<PAGE>   1
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON DC 20549

                                    FORM 10-K

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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
                                       OR

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

                 FOR THE TRANSITION PERIOD FROM _____ TO ______

                         COMMISSION FILE NUMBER 00-28247

                             MCAFEE.COM CORPORATION.
             (Exact name of registrant as specified in its charter)

                        Delaware                   77-0503003
                (State of incorporation)         (IRS Employer
                                            Identification Number)

                               535 OAKMEAD PARKWAY
                               SUNNYVALE, CA 94085
                                 (408) 992 8100
       (Address, including zip code, and telephone number, including area
               code, of Registrant's principal executive offices)
                                 ---------------

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

        Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months, 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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

        The aggregate market value of the registrant's Class A common stock held
by non-affiliates of the registrant as of February 15, 2001 was approximately
$30.0 million based upon the closing price reported for such date on the NASDAQ
National Market. For purposes of this disclosure, shares of common stock held by
persons who hold more than 5% of the outstanding shares of Class A common stock
and shares held by officers and directors of the registrant have been excluded
because such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.

        As of February 15, 2001, the number of outstanding shares of the
registrant's Class A common stock, $.001 par value, was 8,703,033. The number of
outstanding shares of registrant's Class B common stock, par value $.001, was
36,000,000, all of which are beneficially owned by Network Associates, Inc.

        Documents incorporated by reference: Items 10, 11, 12, and 13 of Part
III are incorporated by reference from the Registrant's Proxy Statement for the
Annual Meeting of Stockholders to be held on May 24, 2001.


<PAGE>   2
                                     PART I

ITEM 1. BUSINESS

GENERAL

    Some of the statements contained in this Annual Report on Form 10-K are
forward-looking statements. These statements involve known and unknown risks,
uncertainties, and other factors, which may cause our or our industry's actual
results to differ materially from those implied by the forward-looking
statements. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," or "continue" or the negative
of these terms or other comparable terminology. Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. Moreover, neither we nor any other person assumes responsibility
for the accuracy and completeness of such statements. Important factors that may
cause actual results to differ from expectations include those discussed in "--
Risk Factors" and elsewhere in this document.

OVERVIEW

    We provide online PC management products and services for consumers. Through
our web site at www.McAfee.com, we allow consumers to secure, repair, update and
upgrade their PCs. We believe we are among the first consumer applications
service providers (ASPs) hosting PC security and management software
applications for consumers over the Internet. As an ASP, we generate revenue by
encouraging PC users to subscribe to our service which gives them online access
to version-less PC security and management software applications that we host on
our servers. Under this ASP model, consumers "rent versus buy" our software
applications. Our applications allow our subscribers to manage their PCs by
checking for and eliminating viruses, optimizing PC system performance,
repairing problems and, updating outdated software. We also offer relevant
content and contextual e-commerce services that enable users to maximize their
PC investment. In September 1999, we began charging subscription fees for our
McAfee Clinic service. In the year 2000, we added a Firewall service and a
Wireless Security service. We have over 780,000 paid unique subscribers to our
services as of December 31, 2000. We anticipate adding services for business in
2001.

    McAfee.com Corporation was incorporated in Delaware in December 1998. As of
December 31, 2000, Network Associates owned 36,000,000 shares of our Class B
common stock, representing approximately 81% of our outstanding common stock and
approximately 93% of the overall voting power of our capital stock. Our
principal executive offices are located at 535 Oakmead Parkway, Sunnyvale, CA
94085, and our web address is www.McAfee.com.

PRODUCTS AND SERVICES

    CONSUMER PRODUCTS AND SERVICES

        Consumers who visit our McAfee.com web site find a comprehensive
one-stop destination for their PC security and management needs. We have
organized our web site around several centers to make it easy for consumers to
access our products and services and to enhance their online experience.
Consumers who come to McAfee.com see a home page that highlights our product and
service centers, which provide an integrated solution that enables them to
secure, repair, update and upgrade their PCs. We encourage consumers to become
paid subscribers to our main product, McAfee Clinic. Once they have become a
paid subscriber to the Clinic, we message to them when they are using the
service in an effort to compel them to purchase our other service offerings such
as Firewall/Security service, the Wireless Security service and others.

    Our goal is to provide the consumer with a comprehensive set of service
offerings through our various centers, including:

    -   applications that perform PC security and management services, such as
        the VirusScan Online and ActiveShield programs found in our McAfee
        Clinic and Anti-Virus Center, all of which can be run using our
        easy-to-use web browser interface;


                                       2


<PAGE>   3
    -   content that provides consumers with information regarding PC security
        Anti-Virus; and

    -   contextual e-commerce services, such as the PC Book Finder and Software
        Finder that consumers can currently access through our Shopping Center.
        These contextual services provide users with personalized purchasing
        recommendations tailored to their computing needs. We are planning
        future deployments that will be designed to allow this technology to
        operate without any prompting by the user across our web site. For
        example, a consumer using our PC Performance Optimizer may receive
        recommendations for compatible product upgrades and accessories based on
        the user's PC configuration, without any prompting by the user.

    McAfee Clinic. McAfee Clinic is the main service where consumers can access
many of our hosted online application services in one location. We believe this
approach is beneficial for consumers because we host requested applications on
our servers, thus eliminating the need for consumers to take the time and disk
space required to download large applications on to their PC. For an annual
subscription fee, a consumer gains unlimited access to all of the McAfee Clinic
services at any time on any machine. The current list price for an annual
subscription to McAfee Clinic is $29.95. We initially introduced McAfee Clinic
on a paid subscriber basis using a promotional subscription fee of $19.95 and
from time to time we may offer similar promotional fees. Our McAfee Clinic
services are continuously updated, providing consumers with the most recent
software versions over the Internet. The McAfee Clinic hosted application
services provide the consumer with critical PC security and management services
at a total cost designed to be lower than if the consumer purchased each of the
applications and their subsequent new version releases in a traditional format.
Though our McAfee Clinic services utilize complex proprietary technology, they
are easy for the consumer to use. Our McAfee Clinic services consist of:

    -   VirusScan Online. Allows the user to scan hardware and software systems
        and identify and eliminate viruses online. This service provides
        consumers with a convenient, up-to-date and simple method for protecting
        their PCs.

    -   Rescue Disk. Allows the user to create a rescue or emergency diskette
        online. The user can then use this diskette in the future to start-up
        and clean a PC that has been disabled by viruses.

    -   ActiveShield. Provides PC users with real-time, continuous, offline and
        online virus protection. ActiveShield subscribers are also provided with
        notices from our virus "early warning" system, which alert them to new
        and rapidly breaking virus threats. These subscribers also receive our
        Internet-based updating service, which automatically accesses the
        McAfee.com web site when the subscriber is online, allowing subscribers
        to secure the latest version of ActiveShield.

    -   Software Update Finder. Automatically identifies and recommends critical
        software updates, fixes and patches based on the configuration of the
        user's PC. The service supports more than 4,000 different titles and
        updates and covers a large number of applications, games and utilities
        found on a user's PC, including the most commonly used applications. In
        an effort to provide user satisfaction and peace-of-mind, we pre-test
        updates and applications for errors, viruses and other potential
        problems before including them in our Update Finder service.

    -   QuickClean. Eliminates clutter from the PC's hard drive and creates
        additional disk space for the user. This service scans the user's hard
        drive to identify and delete unnecessary files created while the user
        was browsing the web, temporary files created by applications and
        unnecessary registry entries.

    -   Performance Optimizer. Helps the user optimize PC performance by
        automatically adjusting critical configuration settings for the PC's
        file system, hard drive, CD-ROM drives and graphics devices.

    Anti-Virus Center. Our Anti-Virus Center integrates information regarding
viruses and their characteristics and provides consumers with a link to the
services found in our McAfee Clinic. In addition to VirusScan Online, Rescue
Disk and ActiveShield, which are found in our McAfee Clinic, our Anti-Virus
Center includes:


                                       3


<PAGE>   4
    -   Virus Information Library. Provides consumers with an easily searchable
        database that contains information on over 53,000 known computer
        viruses, including their characteristics and detailed remedial steps, as
        well as information regarding known virus hoaxes.

    -   Updates of VirusScan. Provides consumers with the latest version of
        VirusScan.

    Other services in the Anti-Virus Center include a virus calendar that
provides information on expected trigger dates for various viruses, a virus
"early warning" e-mail service, and a visual virus risk indicator that provides
users with details regarding the severity of particular viruses.

    PC CheckUp Center. Our PC CheckUp Center provides consumers with services
and information to help them configure and optimize their PCs online and a link
to the services offered through our McAfee Clinic. The PC CheckUp Center
consists of:

    -   System Information Reporter. Provides a detailed report regarding the
        configuration of the user's PC. The report can then be used to
        troubleshoot the PC or alter its configuration.

    -   Windows Advisor. An online help desk providing answers to frequently
        asked questions and problems experienced by Windows users. Windows
        Advisor uses a simple question and answer format to provide the user
        with a detailed step-by-step approach to solving a Windows problem.

    Shopping Center. The Shopping Center is a destination for consumers looking
for a source to purchase hardware, software, peripherals and accessories on the
Internet. At the Shopping Center, a customer can shop for the best prices on PC
peripherals and accessories and find and purchase related software and books.
The Shopping Center consists of:

    -   The McAfee Store. Provides consumers with a source for all McAfee
        branded products, including VirusScan, McAfee Office and other McAfee
        utilities.

    -   The McAfee Comparative Shopping System. Provides users with a service to
        help them to learn about and shop for PC peripherals. Developed in
        partnership with Cadabra, the comparative shopping service allows the
        user to enter the features, price range and qualities of the product the
        user is shopping for, generates a list of items tailored to these
        characteristics and then assists the user in locating online vendors
        that offer the most attractive prices for the product.

    -   The McAfee Book Store. A source for technical and "how-to" books about
        PC hardware, software applications and operating systems, developed in
        partnership with fatbrain.com.

    -   The Software Store. Provides consumers with a wide variety of business,
        game and personal software in partnership with Beyond.com. The store
        provides users with an extensive one-stop shopping destination for PC
        software products.

    -   The McAfee Software Finder. A service that provides users with
        recommended software purchases based on the user's PC configuration,
        attached peripherals and software.

    -   The McAfee Book Finder. A service based on our contextual e-commerce
        technologies. This service identifies the user's PC configuration,
        attached peripherals and software and then provides the user within
        formation regarding relevant technical books and training for the user
        to purchase.

    Download Center. The Download Center provides users with an array of free
evaluation software. At the Download Center, users can, for a limited trial
period, download fully functional versions of a number of McAfee products. To
access these evaluation software titles, users are required only to register
their names and e-mail addresses with us. The Download Center offers the latest
virus signature files to all users, while subscribers can use the Download
Center to upgrade their applications to the latest versions. The Download Center
is also a destination where users can obtain popular browser plug-ins, such as
RealPlayer and Adobe Acrobat Reader.


                                       4


<PAGE>   5
    Support Center. The Support Center provides our customers with all the
necessary services to register McAfee.com products, receive online product
support, communicate with us and provide feedback on our web site and services.
Services in the Support Center include:

    -   Online Technical Support Services. Includes a database of answers to
        frequently asked questions, contact information for online and phone
        support and other support related services.

    -   Customer Care Services. Allows us to address questions regarding
        customers' billing and other transactional issues. Customers can use
        this service to request refunds, rebates and product returns.

    -   Software Registration Services. Allow customers to register their
        McAfee.com software, enabling us to track and manage update and upgrade
        commitments in connection with our license agreements.

    -   Feedback Services. Provides customers with an online mechanism to give
        us feedback regarding our products and services. Information from
        customers is directly routed to the appropriate departments for quick
        analysis and corrective action.

    -   Manual Downloads. Allow our customers to download free electronic
        documentation for all our products.

    In October 1998 we updated Oil Change, which was acquired by Network
Associates in its purchase of CyberMedia, and introduced it as our initial
hosted application. Oil Change allows consumers to update and upgrade their
computer software on their computer online without having to use an Internet
browser. As part of our recent redesign of the McAfee.com web site, we separated
the various elements of Oil Change to make it easier and more intuitive for
subscribers to use and find them. Oil Change subscribers can now utilize:

    -   the Software Update Finder in our PC Checkup Center to list their
        installed software and find the latest software updates to download;

    -   the Software Finder in our Shopping Center to find a wide range of
        software, upgrades and related products; and

    -   PC Book Finder in our Shopping Center to find and purchase
        computer-related books.

    Prior to the year 2000, Network Associates sold Oil Change subscriptions
through sales of "shrink wrapped" versions in non-online channels. We continue
to renew these subscriptions on a site hosted by McAfee.com. We are attempting
to convert current Oil Change subscribers, including those who previously
purchased from Network Associates, into McAfee Clinic subscribers largely
through use of targeted promotional efforts including e-mails.

    Firewall Center. At the Firewall Center, for an annual subscription fee, a
customer can purchase a subscription to our McAfee.com Personal Firewall. Our
Personal Firewall provides security on both broadband and narrowband connections
to the Internet helping prevent hackers from accessing personal computer files,
running Trojan or Denial of Service attacks, or disrupting a user's computer
system. Our Personal Firewall has the following features:

    -   works unobtrusively in the background, constantly monitoring all
        Internet communication while the system works normally;

    -   asks the consumer whether or not an application should be trusted when
        it detects that program's first communication with the Internet. The
        McAfee.com Personal Firewall manages all communication for trusted
        applications while everything else is blocked;

    -   filters all Internet communication for applications such as Web browsers
        and email. "File sharing" is disabled by default to protect information
        contained on the PC;

    -   makes a PC virtually invisible to hackers on the network by not
        responding to unknown or untrusted communications. McAfee.com Personal
        Firewall can block all network protocols, not just IP;

    -   works with all dial-up connections, most cable and ISDN modems, DSL,
        wireless, and most Ethernet cards; and


                                       5


<PAGE>   6
    -   supports "PPP over Ethernet", also known as PPPoE, which is frequently
        employed by DSL Internet Service Providers.


