SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-K/A

                        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, 2000

|_|   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) 615-2000

           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 19,  2001 was  approximately  $94,443,471.
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 43,174,158 shares of Registrant's Common Stock issued and outstanding
as of March 19, 2001.



<PAGE>

EXPLANATORY  NOTE:

THIS AMENDMENT TO OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
2000 CORRECTS CERTAIN INFORMATION IN ITEM 8. IN PARTICULAR,  CERTAIN INFORMATION
IS CORRECTED IN NOTES 4, 6, 7, 8 AND 17 TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS FOLLOWS:  (i) NOTE 4 IS AMENDED TO REFLECT THE CORRECT  COST AND  ACCUMULATED
DEPRECIATION  OF CERTAIN  PROPERTY AND  EQUIPMENT AS OF DECEMBER 31, 2000;  (ii)
NOTE 6 IS AMENDED TO CONFORM  CLASSIFCATIONS  OF FUTURE  MATURITIES OF LONG TERM
DEBT AND CAPITAL  LEASES AS OF  DECEMBER  31,  2000;  (iii) NOTE 7 IS AMENDED TO
REVISE A  TYPOGRAPHICAL  ERROR  WITH  RESPECT TO THE PRO FORMA NET LOSS FOR 1998
UNDER  STATEMENT OF  FINANCIAL  ACCOUNTING  STANDARDS  NO. 123,  ACCOUNTING  FOR
STOCK-BASED  COMPENSATION,  THAT WAS CORRECTLY DISCLOSED IN THE COMPANY'S REPORT
ON FORM 10-K FOR THE YEAR ENDED  DECEMBER  31,  1999;  (iv) NOTE 8 IS AMENDED TO
CONFORM  A CHANGE  WITH  RESPECT  TO THE  SHARES  OF  COMMON  STOCK  SUBJECT  TO
REPURCHASE AS OF DECEMBER 31, 2000 WITH THE CORRECT AMOUNT  DISCLOSED IN NOTE 7;
AND (v) NOTE 17 IS AMENDED TO REFLECT  THE  DELETION OF THE  CROSS-REFERENCE  TO
EXHIBIT 99.1.  EXCEPT AS SET FORTH IN ITEM 8 BELOW, NO OTHER CHANGES ARE MADE TO
OUR  REPORT ON FORM 10-K FOR THE YEAR ENDED  DECEMBER  31,  2000.  NONE OF THESE
CHANGES HAD ANY IMPACT ON STOCKHOLDERS' EQUITY, NET LOSS OR NET LOSS PER SHARE.

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  subsidiaries  (the "Company") as of December 31, 2000 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,  2000.  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 auditing standards generally accepted
in the  United  States of  America.  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
subsidiaries  as of  December  31,  2000  and  1999,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States of America.  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 2, 2001
(April 2, 2001 as to the last two paragraphs of Note 17)




                                     Page 2
<PAGE>



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


                                                   December 31,     December 31,
                                                       2000             1999
                                                  -------------    -------------

ASSETS
Current assets:
   Cash and equivalents                               $  31,670      $  75,290
   Short-term investments                                11,604         10,812
   Accounts receivable (net of allowance for
     for doubtful accounts of $547 and $50)               7,228          2,169
   Prepaid incentive awards                                 910          1,534
   Prepaid expenses and other current assets              1,707          1,169
                                                     -----------    -----------
        Total current assets                             53,119         90,974
   Property and equipment - net                          40,671          8,963
   Intangible assets - net                              269,724          1,724
   Marketable securities                                  2,403              -
   Other assets                                          10,295          3,040
                                                     -----------    -----------
        Total assets                                  $ 376,212      $ 104,701
                                                     ===========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                   $   6,263      $   1,134
   Accrued compensation and benefits                      6,029          1,818
   Accrued redemption costs                               1,931          2,256
   Other accrued liabilities                              5,496          2,926
   Deferred revenue-product                              17,661          6,489
   Deferred revenue-services                             14,506          3,572
   Current portion of long-term obligations               3,870          1,008
                                                     -----------    -----------
        Total current liabilities                        55,756         19,203
Long-term obligations                                     4,255          1,234

Commitments and contingencies
            (Notes 3, 5, 6, 7, 12, 13 and 17)

Stockholders' Equity:
   Preferred stock, $.001 par value--shares
     authorized: 5,000,000; no shares outstanding;            -              -
   Common stock, $.001 par value--shares
     authorized: 100,000,000; shares outstanding;
     2000, 43,017,419; 1999, 32,355,099                      43             33
   Paid-in capital                                      631,158        165,731
   Deferred stock expenses                              (65,524)       (15,665)
   Unrealized gain on marketable securities                 147              -
   Receivables from sales of stock                          (41)          (450)
   Accumulated deficit                                 (249,582)       (65,385)
                                                     -----------    -----------
        Total stockholders' equity                      316,201         84,264
                                                     -----------    -----------
        Total liabilities and stockholders' equity    $ 376,212      $ 104,701
                                                     ===========    ===========


               See notes to consolidated financial statements.



                                     Page 3
<PAGE>


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


                                                          Years Ended
                                                           December 31,
                                                 -------------------------------
                                                     2000      1999      1998
                                                 ---------- --------- ---------
Revenues:
     Product                                      $ 10,459  $    859  $     64
     Program-related services                       13,495     1,548       583
     Direct marketing services                      11,353     1,115         -
     Technical and marketing consulting services     7,547     4,319         -
                                                 ---------- --------- ---------
         Total revenues                             42,854     7,841       647
                                                 ---------- --------- ---------

Costs and expenses:
     Cost of product revenues                        9,335       968        59
     Program-related services, marketing and
        support costs                               38,660    21,551     7,293
     Cost of direct marketing services               5,935       616         -
     Cost of technical and marketing consulting
        services revenues                            3,960     3,056         -
     Research and development                       12,280     5,083     3,383
     Selling, general and administrative            34,772    10,635     3,134
     Amortization of deferred stock compensation     2,212     4,105       296
     Amortization of supplier and other stock
        arrangements                                17,040     8,551       811
     Amortization of intangibles                    68,926     1,777        79
                                                 ---------- --------- ---------
         Total costs and expenses                  193,120    56,342    15,055
                                                 ---------- --------- ---------

     Loss from operations                         (150,266)  (48,501)  (14,408)
                                                 ---------- --------- ---------
     Interest income                                 4,085     1,978       441
     Income from equity investee                       454         -         -
     Realized loss on marketable securities        (37,570)        -         -
     Interest expense                                 (900)     (305)     (144)
                                                 ---------- --------- ---------
     Net loss                                    $(184,197) $(46,828) $(14,111)
                                                 ========== ========= =========

     Net loss per share- basic and diluted       $   (4.73) $  (4.99) $  (8.58)
                                                 ========== ========= =========

     Shares used in computing per share
        amounts-basic and diluted                   38,924     9,376     1,644
                                                 ========== ========= =========


               See notes to consolidated financial statements.



