1998, the Company acquired all of the outstanding shares
and assumed the outstanding options of Panttaja Consulting Group, Inc.
("Panttaja"), a software consulting firm, in exchange for 808,780 shares of
common stock valued at $2,548,000, cash of $194,000 and options to purchase
455,648 shares of Company stock at $0.254 per share, of which 306,755 were
vested at the date of the acquisition and have been included as part of the
acquisition price at their fair value of $936,000. The common stock includes
200,000 shares subject to vesting over a four-year period, which has initially
been recorded as deferred stock compensation and will be expensed over the
vesting period. The Company agreed to pay the stockholders up to an additional
cash of $450,000 within 13 months following closing based on meeting certain
employment retention milestones, which was considered probable at the time of
the acquisition and was accrued as part of the purchase price of Panttaja.
Remaining amounts owed at December 31, 1999 were paid in January 2000.

      The acquisition was accounted for as a purchase and, accordingly, the
results of operations of Panttaja since the date of acquisition have been
included in the Company's consolidated financial statements. The total
consideration exceeded the fair value of the net assets acquired by $3,526,000,
which represents the value of the existing consulting relationships and is being
amortized on a straight-line basis over two years.

      The following unaudited pro forma information shows the results of
operations for the two years ended December 31, 1997 and 1998 as if the Panttaja
acquisition had occurred at the beginning of the year. The results are not
necessarily indicative of what would have occurred had the acquisition actually
been made at the beginning of the respective periods presented or of future
operations of the combined companies (in thousands, except per share
information).

                                                     1997          1998
                                                     ----          ----
      Total revenues .........................     $  3,005      $  4,079
      Net loss ...............................     $ (6,004)     $(16,218)
      Net loss per share, basic and diluted ..     $  (4.39)     $  (7.12)

4. Property and Equipment

      Property and equipment consists of (in thousands):

                                                         December 31,
                                                         ------------
                                                     1998           1999
                                                     ----           ----
      Computer equipment ...................      $  2,131       $  8,036
      Office and furniture equipment .......           192            496
      Leasehold improvements ...............           237          1,205
      Internal use software ................            --          2,554
                                                  --------       --------
      Total ................................         2,560         12,291
      Accumulated depreciation .............          (702)        (3,328)
                                                  --------       --------
      Total property and equipment--net ....      $  1,858       $  8,963
                                                  ========       ========


                                      -43-
<PAGE>

      At December 31, 1999, the capitalized internal use software costs relate
to projects both completed and under development. Such costs are amortized over
two to three years, depending on the specific project. Amortization relating to
internal use software was $215,000 for the year ended December 31, 1999. At
December 31, 1998 and 1999, the Company had assets under capital lease with a
cost basis of $388,000, and a net book value of $236,000 and $107,000,
respectively.

5. Bank Loan Payable and Line of Credit

      In connection with the Panttaja acquisition in December 1998, the Company
assumed a $100,000 bank loan which was repaid in January 1999.

6. Long-term Obligations

      Long-term obligations consist of the following (in thousands):

                                                            December 31,
                                                            ------------
                                                         1998         1999
                                                         ----         ----
      Notes payable ..............................      $1,155      $1,984
      Capital lease obligations ..................         193         106
      Note payable to officer ....................          48          --
      Panttaja acquisition payable (note 3) ......         450         152
      Other ......................................          51          --
                                                        ------      ------
      Total ......................................       1,897       2,242
      Less current portion .......................         664       1,008
                                                        ------      ------
      Long-term obligations ......................      $1,233      $1,234
                                                        ======      ======

      In 1999, the Company borrowed $1,200,000 under a note payable, which is
collateralized by certain assets of the Company. The notes payable are
collateralized by the assets purchased with the proceeds of these borrowings and
are payable in monthly installments through June 2002. The borrowings bear
interest ranging from 9.15% to 14.44%.

      The note payable to officer bears interest at 8% and was paid in full in
December 1999.

      Maturities of long-term debt and capital leases as of December 31, 1999
are as follows (in thousands):

                                                                   Capital
      Year Ending December 31,                         Debt         Leases
      ------------------------                         ----         ------

      2000 ....................................      $   931       $    84
      2001 ....................................          988            30
      2002 ....................................          217            --
                                                     -------       -------

      Total payments ..........................      $ 2,136           114
                                                     =======

      Less amount representing interest .......                         (8)
                                                                   -------

      Present value of capital leases .........                    $   106
                                                                   =======

7. Stockholders' Equity


                                      -44-
<PAGE>

Initial Public Offering

      On October 13, 1999, in connection with the Company's initial public
offering, a Registration Statement on Form S-1 (No. 333-83443) was declared
effective by the Securities and Exchange Commission (and closed on October 19,
1999), pursuant to which 6,000,000 shares of the Company's Common Stock were
offered and sold for the account of the Company at a price of $12.00 per share.
In addition, on November 9, 1999 the Company sold an additional 335,937 shares
under the underwriter's overallotment option. After deducting approximately
$5,300,000 in underwriting discounts and $1,900,000 in other related expenses,
the net proceeds of the offering were approximately $68,800,000. On the
effective date of the initial public offering, each share of the Company's
preferred stock was converted to one share of common stock.

Deferred Stock Expense-Warrants

      During 1997, the Company issued warrants to purchase 410,000 shares of
Series N preferred stock at $1.00 per share to various airlines in connection
with their airmile purchase agreements (see Note 12). The warrants vest over
three years, subject to continuation of exclusivity arrangements with such
airlines, and expire in four or five years. Also during 1997, the Company issued
warrants to purchase 120,000 shares of Series N preferred stock at $1.30 per
share to one of its Merchants. The warrants vest over two years, subject to
certain exclusivity provisions, and expire in four years. All of the warrants
permit the holder to "net exercise" and receive shares of stock with a value
equal to the net appreciation at the time of exercise. Because the vesting of
these warrants is subject to maintaining the exclusivity of the arrangement with
these partners, the valuation of the warrants is not finalized until their
vesting date. The value of these warrants has been estimated using the
Black-Scholes option pricing model with the following assumptions: expected
life, the term of the option; risk-free interest rate of 5.8% in 1997, 4.6% in
1998 and 5.0% in 1999; volatility of 70% in 1997 and 95% in both 1998 and 1999;
and no dividend during the expected term. The estimated value of such warrants
is being expensed over the related exclusivity periods. At December 31, 1997,
1998 and 1999, 90,000, 204,000 and 485,967 warrants, respectively, were vested.
The value of the warrants is estimated and is adjusted each period until the
exclusivity milestones are met and the warrants vest. The initial value of the
warrants issued in 1997 was estimated at $281,000; this was increased by
$1,038,000 in 1998 and $9,718,000 in 1999. Operating expenses include $63,000,
$811,000 and $8,068,000 in 1997, 1998 and 1999, respectively, relating to these
warrants. The value relating to the unvested warrants of $9,783,000 as of
December 31, 1999 is subject to adjustment for changes in the future value of
the Company's common stock.

      During 1997, the Company issued warrants to purchase 175,391 shares of
Series B preferred stock at an average price of $1.16 per share in connection
with the Company's financing transactions. During 1998, the Company issued
warrants to purchase 31,948 shares of Series C preferred stock at an average
price of $1.30 per share in connection with the Company's financing
transactions. The estimated fair value of these warrants on their grant date was
$105,000 in 1997 and $31,000 in 1998, which is being expensed over the term of
the related financings. The Company has included in interest expense $13,000,
$30,000 and $44,000 in 1997, 1998 and 1999, respectively, relating to these
warrants.