    The .NET Initiative. In November 2000, we expanded our offerings to include,
on a preview basis, our .NET initiative, a managed application service for small
to medium sized businesses. Services available to these businesses on a preview
basis through April 2001, include:

        -   Security.NET -- Up-to-date anti-virus and firewall security at work,
            home, and on the road -- all via the Internet.

        -   HelpDesk.NET -- Self-help tutorials, file management, and PC
            maintenance services on a 24x7 basis.

        -   Productivity.NET -- Anytime, anyplace computing with Microsoft
            Office compatible applications.

    Our existing license agreement with Network Associates currently restricts
our business to offering products and services incorporating Network Associates'
technology to consumers over the Internet. However, we are in the process of
negotiating arrangements, which would allow us to offer our .NET initiative to
small to medium sized businesses over the Internet. We may be unable to
negotiate arrangements with Network Associates on satisfactory terms or at all.

    ONLINE PRIVACY POLICY

    We have established an online privacy policy that governs how we do and do
not use customer information. The important elements of our privacy policy
include:

    -   We will not sell, rent or market our customer e-mail address list to any
        outside parties.

    -   We are a licensee of the TRUSTe Privacy Program.

    -   Our internal policies exceed Internet industry standards.

    -   Our web site is designed so that no personal information is displayed
        online or is accessible to the general public.

    -   Third parties who collect customer information on our behalf must abide
        by our privacy policies and share information gathered on our customers
        only with us.

MARKETING AND SALES

    Our marketing and sales strategy is designed to increase revenue
opportunities by:

    -   building increased brand recognition among PC users of the McAfee.com
        name;

    -   increasing traffic to our web site; and

    -   increasing consumer adoption of our services for PC security and
        management.

    We are taking a number of actions to increase our brand recognition and
increase traffic to our web site. Initially, traffic to our web site resulted
only from word-of-mouth and favorable reviews in computer publications. Our
marketing mix varies quarterly. We have focused our print advertising on
technology-oriented publications and mass market publications that frequently
highlight technology issues. We intend to continue using the unique resources of
the Internet, as well as traditional media, in our marketing effort to further
build brand recognition. We have pursued and plan to continue pursuing strategic
arrangements with content providers, other web sites, PC manufacturers, and
other Internet access providers to build brand recognition and drive sales of
McAfee products.


                                       6


<PAGE>   7
    We aim to increase consumer adoption of our services by first encouraging
consumers to register when they visit our web site and then converting
registered users to paying subscribers. To convert visitors into registered
users, we offer them a variety of free services, including an e-mail-based virus
notification service and McAfee Downloads, a software evaluation service. When
users of our web site register for these free products we ask their permission
to market products and services to them, and we refrain from future direct
marketing to those registered users who have chosen to "opt-out." From time to
time, we also offer a 10 to 14-day free trial subscription to McAfee Clinic and
other service with the goal of converting trial subscribers to paid subscribers
by providing them with full access to all centers on our web site for this
limited period of time.

    To convert registered users to paying subscribers and to sell new products
to existing customers, we continuously seek to expand the features and functions
of our web site and online marketing activities. We also regularly invite our
trial subscribers to return to our web site more often through online methods
such as e-mail-based virus alerts, update alerts and targeted product offers. We
have found that new virus outbreaks often trigger an increased level of activity
across all our services. Services such as McAfee Dispatch and the virus early
warning system in ActiveShield increase return visits from our user base. We
plan on expanding this service to notify customers about new services, new
products and breaking product-related news.

STRATEGIC RELATIONSHIPS

    We seek to create strategic relationships that will provide us with revenue
opportunities, increase the traffic to our web site, build and enhance the
content available to our users, and offer greater distribution of our products
and services. Our strategic arrangements may include:

    Reseller Arrangements. Under these arrangements, third party resellers
purchase our products from us and distribute them to their customers. We have a
significant relationship with Beyond.com. Beyond.com sells our products on its
web site and operates our Software Store on a reseller basis. Under our
Beyond.com agreement, which runs through June 30, 2001, Beyond.com typically
buys our software from us for resale at a fixed percentage discount off the
suggested retail price. As of December 31, 2000, the effective percentage
discount is 22%.

    OEM Arrangements. Under these arrangements, Internet Service Providers, or
ISPs, and consumer PC and software original equipment manufacturers bundle our
products and services with their Internet services, software and hardware
products. We have relationships with a number of OEMs that sell consumer PCs and
software. We believe our most significant OEM arrangements in terms of potential
consumer reach are with Compaq, Hewlett Packard and Microsoft, which give us
what we believe to be a broad bundling opportunity with new PC users. OEMs
typically agree to bundle a trial version of McAfee Software products, such as
VirusScan, the McAfee Personal Firewall, and McAfee Clinic, with their consumer
PCs or software. These arrangements range from 3 to 24 months and we receive a
fee for each bundled software product ranging from zero to $6.00 per license,
and our OEMs present their customers an opportunity to purchase McAfee Clinic
subscriptions upon the expiration of the trial OEM version. In some instances,
we share revenue we receive from McAfee Clinic subscriptions when these
subscribers are referred to us by our OEM distributors. We are currently
pursuing additional relationships with computer OEMs, ISPs and others to bundle
trial subscriptions for McAfee Clinic and other products, and we are working to
extend and expand our existing relationships. An example of this is our
agreement with SBC Communications, which we recently announced. Under this
arrangement with SBC, we license our McAfee Clinic Service to SBC, which can
then customize our service for sales to SBC's DSL customers.

    Sponsorship Arrangements. Under these arrangements, many of which are
exclusive to allow sole sponsorship of different areas of our web site, third
parties offer their products and services on our web site. These arrangements
allow third parties to have revenue opportunities, and allow them to permanently
display branding information. In the early part of 2000, we actively pursued
these arrangements. By the fourth quarter of 2000, we had chosen to discontinue
this aspect of our business model.

    McAfee Branded Services. Under these arrangements, we work with third
parties to provide McAfee branded services on our web site. Typically, we will
take a partners technology or service offering, integrate it into the web site
and brand it a McAfee service. We have entered into several of these
arrangements. One example, is Ontrack Corporation. We currently sell the McAfee
disaster recovery service, which was created with Ontrack's technology. These
arrangements range from 6 months to 2 years and typically involve an upfront
payment and a revenue sharing component once the partner sales have reached a
certain level.


                                       7


<PAGE>   8
    Online Marketing Affiliate Arrangements. Under these arrangements, we join
with Internet companies who provide users of their web site or their software
with a link to our web site and those users are then given an opportunity to
subscribe to our service. In addition, we promote their product or business and
provide our users an opportunity to connect to their web site or to obtain
products or services from these affiliates. Many of these companies pay us a
placement fee for links or presentations on our web site. We believe these
arrangements are a key method of driving potential subscribers to our web site.
These arrangements range from month to month to 2 years and we usually receive a
share of the revenues generated from these arrangements and/or a per-user
payment for customers referred from our web site to the marketing affiliate. We
typically share the revenue we receive from users of other Internet sites that
link to our web site and subscribe to our service.

MCAFEE.COM TECHNOLOGIES

    The technologies underlying our hosted applications enable users to perform
the complex and vital tasks of PC security and management over the Internet. The
most important proprietary technology we have developed is "e-software", an
improved method for the delivery of software applications via the Internet.

    E-software. Our e-software architecture enables the searching and analysis
functions for our services, including VirusScan Online, Disk Clean, Software
Update Finder and PC Checkup. When a user selects an online application from our
web site, our Internet servers authenticate the user's identity and then
automatically download the most recent version of the selected application logic
and application support and product database information. The user can then
execute the hosted application with a single mouse click. After the application
analyzes the user's PC configuration, software and attached peripherals, the
application will advise the user to take steps to secure, repair, update and
upgrade their PC.

    Three-tier Architecture. Our three-tiered architecture includes (1) the user
interface, such as a web browser, (2) the software application logic and
application support functions and (3) a database of product information. Each of
these separate tiers collectively integrate into a single, multi-tiered, web-
based environment. This architecture is incorporated into all of our hosted
applications. This architecture also allows us to update one component, such as
adding new software titles to our product database, without requiring changes to
other components. By deploying this architecture, we:

    -   reduce the amount of disk space required to store an application on a
        user's PC;

    -   enable any-time, any-place access to these critical services;

    -   minimize the amount of data traffic from the server to a user's PC
        required to launch the application; and

    -   develop an efficient way to maintain up-to-date applications on our
        server.

    This architecture is also designed to address consumer security and privacy
concerns by performing the analysis locally, limiting the information retrieved
by our servers and by transmitting information to and from us anonymously.
Moreover, our hosted applications can only be executed when the user is
connected to the secure McAfee.com web site. This ensures that hackers cannot
remotely activate our applications and gain access to our subscribers' private
PC information.

HARDWARE INFRASTRUCTURE

    Our web site, including the hardware infrastructure, is designed to be
highly reliable, scalable and redundant and provide 24-hour-a-day,
seven-day-a-week availability to the large number of consumers using our web
site daily, as well as the increased number of visitors during significant
events, such as a new virus outbreak.

    Our web site is built upon an array of servers running off-the-shelf
Microsoft software. Our system is designed so that no single function is mission
critical. As a result, for example, if a particular service goes down, our other
services should remain available. Our servers are operated in a clustered
environment in an effort to maintain 100% uptime even if an entire cluster or
subset is unavailable. Except for information provided by a separate database,
services and data are local to each server. To maintain consistency and speed of
implementation, we use scripts,


                                       8


<PAGE>   9
which are predefined sets of software instructions, to install software on new
servers added to our infrastructure, eliminating the need to manually configure
new servers. Our in-house infrastructure is housed in a telecom grade data
center with redundant power, air and physical carrier connections. We also
maintain daily backups at an offsite storage facility and distribute information
daily to our co-location providers described below.

    We connect to the Internet through multiple vendors. Currently, we have
vendor relationships with two large Internet carriers, a carrier aggregator
which reaches other Internet carriers and a global caching network with over
8000 servers. These multiple relationships provide us with the ability to
balance traffic loads under peak demand and provide for redundancy should any
one carrier suffer an outage. We also use two different co-location providers
globally that maintain significant data centers in multiple locations. We
currently are one of the major customers of a worldwide software caching service
that provides us with bandwidth "on demand" and has resulted in significant
performance improvements and cost savings. For example, an end user in Germany
may transit our site but when he downloads the local PC elements of our software
that is automatically provided by our vendor from a caching download server near
the user in Germany . If our web site server in Santa Clara, California fails,
web site servers will be activated at our co-location provider in Herndon,
Virginia, enabling continued consumer access to our web site and service at all
levels. With limited exceptions, we maintain our own infrastructure for purposes
of consistency, quality and security. Where we have outsourced we maintain close
vendor supervision and require regular security audits. Our systems are audited
internally and externally for performance and for security issues on a regular
basis.

PRODUCT DELIVERY AND CUSTOMER PAYMENT

    We have contracted with third parties to provide our product delivery and
payment services. Beyond.com provides fulfillment for software products sold on
our web site for both electronic distribution and "shrink-wrapped" box
distribution to customers. Credit card payment services for subscriptions are
provided by Cybersource and FirstData. We have agreements with these companies
that guarantee us levels of acceptable service to our customers and regular
monthly product and revenue reports.

PRODUCT DEVELOPMENT

    We believe that strong product development capabilities are essential if we
are to offer our subscribers innovative and up-to-date online PC security and
management products and services. Accordingly, our future success depends on our
ability to continually enhance existing products and to introduce new and
innovative products and services that satisfy our subscribers' PC security and
management requirements. To meet these challenges, we have made and expect to
continue making substantial investments in product research and development.
These product and service innovations are complex and frequently require long
development cycles. Future revenue from these innovations may be insufficient to
recover the development costs.

    As of January 31, 2001, we employed 93 full-time-equivalent engineers
engaged in the development of our new or improved products and services. A
majority of our engineers are dedicated to the improvement of our existing
online PC security and management products and services. Before we develop new
or improved products, we work with our subscribers to understand current
problems and emerging requirements to assist our development process. Our
engineers then seek to design and implement appropriate changes or additions to
our applications or product knowledge engines and databases.

    We expended $13.3 million, $6.9 million and $2.7 million in the years ended
December 31, 2000, 1999 and 1998, respectively, on research and development.

COMPETITION

    In the anti-virus software market, we compete primarily against Symantec and
Trend Micro Systems, who offer software licenses to anti-virus software
products, including boxed products sold through retail store channels. In the
hosted PC security and management products and services market, we also compete
primarily against existing PC utility vendors such as Symantec and Trend Micro
Systems. In particular, Symantec has an online anti-virus service and Trend
Micro Systems offers an online-hosted anti-virus service. In the future, we may
also compete against PC and system vendors such as Dell, Compaq, IBM, Gateway
and Intel looking to provide a higher level of support and service to their
customers. In particular, Dell has announced an online customer support
initiative including online


                                       9


<PAGE>   10
PC management services. Operating system and application vendors such as
Microsoft provide or plan on providing hosted services to better manage
Windows-based PCs. Online PC content sites such as CNET and ZDNet provide or
have announced their intention to provide hosted services to enhance their web
sites. We are also aware of smaller entrepreneurial companies that are focusing
significant resources on developing and marketing these services to consumers.

    In addition, Network Associates currently competes with our hosted products
and services, and may continue to compete with us in the future. Network
Associates offers products through traditional non-online distribution channels,
such as retail stores. These products include McAfee VirusScan and McAfee
Office, a suite of products, which incorporate a number of the features included
in our online products and services.

    In the e-commerce market, we compete on the basis of number of visitors,
product line depth, time spent at the site and return visits. We compete
primarily with established online retailers such as Beyond.com, Gigabuys.com,
Outpost.com and PC-related content sites such as CNET and ZDNet. In addition, we
compete with online comparative shopping services provided by sites like Yahoo!,
Excite and Amazon.com.