                                     Page 4
<PAGE>


<TABLE>
<CAPTION>
                                                     NETCENTIVES INC.
                                      CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                       Years ended December 31, 1998, 1999 and 2000
                                     (Amounts in thousands, except per share amounts)

                                                                   Preferred Stock          Common Stock
                                                                 --------------------   ---------------------
                                                                  Shares     Amount      Shares      Amount    Paid-In Capital
                                                                 ---------  ---------   ---------   ---------  ---------------
<S>                                                               <C>         <C>        <C>         <C>           <C>
BALANCES, December 31, 1997                                        9,693      $  10       3,736      $   4         $ 12,080
   Net loss

   Total comprehensive income

   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
                                                                -------------------------------------------------------------
BALANCES, December 31, 1998                                       15,169         15       4,894          5           41,654
   Net loss

   Total comprehensive income

   Sale of Series E preferred stock at $6.82 per
     share, net of expenses 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 recievable 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
                                                                -------------------------------------------------------------
BALANCES, December 31, 1999                                            -          -      32,355         33          165,731
   Net loss
   Unrealized gain on marketable securities

   Total comprehensive income

   Shares issued in acquisitions                                                          6,269          6          352,393
   Options issued in acquisitions                                                                                     2,491
   Shares issued as part of agreement with AOL                                            1,560          1           82,044
   Shares issued as part of agreement with CMGI                                           1,694          2           39,872
   Warrants issued to non-employee                                                                                      43
   Stock to be issued to non-employee                                                                                  148
   Sale of  common stock to employees                                                       345                       2,500
   Exercise of common stock options                                                         929          1            1,540
   Exercise of warrants                                                                      62                          15
   Repurchases of common stock                                                             (197)                        (75)
   Decrease in value of unvested warrants and
     options issued to non-employees                                                                               (15,544)
   Amortization of deferred stock expenses
   Repayment of receivables from sales of stock
                                                                -------------------------------------------------------------
BALANCES, December 31, 2000                                            -      $   -      43,017      $  43        $ 631,158
                                                                =============================================================
</TABLE>

                See notes to consolidated financial statements



                                     Page 5
<PAGE>


<TABLE>
<CAPTION>
                                                               NETCENTIVES INC.
                                                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                                 Years ended December 31, 1998, 1999 and 2000
                                               (Amounts in thousands, except per share amounts)

                                                                                                                           Total
                                                           Deferred    Receivables    Gains/                           Comprehensive
                                                           Expenses     of Stock     (Losses)   Deficit      Total        Income
                                                         ------------  ------------ --------- -----------  ---------- -------------
<S>                                                         <C>           <C>         <C>     <C>          <C>          <C>
BALANCES, December 31, 1997                                 $ (300)       $ (220)     $   -   $  (4,446)   $   7,128
   Net loss                                                                                     (14,111)     (14,111)   $  (14,111)
                                                                                                                       ------------
   Total comprehensive income                                                                                           $  (14,111)
                                                                                                                       ============
   Sale of Series D preferred stock at $3.15 per
     share, net of expenses 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
                                                         ------------------------------------------------------------
BALANCES, December 31, 1998                                 (8,433)         (350)         -     (18,557)      14,334
   Net loss                                                                                     (46,828)     (46,828)   $  (46,828)
                                                                                                                       ------------
   Total comprehensive income                                                                                           $  (46,828)
                                                                                                                       ============
   Sale of Series E preferred stock at $6.82 per
     share, net of expenses 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 recievable 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
                                                         ------------------------------------------------------------
BALANCES, December 31, 1999                                (15,665)         (450)         -     (65,385)      84,264
   Net loss                                                                                    (184,197)    (184,197)   $ (184,197)
   Unrealized gain on marketable securities                                             147                      147           147
                                                                                                                       ------------
   Total comprehensive income                                                                                           $ (184,050)
                                                                                                                       ============
   Shares issued in acquisitions                                                                             352,399
   Options issued in acquisitions                           (2,491)         (209)                               (209)
   Shares issued as part of agreement with AOL             (82,045)                                                -
   Shares issued as part of agreement with CMGI                                                               39,874
   Warrants issued to non-employee                                                                                43
   Stock to be issued to non-employee                                                                            148
   Sale of  common stock to employees                                                                          2,500
   Exercise of common stock options                                                                            1,541
   Exercise of warrants                                                                                           15
   Repurchases of common stock                                                                                   (75)
   Decrease in value of unvested warrants and                                                                      -
     options issued to non-employees                        15,544                                                 -
   Amortization of deferred stock expenses                  19,133                                            19,133
   Repayment of receivables from sales of stock                              618                                 618
                                                         ------------------------------------------------------------
BALANCES, December 31, 2000                               $(65,524)       $  (41)     $ 147   $(249,582)   $ 316,201
                                                         ============================================================
</TABLE>

                See notes to consolidated financial statements



                                     Page 6
<PAGE>


                                NETCENTIVES INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

                                                             Years
                                                        Ended December 31,
                                                --------------------------------
                                                   2000       1999       1998
                                                ---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Cash received from customers                   $ 60,343   $ 13,680   $  1,294
  Cash paid to suppliers and employees            (85,710)   (37,630)   (11,156)
  Cash paid for interest                             (888)      (261)      (114)
  Interest received                                 4,085      1,978        441
                                                ---------- ---------- ----------
    Net cash used in operating activities         (22,170)   (22,233)    (9,535)
                                                ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment             (25,483)    (9,729)    (1,157)
  Maturity (purchases) of short-term
    investments, net                                (792)   (10,812)      (150)
  Cash paid in UVN acquisition, net of
    cash acquired                                  (4,207)         -          -
  Cash acquired in MaxMiles acquisition                32          -          -
  Cash acquired in Post acquisition                 6,611          -          -
  Other long term assets                           (1,885)       110        (58)
                                                ---------- ---------- ----------
    Net cash used in investing activities         (25,724)   (20,431)    (1,365)
                                                ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Sales of common stock                             4,099     69,079         19
  Repayment (issuance) of receivable related
    to previous issuances of common stock             545       (100)         -
  Sales of preferred stock                              -     35,079     17,231
  Borrowings on long-term debt                      2,993      1,366      1,141
  Principal payments on long-term debt             (3,363)    (1,021)      (248)
  Principal payments on bank loan, net                  -       (100)      (200)
                                                ---------- ---------- ----------
    Net cash provided by financing activities       4,274    104,303     17,943
                                                ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS   (43,620)    61,639      7,043
CASH AND EQUIVALENTS, beginning of period          75,290     13,651      6,608
                                                ---------- ---------- ----------
CASH AND EQUIVALENTS, end of period              $ 31,670   $ 75,290   $ 13,651
                                                ========== ========== ==========


               See notes to consolidated financial statements.



                                     Page 7
<PAGE>


                                NETCENTIVES INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Continued)
                                 (In thousands)
                                                                  Years
                                                            Ended December 31,
                                                      --------------------------
                                                       2000      1999     1998
                                                     --------- -------- --------

 NONCASH INVESTING AND FINANCING ACTIVITIES:
   Acquisition of UVN:
     Value of stock issued                           $ 18,028
     Cash paid                                          4,207
     Liabilities assumed                                4,628
       Assets acquired (including intangibles
                                                     ---------
         of $25,652)                                 $ 26,863
                                                     =========

   Acquisition of MaxMiles:
     Value of stock and options issued,
       net of deferred stock compensation            $ 11,326
     Cash acquired                                        (32)
     Liabilities assumed                                  360
       Assets acquired (including intangibles
                                                     ---------
         of $11,509)                                 $ 11,654
                                                     =========

   Acquisition of Post Communications:
     Value of stock issued and options assumed,
       net of deferred stock compensation            $322,835
     Cash acquired                                     (6,611)
     Liabilities assumed                                6,402
       Assets acquired (including intangibles
                                                     ---------
         of $316,297)                                $322,626
                                                     =========

   Warrants issued in connection with notes payable  $     43
                                                     =========

   Stocks and warrant issued in exchange for patent                     $    76
                                                                        ========

   Sale of stock for notes and accounts receivable                      $   130
                                                                        ========

   Acquisition of Panttaja:
     Value of stock issued and options assumed                          $ 2,854
     Cash acquired                                                          194
     Liabilities assumed                                                  1,090
       Assets acquired (including intangibles
                                                                        --------
         of $3,526)                                                     $ 4,138
                                                                        ========


                See notes to consolidated financial statements



                                     Page 8
<PAGE>



NETCENTIVES INC.