      In 1999, the Company issued to a customer a warrant to purchase 150,000
shares of common stock at an exercise price of $8.00 per share in exchange for
advertising to be provided on the customer's web sites. The warrant was fully
vested upon issuance and expires in July 2001. The estimated fair value of the
advertising to be received, which is equal to the fair value of the warrant of
approximately $630,000 was recorded in 1999 and will be expensed at the time
the advertising services are provided. In 1999, the Company recorded no expense
related to such warrant as none of the advertising services had been provided.

      In 1999, the Company issued to one of its suppliers a warrant to purchase
85,000 shares of common stock at $11.00 per share in connection with the
extension of its exclusive supply arrangement. The warrant is fully vested and
expires in September 2002. The estimated fair value of the warrant of $489,000
was recorded in 1999


                                      -45-
<PAGE>

and will be expensed over the one year exclusivity term. Operating expenses
included $153,000 relating to this warrant in 1999.

      In 1999, the Company issued to one of its suppliers a warrant to purchase
100,000 shares of common stock at an exercise price of $11.00 per share in
connection with the extension of its exclusive supply arrangement. The warrant
was 60% vested upon issuance, with 20% vested on each anniversary of the date of
grant and expires in October 2002. The estimated fair value of the warrant of
approximately $2,594,000, was recorded in 1999 and will be expensed over the
three year exclusivity term. Operating expenses include $330,000 relating to
these warrants in 1999.

      Warrants to purchase 134,943 shares of Series B preferred stock were
exercised in the year ended December 31, 1999. All other warrants previously
issued by the Company were outstanding at December 31, 1999.

Receivables from Sales of Stock

      At December 31, 1998 and 1999, receivables from sales of stock included
notes receivable from an officer of the Company and were comprised of:

                                               Stock Purchased
                                               ---------------
        Issue Date            Amount         Number    Per Share  Interest Rate
        ----------            ------         ------    ---------  -------------
      August 1997           $  60,000        500,000      $0.12       6.29%
      November 1997           157,290      1,048,600       0.15       6.01
      December 1998           130,000        200,000       0.65       4.47
      January 1999            100,000            N/A        N/A       4.47

      These notes are secured by common stock and are due four years from the
issue date. The 1997 and 1998 notes are full recourse and the 1999 note is
non-recourse. The 1997 stock sales were made at fair market value. The December
1998 loan financed a stock purchase made in October 1998. That stock sale was
made when the fair value of the shares was deemed to be $3.15 per share, and
accordingly, $500,000 of deferred compensation was recorded relating to this
transaction. The January 1999 loan represents a cash loan secured by the shares
of stock previously purchased by the officer. The stock sold in connection with
these notes is subject to repurchase at the original sale price; this right
lapses ratably over a four-year period subject to the officer's continued
employment. At December 31, 1999, 722,392 shares of common stock were subject to
this repurchase right. In January 2000, these notes were repaid in full.

Stock Option Plans

      The Company has a stock option plan (the 1996 Stock Option Plan), under
which incentive and non-qualified options to purchase 7,671,400 shares of common
stock may be granted to employees and independent contractors. Options generally
vest in installments over four years from the grant date and expire ten years
from the grant date. In 1999, the stockholders of the Company approved for
annual increases in the number of authorized shares under the plan of 1,250,000
shares in each of the following five years.

      In 1999, the stockholders of the Company approved adoption of the 1999
Outside Directors Stock Option Plan (1999 Directors Option Plan) and reserved
400,000 shares of common stock (increasing by 50,000 shares in each of the
following five years) for grants of options to outside directors. The 1999
Directors Option Plan provides for initial grants to each outside director of an
option to purchase 40,000 shares of common stock at fair market value as of the
grant date. These options vest in equal installments over four years. On the
first day of each fiscal year, each nonemployee director who has served on our
Board of Directors for at least 6 months shall be granted an additional option
to purchase 10,000 shares of common stock, which shall vest in full on the
fourth anniversary of the date of grant.


                                      -46-
<PAGE>

A summary of activity under the option plans is set forth below:

<TABLE>
<CAPTION>
                                                                           Outstanding Stock Options
                                                                           -------------------------
                                                                                         Weighted
                                                                                          Average
                                                                           Number of  Exercise Price
                                                                             Shares      per Share
                                                                          ----------  --------------
<S>                                                                        <C>             <C>
Outstanding, December 31, 1996                                               205,500       $ 0.10
Granted (weighted average fair value of $0.03 per share)                   1,221,550         0.12
Exercised                                                                   (122,083)        0.10
Canceled                                                                     (16,000)        0.10
                                                                          ----------       ------
Outstanding, December 31, 1997 (284,749 exercisable at a weighted
    average price of $0.10)                                                1,288,967         0.12
Granted (weighted average fair value of $0.70 per share)                   2,676,645         0.64
Issued in connection with Pantajja acquisition                               455,648         0.25
Exercised                                                                   (114,606)        0.17
Canceled                                                                    (218,137)        0.15
                                                                          ----------       ------
Outstanding, December 31, 1998 (914,132 exercisable at a weighted
    average price of $0.26)                                                4,088,517         0.51
Granted (weighted average fair value of $9.50 per share)                   3,160,335        10.68
Exercised                                                                   (442,745)        0.54
Canceled                                                                    (435,422)        3.10
                                                                          ----------       ------
Outstanding, December 31, 1999 (1,678,331 exercisable at a weighted
    average price of $1.43)                                                6,370,685       $ 5.39
                                                                          ==========       ======
</TABLE>


                                      -47-
<PAGE>

      At December 31, 1999, options to purchase 1,021,281 shares of common stock
were available for grant.

      Additional information regarding options outstanding as of December 31,
1999 is as follows:

<TABLE>
<CAPTION>
                                     Stock Options Outstanding                   Options Exercisable
                           ---------------------------------------------      -------------------------
                                           Weighted Average    Weighted                       Weighted
                                               Remaining        Average                        Average
  Range of Exercise             Number       Contractual Life  Exercise          Number       Exercise
       Prices               Outstanding         (years)         Price          Exercisable      Price
----------------------     ---------------------------------------------      -------------------------
<S>                         <C>                   <C>         <C>           <C>             <C>
$0.10- $0.15                   1,126,715         7.75           $ 0.14           567,370       $ 0.13
$0.20- $0.25                     558,337         8.29           $ 0.24           346,690       $ 0.25
$0.35- $0.65                     552,588         8.82           $ 0.64           209,585       $ 0.62
$1.05- $3.15                   1,192,412         8.97           $ 1.20           331,272       $ 1.32
$6.82- $10.00                  1,668,973         9.37           $ 7.95           217,164       $ 7.35
$11.00- $12.13                 1,115,260         9.74           $11.14             6,250       $11.00
$37.94- $62.31                   156,400         9.93           $41.86                 -       $ 0.00
                               ---------         ----           ------         ---------       ------
                               6,370,685         8.94           $ 5.39         1,678,331       $ 1.43
                               =========         ====           ======         =========       ======
</TABLE>

      Shares of common stock sold to employees, directors and consultants under
stock purchase agreements are subject to repurchase at the Company's option upon
termination of their employment or services at the original purchase price. At
December 31, 1999, 1,205,102 shares of common stock were subject to repurchase
right.