    We believe that the principal competitive factors in attracting visitors to
our web site and converting them into paying subscribers and product purchasers
are:

    -   market acceptance of delivery of PC security and management services via
        the Internet;

    -   brand recognition and reputation for providing trusted products and
        services;

    -   the level of security of the products and services provided;

    -   price;

    -   the level of quality of the products and services provided;

    -   convenience and breadth of products and service offered;

    -   the quality and market acceptance of new enhancements to our current
        services and features; and

    -   strategic arrangements with third parties.

INTELLECTUAL PROPERTY

    We regard substantial elements of our web site and the underlying technology
as proprietary. We own the technology underlying our Personal Firewall. We also
own three pending patent applications related to our method of delivering
software applications online. Because we own these rights, rather than licensing
them from Network Associates, we can assert them independently of Network
Associates to protect our technology. We will also be the sole owners of patent
rights in any inventions developed by our employees. Other than the firewall
technology and these patents, we do not own much of the core technology or
intellectual property underlying our current products and our currently planned
products. We currently license copyrights, patents and trademarks from Network
Associates under a license agreement. Currently, the license agreement:

    -   restricts our use of the licensed technology to providing single-user
        consumer licenses for our products and services sold over the Internet
        or for Internet-based products and licensing the technology to OEMs for
        sale to individual consumers;

    -   allows Network Associates to continue to sell "shrink-wrapped" boxed
        products incorporating the licensed technology through non-online
        distribution channels, such as retail stores;

    -   prevents us from offering non-Network Associates based products if
        Network Associates offers a competitive product;


                                       10


<PAGE>   11
    -   grants to Network Associates a license to all derivative works that we
        create based on the technology that we license from Network Associates;

    -   does not enable us to independently enforce Network Associates'
        intellectual property rights in the licensed technology against third
        parties; and

    -   allows Network Associates to terminate the license if we fail to cure
        any material breach of the license within 30 days after being notified
        by Network Associates of the breach, subject to mandatory dispute
        resolution prior to the effectiveness of any proposed termination.

    We are currently negotiating arrangements with Network Associates that would
allow us to offer our .NET initiative. We may be unable to negotiate
satisfactory arrangements with Network Associates.

    We rely to a significant extent on Network Associates to protect the
technology that it licenses to us through a combination of patent, trademark,
trade secret and copyright law and contractual restrictions. Network Associates
has been, currently is and in the future may be subject to litigation regarding
the technology licensed to us. Adverse determinations in that litigation could
result in the loss of Network Associates', and as a result our, intellectual
property rights, which could prevent us from selling our products. In addition,
we could be subject to significant liabilities or Network Associates and/or we
could be required to seek licenses from third parties. See "Risks Related to Our
Relationship with Network Associates -- We do not own much of the core
technology and intellectual property underlying our current products and our
currently planned products."

    Legal standards relating to the validity, enforceability and scope of
protection of some proprietary rights in Internet-related businesses are
uncertain and still evolving, and we can give no assurance regarding the future
viability or value of any of our proprietary rights.

    Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets or trademarks or to determine the
validity and scope of the proprietary rights of others. Litigation could result
in substantial expenses and diversion of resources and management attention.
Furthermore, other parties may assert infringement claims against Network
Associates or us. These claims and any resulting litigation, should it occur,
might subject us to significant liability for damages or an injunction against
marketing our products, and, even if not meritorious, might result in
substantial expenses and diversion of resources and management attention. Under
the terms of an indemnification agreement with Network Associates, it has agreed
to indemnify and defend us and hold us harmless from any losses as a result of
intellectual property claims known prior to the consummation of our initial
public offering on December 2, 1999.

ACQUISITIONS

    The Internet industry has experienced, and we believe will continue to
experience, significant consolidation. As part of our growth strategy, we may
acquire complementary companies and technologies from time to time.

    On February 15, 2000, we completed the acquisition of Signal9 Solutions
Canada Inc., our first acquisition, for approximately $18 million, paid in cash
and shares of our Class A Common Stock. We have since incorporated Signal9's
products, ConSeal Private Desktop and ConSeal PC Firewall into our McAfee
Personal Firewall service.

    On June 14, 2000, we completed the acquisition of a private company in
exchange for approximately $4.3 million, paid in cash and shares of our class A
common stock. In connection with this acquisition, we provided the former
company's shareholders with registration rights pursuant to which we would be
required to register such shares on Form S-3 with the Securities and Exchange
Commission.

    See "Risk factors--We face risks associated with past and future
acquisitions" for a description of the risks associated with acquisitions.

EMPLOYEES

    As of January 31, 2001, we had 148 employees and 12 contractors. Of this
total, 17 were in web technology, 93 were in research and development, 34 were
in sales and marketing and 16 were in finance and administration. We


                                       11


<PAGE>   12
consider our relations with our employees to be good. We have never had a work
stoppage, and none of our employees are represented by collective bargaining
agreements. We believe that our future success will depend in part on our
ability to attract, integrate, retain and motivate highly qualified personnel,
and upon the continued service of our senior management and key technical
personnel. None of our key personnel are bound by employment agreements.
Competition for qualified personnel in our industry and in the San Francisco Bay
Area is intense. We may be unsuccessful in attracting, integrating, retaining
and motivating a sufficient number of qualified employees to conduct our
business in the future.


                                       12


<PAGE>   13
                                  RISK FACTORS

    The following risk factors should be considered in conjunction with the
information in this Report on Form 10-K.

RISKS RELATED TO OUR RELATIONSHIP WITH NETWORK ASSOCIATES

    We are currently a majority-owned subsidiary of Network Associates. We were
incorporated in December 1998 and effective January 1, 1999 Network Associates
contributed the assets of its consumer e-commerce business to us.

WE DO NOT OWN MUCH OF THE CORE TECHNOLOGY AND INTELLECTUAL PROPERTY UNDERLYING
OUR CURRENT PRODUCTS AND OUR CURRENTLY PLANNED PRODUCTS.

    Much of the core technology and intellectual property underlying our current
products and our currently planned products is licensed to us by Network
Associates under a license agreement. This license agreement has a perpetual
term subject to specific termination provisions contained in the agreement. This
license agreement:

    -   restricts our use of the licensed technology to providing single-user
        consumer licenses for our products and services sold over the Internet
        or for Internet-based products and licensing the technology to original
        equipment manufacturers for sale to individual consumers;

    -   allows Network Associates to continue to sell "shrink-wrapped" boxed
        products incorporating the licensed technology through non-online
        distribution channels, such as retail stores;

    -   prevents us from offering products from companies other than Network
        Associates if Network Associates offers a competitive product;

    -   grants to Network Associates a license to all technology that we create
        based on the copyrights that we license from Network Associates;

    -   does not enable us to independently enforce Network Associates'
        intellectual property rights in the licensed technology against third
        parties; and

    -   allows Network Associates to terminate the cross license if we fail to
        cure any material breach of the cross license within 30 days after being
        notified by Network Associates of the breach, subject to mandatory
        dispute resolution prior to the effectiveness of any proposed
        termination.

    Despite precautions that Network Associates and we may take, third parties
could copy or otherwise obtain or use the proprietary information without
authorization or develop similar technology independently. If Network Associates
fails to adequately and timely protect the technology it licenses to us, our
business may be adversely affected.

OUR AGREEMENTS WITH NETWORK ASSOCIATES ARE NOT THE RESULT OF ARM'S LENGTH
NEGOTIATIONS AND AS A RESULT THE AGREEMENTS MAY BE LESS FAVORABLE TO US THAN IF
THE AGREEMENTS WERE NEGOTIATIONS WERE AT ARM'S LENGTH

    Our agreements with Network Associates were negotiated when we were a wholly
owned subsidiary of Network Associates and one of our two directors at that time
was a director and the chief executive officer of Network Associates. In
addition, Srivats Sampath, our president and the other director at the time, was
employed by Network Associates prior to joining McAfee.com in December 1998.

WE MAY BE UNABLE TO PURSUE BUSINESS OPPORTUNITIES AVAILABLE TO US BECAUSE OF OUR
RELATIONSHIP WITH NETWORK ASSOCIATES.

    We do not currently have a clear policy in place with Network Associates to
delineate business opportunities between us and Network Associates, except that
the license agreement restricts each party from selling licensed products in
specified markets and prevents us from offering products based on technology
competitive with that


                                       13


<PAGE>   14
provided to us by Network Associates. The complexity and fluid nature of the
marketplace and the rapid technological changes in how services are distributed
over the Internet make it likely that the scope of the license agreement with
Network Associates will be difficult to interpret in future cases. Our failure
or Network Associates' failure to properly interpret the restrictive provisions
contained in this license agreement could result in either party pursuing
business opportunities that are prohibited under the license agreement, and
could confuse potential customers and require the attention of our senior
management to resolve. We are currently negotiating arrangements with Network
Associates that would allow us to offer our .NET initiative. We may be unable to
negotiate satisfactory arrangements with Network Associates that would allow us
to successfully offer this new initiative. Furthermore, our ability to take
advantage of a specific business opportunity may be affected by Network
Associates' representation on our board of directors, its voting control over us
and our comparatively limited resources. As a result, we may be unable to
successfully pursue business opportunities available to both Network Associates
and us.

OUR HOSTED PRODUCTS AND SERVICES CURRENTLY COMPETE WITH SOME OF NETWORK
ASSOCIATES' EXISTING PRODUCTS AND MAY COMPETE WITH FUTURE NETWORK ASSOCIATES'
PRODUCTS AND SERVICES, WHICH WOULD SIGNIFICANTLY LIMIT OUR BUSINESS
OPPORTUNITIES

    Network Associates will continue to offer competing products through
traditional non-online distribution channels, such as retail stores. These
products include "shrink wrapped," boxed versions of McAfee VirusScan and McAfee
Office, a suite of products that incorporates a number of the features included
in our online products and services. We compete with these Network Associates
products based on a number of factors, including price, preferred method of
software delivery, and consumer convenience. Network Associates also provides
hosted online products and services to business. Our license agreement with
Network Associates currently restricts our use of the licensed technology to
providing single-user consumer licenses and grants Network Associates a license
to the proprietary technology, which enables us to provide hosted products and
services. As a result, absent Network Associates' consent, we are unable to
pursue business customers for our online products and services and we may
experience customer confusion, each of which would harm our business or limit
our business opportunities

NETWORK ASSOCIATES' ABILITY TO EXERT CONTROL OVER US COULD RESULT IN ACTIONS
THAT ARE NOT CONSISTENT WITH THE INTERESTS OF OUR OTHER STOCKHOLDERS,
PARTICULARLY WITH RESPECT TO A CHANGE OF CONTROL

    Network Associates' substantial voting control over us could conflict with
the interests of our other stockholders. Our capital stock consists of Class A
common stock and Class B common stock. Holders of Class A common stock are
entitled to one vote per share, and Network Associates, as the sole holder of
Class B common stock, is entitled to three votes per share. In the event that
Network Associates transfers Class B common stock to a third party, the
transferred Class B common stock automatically converts to Class A common stock
upon transfer. As of February 15, 2001, Network Associates owned 36,000,000
shares, or 100%, of the outstanding Class B common stock, representing
approximately 93% of the overall voting power of our outstanding stock. As long
as the shares of Class B common stock held by Network Associates represent more
than 25% of our outstanding voting capital stock, Network Associates will have a
majority of the voting power represented by our outstanding stock. This voting
power will enable Network Associates to:

    -   elect our entire board of directors and, as a result, control matters
        requiring board approval, subject to Network Associates' contractual
        obligation to vote in favor of at least two independent directors or at
        least a majority of independent directors if a change of control of
        Network Associates takes place that is not approved by the Network
        Associates continuing directors;

    -   control matters submitted to a stockholder vote, including mergers and
        consolidations with third parties and the sale of all or substantially
        all of our assets; and

    -   otherwise control or influence the business direction and policies of
        McAfee.com.

    In light of its voting control and board influence, Network Associates will
have significant influence over matters requiring approval of our board of
directors and stockholders. One of our current board members is affiliated with
Network Associates, George Samenuk is Network Associates' chief executive
officer. Our business could be adversely affected if this director acts in favor
of Network Associates' interests over ours while on our board of directors.


                                       14


<PAGE>   15
    Network Associates' voting control and board influence may have the effect
of discouraging many types of transactions involving a change of control,
including transactions in which the holders of Class A common stock might
otherwise receive a premium for their shares over the then-current market price.
In addition, we have elected not to be subject to Section 203 of the Delaware
General Corporation Law, which would otherwise provide certain restrictions on
"business combinations" between us and any party acquiring a 15% or greater
interest in our voting stock other than in a transaction approved by our board
of directors and in certain cases by our stockholders. As a result, for example,
as long as Network Associates owns more than 50% of the outstanding common
stock, Network Associates could effect a change in control of McAfee.com through
sales of its shares without our other stockholders having an opportunity to
participate in the transaction.

BECAUSE NETWORK ASSOCIATES CONSOLIDATES OUR OPERATING RESULTS WITH ITS OWN, IT
MAY ATTEMPT TO RESTRICT OUR EXPENDITURES, WHICH COULD ADVERSELY AFFECT OUR
BUSINESS IN THE LONG TERM

    As long as Network Associates owns common stock having at least a majority
of our voting power, it will continue to consolidate our operating results with
its own for accounting purposes. Our business strategy will require us to incur
large expenses resulting in significant losses as we attempt to establish our
brand by increasing our marketing efforts and establishing strategic
relationships. Incurring large expenses for these purposes may conflict with
Network Associates' interests in maximizing its net earnings, and Network
Associates may attempt to influence our expenditures in a manner that limits our
losses in the short term but may not be in our best interests in the long term.