NOTES TO CONSOLIDATED  FINANCIAL  STATEMENTS
Years ended December 31, 2000, 1999 and 1998

1.   Business and Operations

San Francisco-based Netcentives Inc. is a leading provider of loyalty and direct
marketing  solutions.  The  company  delivers  a broad  suite  of  programs  for
relationship  marketing  technologies  and  services  to enable its Global  2000
client base to drive  customer,  employee and partner  behavior and maximize the
long-term  economic  value  of  these  relationships.   These  programs  include
consumer,  employee and business loyalty solutions;  customized email marketing;
and consulting services. 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  Programs") 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.

On January 31, 2000, the Company  completed the  acquisition of all  outstanding
capital stock of MaxMiles, Inc. ("MaxMiles"), a provider of personal aggregation
technologies (see Note 3).

On March 3, 2000,  the Company  completed  the  acquisition  of all  outstanding
capital  stock of UVN  Holdings,  Inc.,  SHC Venture,  LLC, and the  outstanding
minority  interest in UVN's majority owned  subsidiary  Universal Value Network,
LLC  (collectively,  "UVN").  UVN's  business  utilizes  payment  card  data  to
recognize and reward online and offline purchasing behavior (see Note 3).

On April 7, 2000,  the Company  completed  the  acquisition  of all  outstanding
capital stock of Post  Communications,  Inc. ("Post"),  a provider of customized
email marketing services (see Note 3).

In all the acquisitions  completed in 2000, the sales, research and development,
and operations of these companies have been integrated into the Company.

2. Summary of Significant Accounting Policies

Principles of Consolidation--The  accompanying consolidated financial statements
include the accounts of Netcentives Inc. and its wholly-owned subsidiaries.  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.

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


                                     Page 9
<PAGE>


Revenue Recognition--The Company allocates the sales price of ClickMiles and the
rewards points used in Custom Loyalty programs and Enterprise Incentive programs
(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   customers;   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 2000,  approximately  $430,000 of  advertising  expense was
recorded  under  these  arrangements,  of which 82% 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.

Technical  and  marketing  consulting  service  revenues are  recognized  as the
services are  performed.  Consulting  services  are provided to deliver  loyalty
solutions to our customers.

The  Company  recognizes  revenue  related to email  marketing  services  as the
services are  provided.  Revenue and related costs  associated  with the initial
set-up of client email  marketing  programs are recognized over the minimum life
of the  client  contract,  beginning  on the launch  date of the email  program.
Deferred  project  revenues  and costs  represent  amounts  associated  with the
initial set-up of client email  programs  which have not been  recognized at the
balance sheet date.

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 $9,296,000 in 2000, $7,753,000 in 1999, and $3,652,000 in 1998.

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.


                                    Page 10
<PAGE>


Comprehensive  Income--the Company has adopted Statement of Financial Accounting
Standards ("SFAS") No. 130,."Reporting  Comprehensive Income", which establishes
standards for reporting and displaying  comprehensive income and its components.
Comprehensive income is defined as the change in equity of a business enterprise
during a period  from  transactions  and other  events  and  circumstances  from
non-owner sources.

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, 2000,
two  customers  accounted  for 25%  and 11% of  total  accounts  receivable.  At
December 31, 1999,  two customers  accounted  for 18% and 13% of total  accounts
receivable.  At December  31,  1998,  one  customer  accounted  for 17% of total
accounts receivable.

Risks and  Uncertainties--  We believe that our  available  cash  resources  and
projected  sales will be sufficient to meet our  presently  anticipated  working
capital  and  capital  expenditure  needs for at least the next  twelve  months.
However, to the extent that our sales do not occur as anticipated and we are not
able to raise  additional  financing,  we may need to  reduce  the  scope of our
planned capital  expenditures and product development and reduce other operating
costs (see Note 17).

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.  The Company
capitalized  development  costs of $3,614,000 and $2,554,000 for the years ended
December 31, 2000 and 1999 respectively.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101"), "Revenue  Recognition," which provides guidance on
the recognition,  presentation and disclosure of revenue in financial statements
filed with the  Securities and Exchange  Commission.  SAB 101 outlines the basic
criteria  that  must be met to  recognize  revenue  and  provides  guidance  for
disclosures  related to revenue recognition  policies.  SAB 101 is effective for
the fiscal  quarter  beginning  October 1, 2000,  although  earlier  adoption is
permitted.  The Company  has  determined  the impact of adopting  SAB 101 is not
material.

Statement of  Financial  Accounting  Standards  (SFAS) No. 133,  Accounting  for
Derivative Instruments and Hedging Activities, is effective for all fiscal years
beginning after June 15, 2000. SFAS 133, as amended,  establishes accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments  embedded in other contracts and for hedging activities.  Under SFAS
133,  certain  contracts that were not formerly  considered  derivatives may now
meet the  definition of a derivative.  The Company will adopt SFAS 133 effective
January 1, 2001.  Management has  determined  that the adoption of SFAS 133 will
not have a significant impact on the financial position,  results of operations,
or cash flows of the Company.

The Emerging Issues Task Force ("EITF") is reviewing an issue,  Issue No. 00-22,
"Accounting for 'Point' and Other Loyalty  Programs," that is closely related to
our currency  related programs and the way revenue is recognized for these types
of programs.  We  understand  that the EITF will provide  guidance on this issue
sometime  in 2001,  but a specific  date has not been set.  When Issue  00-22 is
issued, if it requires  modification of our present revenue  recognition policy,
we will adhere to the guidance provided.  Without knowing how the EITF will rule
on this issue, we are unable to assess the impact of Issue 00-22 at this time.

Fair  Value  of  Financial  Instruments--The  carrying  amount  of cash and cash
equivalents,  accounts receivable, capital leases and long-term debt approximate
fair value, because the Company's financial instruments are either short-term or
reflect interest rates that are consistent with current market interest rates.

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.


                                    Page 11
<PAGE>


3.   Acquisitions

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  $450,000  each  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.  For the year ended  December 31, 2000, the
Company  recorded  $1,622,000 for amortization of these  intangibles,  which are
amortized over their useful lives of two years.