Employee Stock Purchase Plan

      In 1999, the stockholders approved the adoption of the 1999 Employee Stock
Purchase Plan, and reserved 300,000 shares of common stock (increasing by 75,000
shares in each of the following five years) for sale to employees at a price no
less than 85% of the lower of the fair market value at the beginning of the
two-year offering period or the end of each of the six-month purchase periods.
No shares were issued under the Employee Stock Purchase Plan in 1999.

Deferred Stock Expense-Employee Compensation

      In connection with certain equity transactions during the years ended
December 31, 1998 and 1999, the Company recorded deferred stock compensation of
$7,571,000 and $70,000, respectively, for the difference between the exercise or
sale price of the stock and deemed fair value of the stock at that time. The
1998 total consists of $7,071,000 related to stock option grants (including
$432,000 arising from the Panttaja acquisition) and $500,000 related to common
stock sold to an officer of the Company. An additional $630,000 arose from
shares of common stock issued in connection with the Panttaja acquisition which
are subject to vesting. The 1999 total consists of $70,000 related to stock
option grants. Deferred compensation related to stock option grants is being
amortized over the four-year vesting periods of the related options.
Amortization of such expense during 1998 and 1999 totaled approximately $296,000
and $2,188,000, respectively.


                                      -48-
<PAGE>

      In 1999, the Company issued 100,000 shares of common stock in connection
with the hiring of an employee, of which 80,000 of the shares vested over a five
month period and were fully vested at December 31, 1999. The value of these
shares at December 31, 1999 was $2,046,000, of which $800,000 has been included
in operating expenses in 1999. The remaining 20,000 shares vest based on a
performance based measurement. At December 31, 1999, it was unknown if these
performance based measurements would be met and as such no expense on these
shares has been recorded.

      In 1999, the Company issued 75,000 shares of common stock options to two
Board of Director members. Because these shares were above and beyond those to
be issued in accordance with the 1999 Directors Option Plan, the Company has
recorded deferred stock compensation of $4,385,000 in 1999. Operating expenses
include $1,117,000 in 1999 related to issuance of these options.

Additional Stock Plan Information

      As discussed in Note 1, the Company accounts for its stock-based awards
using the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and its related
interpretations.

      Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, requires the disclosure of pro forma net loss and net
loss per share had the Company adopted the fair value method. The fair value of
stock-based awards to employees has been calculated using the Black-Scholes
method with the following weighted average assumptions: expected life, 48
months; risk-free interest 5.8% in 1997, 4.6% in 1998 and 5.0% in 1999;
volatility of 0% in 1997 and 1998, and 155% in 1999; and no dividends during the
expected term. The Company's calculations are based on a single option valuation
approach, and forfeitures are recognized as they occur. If the computed fair
values of the Company's awards had been amortized to expense over their related
vesting periods, the effect would have been to increase net loss to $4,313,000
($5.88 per share) in 1997, $14,427,000 ($8.78 per share) in 1998 and
$50,402,000 ($5.38 per share) in 1999.


                                      -49-
<PAGE>

8. Net Loss Per Share

      The following is a reconciliation of the numerators and denominators used
in computing basic and diluted net loss per share:

<TABLE>
<CAPTION>
                                                                        Years Ended
                                                                       December 31,
                                                          --------------------------------------
                                                            1997           1998           1999
                                                          --------------------------------------
                                                                     (in thousands)
      <S>                                                 <C>            <C>            <C>
      Net loss (numerator), basic and diluted .........   $ (4,180)      $(14,111)      $(46,828)
                                                          ========       ========       ========
      Shares (denominator):
             Weighted average common shares
                 outstanding ..........................      2,372          3,818         11,043
             Weighted average common shares
                 outstanding subject to repurchase ....     (1,638)        (2,174)        (1,667)
                                                          --------       --------       --------
      Shares used in computation, basic and
             diluted ..................................        734          1,644          9,376
                                                          ========       ========       ========

      Net loss per share, basic and diluted ...........   $  (5.70)      $  (8.58)      $  (4.99)
                                                          ========       ========       ========
      Shares used in computation, basic and
             diluted ..................................                     1,644          9,376
      Weighted average preferred stock
                 outstanding ..........................                    11,778         14,644
                                                                         --------       --------
      Shares used in computing pro forma per
             share amounts on a converted basis .......                    13,422         24,019
                                                                         ========       ========
      Pro forma net loss per share on a converted
             basis- basic and diluted .................                  $  (1.05)      $  (1.95)
                                                                         ========       ========
</TABLE>

      Pro forma net loss per share assumes that the conversion of all shares of
convertible preferred stock into common stock, which occurred upon the
consummation of the initial public offering, had occurred as of the beginning of
1998.

      For the above mentioned periods, the Company had securities outstanding
which could potentially dilute basic earnings per share in the future, but were
excluded in the computation of diluted net loss per share in the periods
presented, as their effect would have been antidilutive. Such outstanding
securities consist of the following (in thousands):

                                                       1997    1998      1999
                                                       ----    ----      ----

      Convertible preferred stock ................    9,693   15,169       --
      Shares of common stock subject to repurchase    2,579    2,106    1,205
      Outstanding options ........................    1,289    4,089    6,371
      Warrants ...................................      705      737      997


                                      -50-
<PAGE>

9. Income Taxes

      The Company's net deferred tax assets were comprised of the following (in
thousands):

                                                               December 31,
                                                               ------------
                                                             1998         1999
                                                           --------    --------
      Net deferred tax assets:
           Net operating loss carryforwards ............   $  6,058    $ 17,933
           Credit carryovers ...........................        158         264
           Reserves and accrued liabilities ............        438       1,331
           Other .......................................         --         463
           Deferred revenue ............................        827       1,503
           Deferred stock expense, warrants ............        380       3,490
           Deferred stock expense, employee compensation         --       1,318
                                                           --------    --------
                                                              7,861      26,302
      Valuation allowance ..............................     (7,757)    (25,260)
                                                           --------    --------
      Total net deferred tax assets ....................        104       1,042

          Deferred tax liabilities:

           Other .......................................       (104)         --
           Capitalized software ........................         --      (1,042)
                                                           --------    --------
      Total deferred tax liabilities ...................       (104)     (1,042)
                                                           --------    --------
      Total net deferred tax assets ....................   $     --    $     --
                                                           ========    ========

      Deferred income taxes result from temporary differences in the recognition
of certain assets and liabilities for financial statement and tax return
purposes and from net operating loss and credit carryforwards. Due to the
uncertainty surrounding the realization of its net deferred tax assets, at
December 31, 1998 and 1999, the Company has fully reserved its net deferred tax
assets of approximately $7,757,000 and $25,260,000, respectively.