WE RELY ON NETWORK ASSOCIATES TO ADEQUATELY PROTECT AND DEFEND OUR LICENSED
TECHNOLOGY AND INTELLECTUAL PROPERTY AND ANY FAILURE BY NETWORK ASSOCIATES TO DO
SO COULD ADVERSELY AFFECT OUR BUSINESS

    We rely on Network Associates to protect the technology and intellectual
property that it licenses to us through a combination of patent, trademark,
trade secret and copyright law and contractual restrictions. Despite Network
Associates' precautionary measures, third parties could copy or otherwise obtain
or use the licensed technology and intellectual property without authorization.
Our license agreement with Network Associates does not permit us to take
independent legal action against third parties to enforce Network Associates'
intellectual property rights. In the future Network Associates may be, subject
to litigation related to the technology licensed to us. Adverse determinations
in that litigation could:

    -   result in the loss of Network Associates', and as a result our,
        proprietary rights, which could prevent us from selling our products;

    -   subject us to significant liabilities; or

    -   require Network Associates and/or us to seek licenses from third
        parties.

OUR BUSINESS MAY BE HARMED BY THE LITIGATION TO WHICH NETWORK ASSOCIATES IS A
PARTY WITH RESPECT TO ANTI-VIRUS TECHNOLOGY IT LICENSES TO US

    Hilgraeve and Trend Micro have each filed suit against Network Associates
with respect to the anti-virus technology that we license from Network
Associates. See "Legal Proceedings" for further information on these matters. In
addition to naming Network Associates as a defendant in these litigation
matters, these claimants may seek to name us as a defendant in related actions
and seek damages from us. Under the terms of an indemnification agreement with
Network Associates, it has agreed to indemnify and defend us and hold us
harmless from any losses as a result of these or other intellectual property
claims known prior to December 2, 1999. The litigation process is subject to
inherent uncertainties and we and/or Network Associates may not prevail in these
matters, or we and/or Network Associates may be unable to obtain licenses with
respect to any patents or other intellectual property rights of third parties
that may be held valid or infringed upon by us through our use of intellectual
property licensed to us by Network Associates. Uncertainties inherent in the
litigation process include, among other things, the complexity of the
technologies involved, potentially adverse changes in the law and discovery of
facts unfavorable to Network Associates or McAfee.com. In addition, any
involvement in legal actions regarding our intellectual property rights could be
expensive and could distract our management from our day-to-day operations.


                                       15


<PAGE>   16
BECAUSE WE LICENSE OUR ANTI-VIRUS AND OTHER TECHNOLOGY FROM NETWORK ASSOCIATES,
OUR ABILITY TO COMPETE IN OUR MARKETS DEPENDS IN PART ON THE SUCCESS OF NETWORK
ASSOCIATES' RESEARCH AND DEVELOPMENT

    Under our license agreement with Network Associates, Network Associates
licenses to us all future improvements based on the licensed technologies. Our
research and development efforts will initially focus on adapting the licensed
technology for sales of products and services over the Internet. Specifically,
we do not plan to undertake independent research and development efforts
relating to the anti-virus technology licensed from Network Associates but
instead plan to rely on future improvements developed by Network Associates. As
a result, our ability to introduce additional or enhanced anti-virus products is
directly impacted by the success of Network Associates' related research and
development efforts. If Network Associates does not commit sufficient resources
to these efforts, or if its efforts are unsuccessful or untimely, the quality of
our anti-virus products would suffer and we would be required to commit
significant resources to our own research and development efforts. If we are
required to do so, our ability to maintain any technological leadership
currently provided by Network Associates would be severely constrained by our
relatively limited capital resources, engineering capabilities and other
resources necessary to timely develop and introduce additional or enhanced
anti-virus products. This would significantly harm our competitive position and
business.

    We expect to rely on Network Associates' ongoing research and development
efforts to keep our anti-virus products up-to-date. Accordingly, we will not
control whether these products will:

    -   continue to recognize and eliminate new computer viruses;

    -   incorrectly report the presence or absence of computer viruses;

    -   incorporate leading-edge technology; or

    -   be adequately protected from infringement by third parties or infringe
        upon the intellectual property rights of third parties.

BECAUSE WE SHARE THE MCAFEE BRAND WITH NETWORK ASSOCIATES, ITS ACTIVITIES
RELATED TO ITS MCAFEE-BRANDED PRODUCTS COULD HARM OUR BRAND AND OUR COMPETITIVE
POSITION

    The value of our McAfee.com brand is closely linked to the reputation of
Network Associates' McAfee-branded software, such as VirusScan. Network
Associates owns the McAfee trademark and will continue to maintain the right to
control the sale of McAfee and other Network Associates-branded "shrink-wrapped"
boxed software into non-online and corporate channels. Our McAfee.com brand and
competitive position could be harmed by:

    -   publicity surrounding inadequate levels of consumer support for, or poor
        performance of, Network Associates' McAfee-branded products,
        particularly McAfee VirusScan; and

    -   customer confusion related to Network Associates' continued sale of
        McAfee-branded products in non-online channels and corporate channels
        including the on-line offering of anti-virus products to businesses.

    The McAfee.com web site address, or domain name, and the McAfee trademark
are important to our business and are licensed to us by Network Associates. If
we were to lose the McAfee.com domain name or the use of this trademark, our
business would be harmed, and we would need to devote substantial resources
towards developing an independent brand identity.

WE RELY ON NETWORK ASSOCIATES TO PROVIDE CRITICAL SERVICES TO US, AND FAILURE ON
ITS PART TO EFFECTIVELY DO SO COULD ADVERSELY AFFECT OUR BUSINESS

    We currently rely on Network Associates for some cash management functions,
tax and payroll administration, insurance, employee benefits administration and
other services. We have entered into a services agreement with Network
Associates for the continued provision of these services. Until otherwise
terminated, this agreement will continue in effect through the end of December
2000 with automatic one-year renewal periods following this date. This agreement
was not the result of arm's length negotiation since we were a wholly owned
subsidiary of Network


                                       16


<PAGE>   17
Associates at the time we negotiated and entered into the agreement. As a
result, the agreement may be less favorable to us than if it was negotiated at
arm's length. If this agreement is terminated or if Network Associates fails to
satisfactorily provide these services, we would be required to provide these
services internally or find a third-party provider of these services. Any
services we choose to provide internally may not be as cost-effective as those
that Network Associates is currently providing, particularly in light of our
lack of experience as an independent organization. If we are required to obtain
these services from a third party, we may be unable to do so in a timely,
efficient and cost effective manner, or the services we receive may be inferior
to those that Network Associates is currently providing.

RISKS RELATED TO OUR BUSINESS

WE HAVE A HISTORY OF LOSSES AND FURTHER LOSSES ARE LIKELY

    As of December 31, 2000 we had an accumulated deficit of approximately $60.7
million. Our net losses as a percentage of net revenue were 59% in the twelve
months ended December 31, 2000, and 114% in the twelve months ended December 31,
1999. We may never become profitable, or if we do earn a profit in any period,
we may be unable to sustain or increase our profitability on a quarterly or
annual basis. It is critical to our success that we continue to devote
financial, sales and management resources to developing brand awareness for our
web site and our online PC security and management products and services. As a
result, we expect that our operating expenses may increase significantly during
the next several years, as we incur additional expenses related to:

        -   development, marketing and promotion of products and services,
            including our .NET initiative targeting at small to medium sized
            business;

        -   development of our web site and related infrastructure; and

        -   development and maintenance of strategic relationships.

With the addition of these operating expenses, we will need to generate
significant additional revenues to achieve profitability.

VOLATILITY IN THE CAPITAL MARKETS AND A SLOWDOWN IN THE BUSINESS OF MANY
INTERNET COMPANIES MAY SUBSTANTIALLY REDUCE OUR REVENUE AND LENGTHEN OUR SALES
CYCLE.

    Historically, a significant portion of our revenue has been derived from our
sponsorship arrangements, McAfee branded services and online marketing affiliate
arrangements, with Internet companies. Volatility in the capital markets and a
slowdown in the business of many Internet companies has impacted adversely many
of our past and potential Internet company customers, particularly early stage
companies and those companies that have undertaken expansive advertising
campaigns to build an online marketing presence. As a result of these actual or
potential difficulties, our Internet company customers, many of whom are early
stage companies or have engaged in their own large advertising campaigns, may,
to the extent they have not already done so,

    -   Reduce their e-commerce and advertising relationships with us;

    -   Elect not to enter into long-term agreements, or agreements involving
        large up-front payments or slotting fees paid to us;

    -   Require shorter-term agreements with us and payments made over time
        based on actual performance; and

    -   Face difficulties in paying for existing or new obligations owed to us.

These events would act to lengthen our sales cycle and reduce our revenue and
correspondingly adversely impact our business.

OUR APPLICATIONS SERVICE PROVIDER BUSINESS MODEL IS RELATIVELY UNPROVEN, AND OUR
SUCCESS DEPENDS ON MARKET ACCEPTANCE OF OUR HOSTED APPLICATIONS

    Historically, substantially all of our revenue has come from software sales
through our web site and other online resellers, such as Beyond.com. Our current
strategy is to expand upon this base and broaden our role as an applications
service provider, or ASP, providing consumers with online access to PC security
and management


                                       17


<PAGE>   18
software applications hosted on our servers. Under this ASP model, consumers
"rent versus buy" our software, which means PC users purchase a license to use
the software hosted on our servers for a limited duration of time with all
version updates included, as opposed to purchasing a single version of
traditional software with perpetual access to only one version. We believe we
are among the first consumer focused ASPs, and this concept may not achieve
broad acceptance in the market. We began providing our application services
online in October 1998. To build awareness and demand for our hosted products
and services, we offered our McAfee Clinic and other products and services for
free prior to September 2, 1999, when we began charging a subscription fee for
McAfee Clinic. Consumer acceptance of our hosted products and services is
subject to a number of potential factors, including:

    -   consumers' reluctance to pay a subscription fee for our hosted services
        which were offered for free prior to September 2, 1999;

    -   consumers' reluctance to change their software purchasing behavior in
        favor of services hosted on our servers;

    -   consumer concerns regarding the effectiveness of hosted PC products and
        services compared with software that is entirely on a user's PC;

    -   unwillingness by consumers to incur ongoing subscription fees for hosted
        products and services previously offered for free;

    -   consumer concerns about whether the Internet is fast and reliable enough
        to deliver critical PC security and management functions effectively;
        and

    -   our ability to properly price our products and services to generate the
        greatest revenue potential.

    Our online services are designed to protect consumer privacy by ensuring
that all PC scans are done locally at the PC, all information about the user's
PC is transmitted to us anonymously and no scanned data is stored by us.
However, consumers' misconceptions about this process could prevent our ASP
model from achieving market acceptance.

IF WE ARE UNABLE TO EFFECTIVELY SELL RENEWAL SUBSCRIPTIONS TO OUR SERVICES, OUR
BUSINESS WILL BE HARMED.

    We derive a substantial portion of our revenue from the sale of annual
subscriptions to our various services. In addition to attracting new
subscribers, in order to expand our subscriber base we need to achieve a high
rate of customers renewing their subscriptions upon expiration. Until recently
we did not have the infrastructure in place to automatically renew expiring
subscriptions and we had not sought permission from our customers to
automatically renew their subscriptions upon expiration. Since we began charging
for our services in September of 1999, we have only recently begun the process
of contacting our subscribers to offer renewals. Our lack of experience in this
aspect of our business may reduce our effectiveness in obtaining subscription
renewals. Many of our subscribers paid substantially less than our current
retail price for their initial subscription and may be unwilling to renew their
subscription at a higher price. We have and will be required to expend
substantial marketing, customer service and technical resources to promote
subscription renewals and we are offering discounted prices to increase the rate
of subscription renewals. This effort may result in higher costs and in reduced
average subscription revenue per subscriber. If we are unable to renew
subscribers at a sufficient rate, we would likely be unable to maintain or
increase our subscriber base and our business will be harmed.

ANY FAILURE ON OUR PART TO DEVELOP, MAINTAIN AND ENHANCE STRATEGIC RELATIONSHIPS
WILL LIMIT OUR ABILITY TO EXPAND OUR DISTRIBUTION AND GROW OUR BUSINESS

    Our distribution strategy will require us to develop and maintain strategic
relationships with third parties including Internet portals, Internet shopping
sites, and Internet access providers. We believe that the maintenance and
enhancement of our relationship with Beyond.com and the establishment of
additional strategic relationships in other areas of our business will be
critical if we are to expand our business. In August 2000, we extended our
current agreement with Beyond.com, retroactive to July 1, 2000, which is the
largest reseller of our software and the exclusive reseller of third-party
software sold on our web site. The agreement expires on June 30, 2001. Through
the Beyond.com reseller arrangement, Beyond.com purchases licenses to our
software from us for resale at the time


                                       18


<PAGE>   19
a customer decides to purchase it, paying us for these licenses on a monthly
basis. In the year ended December 31, 2000, approximately 19% of our net revenue
was derived from the sale of software licenses through Beyond.com. Although we
intend to pursue additional strategic relationships in the future, such as our
recently announced arrangement with SBC to license our McAfee Clinic product to
SBC's DSL customers, these efforts may not be successful. To secure and maintain
key strategic relationships, we may be required to pay significant fees and/or
grant exclusive rights. Even if we do succeed in establishing these
relationships, they may not result in our generating additional subscriber or
customer relationships or increased revenues.


WE MAY BE UNSUCCESSFUL IN OUR PLANS TO MARKET OUR SERVICES TO BUSINESSES.

    To date, we have focused on selling our products and services to individual
consumers. We intend to expand the scope of our marketing, sales and
distribution to included small and medium sized businesses through product
offerings such as our .NET initiative. Currently, however, our license agreement
with Network Associates restricts our ability to sell products and services to
businesses and we may be unable to enter or compete effectively in the business
marketplace due to these contractual limitations. We lack experience in selling
to and supporting business customers, and will likely face serious competition
in this market segment. Accordingly, businesses may be reluctant to adopt our
products and services. We are likely to incur substantial incremental costs
associated with marketing and supporting a business focused service. This may
reduce the resources available for our consumer services business, and
negatively impact our revenues and operating results.