On January 31, 2000, the Company  completed the  acquisition of all  outstanding
capital stock of MaxMiles, Inc. ("MaxMiles"), a provider of personal aggregation
technologies,  in exchange for the issuance of 153,058  shares of the  Company's
common stock valued at approximately  $10,200,000 and options to purchase 21,922
shares of Company  stock at prices  ranging  from $.03 to $10.44  per share,  of
which 17,388 were vested at the date of the  acquisition  and have been included
as  part  of  the  acquisition  price  at  their  fair  value  of  approximately
$1,100,000.  The remaining 4,534 unvested options have been recorded as deferred
stock expense in the amount of $254,000 and will be amortized over the remaining
three year vesting period.

The acquisition was accounted for as a purchase and, accordingly, the results of
operations of MaxMiles since the date of  acquisition  have been included in the
Company's  consolidated  financial  statements.  For the year ended December 31,
2000,  the  Company  recorded  $3,530,000  for  amortization  of  the  purchased
intangibles, which are amortized over their useful lives of two to four years.

In  connection  with the  acquisition,  net assets  acquired were as follows (in
thousands):

   Current assets               $     69
   Cash acquired                      32
   Property and equipment, net        76
   Goodwill                       11,143
   Internal use software             245
   Assembled workforce               121
   Liabilities assumed              (360)
                                ---------
   Net assets acquired          $ 11,326
                                ========

On March 3, 2000,  the Company  completed  the  acquisition  of all  outstanding
capital  stock of UVN  Holdings,  Inc.,  SHC Venture,  LLC, and the  outstanding
minority  interest in UVN's majority owned  subsidiary  Universal Value Network,
LLC  (collectively  referred to as "UVN").  UVN's business utilizes payment card
data to recognize and reward online and offline purchasing  behavior.  The total
purchase price  includes the issuance of 335,532 shares of the Company's  common
stock valued at approximately $16,300,000,  cash payments totaling approximately
$4,900,000 (including approximately $2,100,000 of transaction costs), and 36,000
shares of the  Company's  common stock  valued at  approximately  $1,700,000  to
extinguish  certain  debt of UVN. 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.  Vital  Processing  Services,  LLC has the right to require
that we purchase all of their 51% equity interest in Golden  Retriever  Systems,
LLC for $10.0 million. The Company has issued or will issue an additional 48,882
shares of common  stock to former  shareholders  of UVN over the 24 month period
subsequent to the acquisition.

The acquisition was accounted for as a purchase and, accordingly, the results of
operations  of UVN  since the date of  acquisition  have  been  included  in the
Company's  consolidated  financial  statements.  For the year ended December 31,
2000,  the  Company  recorded  $4,275,000  for  amortization  of  the  purchased
intangibles, which are amortized over their useful lives of five years.



                                    Page 12
<PAGE>



In  connection  with the  acquisition,  net assets  acquired were as follows (in
thousands):

   Current assets               $    930
   Cash paid                      (4,207)
   Property and equipment, net       281
   Goodwill                       17,147
   Internal use software             500
   Investment in GRS               7,669
   Assembled workforce                40
   Sales channel and
       customer relationships        296
   Liabilities assumed           (4,628)
                                ---------
   Net assets acquired          $ 18,028
                                =========

On April 7, 2000,  the Company  completed  the  acquisition  of all  outstanding
capital stock of Post  Communications,  Inc. ("Post"),  a provider of customized
email marketing  services,  in exchange for the issuance of 6,282,289  shares of
the  Company's  common  stock  valued at  $308,790,000  and  options to purchase
316,908 shares of Company stock at prices ranging from $.36 to $16.76 per share.
Of these shares  23,481 were unvested at the date of  acquisition  and have been
recorded  as  deferred  stock  expense in the amount of  $2,237,000  and will be
amortized  over the  remaining  three year  vesting  period.  There were 293,427
options vested at the date of acquisition  and have been included as part of the
acquisition price at their fair value of approximately $13,600,000.

This acquisition was accounted for as a purchase,  and accordingly,  the results
of  operations of Post since the date of  acquisition  have been included in the
Company's  consolidated  financial  statements.  For the year ended December 31,
2000,  the  Company  recorded  $59,306,000  for  amortization  of the  purchased
intangibles, which are amortized over their useful lives of four years.

In  connection  with the  acquisition,  net assets  acquired were as follows (in
thousands):

   Current assets               $   3,015
   Cash acquired                    6,611
   Property and equipment, net      3,314
   Goodwill                       294,147
   Internal use software           10,150
   Assembled workforce              3,350
   Customer relationships           8,650
   Liabilities assumed             (6,402)
                                ----------
   Net assets acquired          $ 322,835
                                ==========

The following  unaudited pro forma  information  shows the results of operations
for the  years  ended  December  31,  2000 and 1999 as if the  acquisitions  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).

                                              ------------------------------
                                                  2000              1999
                                              ------------      ------------
Total revenues                                 $   43,067        $   13,519
Net loss                                       $ (189,226)       $ (142,179)
Net loss per share, basic and diluted          $    (4.67)       $    (4.69)



                                    Page 13
<PAGE>



4. Property and Equipment

Property and equipment consists of (in thousands):

                                                  December 31,
                                           ------------------------

                                              2000           1999
                                           ----------     ---------

Computer equipment                          $ 19,736       $ 8,036
Office and furniture equipment                 5,611           496
Leasehold improvments                          8,762         1,205
Internal use software                         17,142         2,554
                                           ----------     ---------
Total                                         52,251       12,291
Accumulated depreciation                     (10,580)       (3,328)
                                           ----------     ---------

Total property and equipment - net          $ 40,671       $ 8,963
                                           ==========     =========

At December  31, 2000,  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  $959,000  for the year ended  December 31, 2000.  At
December 31, 2000 and 1999,  the Company had assets under  capital  lease with a
cost basis of  $1,644,00  and  $388,000,  and a net book value of  $740,000  and
$107,000, respectively.

5.   Bank Loan Payable and Line of Credit

In  connection  with the Post  Communications  acquisition  in April  2000,  the
Company assumed a $500,000 line of credit. In a subsequent transaction, the line
of credit was fully  pledged  against a letter of credit for new office space in
San Francisco (see Note 13).

6.   Long-term Obligations

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

                                            December 31,
                                    -------------------------
                                       2000           1999
                                    ---------       ---------
Notes payable                        $ 5,886         $ 1,984
Capital lease obligations              2,234             106
Panttaja acquisition payable               -             152
Other                                      5               -
                                    ---------       ---------

Total                                  8,125           2,242
Less current portion                   3,870           1,008
                                    ---------       ---------
Long-term obligations                $ 4,255         $ 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%.

In connection  with the  acquisition  of UVN Holdings,  Inc. in March 2000,  the
Company  assumed a $2,000,000  note payable that is due to a related party.  The
note is  payable in  quarterly  installments  and is due and  payable in full in
April 2002.  The note bears interest at an annual rate of 2.25% in excess of the
prime rate of interest.

In  December  2000,  the  Company  obtained  a  $2,500,000  bank  loan  that  is
collateralized by certain assets of the Company.  The loan is payable in monthly
installments through December 2002. The loan bears interest at an annual rate of
1.75% in excess of the prime rate of interest.