      The Company's effective tax rate differed from the expected benefit at the
federal statutory tax rate as follows:

                                                           Years Ended
                                                           December 31,
                                                           ------------
                                                        1998        1999
                                                        ----        ----

      Federal statutory tax rate .................     (35.0)%     (35.0)%
      State taxes, net of federal benefit ........      (5.7)       (5.8)
      Other ......................................      (4.2)        3.4
      Valuation allowance ........................      44.9        37.4

           Effective tax rate ....................        --%         --%

      At December 31, 1999, the Company had a net operating loss carryforward
for federal income tax purposes of approximately $46,375,000 which expires
through 2019. In addition, the Company had, at December 31, 1999, a net
operating loss carryforward for California state income tax purposes of
approximately $29,175,000 which expires through 2004.

      At December 31, 1999, the Company also has research and development credit
carryforwards of approximately $208,000 and $56,000 available to offset future
federal and state income taxes, respectively. The federal credit expires through
2019, and the state credit carryforward has no expiration.


                                      -51-
<PAGE>

      Current federal and California state tax laws include substantial
restrictions on the utilization of net operating losses and tax credits in the
event of an "ownership change" of a corporation. Accordingly, the Company's
ability to utilize net operating loss and tax credit carryforwards may be
limited as a result of such "ownership change" as defined. Such a limitation
could result in the expiration of carryforwards before they are utilized.

10. Employee Benefit Plan

      The Company has a 401(k) plan for its employees who meet certain service
and age requirements. Participants may contribute up to 15% of their salaries up
to amounts specified under the Internal Revenue Code. The Company does not
contribute to this plan.

11. Significant Customers and Merchant Relationships

      In 1997, one merchant accounted for 85% of revenues and 82% of the
ClickMiles awarded by all merchants during the year. In 1998, two customers
accounted individually for 46% and 13% of revenues, while two merchants
accounted individually for 34% and 21% of the ClickMiles awarded by all
merchants during the year. In 1999, no customers or merchants accounted for more
than 10% of revenues, while three merchants accounted individually for 24%, 11%
and 11% of the ClickMiles awarded by all merchants during the year.

12. Airline Arrangements

      The Company has entered into certain long-term arrangements to purchase
airmiles from its airline suppliers. At December 31, 1999, the Company had
prepaid for airmiles with a cost of $1,534,000 which are available for
redemption by Members. Certain of these airmiles expire if not exchanged by
Members for ClickMiles within specified time periods, including $190,000 which
are subject to expiration in 2000.

      The contracts require certain minimum annual airmile purchases in order
for the Company to maintain its exclusivity agreement. These future minimum
payments, including excise tax, are as follows (in thousands):

              Year ending December 31:
                     2000 .............................        $1,360
                     2001 .............................         1,170
                     2002 .............................         1,265
                                                               ------
                       Total ..........................        $3,795
                                                               ======

13. Leases

      The following is a schedule of future lease payments required under
noncancelable operating leases, as of December 31, 1999 (in thousands):

              Year Ending December 31,
                     2000 .............................       $ 3,063
                     2001 .............................         3,104
                     2002 .............................         3,105
                     2003 .............................         2,879
                     2004 .............................         2,686
                     Thereafter........................         5,774
                                                              -------
                       Total minimum payments..........       $20,611
                                                              =======

      Rent expense under all rental agreements was $158,000 in 1997, $334,000 in
1998 and $958,000 in 1999.


                                      -52-
<PAGE>

      In 1999, the Company entered into a seven-year operating lease for a new
headquarters facility located in San Francisco, California, which commences in
March 2000 and expires in March 2007. The Company obtained a letter of credit
for approximately $2,400,000 as a security deposit prior to lease commencement
as required under the lease. The letter of credit is collateralized by time
deposits which are included in other assets and a portion of the letter of
credit and the related time deposits may be released over the term of the lease.


                                      -53-
<PAGE>

14. Segment Reporting

      In 1999, the Company adopted SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. SFAS No. 131 requires disclosures of
certain information regarding operating segments, products and services,
geographic areas of operation and major customers. The method of determining
what information to report under SFAS No. 131 is based upon the "management
approach," or the way that management organizes the operating segments within a
company, for which separate financial information is available that is evaluated
regularly by management in deciding how to allocate resources and in assessing
performance.

      The Company's operating businesses are organized based on the nature of
products and services provided. Based on this approach, the Company classifies
its businesses into two identifiable segments: Currency and Technical
Consulting. Certain of the Company's businesses do not meet the definition of a
reportable operating segment and have been aggregated. These include the
ClickRewards Network, Enterprise Incentive Solutions and Custom Loyalty Programs
which has been aggregated into Currency. Segment accounting policies are the
same as the policies described in note 1.

      Financial information for the Company's business segments is as follows
(in thousands):

<TABLE>
<CAPTION>
                                                               Years Ended December 31,
                                                         1997            1998            1999
                                                     ------------------------------------------
<S>                                                   <C>             <C>             <C>
Revenues:
      Currency                                        $       9       $     647       $   3,531

      Technical consulting services                                                       5,212

      Elimination of intersegment revenues                                                 (902)
                                                     ------------------------------------------
               Consolidated revenues                  $       9       $     647       $   7,841
                                                     ==========================================

Loss from operations:
      Currency                                        $  (4,265)      $ (14,408)      $ (48,220)

      Technical consulting services                                                         201

      Elimination of intersegment profits                                                  (482)
                                                     ------------------------------------------
               Consolidated loss from operations      $  (4,265)      $ (14,408)      $ (48,501)
                                                     ==========================================

Assets:
      Currency                                        $   8,549       $  17,567       $ 102,078

      Technical consulting services                                       4,368           2,623
                                                     ------------------------------------------
               Consolidated assets                    $   8,549       $  21,935       $ 104,701
                                                     ==========================================
</TABLE>


                                      -54-
<PAGE>

15. Consolidated Statement of Cash Flows Information

      A reconciliation of net loss to net cash used in operating activities
follows (in thousands)

<TABLE>
<CAPTION>
                                                                                Years Ended
                                                                                December 31,
                                                                    --------    ------------    --------
                                                                       1997         1998          1999
                                                                    --------    ------------    --------
<S>                                                                 <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net loss                                                      $ (4,180)     $(14,111)     $(46,828)
      Reconciliation to net cash used in operating
           activities:
           Depreciation and amortization                                 150           629         4,401
           Deferred stock compensation expense                            --           296         4,105
           Expenses relating to stock warrants                            76           841         8,595
           Advertising expense arising from barter transactions           --           956         1,040
           ClickMiles issued for services                                 --           587         2,836
           Changes in operating assets and liabilities:
                 Accounts receivable                                     (23)         (201)       (1,276)
                 Prepaid incentive awards                               (703)         (897)           66
                 Prepaid expenses                                       (220)          115        (1,022)
                 Other assets                                            (31)         (155)       (2,865)
                 Accounts payable                                        512           281          (190)
                 Accrued compensation and benefits                        13           877         1,151
                 Accrued redemption costs                                 --           (78)       (1,089)
                 Other accrued liabilities                               266           477         1,728
                 Deferred revenue--product and services                   59           848         7,115
                                                                    --------      --------      --------
                     Net cash used in operating activities          $ (4,081)     $ (9,535)     $(22,233)
                                                                    ========      ========      ========
</TABLE>

16. Subsequent Events

      In January, 2000 the Company entered into an agreement with America
Online, Inc (AOL) under which the Company's rewards technology will become the
exclusive support infrastructure for AAdvantage, AOL's online and offline
consumer rewards network. In addition, the companies also agreed to create "ICQ
ClickRewards"--a rewards program for ICQ, AOL's online communications community.
As part of these agreements, the Company will issue AOL 1,560,000 shares of the
Company's common stock. The Company will record deferred stock expense based on
the fair value of the stock issued to AOL. A portion of the deferred stock
expense will be recorded as an offset to revenue earned by the Company over time
related to the AOL Program and a portion will be recorded over the three-year
agreement period as a non-cash marketing expense related to ICQ ClickRewards.