OUR SUCCESS DEPENDS UPON OUR MANAGEMENT TEAM'S ABILITY TO WORK EFFECTIVELY
TOGETHER AND OUR ABILITY TO RETAIN THEM

    Because our senior management currently consists of individuals who have
worked together for a relatively short period of time our management may be
unable to work together effectively. Our Vice President of Marketing joined the
Company in May 2000 and our current Vice President of Sales has served on an
interim basis since July 2000. We are substantially dependent on the continued
services of our senior management, including Srivats Sampath, our chief
executive officer, and Evan Collins, our chief financial officer, as well as key
technical and engineering personnel. We do not have employment agreements with
any of our senior management or key personnel and we do not maintain any "key
person" life insurance policies. If our management team fails to work together
effectively, or if we lose the services of any other members of senior
management or key personnel, our business could be harmed.

WE EXPECT SIGNIFICANT STOCK-BASED COMPENSATION CHARGES RELATED TO NETWORK
ASSOCIATES REPRICED OPTIONS AND OUR REPLACEMENT OPTIONS

    In light of the decline in Networks Associates stock price at the time and
in an effort to retain their employee base, in April 1999, Network Associates
offered to reprice options held by all employees, other than directors and
executive officers. If the employee agreed not to exercise any of the repriced
options for a period of twelve months, the exercise price of their eligible
employee options with an exercise price in excess of $11.0625 was reduced to
$11.0625, the closing market price on the NASDAQ on April 22, 1999. Option
holders electing to have their options repriced were required to acknowledge
their acceptance by April 28, 1999. As a result of the increase in price between
the date on which the options were repriced, April 22, 1999, and the date on
which the employees elected to reprice their option grants, April 28, 1999,
Network Associates has incurred a stock-based compensation charge. In accordance
with Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees," Network Associates incurred an initial stock-based compensation
charge in connection with this repricing. This charge was calculated based on
the difference between the exercise price of the new options and their market
value on the date of acceptance by employees. This charge is fixed and will
continue to be incurred through the remaining vesting period of the repriced
options.

    In March 2000, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB Opinion No. 25 ("Interpretation"). The
Interpretation is intended to clarify certain problems that have arisen in
practice since the issuance of APB 25. The Interpretation provides guidance,
some of which is a significant departure from current practice. The
Interpretation generally provides for prospective application for grants or
modifications to existing


                                       19


<PAGE>   20
stock options or awards made after June 30, 2000. However, for certain
transactions the guidance is effective after December 15, 1998 and January 12,
2000.

    In connection with the establishment of McAfee.com, employees who were to
transfer from NAI were offered the option to have their unvested options in
Network Associates cancelled and replaced with new options for the Company's
shares and keep their vested Network Associates options. This resulted in the
Company issuing options to purchase 1,224,700 shares. In addition the Company's
employees retained options to purchase 368,717 shares of Network Associates
common stock. The Network Associates options cancelled were included in those,
which were repriced by Network Associates as of April 22, 1999. Under the
guidance in FIN 44 the new options issued to the employees of the Company are
considered to be replacement options and, therefore, are also subject to
variable accounting, in the same manner as the Network Associates option they
replaced. In addition the Company must account for the Network Associates
options retained by its employees using the variable accounting model.

    We have incurred and will continue to incur variable accounting charges
related to NAI's repriced options and our replacement options. The valuation of
this charge has and will be based on any excess of the closing price at the end
of the reporting period or date of exercise, forfeiture, cancellation without
replacements, if earlier, over the fair value of our and Network Associates
common stock at July 1, 2000, which was $26.063 and $20.375, respectively.
Depending upon movements in the market value of our common stock, this
accounting treatment may result in significant additional compensation charges
in future periods. For the year ended December 31, 2000 the Company recorded
stock-based compensation expense of $399,000.

OUR FAILURE TO HIRE AND RETAIN KEY MANAGEMENT PERSONNEL AND OTHER QUALIFIED
INDIVIDUALS COULD HARM OUR BUSINESS

    In addition to retaining and motivating our current management and technical
employees, we must attract and train new employees in key areas of our company,
including marketing and sales, research and development and web information
technologies functions. We may be unable to successfully attract, train, retain
and motivate key management personnel and other highly skilled technical, sales
and marketing and customer support personnel. Competition for these individuals
is intense, especially in the San Francisco Bay Area. If we fail to either
retain our current employees, or fail to attract and train new employees, our
business could be harmed. Recent volatility in our stock price may make it more
difficult for us to retain existing employees and attract new employees. An
increase in employee turnover may impede our productivity, increase our costs
and degrade our overall technical and management experience harming our business

OUR INABILITY TO EFFECTIVELY MANAGE OUR WEB SITE TRAFFIC AND INFORMATION
TECHNOLOGY INFRASTRUCTURE COULD HARM OUR BUSINESS

    We have experienced significant growth and fluctuations in traffic to our
web site. To meet increased traffic demands and potential future traffic
increases, we recently expanded our information technology, or IT,
infrastructure and continue to add additional infrastructure based on our
anticipated requirements.

    We have experienced significant temporary increases in traffic to our web
site in response to particular events, such as the Melissa and Chernobyl
computer virus outbreaks in the first half of 1999, and the "I Love You"
computer virus outbreaks in the three months ended June 30, 2000, each of which
approximately tripled our then average daily web site traffic. To respond to
sudden traffic increases, we must expand and maintain the capacity of our IT
infrastructure. If we are unable to effectively expand our IT infrastructure to
accommodate traffic increases, consumers may experience difficulties in
accessing our web site or in downloading products and information from our web
site. This could materially harm our business.

    The impact of traffic increases would likely be most severe during
unanticipated events such as virus outbreaks. Currently, our web site
infrastructure supporting our web site operates at approximately 12% capacity
based on average daily traffic levels. These capacity estimates are based on
measuring existing web site traffic against the bandwidth specifications of our
installed hardware.

    Currently, Beyond.com provides electronic distribution for software products
sold on our web site. If we were to elect to provide our own electronic
distribution of these products and the related updates and upgrades, we would
need to increase our IT infrastructure.


                                       20


<PAGE>   21
WE RELY ON BEYOND.COM FOR SOFTWARE LICENSE SALES AND PRODUCT FULFILLMENT, AND
ANY FAILURE BY BEYOND.COM TO PERFORM THIS SERVICE EFFECTIVELY COULD ADVERSELY
AFFECT OUR BUSINESS

    During the year ended December 31, 2000, approximately 19% of our net
revenue was derived from the sale of our software licenses through Beyond.com.
Included in these revenues are software licenses sold on our web site for which
Beyond.com acts as a reseller and provides product fulfillment. Beyond.com
provides fulfillment for these products whether they are distributed
electronically by Beyond.com or in "shrink-wrapped" box format shipped to
customers. If Beyond.com does not provide these services in a timely and
satisfactory manner, we would be required to replace Beyond.com and our business
could be harmed.

WE EXPECT OUR QUARTERLY REVENUES AND OPERATING RESULTS TO FLUCTUATE FOR A NUMBER
OF REASONS THAT COULD CAUSE OUR STOCK PRICE TO FLUCTUATE

    We expect that our quarterly and long-term revenues and operating results
will fluctuate significantly in the future based upon a number of factors, many
of which are not within our control.

    We have significantly increased our operating expenses to expand our
marketing and sales activities and have expanded our operating infrastructure.
We may be required to continue incurring substantial operating expenses to
maintain and expand our business. We base our operating expenses on anticipated
market growth and our operating expenses are relatively fixed in the short term.
We may be unable to accurately assess market growth rates and accordingly we may
incorrectly forecast and budget operating expenses. As a result, if our revenues
are lower than we expect, our quarterly and long-term operating results may not
meet the expectations of public market analysts or investors, which could cause
the market price of our common stock to decline.

    In prior periods, our net revenue and operating results have fluctuated on a
quarterly basis. For example, during the year ended December 31, 2000, we
recorded approximately 26% of our total net revenue in the three months ended
December 31, 2000, approximately 27% in the three months ended September 30,
2000, approximately 25% in the three months ended June 30, 2000 and
approximately 22% in the three months ended March 31, 2000. During the year
ended December 31, 1999, we recorded approximately 34% of our total net revenue
in the three months ended December 31, 1999, approximately 28% in the three
months ended September 30, 1999, approximately 24% in the three months ended
June 30, 1999 and approximately 14% in the three months ended March 31, 1999.

    It is likely that in some future period, our operating results or our
financial analyst forecasts of future operating results may be below
expectations of public market analysts or investors. If this occurs, our stock
price may drop. The primary factors that may affect our quarterly and long-term
revenues and operating results include the following:

    -   the number of visitors to our web site, the proportion of visitors that
        become registered users, the proportion of registered users that convert
        to paying online subscribers and the rate at which they renew their
        subscriptions;

    -   seasonality, such as during summer months, when Internet usage is
        typically lower;

    -   the number of visitors to our web site who purchase products offered
        through our web site and the mix of products purchased;

    -   the amount of advertising purchased on our web site and the price we may
        be able to charge for advertising on our web site;

    -   our success in licensing our contextual e-commerce technology;

    -   the amount and timing of our operating expenses and capital
        expenditures;


                                       21


<PAGE>   22
    -   the percentage of revenue which is deferred, which may fluctuate based
        on the change in product mix and/or pricing;

    -   costs related to potential acquisitions of businesses or technologies;
        and

    -   our success in branding and marketing third party products and services.

BECAUSE OUR HISTORICAL FINANCIAL STATEMENTS ARE DERIVED FROM NETWORK ASSOCIATES'
HISTORIC FINANCIAL RESULTS PRIOR TO THE TIME WE ADOPTED OUR CURRENT BUSINESS
MODEL, THEY MAY NOT BE INDICATIVE OF OUR FUTURE PERFORMANCE

    Our financial statements are derived from the historic books and records of
Network Associates. Furthermore, although historically substantially all of our
revenues have come from traditional software sales, our current strategy is to
expand our role as an ASP, providing consumers with online access to software
applications hosted on our servers. For these reasons, we do not believe that
our historical operating results are representative of our business model going
forward. As a result, you should not rely on comparisons of our historical
operating results as an indicator of our future performance.

THE GROWTH OF OUR NET REVENUE DEPENDS TO A SIGNIFICANT EXTENT UPON THE CONTINUED
DEMAND FOR OUR ANTI-VIRUS PRODUCTS AND SERVICES

    We believe that to date a significant portion of the traffic to our web site
has been generated by consumer demand for our anti-virus products and services.
A decline in the demand for, or the price that consumers are willing to pay for,
our anti-virus products and services as a result of competition, an erosion of
brand loyalty, perceived degradation in product quality, technological changes,
the bundling by third parties of anti-virus functionality into their products or
services or other factors would harm our business and operating results. We
license the technology underlying our anti-virus products and services from
Network Associates and we are therefore dependent on the continued quality and
availability of Network Associates' anti-virus technology.

COMPETITION FROM OTHER VENDORS MAY RENDER OUR PRODUCTS OBSOLETE OR LEAD TO
REDUCED SALES OF OUR PRODUCTS OR REDUCED MARKET SHARE

    Vendors of hardware and of operating system software or other software, such
as e-mail software, may enhance their products or bundle separate products to
include PC security and management software similar to our products. This
competition from vendors and their widespread inclusion of products that perform
some of the same or similar functions as our products within computer hardware
or other software, such as those offered by our current competitors Dell and
Microsoft, could render our products duplicative or obsolete and result in
reduced sales and market share. Even if these incorporated products are inferior
or more limited than our products, consumers may nevertheless believe that the
incorporated products eliminate the need to purchase our products separately. If
we were unable, either directly or indirectly through Network Associates, to
develop new PC security and management products to further enhance operating
systems or other software and to successfully replace any obsolete products, our
business would suffer.

IF OUR PRODUCTS AND SERVICES ARE NOT EFFECTIVE, OUR REPUTATION AND BUSINESS MAY
BE HARMED AND CONSUMERS MAY MAKE PRODUCT LIABILITY CLAIMS AGAINST US

    Our PC security and management software products and services are used to
protect and manage PCs. If these products and services are not effective, our
reputation will be harmed and demand for our products and services could
decrease, which would materially adversely affect our business. As a result, we
could face potential product liability and related claims. Our anti-virus
products and services may fail to effectively detect and respond to existing or
newly developed computer viruses. In addition, our anti-virus technology may
cause a "false alarm" by detecting viruses that do not actually exist. Our PC
management services may not perform effectively, causing a consumer to
accidentally lose or delete a file and other data. Any of the foregoing events
could harm our reputation and our business and could lead to claims against us.
This risk is especially acute for anti-virus software because of the rate at
which new viruses are introduced, the challenges involved in widely distributing
software updates before customers have been infected by new viruses, and the
severity of the harm that consumers may suffer as a result of viruses. Because
we license the technology underlying our anti-virus products and services from
Network Associates, the quality of these products and services depends on
Network Associates' research and development efforts. We seek to limit our
exposure to potential product liability claims through limitation of liability
provisions


                                       22


<PAGE>   23
in our electronic and shrink-wrap licenses and through disclaimers. However,
these measures, particularly those involving unsigned licenses, may not be
effective under the laws of some jurisdictions.

WE MAY BE INVOLVED IN LEGAL PROCEEDINGS AND LITIGATION ARISING IN THE ORDINARY
COURSE OF BUSINESS

    The Company's principal assets are its intellectual property, and the
Company competes in an increasingly competitive market. There has been
substantial litigation regarding intellectual property rights of technology
companies. The Company currently is subject to litigation related to its
intellectual property. There can be no assurance that developments will not
arise out of such pending litigation or any other litigation to which the
Company may become party, which could have a material adverse effect on the
Company's business, financial condition and results of operation.