                                    Page 14
<PAGE>



Maturities of long-term  debt and capital  leases as of December 31, 2000 are as
follows (in thousands):

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

2001                   $  2,297    $  1,573
2002                      3,589         596
2003                          -          70
                     -----------  ----------

Total payments         $  5,886    $  2,239
                     ===========  ==========


7.   Stockholders' Equity

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,  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-Stock and 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 5.0% in both 2000 and 1999, and 4.6% in 1998;
volatility  of 95% in all of 2000,  1999 and 1998;  and no  dividend  during the
expected term.  The estimated  value of such warrants is being expensed over the
related  exclusivity  periods.  At December  31, 2000,  1999 and 1998,  530,000,
485,967,  and 204,000  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, and was decreased by $8,339,000 in 2000. Operating
expenses include $(6,250,000),  $8,068,000, and $811,000 in 2000, 1999 and 1998,
respectively, relating to these warrants.

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  $23,000,  $44,000 and
$30,000 in 2000, 1999 and 1998, 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 2000 and 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 and will be  expensed  over the one  year  exclusivity  term.  Operating
expenses  included  $326,000 and  $163,000  relating to this warrant in 2000 and
1999.


                                    Page 15
<PAGE>


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.  Because  the  vesting of these  warrants is
subject to maintaining the exclusivity of the arrangement with this partner, the
valuation  of the  warrants is not  finalized  until  their  vesting  date.  The
estimated fair value of the warrant of approximately $2,954,000, was recorded in
1999 and will be  expensed  over the  three  year  exclusivity  term.  Operating
expenses  include  $94,000 and $330,000  relating to these  warrants in 2000 and
1999.

Warrants to purchase  134,943 shares of Series B preferred  stock were exercised
in the year ended  December  31,  1999.  Warrants to purchase  61,668  shares of
common  stock were  exercised in the year ended  December  31,  2000.  All other
warrants previously issued by the Company were outstanding at December 31, 2000.

In 2000, the Company entered into an agreement with America Online, Inc. ("AOL")
under which the Company's  rewards  technology will become the exclusive  online
support  infrastructure for  AOL/AAdvantage,  AOL's 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  issued AOL 1,560,000  shares of the  Company's  common
stock. The Company has recorded  $82,000,000 in deferred stock expenses 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
the year ended December 31, 2000, the Company  recorded  $22,700,000 of non-cash
marketing expenses related to the AOL program.

In 2000, the Company issued to Silicon Valley Bank a warrant to purchase  15,000
shares of common  stock at an  exercise  price of $3.94 per share in  connection
with a lease arrangement. The warrant was fully vested upon issuance and expires
in 2005. The estimated fair value of the warrant of $43,000 was recorded in 2000
and will be expensed over the two year lease agreement term.

In 2000, as part of the Post  acquisition,  the Company  assumed 29,529 warrants
related to equipment  lease  agreements.  The Company,  using the  Black-Scholes
option  pricing  model,  recorded  $47,000 in  additional  interest  expense and
additional paid-in capital associated with these warrants.

Receivables from Sales of Stock

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

                                  Stock Purchased          Per     Interest
                             -------------------------
     Issue Date                Amount        Number       Share      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 ock 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.

At December  31,  2000,  there were  receivables  from sales of stock of $41,000
related  to  the  early  exercise  of  stock  options  by  Post  Communication's
employees.



                                    Page 16
<PAGE>



Stock Option Plans

The Company has a stock  option plan (the 1996 Stock Option  Plan),  under which
incentive  and  non-qualified  options to purchase  10,921,400  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 annual
increases in the number of authorized  shares under the plan of 1,250,000 shares
in each of the following five years.  In 2000, the  stockholders  of the Company
approved a 2,000,000 share increase in the plan.

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  non-employee  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.

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

                                                               Outstanding
                                                              Stock Options
                                                          ----------------------
                                                                        Weighted
                                                                        Average
                                                                        Exercise
                                                           Number of   Price per
                                                             Shares       Share
                                                          ------------  --------
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 conjunction with Pantajja acquisition               455,648      0.25
Exercised                                                    (114,606)     0.17
Cancelled                                                    (218,137)     0.25
                                                          ------------  --------
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
Cancelled                                                    (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
Granted (weighted average fair value of $12.87 per share)   4,090,543     12.57
Issued in conjunction with MaxMiles acquisition                21,922     10.44
Issued in conjunction with Post acquisition                   316,908      5.88
Exercised                                                    (929,205)     1.66
Cancelled                                                  (1,387,814)    12.78
                                                          ------------  --------
Outstanding, December 31, 2000 (2,832,925 exercisable
  at a weighted average price of $5.11)                     8,483,039    $ 8.01
                                                          ============  ========

At December 31, 2000,  options to purchase 1,498,236 shares of common stock were
available for grant.



                                    Page 17
<PAGE>



Additional  information regarding options outstanding as of December 31, 2000 is
as follows:

<TABLE>
<CAPTION>
                                                         Stock Options Outstanding                Options Exercisable
                                               -------------------------------------------   -----------------------------

                                                                   Average        Weighted                      Weighted
                                                                  Remaining       Average                        Average
                                                 Number          Contractual      Exercise        Number        Exercise
Range of Exercise                              Outstanding          Life           Price       Exercisable        Price
-------------------------------------------------------------   --------------   ---------   ---------------  ------------
<S>                                                <C>               <C>          <C>          <C>              <C>
$0.10- $0.15.................................        773,254         6.87         $  0.14        573,481        $  0.14
$0.20- $0.25.................................        409,923         7.22         $  0.25        332,754        $  0.25
$0.35- $0.65.................................        354,404         7.91         $  0.60        228,703        $  0.57
$1.05- $1.40.................................        862,461         8.10         $  1.08        470,760        $  1.11
$3.15- $6.75.................................      1,057,230         9.83         $  3.59         73,956        $  3.22
$6.82- $10.00...............................       1,989,708         8.90         $  8.24        524,201        $  8.05
$10.19-$12.75...............................       2,195,605         9.11         $ 11.00        503,322        $ 11.10
$13.13-$37.94...............................         668,621         9.30         $ 19.01         99,074        $ 21.90
$40.94-$61.88...............................         171,833         9.09         $ 55.33         26,044        $ 55.36
                                             ----------------                                ------------
                                                   8,483,039         8.72         $  8.01      2,832,295        $  5.11
                                             ================                                ============

</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,  2000,  562,401  shares  of  common  stock  were  subject  to this
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.
345,336  shares were issued under the Employee  Stock  Purchase Plan in 2000. In
2000, the Company's  stockholders granted a 1,000,000 share increase in the plan
plus a change to the automatic  annual  increase to the lesser of 500,000 shares
or 2% of our  outstanding  common  stock as of the  last day of the  immediately
proceeding  fiscal  year,  or such  lesser  amount  determined  by the  Board of
Directors.

Deferred Stock Expense-Employee Compensation

In connection with certain equity  transactions  during the years ended December
31, 1999 and 1998, the Company recorded  deferred stock  compensation of $70,000
and $7,571,000,  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 2000,  1999 and 1998 totaled  approximately  $2,160,000,  $2,188,000  and
$296,000, respectively.

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 vested 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 had been  recorded.  In 2000,  this  employee  left the  Company  and the
Company vested the remaining  20,000  shares,  and $200,000 has been included in
operating expenses in 2000.

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  $(174,000)  and  $1,117,000 in 2000 and 1999 related to the issuance of
these options.


                                    Page 18
<PAGE>


In connection with the Post acquisition, the Company assumed options to purchase
316,908 of the Company's common stock at prices ranging from $0.36 to $16.76 per
share, of which 23,481 were unvested at the date of acquisition.  At the date of
acquisition,  the Company  recorded  deferred stock  compensation of $2,237,000.
Amortization of such expense during 2000 totaled approximately $1,618,000.