      In January 2000, the Company completed the acquisition of all outstanding
capital stock of MaxMiles, Inc., a provider of personal aggregation
technologies, in exchange for issuance of 153,058 shares of the Company's common
stock. The acquisition will be accounted for as a purchase.

      On February 15, 2000, the Company entered into an agreement, subject to
certain conditions, to acquire all outstanding capital stock of Post
Communications, Inc., a provider of customized email marketing services, in
exchange for issuance of approximately 6.3 million shares of the Company's
common stock. The acquisition is expected to be completed in April 2000 and will
be accounted for as a purchase.

      On March 3, 2000, the Company completed the acquisition of all outstanding
capital stock of UVN Holdings, Inc. (UVN) and the outstanding minority interest
in UVN's majority owned subsidiary UVN LLC,


                                      -55-
<PAGE>

which utilizes payment card data to recognize and reward online and offline
purchasing behavior, in exchange for approximately 372,000 shares of the
Company's common stock and cash of approximately $2,800,000. The acquisition
also gives the Company a 49% equity ownership in Golden Retriever Systems LLC
(GRS), which maintains connectivity to information on approximately 90% of U.S.
sources of payment card transactions including data from payment card
processors, merchant acquiring banks and merchants. The Company may be required
to issue up to 49,000 shares of common stock based on UVN's achievement of
certain performance milestones over the next 22 months. The acquisition will be
accounted for as a purchase.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE

      Not applicable.


                                      -56-
<PAGE>

                                    PART III

      Certain information required by Part III is omitted from this report
because the Registrant will file its 2000 Proxy Statement within 120 days after
the end of its fiscal year pursuant to Regulation 14A as promulgated by the U.S.
Securities and Exchange Commission for its Annual Meeting of Shareholders to be
held May 24, 2000.

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding Registrant's directors will be set forth under the caption
"Election of Directors - Nominees" in the Registrant's 2000 Proxy Statement.

Executive Officers of the Company

The executive officers of the Company and their ages, as of March 17, 2000 are
as follows:

Name                    Age           Position
----                    ---           --------

West Shell III          45            Chairman of the Board of Directors and
                                      Chief Executive Officer

Murray Brozinsky        35            Executive Vice President and Managing
                                      Director, North America

John F. Longinotti      54            Executive Vice President, Operations and
                                      Chief Financial Officer

Elizabeth S. Ames       42            Senior Vice President and General Manager,
                                      Custom Loyalty Networks

Timothy J. O. Catlin    35            Senior Vice President, Research &
                                      Development

Edward Fong Soo Hoo     47            Senior Vice President, Corporate
                                      Development

George Loyer            51            Vice President and General Manager,
                                      Netcentives Professional Services

Elliott S. Ng           31            Vice President and General Manager,
                                      ClickRewards

William B. Rusitzky     36            Vice President and General Manager,
                                      Enterprise Incentive Solutions

Paul F. Danielsen       45            Vice President, Sales

Perryman K. Maynard     44            Vice President, Relationship Marketing and
                                      Strategic Alliances

William McGee           43            Vice President, Corporate Marketing

Mr. Shell was elected to our Board of Directors in January 1997 and as Chairman
of the Board of Directors in July 1999. He has served as our President and Chief
Executive Officer since June 1997. In 1986, Mr. Shell founded Pacific Marketing
Group (subsequently Highway One Communications), a marketing firm, and acted as
its Managing Partner until November 1996. Prior to founding Pacific Marketing
Group, Mr. Shell held marketing positions at Atari Corp., a video game
manufacturer, Johnson & Johnson, a healthcare products company, and


                                      -57-
<PAGE>

Grey Advertising Inc., an advertising agency. Mr. Shell holds a B.S. in Business
Administration from the University of Vermont.

Mr. Brozinsky joined Netcentives in April 1998 and has served us in a variety of
capacities since that time, including currently as Executive Vice President and
Managing Director, North America, a position he has held since July 1999. From
September 1994 to April 1998, Mr. Brozinsky was a consultant with the Boston
Consulting Group, a management consulting firm, where he specialized in
developing e-commerce strategies for high technology and financial services
clients. Prior to September 1994, Mr. Brozinsky served as the Director of
Finance at McCaw Cellular Communications Inc., a cellular telecommunications
company, General Manager of Monitor Marine, a subsidiary of Monitor Aerospace
Corporation, a high technology manufacturing company, and as an investment
banker with Morgan Stanley and Company, Inc., an investment bank. Mr. Brozinsky
holds a B.S. in Finance and a B.A. in Philosophy from the University of
Pennsylvania and an M.B.A. in management and manufacturing from Northwestern
University's Kellogg and McCormick schools.

Mr. Longinotti joined Netcentives in January 1998 and has served as our
Executive Vice President, Operations since July 1999 and as Chief Financial
Officer since January 1998. Mr. Longinotti served as a consultant to Netcentives
from October 1997 to January 1998. From April 1995 to January 1998 he was an
independent consultant in an operational and financial consulting practice. From
July 1993 to March 1995 Mr. Longinotti was Chief Executive Officer of Digital
Collections, Inc., a graphics software and multimedia firm. Mr. Longinotti
started his career at U.S. Leasing International where he spent sixteen years in
a variety of executive positions, followed by two years at AT&T Capital. Mr.
Longinotti holds a B.S. in Engineering from Stanford University and an M.B.A.
from the University of California at Berkeley's Haas School of Business.

Ms. Ames joined Netcentives in November 1998 and has served us in a variety of
capacities since that time, including currently as Senior Vice President and
General Manager, Custom Loyalty Networks, a position she has held since July
1999. From May 1998 to November 1998, Ms. Ames was General Manager, Internet
Merchant Group at VeriFone, Inc., an electronic payment system company, where
she had profit and loss responsibility for sales, marketing and product
development for the Internet merchant market. While at VeriFone, Ms. Ames also
served as Director, Product Marketing, Internet Commerce Division from June 1997
to May 1998. From October 1996 to June 1997, Ms. Ames was an independent
consultant with a focus on internet commerce and marketing technology. From
November 1995 to October 1996, Ms. Ames was Vice President, Product Development
at Eagle River Interactive, an interactive advertising agency. From January 1994
to November 1995, Ms. Ames was a Principal at Opus Consulting, a strategic
marketing and Internet consulting group. Prior to 1994, Ms. Ames held a variety
of positions with Apple Computer, Inc., a computer manufacturer. Ms. Ames holds
a B.F.A. from the Hartford Art School at the University of Hartford and an
M.B.A. from Southern Methodist University.

Mr. Catlin joined Netcentives in November 1996 as our Vice President, Research &
Development and became our Senior Vice President, Research & Development in July
1999. From July 1996 to October 1996, Mr. Catlin was Senior Director of
Engineering at Eagle River Interactive. From March 1995 to July 1996, Mr. Catlin
was an Engineering Manager at Intuit, Inc., a financial software company. From
September 1993 to January 1995, Mr. Catlin was President and Chief Executive
Officer of Streetlight Software, Inc., a software services company. Mr. Catlin
holds a B.A. in Computer Science from Brown University.