    On August 1, 2000, Simple.com filed a complaint against the Company alleging
that the Company misappropriated Simple's trade secrets and infringed Simple's
copyrights in certain software code. The complaint includes seven claims for
relief: copyright infringement; breach of contract; misappropriation of trade
secrets; statutory unfair competition; common-law unfair competition;
conversion; and breach of the covenant of good faith and fair dealing. The
complaint seeks preliminary and permanent injunctive relief preventing the
Company from, using the information that the Company allegedly acquired from
Simple. The complaint also seeks compensatory damages in an amount alleged to be
not less than $18 million, plus interest. The complaint also seeks statutory,
exemplary and punitive damages as well as recovery for unjust enrichment. The
Company answered the complaint on August 30, 2000. The parties have begun the
discovery process, and no trial date has been set. The Company has agreed to
pursue non-binding mediation once discovery is substantially complete.

    Although the Company intends to defend itself vigorously against the claims
asserted against it in the foregoing actions or matters, there can be no
assurance that such pending litigation will not have a material adverse effect
on the Company's business, financial condition or operating results. The
litigation process is subject to inherent uncertainties and no assurance can be
given that the Company will prevail in any such matters, or will be able to
obtain licenses, on commercially reasonable terms, or at all, under any patents
or other intellectual property rights that may be held valid or infringed by the
Company or its products. Uncertainties inherent in the litigation process
involve, among other things, the complexity of the technologies involved,
potentially adverse changes in the law and discovery of facts unfavorable to the
Company.

IF MICROSOFT TECHNOLOGY FAILS TO MAINTAIN ITS MARKET SHARE OUR BUSINESS WILL BE
ADVERSELY AFFECTED

    Currently, our online services are designed exclusively for PCs running
Microsoft's Windows 95, Windows 98, Windows 2000 and Windows NT operating
systems. For our web browser interface, we utilize Microsoft's Internet Explorer
technology. We do not support Netscape browser technology except through use of
specialized software, commonly referred to as "plug-ins," that must be
downloaded over the Internet, a potentially time-consuming and complicated
process. For such plug-ins to work, Microsoft's Internet Explorer must reside on
the user's PC. If Microsoft's technology fails to continue to be broadly
accepted by consumers, or if consumers migrate to other technologies that we do
not support, our business would be harmed.

OUR MARKET IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE, AND TO COMPETE WE MUST
CONTINUALLY ADAPT TO THESE CHANGES AND INTRODUCE NEW PRODUCTS AND SERVICES THAT
ACHIEVE BROAD MARKET ACCEPTANCE

    The market for Internet products and services is subject to rapid
technological developments, evolving industry standards and consumer demands,
and frequent new product introductions and enhancements. To remain competitive,
we must continue to enhance and improve the ease of use, responsiveness,
functionality and features of our web site. These efforts may require us to
internally develop increasingly complex technologies or license them from either
Network Associates or other parties. Developing and integrating new products,
services or technologies into our web site could be expensive and
time-consuming. Any new features, functions or services may not achieve market
acceptance or enhance our brand loyalty. If we fail to develop and introduce or
acquire new features, functions or services effectively on a timely basis, we
may be unable to continue to attract new users or to retain our existing users.
Furthermore, we may not succeed in incorporating new Internet technologies, or
to do so, we may incur substantial expenses. We must also work through our
strategic relationships to expand and enhance the content on our web site.


                                       23


<PAGE>   24
COMPETITION FROM OTHER COMPANIES THAT OFFER PC SECURITY AND MANAGEMENT SERVICES
COULD REDUCE OUR NET REVENUE AND MARKET SHARE

    A large number of Internet companies compete for users, advertisers,
e-commerce transactions and other sources of online revenue. The market for PC
security and management products is intensely competitive and we expect
competition to increase in the near-term. Competitive factors affecting our
market include:

    -   relatively low barriers to entry, allowing current and new competitors
        to launch new Internet sites at a relatively low cost using commercially
        available software;

    -   the ability of some of our present and future competitors to offer their
        products and services for free;

    -   new technologies that may increase competitive pressures by enabling our
        competitors to offer lower-cost services; and

    -   web-based applications that direct Internet traffic to web sites and
        users to computer management services that compete with ours.

    Increased competition could result in price reductions, diminished market
share and loss of subscribers, which could materially harm our business. We
believe that competition for consumers of PC security and management services
will continue to increase as the Internet grows as a commercial medium and as
consumer ownership of PCs and other Internet access devices becomes more
widespread. To respond to changes in the competitive environment, we may, from
time to time, make pricing, service or marketing decisions or acquisitions that
could harm our business.

    In the market for anti-virus software products, we compete primarily against
Symantec and Trend Micro Systems, which offer software licenses to anti-virus
software products, including boxed products sold through retail store channels.
In the market for hosted PC security and management solutions, we also compete
primarily against Symantec and Trend Micro Systems, as well as other PC utility
vendors. In particular, Symantec and Trend Micro Systems both offer online
anti-virus services. Symantec has recently introduced a set of online security
services in addition to its anti-virus service that may begin to compete with
and dilute the market share of our services. In the future, we may also compete
against PC and system vendors such as Dell, Compaq, IBM, Gateway and Intel that
may seek to provide a higher level of support and service to their customers. In
particular, Dell has announced an online customer support initiative that
includes online PC management services. Operating system and application vendors
such as Microsoft provide or plan to provide hosted services to better manage
Windows-based PCs. Online PC content sites such as CNET and ZDNet provide or
have announced their intention to provide hosted services to enhance their web
sites. We are also aware of smaller entrepreneurial companies that are focusing
significant resources on developing and marketing these services to consumers.

    In the market for e-commerce, we compete primarily with established online
retailers such as Beyond.com, Gigabuys.com, Outpost.com and PC-related content
sites such as CNET and ZDNet. We also compete with online comparative shopping
services and advertising space provided by major Internet sites such as America
Online, Yahoo!, Amazon.com, Lycos, MSN.com and Excite. Some current and many
potential competitors have longer operating histories, larger customer bases and
greater brand recognition in other business and Internet markets than we do.
Some of these competitors also have significantly greater financial, marketing,
technical and other resources. Other online computer management services may be
acquired by, receive investments from or enter into commercial relationships
with larger, more established and better-financed companies. As a result, some
of our competitors may be able to devote more resources to marketing and
promotional campaigns, adopt more aggressive pricing policies and devote
substantially more resources to web site and systems development than we are
able to provide. Increased competition may result in reduced operating margins,
loss of market share and diminished value of our brand.

OUR INTENDED EXPANSION INTO INTERNATIONAL MARKETS COULD EXPOSE US TO RELATED
RISKS THAT COULD HARM OUR BUSINESS

    We currently are expanding our operations outside the United States. To
expand our business, we intend to continue to develop subscriber relationships
with users outside of the United States. Expansion of our business to


                                       24


<PAGE>   25
international consumers poses significant challenges, including the creation of
non-English language or localized versions of our web site. Conducting business
outside of the United States is subject to additional risks, including:

    -   difficulties related to online payment processing, including foreign
        currency issues and transacting with consumers who do not have credit
        cards;

    -   currency fluctuations;

    -   providing customer support in local languages and time zones;

    -   the burden of complying with foreign laws, including uncertain and
        evolving privacy and consumer protection laws of Europe, which may
        include restrictions on e-mail marketing;

    -   difficulties in securing an international provider of fulfillment
        services for shrink-wrapped software; and

    -   political or economic instability or constraints on international trade.

    Any of the foregoing factors could adversely affect our future international
operations, and as a result, harm our business and financial results.


WE MAY FACE LIABILITY RELATING TO CONTENT ON, OR PRODUCTS AND SERVICES SOLD
FROM, OUR WEB SITE

    Our web site provides third-party content and links to other web sites. We
could be exposed to claims related to copyright or trademark infringement,
errors or omissions or other wrongful acts by the third parties whose content we
provide or whose web sites are linked with ours. We enter into agreements with
purchase of products or services through direct or indirect links to or from our
web site. These arrangements may expose us to additional legal risks and
uncertainties, including government regulation and potential liabilities to
consumers of these products and services, even if we do not provide the products
and services ourselves.

IF WE ARE UNSUCCESSFUL IN PROTECTING OUR INTELLECTUAL PROPERTY AND PROPRIETARY
RIGHTS, WE MAY BE UNABLE TO PREVENT THIRD PARTIES FROM USING THESE RIGHTS AND WE
MAY LOSE THESE RIGHTS OR BE REQUIRED TO PAY DAMAGES OR ROYALTIES

    We regard substantial elements of our web site and the underlying technology
as proprietary. Despite our precautionary measures and those of Network
Associates, it is possible that third parties could copy or otherwise obtain and
use our proprietary information without authorization or develop similar
technology independently, and the intellectual property laws on which we rely
may be ineffective in preventing such unauthorized copying or use.

    Other companies may own, obtain or claim trademarks that could prevent,
limit or interfere with our use of the trademark that we use. The McAfee.com web
site address, or domain name, and the McAfee trademark are important to our
business and are licensed to us by Network Associates. If we were to lose the
McAfee.com domain name or the use of this trademark, our business would be
harmed and we would need to devote substantial resources towards developing an
independent brand identity. From time to time, third parties may claim that our
products and services infringe upon their rights. These claims might require us
to pay damages or royalties. Any infringement claims, with or without merit,
could lead to costly litigation that could absorb significant management time
and require substantial expenses.

    Legal standards relating to the validity, enforceability and scope of
protection of proprietary rights in Internet-related businesses are uncertain
and evolving, and we can give no assurance regarding the future viability or
value of any of our proprietary rights.

WE COULD FACE CLAIMS BY OUR CUSTOMERS FOR INVASION OF PRIVACY

    We collect and use data from our customers to process their orders for our
services. This creates the potential for claims to be made against us based on
invasion of privacy or other legal theories. Although we carry general liability
insurance, our insurance may not cover potential claims of this type or may not
be adequate to indemnify us for all liability that may be imposed.


                                       25


<PAGE>   26
PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND DELAWARE LAW AND
OUR RELATIONSHIP WITH NETWORK ASSOCIATES MAY DISCOURAGE TAKEOVER ATTEMPTS

    Certain provisions of Delaware law and our certificate of incorporation and
bylaws could have the effect of delaying or preventing a third party from
acquiring us, even if a change in control would be beneficial to our
stockholders. For example, we have a classified board of directors whose members
serve staggered three-year terms and are removable only for cause. These
provisions could make it more difficult for a third party to acquire us, even if
doing so would benefit our stockholders. Furthermore, as of February 15, 2001,
Network Associates owned 36,000,000 shares, or 100%, of our outstanding Class B
common stock, with each Class B share entitled to three votes. As a result,
Network Associates will have sufficient voting power to control the direction
and policies of McAfee.com.

WE MAY NEED ADDITIONAL FINANCING TO ACHIEVE OUR BUSINESS OBJECTIVES, AND IF SUCH
FINANCING IS UNAVAILABLE, OUR BUSINESS COULD BE HARMED AND OUR PLANNED EXPANSION
COULD BE LIMITED

    We may need to obtain additional financing to fund more rapid expansion, to
expand our marketing activities, to develop new or enhance existing services or
products, to respond to competitive pressures or to acquire complementary
services, businesses or technologies. We may also need to raise funds in the
future to meet our working capital needs. Additional financing may not be
available on terms favorable to us, or at all. If adequate funds are not
available or are not available on acceptable terms, we may be required to lower
our operating expenses by scaling back our operations, such as reducing our
marketing and research and development expenditures.

INTERNET STOCKS HAVE BEEN VOLATILE AND OUR STOCK PRICE MAY FLUCTUATE
SIGNIFICANTLY, AND MAY CAUSE A DECLINE IN THE PRICE OF OUR SHARES

    The trading prices of many Internet stocks, including ours, have experienced
extreme price and volume fluctuations. These fluctuations have often been
unrelated or disproportionate to the operating performance of these companies.
During 2000, our closing stock price on the NASDAQ ranged from a high of $55.50
to a low of $2.63, and the closing price on March 15, 2001 was $6.91. The
trading price of our stock is likely to remain highly volatile and may be
significantly affected by factors including actual or anticipated fluctuations
in our operating results, new products introduced by us or our competitors,
conditions and trends in the software or e-commerce industries, changes in
financial estimates by securities analysts, general market conditions and other
factors. Any negative change in the public perception of the prospects of
Internet or e-commerce companies in general could also depress our stock price
regardless of our business, prospects or operating results.

WE FACE RISKS ASSOCIATED WITH PAST AND FUTURE ACQUISITIONS AND MINORITY
INVESTMENTS

    During 2000 we completed two acquisitions. As part of our growth strategy,
we may acquire additional companies, products and technologies, which are
complementary to our business or make minority investments in complementary
companies. These activities involve a number of risks and we may not realize the
expected benefits of these transactions.

    The integration of an acquired company or technology involves a complex,
time consuming and expensive process. Following any acquisition, we must operate
as a combined organization utilizing common information communication systems,
operating procedures, financial controls and human resource practices. In order
to successfully integrate our completed and other potential acquisitions, we may
need to, among other things, successfully:

    -   attract and retain key management and other personnel;

    -   integrate the acquired products into our suite of product offerings both
        from engineering and sales and marketing perspective;

    -   integrate and support preexisting supplier, distribution and customer
        relationships;

    -   coordinate research and development efforts;


                                       26


<PAGE>   27
    -   integrate sales forces; and

    -   consolidate duplicate facilities.

    The difficulties of integrating an acquired company may be exacerbated by
the geographic distance between the companies, the complexity of the
technologies and operations being integrated, and the disparate corporate
cultures being combined. Successful acquisitions may be more difficult to
accomplish in the high technology industry than in other industries, and will
require the dedication of our management resources. Management's focus on the
integration of operations may distract attention from our day-to-day business,
and may disrupt key research and development, marketing or sales efforts. In
addition, it is common in the technology industry for aggressive competitors to
attract customers and recruit key employees away from companies during the
integration phase of an acquisition. If we cannot successfully integrate any
potential acquisition, our business could suffer.