In connection  with the MaxMiles  acquisition,  the Company  assumed  options to
purchase  21,922 of the Company's  common stock at prices  ranging from $0.03 to
$10.44 per share, of which 17,388 were vested at the date of acquisition. At the
date of  acquisition,  the  Company  recorded  deferred  stock  compensation  of
$254,000.  Amortization  of  such  expense  during  2000  totaled  approximately
$77,000.

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  subsequent to its public  offering in 1999, and the minimum value method
in prior periods with the following weighted average assumptions: expected life,
48  months;  risk-free  interest  5.0% in both 2000 and 1998,  and 4.6% in 1998;
volatility  of 148% in 2000,  and 155% in the  fourth  quarter  of 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 $198,220,000 ($5.03 per share) in 2000,  $50,402,000 ($5.38
per share) in 1999, and $14,427,000 ($8.78 per share) in 1998.



                                    Page 19
<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:

                                                          Years Ended
                                                          December 31,
                                              ----------------------------------
                                                 2000        1999        1998
                                              ----------  ----------  ----------
                                        (In thousands, except per share amounts)

Net loss (numerator), basic and diluted       $(184,197)  $ (46,828)  $ (14,111)
                                              ==========  ==========  ==========

Shares (denominator):
Weighted average common shares outstanding       40,205      11,043       3,818
Weighted average common shares outstanding
  subject to repurchase                          (1,281)     (1,667)     (2,174)
                                              ----------  ----------  ----------

Shares used in computation, basic and diluted    38,924       9,376       1,644
                                              ==========  ==========  ==========

Net loss per share, basic and diluted         $   (4.73)  $   (4.99)  $   (8.58)
                                              ==========  ==========  ==========

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):

                                                2000         1999         1998
                                               -------      -------     --------
Convertible preferred stock                         -            -       15,169
Shares of common stock subject to repurchase      562        1,205        2,106
Outstanding options                             8,483        6,371        4,089
Warrants                                          982          937          737



                                    Page 20
<PAGE>



9.   Income Taxes

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

                                                           December 31,
                                                 -------------------------------
                                                    2000       1999       1998
                                                 ---------  ---------  ---------
Net deferred tax assets:
   Net operating loss carryforwards              $ 58,425   $ 17,933    $ 6,058
   Credit carryovers                                1,219        264        158
   Reserves and accrued liabilities                 2,514      1,331        438
   Other                                            1,000        463          -
   Deferred revenue                                 4,442      1,503        827
   Deferred stock expense, warrants                     -      3,490        380
   Deferred stock expense, employee compensation      403      1,318          -
   Basis difference in investment                  12,995          -          -
                                                 -------------------------------
                                                   80,998     26,302      7,861
Valuation allowance                               (70,681)   (25,260)    (7,757)
                                                 -------------------------------
Total net deferred tax assets                      10,317      1,042        104

   Deferred tax liabilities:
      Capitalized software                         (6,187)    (1,042)         -
      Purchased intangibles                        (4,130)         -          -
      Other                                             -          -       (104)
                                                 ---------  ---------  ---------
   Total deferred tax liabilities                 (10,317)    (1,042)      (104)
                                                 ---------  ---------  ---------

   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,
2000,  1999 and 1998, the Company has fully reserved its net deferred tax assets
of approximately $70,681,000, $25,260,000 and $7,757,000, respectively.

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

                                                   Years Ended
                                                   December 31,
                                        --------------------------------
                                           2000       1999        1998
                                        ---------   --------   ---------

Federal statutory tax rate                (35.0%)    (35.0%)     (35.0%)
State taxes, net of federal benefit        (5.8%)     (5.8%)      (5.7%)
Other                                      (0.1%)      3.4%       (4.2%)
Valuation allowance                        29.0%      37.4%       44.9%
Goodwill                                   11.9%       0.0%        0.0%
                                        ---------   --------   ---------
  Effective tax rate                        0.0%       0.0%        0.0%
                                        =========   ========   =========

At December 31, 2000,  the Company has a net  operating  loss  carryforward  for
federal income tax purposes of approximately  $144,709,000 which expires through
2020. In addition,  the Company has, at December 31, 2000, a net operating  loss
carryforward   for  California   state  income  tax  purposes  of  approximately
$133,283,000 which expires through 2015.

At December 31, 2000,  the Company  also has  research  and  development  credit
carryforwards of approximately  $677,000 and $542,000 available to offset future
federal and state income taxes, respectively. The federal credit expires through
2020, and the state credit carryforward has no expiration.


                                    Page 21
<PAGE>


Included in the above net  operating  loss  carryforwards  are  $14,496,000  and
$9,579,000 of federal and state net  operating  losses  related to  acquisitions
accounted  for under the  purchase  method of  accounting.  The  benefit of such
losses,  if and when  realized,  will be  credited  first to  reduce to zero any
goodwill related to the respective  acquisition,  second to reduce to zero other
non-current intangible assets related to the respective  acquisition,  and third
to reduce income tax expense.

Included  in  the  deferred  tax  assets   before   valuation   allowance,   are
approximately   $1,055,000  of  cumulative  tax  deductions  related  to  equity
transactions,  the benefit of which will be credited to stockholders' equity, if
and when realized.

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 25% of their  salaries up to
amounts  specified  under  the  Internal  Revenue  Code.  The  Company  does not
contribute to this plan.

11.  Significant Customer Relationships

In 2000, Nortel Networks  accounted for approximately 25% of total revenues (see
Note 17). In 1999,  no customers  accounted  for more than 10% of  revenues.  In
1998,  Yahoo  and Visa each  accounted  for  approximately  46% and 13% of total
revenues.

In 2000, the Company  announced an agreement to create an online loyalty program
for the CMGI network and its 70 member companies.  As part of this relationship,
CMGI  received   approximately   4.9%  or  1,694,492  shares  of  the  Company's
outstanding common stock with a value of approximately $39,900,000.  The Company
also received,  in exchange for its shares,  425,317 shares of CMGI  outstanding
common  stock  with a value  of  approximately  $39,900,000.  These  shares  are
restricted  from being resold until April 2001 and were  recorded as  Marketable
Securities on the Company's  balance  sheet.  At December 31, 2000,  the Company
determined  that the decline in value of these  shares was other than  temporary
and valued these at market value recording a $37,570,000  realized loss.  During
the fourth  quarter of 2000,  the Company  and CMGI agreed to end their  loyalty
network  arrangement,  with the opt-in  transition of existing  members from the
AltaVista Rewards program to the ClickRewards program.



                                    Page 22
<PAGE>


12.  Airline Arrangements

The Company has entered into certain long-term arrangements to purchase airmiles
from its airline  suppliers.  At December 31, 2000,  the Company had prepaid for
airmiles with a cost of $910,000  that are available for  redemption by Members.
Certain of these  airmiles  expire if not  exchanged  by Members for  ClickMiles
within specified time periods,  including $66,000 that are subject to expiration
in 2001.