Mr. Soo Hoo has served as our Senior Vice President, Corporate Development since
March 1998. From September 1997 to March 1998, Mr. Soo Hoo was Executive Vice
President of Sales at Quote.com, Inc., a Web-based financial services
information company. From February 1996 to September 1997, Mr. Soo Hoo was
Director of Business Development at CyberCash, Inc., an Internet commerce
payment solutions company. From January 1994 to February 1996, Mr. Soo Hoo was
Business Development Manager, OEM at Novell, Inc., a network operating systems
manufacturer. Mr. Soo Hoo studied business administration at both the University
of San Francisco and California State University, Hayward.

Mr. Loyer has served as our Vice President and General Manager, Netcentives
Professional Services since July 1999. From December 1998 to July 1999, Mr.
Loyer served as our Director, Netcentives Professional Services. From March 1993
to December 1998, Mr. Loyer served in a variety of capacities at Panttaja
Consulting Group,


                                      -58-
<PAGE>

Inc., a technology consulting firm which was acquired by Netcentives, including
most recently as Panttaja's Vice President and General Manager from June 1996 to
December 1998. Mr. Loyer studied Chemical Engineering at Rensselaer Polytechnic
Institute.

Mr. Ng was a co-founder of Netcentives in June of 1996 and has served
Netcentives in a variety of capacities since that time, including currently as
our Vice President and General Manager, ClickRewards a position he has held
since July 1999. Mr. Ng also served as a Director of Netcentives from June 1996
to September 1997 and as our Chief Financial Officer from June 1996 to January
1998. From December 1995 to June 1996, Mr. Ng was a Partner in Tilenius & Ng
Ventures, a predecessor entity to Netcentives. From July 1991 to August 1994,
Mr. Ng was a Product Manager at Microsoft Corporation, a software developer. Mr.
Ng holds a B.A. in Social Studies from Harvard University and an M.B.A. from the
Harvard University Graduate School of Business.

Mr. Rusitzky joined Netcentives in February 1997, and has served us in a variety
of capacities, including currently as our Vice President and General Manager,
Enterprise Incentive Solutions, a position he has held since July 1999. From
February 1994 to February 1997, Mr. Rusitzky was Manager, Business Development
and International Marketing/Sales at Silicon Graphics, Inc., a computer
workstation manufacturer. Prior to 1994, Mr. Rusitzky served in a variety of
positions with Silicon Graphics. Mr. Rusitzky holds a B.M.E. from the Georgia
Institute of Technology and an M.E. in Operations Research and Industrial
Engineering and an M.B.A. from Cornell University.

Mr. Danielsen has served as our Vice President, Sales since May 1997. From
October 1995 to May 1997, Mr. Danielsen was Director of Business Development at
Sportsline USA, Inc., an internet-based sports media company, where he was
responsible for developing strategic relationships with national governing
bodies, athletes, and new channel partnerships. From 1990 to October 1995, Mr.
Danielsen was a Managing Partner of P&P West, a sports marketing company
specializing in event packaging, production and television. Mr. Danielsen holds
a B.A. in Economics from the University of Colorado.

Mr. Maynard has served as our Vice President, Relationship Marketing and
Strategic Alliances since August 1998. From July 1997 to August 1998, Mr.
Maynard was a Principal at Maynard & Associates, a marketing consulting firm.
>From February 1996 to June 1997, Mr. Maynard was a Senior Vice President at
Brierley & Partners, a direct marketing agency. From October 1994 to January
1996, Mr. Maynard was Executive Director, Marketing at Hilton Grand Vacations
Corporation, a developer and marketer of timeshare resorts. Prior to October
1994, Mr. Maynard was Vice President, Marketing Programs with Hilton Hotels
Corporation, a hotel management company and owner. Mr. Maynard holds a B.A. in
History from Bates College.

Mr. McGee joined Netcentives in March 1999, and has served us in a variety of
capacities, including currently as our Vice President, Corporate Marketing, a
position he has held since July 1999. From March 1999 to July 1999, Mr. McGee
served as our Director of Marketing Services. From September 1990 to March 1999,
Mr. McGee was Partner and General Manager of Creative Media, Inc., a media
placement and advertising firm. Prior to September 1990, Mr. McGee served as a
Management Supervisor and Vice President at Ketchum Advertising, an advertising
firm, a Product Manager at Microsoft Corporation, an Advertising Manager at
Atari, and as a Media Buyer for Foote, Cone & Belding, an advertising firm. Mr.
McGee holds a B.A. in Economics from the University of California, Santa
Barbara.

Each executive officer serves at the discretion of the Board of Directors. There
are no family relationships among any of the directors or executive officers of
Netcentives.

Item 11. EXECUTIVE COMPENSATION

      The information required by this item is incorporated by reference into
this Form 10-K from the information set forth under the caption "Compensation of
Executive Officers" in the Company's 2000 Proxy Statement.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


                                      -59-
<PAGE>

      The information required by this item is incorporated by reference into
this Form 10-K from the information set forth under the caption "Common Stock
Ownership of Certain Beneficial Owners and Management" in the Company's 2000
Proxy Statement.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information required by this item is incorporated by reference into
this Form 10-K from the information set forth under the caption "Certain
Relationships and Related Transactions" in the Company's 2000 Proxy Statement.


                                      -60-
<PAGE>

                                     PART IV

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

(a) Exhibits

The following exhibits are included in this report.

Exhibit No.                             Description
-----------                             -----------

  2.1*              Agreement and Plan of Merger among the Registrant, Brown Dog
                    Acquisition Corporation and UVN Holdings, Inc.

  3.1**             Amended and Restated Certificate of Incorporation of the
                    Registrant.

  3.2**             Bylaws of the Registrant.

  3.3**             Form of Amended and Restated Certificate of Incorporation.

  3.4**             Form of Amended and Restated Bylaws.

  4.1**             Form of Netcentives common stock certificate.

 10.1**             Form of Indemnification Agreement for directors and officers
                    of Netcentives.

 10.2**             1996 Stock Option Plan, as amended, and form of stock option
                    agreement and restricted stock purchase agreement.

 10.3**             1999 Employee Stock Purchase Plan and form of subscription
                    agreement.

 10.4**             1999 Directors' Stock Option Plan and form of stock option
                    agreement.

 10.5**             Lease between Panttaja Consulting Group and Britphil & Co.
                    Ltd. dated November 13, 1995.

 10.6**             Lease between Netcentives and Townsend Associates, L.L.C.
                    dated August 14, 1997.

 10.7**             Lease between Netcentives and Townsend Associates, L.L.C.
                    dated August 11, 1998.

 10.8**             Confidential Advantage Participation Agreement between
                    American Airlines, Inc. and Netcentives Inc. dated August
                    19, 1997.

 10.9**             Supply Agreement between Northwest Airlines, Inc. and
                    Netcentives Inc. dated September 5, 1997.

 10.10**            Supply Agreement between Continental Airlines, Inc. and
                    Netcentives Inc. dated September 5, 1997.

 10.11**            Supply Agreement between US Airways, Inc. and Netcentives
                    Inc, dated September 20, 1997.