    Recently, we began making venture and strategic minority investments in
private companies with complementary products, services and technologies. In
September 2000, we made one minority venture investment of $1.0 million and in
October 2000, we made another strategic investment of $1.0 million.

    Our acquisitions and strategic investments involve a number of risks and we
may not realize the expected benefits of these transactions. We may lose all or
a portion of our investment, particularly in the case of our strategic minority
investments. Our available cash and our securities may be used to acquire
companies or products, or make minority investments, which could result in
significant acquisition-related charges to earnings and dilution to our
stockholders. Moreover, if we acquire a company, we may have to incur or assume
that company's liabilities, including liabilities that are unknown at the time
of acquisition, which may result in a material adverse effect on us.

WE WILL EXPERIENCE SIGNIFICANT AMORTIZATION CHARGES AND FACE THE RISK OF FUTURE
NON-RECURRING CHARGES IN THE EVENT OF IMPAIRMENT.

    In future periods we will experience significant charges related to the
amortization of purchased technology and goodwill in connection with the
acquisition of Signal 9 in February 2000 accounted for under the purchase method
of accounting. In addition, if we later determine that this purchased technology
and goodwill is impaired, we will be required to take a related impairment
charge to earnings.

INTERNET INDUSTRY RISKS

IF USE OF THE INTERNET DOES NOT CONTINUE TO GROW AND RELIABLY SUPPORT THE
DEMANDS PLACED ON IT BY ELECTRONIC COMMERCE, OUR MARKET AND ABILITY TO ATTRACT
NEW SUBSCRIBERS TO OUR SERVICES WILL BE HARMED AND WE MAY EXPERIENCE LOSS OF
SALES

    Our success depends upon continued growth in the use of the Internet as a
medium of commerce. If the Internet develops more slowly than we expect as a
medium of commerce, our business may be seriously harmed. Broad acceptance and
adoption of the Internet by consumers and businesses for our online PC products
and services will only occur if the Internet provides them with more efficient
and cost effective methods of obtaining the products and services offered by
McAfee.com.

GOVERNMENT LEGISLATION AND REGULATION OF THE INTERNET MAY LIMIT THE GROWTH OF
OUR BUSINESS AND OUR ABILITY TO MARKET OUR PRODUCTS AND SERVICES

    A number of legislative and regulatory proposals under consideration by
federal, state, local and foreign governmental organizations may lead to laws or
regulations concerning various aspects of the Internet, including online
content, user privacy, direct mail marketing, access charges, liability for
third-party activities and jurisdiction. Additionally, it is uncertain how
existing laws will be applied to the Internet. The adoption of new laws or the
application of existing laws may decrease the growth in the use of the Internet,
which could in turn decrease the usage and demand for our services or materially
increase our cost of doing business.

    Some local telephone carriers have asserted that the increasing popularity
and use of the Internet has burdened the existing telecommunications
infrastructure, and that many areas with high Internet use have begun to
experience interruptions in telephone service. These carriers have petitioned
the Federal Communications Commission to impose access fees on Internet service
providers and online service providers. If access fees are imposed, the costs


                                       27


<PAGE>   28
of communicating on the Internet could increase substantially, potentially
slowing the increasing use of the Internet. This could in turn decrease demand
for our services or materially increase our cost of doing business.

    A number of European countries have enacted laws restricting the marketing
of products and services using e-mail. These restrictions could hinder or
restrict the sales and marketing of our products and services in Europe. If
similar restrictions were also adopted in the United States or other countries,
our business would be materially harmed.

CURRENT AND FUTURE LEGISLATION COULD LIMIT OUR ABILITY TO EXPAND OUR CONTEXTUAL
E-COMMERCE SERVICES AND LICENSING EFFORTS

    Legislation has recently been enacted in several states restricting the
sending of unsolicited commercial e-mail. The federal government and several
other states are considering, or have considered, similar legislation. Although
the provisions of these current and contemplated laws vary, they generally limit
or prohibit both the transmission of unsolicited commercial e-mails and the use
of forged or fraudulent routing and header information. Some states, including
California, require that unsolicited e-mails include "opt-out" instructions and
that senders of such e-mails honor any "opt-out" requests.

    In addition, the European Union's Directive on Data Protection, adopted in
1998, requires that the electronic transfer of personal data take place only to
non-EU countries that provide an adequate level of privacy protection.
Uncertainty over whether the U.S. will be deemed to provide an adequate level of
privacy protection means that we cannot be certain that this EU Directive will
have no impact on our expansion of our contextual e-commerce services,
particularly if we choose to target new market opportunities in Europe. Future
legislation or the application of existing legislation may harm our business.

    There is a growing body of laws and regulations applicable to access to or
commerce on the Internet. Due to the increasing popularity and use of the
Internet, it is likely that a growing number of laws and regulations will be
adopted at the international, federal, state and local level relating to the
Internet or e-commerce services covering issues such as user privacy, pricing,
content, copyrights, distribution, antitrust and characteristics and quality of
services. Further, the growth and development of the market for e-commerce may
prompt calls for more stringent consumer protection laws that may impose
additional burdens on those companies conducting business online. The adoption
of any additional laws or regulations may impair the growth of the Internet or
e-commerce. In turn, the adoption of these laws and regulations could increase
our cost of doing business because we currently rely on direct-targeted e-mail
campaigns as an element of our marketing and sales strategy. Moreover, the
applicability to the Internet of existing laws in various jurisdictions
governing issues such as property ownership, sales and other taxes, libel and
personal privacy is uncertain and may take years to resolve. Any such new
legislation or regulation, the application of laws and regulations from
jurisdictions whose laws do not currently apply to our business or the
application of existing laws and regulations to the Internet could harm our
business.

TAXATION OF INTERNET TRANSACTIONS COULD SLOW THE GROWTH OF E-COMMERCE AND HARM
OUR BUSINESS

    The tax treatment of electronic commerce is currently unsettled. A number of
proposals have been made at the federal, state and local levels and by various
foreign governments to impose taxes on the sale of goods and services and other
e-commerce activities. Recently, the Internet Tax Information Act was signed
into law, placing a three-year moratorium on new state and local taxes on
Internet commerce. However, future laws may impose taxes or other regulations on
e-commerce, which could substantially impair the growth of e-commerce and
materially and adversely affect our business.

IF THE MARKET FOR WEB ADVERTISING DEVELOPS MORE SLOWLY THAN EXPECTED, OUR
BUSINESS MAY BE ADVERSELY AFFECTED

    Our ability to generate advertising revenues from selling banner
advertisements, contextual advertisements and sponsorships on our web site will
depend on, among other factors, the continued development of the Internet as an
advertising medium, the amount of traffic to our web site and our ability to
achieve and demonstrate user demographic characteristics that are attractive to
advertisers. Most potential advertisers and their advertising agencies have only
limited experience with the Internet as an advertising medium and have not
devoted a significant portion of their advertising expenditures to
Internet-based advertising. No standards have been widely accepted to measure
the effectiveness of web advertising. If these standards do not develop,
existing advertisers might reduce their current levels of Internet advertising
or eliminate their spending entirely. The widespread adoption of


                                       28


<PAGE>   29
technologies that permit Internet users to selectively block out unwanted
graphics, including advertisements attached to web pages, could also adversely
affect the growth of the Internet as an advertising medium. Furthermore,
advertisers have traditionally relied upon advertising media other than the
Internet, such as newsprint and magazines, and have invested substantial
resources in these other advertising methods. Therefore, advertisers may be
reluctant to adopt a new strategy and advertise on the Internet.

IF THE INTERNET INFRASTRUCTURE DOES NOT CONTINUE TO DEVELOP, THE GROWTH OF OUR
BUSINESS MAY BE ADVERSELY AFFECTED

    The recent growth in Internet traffic has caused episodes of diminished
performance, requiring Internet service providers and users of the Internet to
upgrade their infrastructures. Our ability to maintain and increase the speed
with which we provide services to consumers and to increase the scope of these
services is limited by and dependent upon the speed and reliability of the
Internet. Consequently, the emergence and growth of the market for our services
is dependent on the performance of and future improvements to the Internet.

IF OUR INTERNAL NETWORK INFRASTRUCTURE IS DISRUPTED BY COMPUTER HACKERS OR BY
OTHER OCCURRENCES, OUR BUSINESS MAY BE ADVERSELY AFFECTED

    Our operations depend upon our ability to maintain and protect our computer
systems, which are located in Santa Clara and Sunnyvale, California with a
completely redundant facility in Herndon, Virginia. We also contract with a
third party to maintain a fully redundant computer system to prevent disruption
of our operations in the event of a system failure in our Santa Clara facility.
Given our high profile in the security software market, we are an attractive
target for skilled computer users commonly referred to as "hackers or crackers"
who attempt to gain unauthorized access to computers or computer networks. In
the past, we have been a target of hackers who have, among other things,
attempted to penetrate our network security or created viruses to sabotage or
otherwise attack our web site. While to date these efforts have been discovered
quickly and their adverse impact has been limited, similar efforts or viruses
may be created or replicated in the future. In this event, our web site or
users' computer systems could be damaged and, as a result, demand for our
software products may suffer. In addition, we could be subject to denial of
service attacks, a type of Internet attack that bombards a web site with
information requests, eventually causing the web site to overload, delaying or
disrupting service. Our relationships with our subscribers and customers may be
adversely affected if the security measures that we use to protect their
personal information, such as credit card numbers, are not effective, causing
our revenues to decrease and our business to suffer. We might be required to
expend significant capital and resources to protect against, or to alleviate,
problems caused by hackers. In addition to purposeful security breaches, the
inadvertent transmission of computer viruses could expose us to litigation or
harm our reputation.

    We have not experienced any material outages to date. However, our systems
are vulnerable to damage from break-ins, unauthorized access, vandalism, fire,
floods, earthquakes, power loss, telecommunications failures and similar events.
Although we maintain insurance against fires, floods and general business
interruptions, the amount of coverage may not be adequate in any particular
case.


ITEM 2. PROPERTIES

    Our principal executive and corporate offices and network operations center
are located in Sunnyvale, California. This facility consists of approximately
55,000 square feet. The lease for this facility is set to expire in 2006. The
approximate monthly cost is $102,000. We have a sales office in New York, New
York. This facility consists of approximately 6,000 square feet. The lease for
this facility is set to expire in 2005. The approximate monthly cost is $11,000.
We believe that these facilities are adequate for the present and that
additional space will be available as needed.


ITEM 3. LEGAL PROCEEDINGS

    From time to time, the Company is involved in various disputes and
litigation matters that arise in the ordinary course of business. These include
disputes and lawsuits related to intellectual property, licensing, contract law,
distribution arrangements, and employee arrangement matters. As of the date of
this report, we are not a party


                                       29


<PAGE>   30
to any litigation or other legal proceeding, including product liability claims
that, in our opinion, could have a material adverse effect on our business
operating results or financial condition.

Other Litigation

SIMPLE.COM V. MCAFEE.COM, CIVIL ACTION NO. CV-00-20816 RMW, UNITED STATES
DISTRICT COURT, NORTHERN DISTRICT OF CALIFORNIA, SAN JOSE DIVISION. On August 1,
2000, Simple.com ("Simple") filed a complaint against McAfee.com ("McAfee"),
alleging that McAfee misappropriated Simple's trade secrets and infringed
Simple's copyrights in certain software code. The complaint includes seven
claims for relief: copyright infringement; breach of contract; misappropriation
of trade secrets; statutory unfair competition under Cal. Bus. & Prof. Code
Section 17200; common-law unfair competition; conversion; and breach of the
covenant of good faith and fair dealing. The complaint seeks preliminary and
permanent injunctive relief preventing McAfee from, inter alia, using the
information McAfee allegedly acquired from Simple. The complaint also seeks
compensatory damages in an amount alleged to be not less than $18 million, plus
interest. The complaint also seeks statutory, exemplary and punitive damages as
well as recovery for unjust enrichment. McAfee answered the complaint on August
30, 2000, denying all the material allegations in the complaint and asserting
affirmative defenses. The parties have served discovery requests on one another.
By the Court's December 1, 2000 case management order, fact discovery is
scheduled to close March 31, 2001, expert discovery is scheduled to close July
13, 2001, and the trial is scheduled for October 9, 2001.

JEFF PLATON V. MCAFEE.COM, CIVIL ACTION NO. CV794576, SANTA CLARA SUPERIOR
COURT. On January 5, 2001, Jeff Platon ("Platon") filed a complaint against
McAfee.com alleging that McAfee breached the terms of a severance agreement and
seeks compensatory damages of approximately $125,000 for remaining benefits owed
at the time of his separation from the company plus all attorney's fees and
costs related to this lawsuit. McAfee.com has filed an answer to the complaint,
but no discovery has been initiated by either side.


Network Associates is a party to a litigation matter, described below, that
relates to the anti-virus software technology they license to us. Under the
terms of our inter-company license agreement and indemnification and voting
agreement, Network Associates has agreed to indemnify us with respect to these
existing matters. See "Related Party Transactions -- Inter-company Agreements."

HILGRAEVE V. NETWORK ASSOCIATES. On September 15, 1997, Network Associates was
named as a defendant in a patent infringement action filed by Hilgraeve
Corporation ("Hilgraeve") in the United States District Court, Eastern District
of Michigan. Hilgraeve alleges that Network Associates' VirusScan product
infringes a Hilgraeve patent, which was issued on June 7, 1994. Hilgraeve's
action seeks injunctive relief and unspecified money damages. The District Court
granted Network Associates' motion for summary judgment of non-infringement on
May 20, 1999 and entered judgment in favor of Network Associates on July 7,
1999. On August 2, 2000 the United States Court of Appeal for the Federal
Circuit vacated in part, affirmed in part, and remanded the case to the District
Court for further proceedings. The Court has set a schedule for a further
summary judgment hearing, which will be held in or around April 2001. No trial
date is set.