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,
2001                             $ 4,170
2002                               4,265
                                ---------
Total                            $ 8,435
                                =========


13.  Commitments and Contingencies

The  following  is  a  schedule  of  future  lease   payments   required   under
non-cancelable operating leases, as of December 31, 2000 (in thousands):

Year Ending December 31,
2001                             $  4,991
2002                                4,584
2003                                4,462
2004                                3,463
Thereafter                          6,598
                                ----------
  Total minimum payments         $ 24,098
                                ==========


Rent expense under all rental  agreements  was  $4,430,000 in 2000,  $958,000 in
1999 and $334,000 in 1998.

In 1999,  the  Company  entered  into a  seven-year  operating  lease  for a new
headquarters facility located in San Francisco,  California,  which commenced 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.

In 2000,  the Company  entered into a four-year  operating  lease for new office
space located in San Francisco,  California,  which commenced in August 2000 and
expires in May 2004. The Company  obtained a letter of credit for  approximately
$510,000 as a security deposit prior to the lease commencement as required under
the lease. A line of credit for $500,000 was fully pledged against the letter of
credit, and the remainder was collateralized by a time deposit which is included
in other  assets (see Note 5). A portion of the letter of credit and the related
time deposits may be released over the term of the lease.

The Company is party to various litigation  related to its patents.  The Company
is not engaged in any legal proceedings either that are expected individually or
in the aggregate to have a material  adverse  effect on the Company's  financial
position.

                                    Page 23
<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 three identifiable segments: Currency, Direct Marketing Services
and Technical and Marketing  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
programs 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):

                                                          Years Ended
                                                          December 31,
                                               ---------------------------------
                                                   2000       1999       1998
                                               ----------  ----------  ---------

Revenues:
  Currency                                     $  23,954   $   2,407   $    647
  Direct marketing services                       11,842       1,115          -
  Technical and marketing consulting services      7,890       5,221          -
  Elimination of intersegment revenues              (832)       (902)         -
                                               ----------  ----------  ---------
           Consolidated revenues               $  42,854   $   7,841   $    647
                                               ==========  ==========  =========

Gain/(Loss) from operations:
  Currency                                     $ (88,476)  $ (46,443)  $(14,408)
  Direct marketing services                      (62,351)        499          -
  Technical and marketing consulting services        787      (2,075)         -
  Elimination of intersegment profits               (226)       (482)         -
                                               ----------  ----------  ---------
           Consolidated loss from operations   $(150,266)  $ (48,501)  $(14,408)
                                               ==========  ==========  =========

Assets:
  Currency                                     $ 111,474   $ 102,078   $ 17,567
  Direct marketing services                      263,282           -          -
  Technical consulting services                    1,456       2,623      4,368
                                               ----------  ----------  ---------
           Consolidated assets                 $ 376,212   $ 104,701   $ 43,623
                                               ==========  ==========  =========

Geographical Information

During the years ended 1998 and 1999,  we did not  recognize  any revenues  from
international  operations (which includes Canada,  where Nortel is located).  In
the year  ended  2000,  we  recognized  29% of our  revenue  from  international
operations.


                                    Page 24
<PAGE>



15.  Consolidated Statements of Cash Flows Information

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

                                                              Years
                                                        Ended December 31,
                                                --------------------------------
                                                   2000       1999       1998
                                                ---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                      $(184,197) $ (46,828) $ (14,111)
  Reconciliation to net cash used in operating
    activities:
    Depreciation and amortization                  77,267      4,401        629
    Deferred stock compensation expense             2,211      4,105        296
    Expenses relating to stock warrants and
      other stock arrangements                     17,070      8,595        841
    Advertising expense arising from
      barter transactions                             430      1,040        956
    Income in equity investee                        (454)         -          -
    Realized loss on marketable securities         37,570
    ClickMiles issued for services                  2,079      2,836        587
    Changes in operating assets and liabilities:
      Accounts receivable                          (3,652)    (1,276)      (201)
      Prepaid incentive awards                        624         66       (897)
      Prepaid expenses                              1,113     (1,022)       115
      Other assets                                  1,824     (2,865)      (155)
      Accounts payable                              2,868       (190)       281
      Accrued compensation and benefits             3,441      1,151        877
      Accrued redemption costs                     (2,404)    (1,089)       (78)
      Other accrued liabilities                       899      1,728        477
      Deferred revenue- product and services       21,141      7,115        848
                                                ---------- ---------- ----------

        Net cash used in operating activities   $ (22,170) $ (22,233) $  (9,535)
                                                ========== ========== ==========


                                    Page 25
<PAGE>



16.  Quarterly Results of Operations (UNAUDITED)

Following are the quarterly results of operations for the fiscal years ended
December 31, 2000 and 1999.

<TABLE>
<CAPTION>
                                                                                  Quarters Ended
                                                            -----------------------------------------------------
                                                              Dec. 31,     Sept. 30,      June 30,      Mar. 31,
                                                                2000          2000          2000         2000
                                                            -----------   -----------   -----------   -----------
                                                                      (in thousands, except per share amounts)
<S>                                                          <C>           <C>           <C>           <C>
Revenues:
  Product revenues                                           $   5,674     $   3,146     $   1,152     $     487
  Program-related services                                       4,771         4,943         2,136         1,645
  Direct marketing services                                      3,911         3,112         3,010         1,320
  Technical and marketing consulting services                    3,056           658         2,647         1,186
                                                            -----------   -----------   -----------   -----------
    Total revenues                                              17,412        11,859         8,945         4,638
                                                            -----------   -----------   -----------   -----------

Costs and expenses:
  Cost of product revenues                                       5,250         2,714           963           408
  Program-related services, marketing and support costs         12,308        10,171         8,486         7,706
  Cost of direct marketing services                              2,111         1,984         1,656           184
  Cost of technical and marketing consulting services            1,575           480         1,420           474
  Research and development                                       4,234         3,403         2,990         1,653
  Selling, general and administrative                           10,242        10,312         9,432         4,786
  Amortization of deferred stock compensation,
   supplier stock awards and intangibles                        29,101        27,935        27,449         3,693
                                                            -----------   -----------   -----------   -----------
    Total costs and expenses                                    64,821        56,999        52,396        18,904
                                                            -----------   -----------   -----------   -----------
Loss from operations                                           (47,409)      (45,140)      (43,451)      (14,266)
Interest income, net                                               514           852           642         1,177
Income in equity investee                                          454             -             -             -
Realized loss on marketable securities                         (37,570)            -             -             -
                                                            -----------   -----------   -----------   -----------
Net loss                                                     $ (84,011)    $ (44,288)    $ (42,809)    $ (13,089)
                                                            ===========   ===========   ===========   ===========

Net loss per share--basic and diluted                        $   (1.99)    $   (1.06)    $   (1.07)    $   (0.40)
                                                            ===========   ===========   ===========   ===========
Shares used in computing per share amounts--
  basic and diluted                                             42,307        41,964        39,902        32,590
                                                            ===========   ===========   ===========   ===========

                                                              Dec. 31,     Sept. 30,      June 30,      Mar. 31,
                                                                1999          1999          1999         1999
                                                            -----------   -----------   -----------   -----------
                                                                      (in thousands, except per share amounts)
Revenues:
  Product revenues                                           $     179     $     464     $     113     $     103
  Program-related services                                         736           398           297           117
  Direct marketing services                                      1,045            56            14             -
  Technical and marketing consulting services                      857         1,085           941         1,436
                                                            -----------   -----------   -----------   -----------
    Total revenues                                               2,817         2,003         1,365         1,656
                                                            -----------   -----------   -----------   -----------