 10.12**            Amended and Restated Supply Agreement between Mileage Plus,
                    Inc. and Netcentives Inc. dated September 9, 1999.

 10.13**            Marketing Services Agreement between British Airways PLC and
                    Netcentives Inc. Agreement Number MKTG 002 dated April 4,
                    1997.

 10.14**            Supply Agreement between Trans World Airlines, Inc. and
                    Netcentives Inc. dated February 25, 1999.

 10.15**            Delta Sky Miles Program Participation Agreement between
                    Delta Air Lines, Inc. and Netcentives Inc. dated August 15,
                    1999.

 10.16**            Office Lease between Netcentives and SKS Brannan Associates,
                    LLC dated May 5, 1999.

 10.17**            Employment Agreement between Netcentives and West Shell, III
                    dated June 26, 1997 and Amendment to Employment Agreement
                    dated October 29, 1998.

 10.18**            Change of Control Agreement between Netcentives and John F.
                    Longinotti dated January 15, 1998.

 10.19**            Amended and Restated Rights Agreement between Netcentives
                    and certain stockholders dated March 19, 1999.

 10.20**            America West FlightFund Incentive Miles Agreement between
                    America West Airlines and Netcentives Inc. dated July 1,
                    1999.

 10.21**            Internet Services and Products Agreement between Exodus
                    Communications, Inc. and Netcentives Inc. dated August 1,
                    1997.

 21.1**             Subsidiaries of the Registrant.


                                      -61-
<PAGE>

 23.1               Independent Auditors' Consent.
 27.1               Financial Data Schedule.

--------------------------------------------------------------------------------
* Incorporated by reference to the exhibit with the same numerical designation
filed as part of the Report on Form 8-K of the Registrant dated March 3, 2000,
filed with the SEC on March 20, 2000.
** Incorporated by reference to the exhibit with the same numerical designation
filed as part of the Registrant's Registration Statement 333-83443, as amended,
declared effective on October 19, 1999.
+ Confidential Treatment Requested.

(b) The following financial statements and schedules are filed as part of this
report:
Independent Auditors' Report
Consolidated Balance Sheets at December 31, 1998 and 1999
Consolidated Statements of Operations for the years ended December 31, 1997,
  1998 and 1999
Consolidated Statements of Stockholders' Equity for the years ended
  December 31, 1997, 1998 and 1999
Consolidated Statements of Cash Flows for the years ended December 31, 1997,
  1998 and 1999
Notes to Consolidated Financial Statements
Schedule II-Valuation and Qualifying Accounts

                                   SCHEDULE II

NETCENTIVES INC.

VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1997, 1998 and 1999
(In thousands)

<TABLE>
<CAPTION>
                                                         Additions
                                        Balance at          and             Write-offs
                                      Beginning of      Charges to             and            Balance at
        Descripton                        Year           Expenses           Deductions        End of Year
       -----------                   ------------       -----------         -----------       -----------
<S>                                   <C>               <C>                 <C>               <C>
Year Ended December 31, 1997
Accounts receivable allowance         $        --       $        --         $        --       $        --
                                      ===========       ===========         ===========       ===========

Year Ended December 31, 1998
Accounts receivable allowance         $        --       $        --         $        --       $        --
                                      ===========       ===========         ===========       ===========

Year Ended December 31, 1999
Accounts receivable allowance         $        --       $        50         $        --       $        50
                                      ===========       ===========         ===========       ===========
</TABLE>

-------------------------------------------------------------------------------
(c) Reports on Form 8-K:

      No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.


                                      -62-
<PAGE>

  (d) Recent Sales of Unregistered Securities

      From our inception in June 1996 through December 31, 1999, we have issued
      and sold (without payment of any selling commission to any person) the
      following unregistered securities:

    (1)  An aggregate of 2,000,000 shares of common stock at $0.001 per share in
         June 1996 to Eric W. Tilenius and Elliot S. Ng.

    (2)  An aggregate of 50,000 shares of common stock at $0.02 per share in
         September 1996 to Venture Law Group Investments 1996, Craig Johnson and
         Elias Blawie.

    (3)  An aggregate of 1,452,613 shares of Series A Preferred Stock at $0.65
         per share in September 1996 to Mari Baker, Broderbund Software, Inc.,
         James R. Carrekar, Trustee, The Carrekar Family Trust U/D/T 3/29/90, as
         amended, CNA Trust TTEE FBO Venture Law Group 401(k) Plan Elias Blawie,
         David A. Duffield Trust Dated July 14, 1998, Draper Associates, L.P.,
         George Garrick, Craig W. Johnson, Margaret Taylor, VLG Investments 1996
         and Wasatch Venture Fund.

    (4)  An aggregate of 485,000 shares of Series B Preferred Stock at $1.00 per
         share in November 1996 to David A. Duffield Trust Dated July 14, 1988,
         Draper Associates, L.P., Information Technology Ventures, L.P., ITV
         Affiliates Fund, L.P., Steve Kaufman, P. William Parish, Margaret C.
         Taylor and Wasatch Venture Fund.

    (5)  A warrant to purchase 10,000 shares of Series B Preferred Stock at
         $1.00 per share in November 1996 to Silicon Valley Bank.

    (6)  Warrants to purchase 22,500 shares of Series B Preferred Stock at $2.00
         per share in January 1997 to Daryl Mobley, Masters-McNeil and Steve
         Gunderson.

    (7)  A warrant to purchase 21,000 shares of Series B Preferred Stock at
         $1.30 per share in May 1997 to Phoenix Lending and Leasing.

    (8)  Warrants to purchase 75,000 shares of Series B Preferred Stock at $1.00
         per share in June 1997 to affiliates of Information Technology
         Ventures.

    (9)  Warrants to purchase 46,891 shares of Series B Preferred Stock at $1.00
         per share in August 1997 to P. William Parish, Margaret C.  Taylor,
         David A. Duffield Trust, Wasatch Venture Corporation and Draper
         Associates, L.P.

   (10)  An aggregate of 500,000 shares of common stock at $0.12 per share in
         August 1997 to West Shell, III.

   (11)  Promissory notes with an aggregate principal amount of $1,312,601.60
         which were subsequently converted into 1,009,693 shares of Series C
         Preferred Stock in September 1997 during January, June, August, and
         September 1997 to Information Technology Ventures, L.P., ITV
         Affiliates Fund, L.P., David A. Duffield Trust Dated July 14, 1988, P.
         William Parish, Margaret Taylor and Wasatch Venture Corporation.

   (12)  Warrants to purchase 400,000 shares of Series N Preferred Stock at
         $1.00 per share in July, August and September 1997 to rewards
         suppliers.

   (13)  An aggregate of 7,754,847 shares of Series C Preferred Stock at $1.30
         per share in September 1997 to David A. Duffield Trust Dated July 14,
         1998, Robin and Chris Donohoe, Draper Associates, L.P., Draper Fisher
         Associates Fund IV, L.P., Draper Fisher Partners IV, L.P., Draper
         Richards Managment Company, Huret Family Partners, L.P., Information
         Technology Ventures, L.P., ITV Affiliates Fund, L.P., Mayfield
         Associates Fund III, Mayfield VIII, Merco Ventures, NEA President's

                                     -63-
<PAGE>

         Fund, L.P., NEA Ventures 1997, New Enterprise Associates VII, L.P., P.
         William Parish, Margaret C. Taylor, Wasatch Venture Fund and The
         William H. Draper Revocable Trust.

   (14)  Warrants to purchase 130,000 shares of Series N Preferred Stock at
         $1.30 per share in October 1997 to American Airlines and Yahoo!.

   (15)  An aggregate of 30,000 shares of common stock in connection with the
         purchase of the United States patent application having SC/Serial
         Number 08/572,017 in September 1997 and November 1998.

   (16)  An aggregate of 1,048,600 shares of common stock at $0.15 per share in
         December 1997 to West Shell, III.

   (17)  Warrants to purchase an aggregate of 31,948 shares of Series C
         Preferred Stock in May 1998 with an aggregate value of $31,000 to
         Phoenix Lending and Leasing in consideration for entering into an
         equipment financing relationship pursuant to which we financed $1.2
         million of equipment.

   (18)  An aggregate of 5,476,192 shares of Series D Preferred Stock at $3.15
         per share in August 1998 to Affinity Trust, K.B. Chandrasekhar and
         Sukanya Chandrasekhar, Citicorp, David A. Duffield Trust Dated July
         14, 1988, Huret Family Partners, L.P., Information Technology
         Ventures, L.P., Integral Capital Partners IV MS Side Fund, L.P.,
         Integral Capital Partners IV, L.P., ITV Affiliates Fund, L.P.,
         Mayfield Associates Fund III, Mayfield VIII, Mindful Partners, New
         Enterprise Associates VII, Limited Partnership, RRE Investors Fund,
         L.P., RRE Investors, L.P., Stuart L. Rudick, Margaret L. Taylor and
         Wendell G. Van Auken & Ethel S. Van Auken Trust.

   (19)  An aggregate of 808,780 shares of common stock with a value of
         $2,548,000 in connection with the acquisition of 100 percent of the
         shares of Panttaja Consulting Group Inc. in December 1998.

   (20)  An aggregate of 200,000 shares of common stock at $0.65 per share in
         December 1998 to West Shell, III.

   (21)  An aggregate of 5,278,283 shares of Series E Preferred Stock at $6.82
         per share in March, April and June 1999 to 5S Ventures, LLC, Affinity
         Trust, American Express, Mari Baker, Black Marlin Investments, LLC,
         Chancellor Private Capital Offshore Partners I, C.V., Chancellor
         Private Capital Offshore Partners II, L.P., Chancellor Private Capital
         Partners III, L.P., Citicorp Strategic Technology Corp., David A.
         Duffield Trust Dated July 14, 1988, Robin and Chris Donohoe, Drake &
         Co for the account of Citiventure 96, Drake & Co for the account of
         Citiventure III, Draper Fisher Associates Fund IV, L.P., Draper Fisher
         Partners IV, L.P., Draper Richards Management Company, Draper
         Richards, L.P., Tracy Flynn, Glynn Ventures IV, L.P., Huret Family
         Partners, L.P., Information Technology Ventures, L.P., Integral
         Capital Partners IV MS Side Fund, L.P., Integral Capital Partners IV,
         L.P., ITV Affiliates Fund, L.P., Mayfield Associates Fund III,
         Mayfield VIII, Mindful Partners, MSD Portfolio L.P. Investments, NEA
         President's Fund, L.P., New Enterprise Associates VII, Limited
         Partnership, P. William Parish, RRE Investors Fund, L.P., RRE
         Investors, LP, Stuart L. Rudick, Rhonda Sinbaldi, Spinnaker Clipper
         Fund, LP, Spinnaker Founders Fund, LP, Spinnaker Offshore Founders
         Fund, Cayman Limited, Spinnaker Technology Fund, L.P., Spinnaker
         Technology Offshore Fund, Ltd., Starwood Hotels & Resorts Worldwide,
         Inc., Margaret L. Taylor, TWP Netcentives Investors, Wendell G. Van
         Auken & Ethel S. Van Auken Trust, Vermeer Investments, LLC, Wasatch
         Venture Fund and The William H. Draper Revocable Trust.

   (22)  Warrants to purchase 150,000 shares of common stock at $8.00 per share
         in July 1999 to Infoseek Corporation.

   (23)  An aggregate of 100,000 shares of common stock with a value of

                                     -64-
<PAGE>

         $1,000,000 in connection with the hiring of an employee in August 1999.

   (24)   Warrants to purchase 85,000 shares of common stock at $11.00 per share
          in September 1999 to United Airlines.

   (25)   Warrants to purchase 100,000 shares of common stock at $11.00 per
          share in October 1999 to US Airways.

   (26)   An aggregate of 6,202,606 options to purchase shares of common stock
          at an average exercise price of $4.372 per share to our employees and
          consultants. In general, 1/8 of the shares of common stock subject to
          these options vest after six months and the remainder vests in equal
          monthly installments for 42 months thereafter. The term of each option
          is ten years.

      There were no underwritten offerings employed in connection with any of
      the transactions set forth above.

  Issuances numbered one through twenty were deemed to be exempt from
registration under the Securities Act in reliance upon Section 4(2) thereof as
transactions by an issuer not involving any public offering. Issuance number
twenty-one was deemed exempt in reliance upon Regulation D of the Securities
Act. Issuances numbered one, ten, sixteen, twenty and twenty-two, to our
founders, executives, employees and consultants, are also exempt from
registration pursuant to Rule 701 promulgated under the Securities Act. 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 where
affixed to the securities issued in such transactions. All recipients had
adequate access, through their relationships with us, to information about us.

                                     -65-
<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.

                                 NETCENTIVES INC.


Date: March 30, 2000             By:       /s/ John F. Longinotti
                                    --------------------------------------------
                                      John F. Longinotti, EVP Operations and CFO

                                POWER OF ATTORNEY

      KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John F. Longinotti and West Shell III,
jointly and severally, his or her attorneys-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Report on Form 10-K, and to file the same, with exhibits thereto and
other documents in connection therewith with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his or her substitute or substitutes, may do or cause to
be done by virtue hereof.

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

<TABLE>
<CAPTION>
       Signature                                              Title                                            Date
       ---------                                              -----                                            ----
<S>                              <C>                                                                     <C>

/s/ West Shell III                                 Chief Executive Officer and                           March 30, 2000
---------------------------      Chairman of the Board of Directors (Principal Executive Officer)
    (West Shell III)


/s/ John F. Longinotti                      Executive Vice President, Operations and                     March 30, 2000
---------------------------                          Chief Financial Officer
    (John F. Longinotti)                  (Principal Financial and Accounting Officer)


 /s/ Stewart Alsop                                          Director                                      March 30, 2000
---------------------------
    (Stewart Alsop)


/s/ Tom Byers                                               Director                                      March 30, 2000
---------------------------
    (Tom Byers)


/s/ Eric Tilenius                                           Director                                      March 30, 2000
---------------------------
    (Eric Tilenius)


/s/ Virginia Turezyn                                        Director                                      March 30, 2000
---------------------------
   (Virginia Turezyn)


/s/ Wendell Van Auken                                       Director                                      March 30, 2000
---------------------------
   (Wendell Van Auken)


/s/ Sergio Zyman                                            Director                                      March 30, 2000
---------------------------
    (Sergio Zyman)
</TABLE>


                                      -66-