Costs and expenses:
  Cost of product revenues                                         230           553            93            92
  Program-related services, marketing and support costs          5,889         7,059         4,983         4,538
  Cost of direct marketing services                                545             -             -             -
  Cost of technical and marketing consulting services              680           880           679           817
  Research and development                                       1,668         1,663           844         1,087
  Selling, general and administrative                            4,188         1,842         2,261         1,318
  Amortization of deferred stock compensation,
    supplier stock awards and intangibles                        9,558         1,970         1,397         1,508
                                                            -----------   -----------   -----------   -----------
    Total costs and expenses                                    22,758        13,967        10,257         9,360
                                                            -----------   -----------   -----------   -----------
Loss from operations                                           (19,941)      (11,964)       (8,892)       (7,704)
Interest income, net                                               850           376           351            96
                                                            -----------   -----------   -----------   -----------
Net loss                                                     $ (19,091)    $ (11,588)    $  (8,541)    $  (7,608)
                                                            ===========   ===========   ===========   ===========

Net loss per share--basic and diluted                        $   (0.70)    $   (3.12)    $   (2.56)    $   (2.53)
                                                            ===========   ===========   ===========   ===========
Shares used in computing per share amounts--
  basic and diluted                                             27,212         3,711         3,330         3,004
                                                            ===========   ===========   ===========   ===========

</TABLE>


                                    Page 26
<PAGE>



17. Subsequent Events

In January  2001,  the Company  entered into a partnership  with seven  Japanese
companies including Itochu  Corporation,  Dentsu.com Inc., JCB Co., Ltd., Itochu
Techno-Science Corporation,  Itochu IT Capital, Inc., cyber communications inc.,
and EC-One,  Inc. to form a joint  venture,  Customer  Loyalty  Network K.K. The
joint  venture  will  exclusively  license from  Netcentives  certain use of its
technology  infrastructure and trademarks. In January 2001, the Company invested
$431,000 in Customer Loyalty Network KK.

On April 2, 2001, the Company announced a cost reduction plan. The plan includes
a  decline  in  contract  labor,  cuts in  administrative,  travel  and  capital
expenditures,  and a reduction in work force of approximately  120 people.  As a
result of the  reduction  in force,  the Company  will be  recognizing  costs of
approximately $700,000 in its second quarter 2001 financial statements.

In  addition,  due to economic  conditions,  the Company has seen changes in its
relationship with Nortel, which launched their  employee-based  incentive system
powered  by the  Company  in June  2000.  While the  Company  expects  Nortel to
significantly decrease program volume levels for at least the second quarter, on
a longer term basis Nortel has indicated  that the program is an important  tool
for its employee  retention  and  productivity.


                                    Page 27
<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  Netcentives  Inc.,
                    Brown Dog Acquisition Corporation and UVN Holdings, Inc.

2.2**               Agreement   and  Plan  of   Reorganization   by  and   among
                    Netcentives  Inc.,  Arachnid  Acquisition   Corporation  and
                    MaxMiles, Inc.

2.3***              Agreement   and  Plan  of   Reorganization   by  and   among
                    Netcentives Inc., Correspondence Acquisition Corporation and
                    Post Communications, 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.

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

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

                                    Page 28
<PAGE>

Exhibit No.                                Description

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

10.22*****+         Interactive Marketing and Software Distribution Agreement by
                    and between America Online,  Inc. and Netcentives Inc. dated
                    as of January 28,2000.

10.23******+        Master  Services  Agreement  between  Netcentives  Inc.  and
                    Nortel Networks Limited dated February 7, 2000.

10.24******         BT   Commercial   Sublease   dated  July  20,  2000  between
                    Netcentives   Inc.  and   Pets.com,   and   Assignment   and
                    Termination Agreement between Netcentives Inc., Pets.com and
                    the Paulsen Family Partnership dated December 22, 2000.

21.1***             Subsidiaries of the Registrant.

23.1******          Independent Auditors' Consent.

23.2   (Page 32)    Independent Auditors' Consent.

99.1******          News release dated April 2, 2001.

     *  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 Company's Report on form 10-Q for the quarterly
period ended March 31, 2000 filed with the SEC on May 15, 2000.
     ***  Incorporated by reference to the exhibit  designated 2.1 filed as part
of the  Company's  Report on Form 10-Q for the  quarterly  period ended June 30,
2000, filed with the SEC on August 14, 2000.
     ****  Incorporated  by  reference  to the exhibit  with the same  numerical
designation filed as part of the Company's Registration Statement 333-83443,  as
amended, declared effective on October 19, 1999.
     *****  Incorporated  by reference  to the exhibit  with the same  numerical
designation  filed as part of the Company's Report on Form 8-K of the Registrant
dated January 23, 2000, filed with the SEC on February 15, 2000.
     ******  Incorporated  by reference  to the exhibit with the same  numerical
designation  filed as part of the  Company's  Report  on Form  10-K for the year
ended December 31, 2000, filed with the SEC on April 2, 2001.
     + Confidential Treatment Requested.

(b)  The following financial  statements and schedules are filed as part of this
     report:

      (page 2)      Independent  Auditors' Report
      (page 3)      Consolidated Balance Sheets at December 31, 2000 and 1999
      (page 4)      Consolidated  Statements of  Operations  for the years ended
                    December 31, 2000, 1999 and 1998
      (page 5)      Consolidated  Statements  of  Stockholders'  Equity  for the
                    years ended December 31, 2000, 1999 and 1998
      (page 7)      Consolidated  Statements  of Cash Flows for the years  ended
                    December 31, 2000, 1999 and 1998
      (page 9)      Notes to Consolidated Financial Statements
      (page 30)     Schedule II-Valuation and Qualifying Accounts


                                    Page 29
<PAGE>



                                  SCHEDULE II

                                NETCENTIVES INC.

                       VALUATION AND QUALIFYING ACCOUNTS
              For the Years Ended December 31, 2000, 1999 and 1998
                                 (In thousands)

                                             Additions
                                Balance at      and     Write-offs
                                 Beginning   Charges to     and       Balance at
                                 of Year      Expenses   Deductions  End of Year
                                ----------   ---------- -----------  -----------

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

Year Ended December 31, 1999
Accounts receivable allowance      $   -       $  50        $   -       $  50
                                  =======     =======      =======     =======
Year Ended December 31, 2000
Accounts receivable allowance      $  50       $ 685        $ 188       $ 547
                                  =======     =======      =======     =======


(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.


                                    Page 30
<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: April 10, 2001                                By:/s/ John F. Longinotti
                                                      ----------------------

                                   John F. Longinotti, Executive Vice President,
                                                                     COO and CFO


                                    Page 31

<PAGE>

                                                                    Exhibit 23.2

INDEPENDENT AUDITORS' CONSENT

     We consent to the incorporation by reference in Registration Statement Nos.
333-92205,  333-34470,  and  333-41232  of  Netcentives  Inc. on Form S-8 of our
report dated  February 2, 2001 (April 2, 2001 as to the last two  paragraphs  of
Note 17), appearing in this Annual Report on Form 10-K/A of Netcentives Inc. for
the year ended December 31, 2000.

/S/ DELOITTE & TOUCHE LLP

San Jose, California
April 10, 2001


                                    Page 32