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

    No matters were submitted to a vote of stockholders' during the fourth
quarter of the year ended December 31, 2000.


                                       30


<PAGE>   31
                                     PART II


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

PRICE RANGE OF COMMON STOCK

    Since our initial public offering on December 2, 1999, our common stock has
traded on the NASDAQ National Market under the symbol MCAF. The following tables
set forth, the high and low closing sales prices for our common stock for the
period from December 2, 1999 through December 31, 2000 by quarter. The prices
appearing in the tables below reflect over the counter market quotations, which
reflect inter-dealer prices, without retail mark-up, markdown or commission and
may not necessarily represent actual transactions.


<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 2000                              HIGH        LOW
<S>                                                      <C>        <C>
  First Quarter                                          $55.50     $32.38
  Second Quarter                                          49.06      17.38
  Third Quarter                                           33.88      13.38
  Fourth Quarter                                          14.25       2.63
</TABLE>


<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999                              HIGH        LOW
<S>                                                      <C>        <C>
    Fourth Quarter (from December 2)                     $53.13     $38.88
</TABLE>


    The Company had approximately 136 shareholders of record as of February 15,
2001.

DIVIDEND POLICY

    The Company has not declared or paid any cash dividends on its common stock
and presently intends to retain its future earnings, if any, to fund the
development and growth of its business and, therefore, does not anticipate
paying any cash dividends in the foreseeable future


ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

    The following selected financial data should be read in conjunction with our
financial statements and related notes and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
report.

    The consumer e-commerce business of Network Associates that was contributed
to us commenced in January 1996. The financial statements from 1996 through 1998
have been carved out from the financial statements of Network Associates using
the historical results of operations and the historical bases of the assets and
liabilities of the consumer e-commerce business of Network Associates. We
believe that the assumptions underlying the preparation of our financial
statements are reasonable. However, the financial information included herein,
may not be indicative of our future results of operations, financial position
and cash flows or the financial results we would have achieved if we had been a
separate stand-alone entity during these periods. In particular, periods prior
to fiscal 1999 do not include the expenses incurred under our license agreement
with Network Associates. See Note 8 to the financial statements.

    From January 1, 1999, various services have been and will continue to be
provided by Network Associates based upon a services agreement entered into
between Network Associates and us. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview."


                                       31


<PAGE>   32

<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31,
                                                --------------------------------------------------------------------
                                                  2000           1999           1998           1997           1996
                                                --------       --------       --------       --------       --------
                                                                (in thousands, except per share data)
<S>                                             <C>            <C>            <C>            <C>            <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net revenue                                     $ 46,866       $ 24,497       $  6,292       $  2,530       $    539
Gross profit                                      35,273         12,928          2,587            428            280
Loss from operations                             (31,971)       (28,331)        (1,993)        (1,508)        (1,790)
Net Loss                                        $(27,469)      $(27,926)      $ (1,993)      $ (1,508)      $ (1,790)

NET LOSS PER SHARE DATA BASIC AND DILUTED:
Net loss per share, basic and diluted           $   (.62)      $  (0.76)             -              -              -
Shares used in per share calculation              44,066         36,554              -              -              -
Pro forma net loss per share, basic and
diluted                                                -              -       $  (0.06)             -              -
Shares used in pro forma per share
calculation                                            -              -         36,000              -              -
</TABLE>


<TABLE>
<CAPTION>
                                                                       AS OF DECEMBER 31,
                                               --------------------------------------------------------------------
                                                 2000           1999           1998           1997           1996
                                               --------       --------       --------       --------       --------
<S>                                            <C>            <C>            <C>            <C>            <C>
CONSOLIDATED BALANCE SHEET DATA:

Cash, cash equivalents and marketable
securities                                     $ 71,419       $ 86,499       $      -       $      -       $      -
Working capital                                   5,784         42,009         (5,196)        (3,268)        (1,777)
Total assets                                     98,132         95,287          2,438             21             38
Deferred revenue                                 26,679         21,280          6,388          2,976          1,003
Receivable from (payable to) Network
Associates                                       (8,256)        (8,313)         1,286           (275)          (674)
Stockholder's equity/divisional (deficit)        53,481         55,991         (5,131)        (3,247)        (1,739)
</TABLE>


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

    You should read the following discussion together with the financial
statements and related notes of McAfee.com appearing elsewhere in this report.
The following discussion contains forward-looking statements that involve risks
and uncertainties, including, among other things, statements regarding
anticipated costs and expenses, mix of revenues and plans for introducing new
products and services to expand our revenue base. Our actual results could
differ materially from the results contemplated by these forward-looking
statements as a result of a number of factors, including those discussed below,
elsewhere in this report and under "Risk Factors."

OVERVIEW

    We are currently a majority owned subsidiary of Network Associates. We were
incorporated in December 1998 and, effective January 1, 1999 Network Associates
contributed to us its consumer e-commerce business, which began operations in
January 1996. Prior to January 1, 1999, we have never operated as an independent
company. Network Associates has provided a number of services to us and we will
continue to rely on Network Associates to provide these services for the
foreseeable future. In addition, our divisional financial statements through
December 31, 1998 are derived from the historical books and records of Network
Associates. Beginning January 1, 1999 the financial statements include the
operations of McAfee as a separate legal entity and its wholly owned subsidiary.


                                       32


<PAGE>   33
The statement of operations includes all revenues and expenses directly
attributable to us including charges for shared facilities, functions and
services used by us and provided by Network Associates. A number of expenses,
such as research and development expenses, sales and marketing expenses and
general and administrative expenses, have been allocated based on Network
Associates' management's estimate of the cost of services provided by them.
These allocations were generally based on either a direct cost pass-through or
percentage of total expenses for the services provided, based on headcount. See
Note 8 of notes to financial statements.

    We are a provider of hosted, version-less PC security and management
products and services over the Internet. We derive our revenue from:

    -   products, software and subscription licenses sold through the McAfee
        Store as well as through e-retail distributors, such as Beyond.com and
        America Online, and computer original equipment manufacturers, or OEMs,
        such as Hewlett Packard, Compaq and Microsoft. The McAfee Store is the
        location on our web site where consumers can purchase McAfee-branded
        products through secure, credit-card based transactions;

    -   Maintenance and support where we provide our users online technical
        support updates and upgrades

    -   software subscriptions for our hosted PC security and management
        applications provided on our web site, including McAfee Clinic and
        Firewall;

    -   sponsorship arrangements in which we provide access to other vendors'
        web sites;

    -   McAfee branded services of third party products and services are branded
        under our brand;

    -   Online marketing affiliate arrangements in which third party companies
        place their link on our web site or we place our link on third party's
        web site in which we give third party users the opportunity to subscribe
        to our service.

    -   banner advertising and other advertising space on our web site sold by
        our partners or us to third parties.

    Historically, substantially all of our net revenue has come from software
licenses sold through the McAfee Store, OEMs and other e-retail distributors. In
particular, sales of our anti-virus products accounted for approximately 24%,
55%, and 91% of our revenue in 2000, 1999, and 1998, respectively. Furthermore,
during the year ended December 31, 2000 and 1999, approximately 19% and 38%
respectively, of our net revenue was derived from the sale of software licenses
through Beyond.com.

    Our current strategy is to further expand on our historical revenue base and
significantly broaden our role as an applications service provider, or ASP,
providing consumers with access to PC security and management software
applications hosted on our services. Under this ASP model, consumers "rent
versus buy" our software applications. In October 1998, we updated Oil Change
and introduced it as our initial hosted subscription service, based on
technology acquired through Network Associates' purchase of CyberMedia. In April
1999, we introduced McAfee Clinic. McAfee Clinic incorporates the functionality
of Oil Change and provides a significantly broader suite of hosted PC security
and management applications. From April 1999 to September 1, 1999, users were
offered McAfee Clinic services for free. On September 2, 1999, we began charging
for this service as part of our strategy of transitioning users of our web site
to paid subscribers to McAfee Clinic. We ended the year 2000 with approximately
780,000 unique paying subscribers. We continue to convert our current Oil Change
subscribers to McAfee Clinic subscribers.

REVENUE RECOGNITION

    Revenue recognition varies depending on the product or service sold. Revenue
derived from the sale of software products is recognized in accordance with
Statement of Position 97-2, or SOP 97-2, "Software Revenue Recognition," as
amended by Statements of Position 98-4 and 98-9, collectively, SOP 97-2, and
Statement of Financial Accounting Standards 48, or SFAS 48, "Revenue Recognition
When Right of Return Exists." Based on these accounting pronouncements, our
revenue recognition practices relating to various products and customers are as
follows:


                                       33


<PAGE>   34
    -   Recognition of net revenue at the time of delivery from the sale of
        software products sold through both the McAfee Store and our e-retail
        distributors, such as Beyond.com and America Online, and sales to OEMs,
        varies depending on the product being sold. For products that include
        future upgrades, updates or services, such as VirusScan licenses, a
        percentage of the revenue is deferred and recognized ratably over the
        period for which these upgrades, updates or services are provided,
        usually one year. The amount deferred is based on the price of these
        upgrades, updates and future services when sold separately. For the
        majority of our products, however, we do not sell these upgrades,
        updates and services separately and therefore we defer the arrangement
        fee received and recognize it ratably over one year. Products sold
        through our e-retail distributors are sold by us to them at a discount
        from list price and additionally, some of our e-retail distributors may
        purchase product for inventory. We recognize revenue for these products
        when they are sold to the end user.

    -   Revenue from the fees received for providing sponsorships, co-hosting
        arrangements and software subscriptions for our hosted applications is
        deferred at the time of the transaction and is recognized ratably, net
        of any revenue share payments, over the term of the arrangement or the
        subscription term.

    -   Revenue from banner advertising and other advertising space on our web
        site is typically recognized as advertisement impressions are delivered.

COSTS AND EXPENSES

    Cost of Net Revenue. Cost of net revenue consists of product and
subscription costs and advertisement and sponsorship costs.

    Product and Subscription. Product and subscription costs consist of product
costs, technology costs, and license fee. The product costs are the cost of
media, manuals and packaging as well as shipping costs for boxed products sold
both through our McAfee Store and through e-retail partners. From September 1998
through May 16, 1999, product costs also included charges from Beyond.com for
processing and fulfilling sales transactions, including credit card processing
fees and fulfillment costs. The technology costs consist of Internet connection
charges, co-location costs for maintaining server sites, salary and benefit
expenses for personnel maintaining our web site, depreciation of equipment such
as routers and access servers, and other related costs associated with the
maintenance of the web site. These costs represent the cost of selling our
products over the internet. License fees are incurred under the technology cross
license agreement with Network Associates, which gives us the right to sell
single-user consumer licenses for the licensed Network Associates products over
the web and through computer OEMs and e-retailers. The license fee is payable
commencing January 1, 1999 and is based on a percentage of net revenue derived
from product sales that include the licensed technology. The license fee was 20%
commencing on January 1, 1999, declining 1.625% per quarter until the rate is 7%
in the quarter beginning January 1, 2001 and will remain at 7% thereafter. See
Note 8 for a more detailed description of the Network Associates cross license.
For a quarterly royalty of $250,000, Network Associates has, among other things,
a limited right to sell licenses to any software products that we create based
on the Network Associates technology that we license from it. This royalty
received from Network Associates is offset against our royalty payments to
Network Associates, which are presented on a net basis in our results of
operations.

    Advertisement and Sponsorship. Advertisement and sponsorship costs consist
of tracking costs incurred to monitor the number of ads impressions as well as
technology cost for maintaining advertisement and sponsorship activities on our
web site.

    We expect that cost of net revenue will increase in absolute dollars but may
fluctuate as a percentage of net revenue over time as we expand our operations.
License fees will continue to increase in absolute dollars and as a percentage
of revenue as more of our revenue is generated from the sales of products and
services.

    Research and Development. Research and development expenses consist
primarily of salary and benefits for our development and technical staff,
computer and equipment depreciation, as well as allocated overhead expenses.
Prior to 1999, we did not engage in research and development activities or incur
related expenses independent from Network Associates. Research and development
expenses during that time represent an allocation of expenses incurred by
Network Associates in developing the McAfee.com web site.


                                       34


<PAGE>   35
    We are focusing our research and development resources on providing
next-generation software services for Internet access devices initially focused
on PC security and management delivered via the Internet. We expect that our
research and development expenses will grow in absolute dollars as we continue
to invest in development and enhancement of our products and services, but may
fluctuate as a percentage of net revenue. We also expect an increase in research
and development expenses related to the anticipated future international
expansion of our business. The timing and amount of our research and development
expenses may vary significantly based upon the number of new products and
significant upgrades under development and products acquired, if any, during a
given period.

    Marketing and Sales. Marketing and sales expenses consist primarily of
salary, commissions and benefits for marketing and sales employees as well as
expenses associated with advertising and promotions. We expect marketing and
sales expenses to increase in absolute dollars over time as we:

    -   continue to aggressively market our products and services to attract new
        paid subscribers;

    -   attempt to establish strategic relationships with third parties; and

    -   expand internationally.

However, we expect that our marketing and sales expenses may fluctuate as a
percentage of net revenue.

    Amortization of goodwill and other intangibles. In 2000, we acquired all
outstanding capital stock of Signal 9 Solutions Canada, Inc and another
privately held company. The acquisitions were accounted for using the purchase
method of accounting. We analyzed the intangible assets to determine whether any
amount should be recorded as in-process research and development, however we
determined that the acquired technologies and products are largely dependent on
the core technology and that new versions are released frequently and contain
incremental rather than fundamental improvements. Based on this analysis $22.3
million was recorded as goodwill and purchased technology, and is being
amortized on a straight-line basis over three years.

    We assess the impairment of identifiable intangibles, related goodwill as
well as the impairment of enterprise level goodwill periodically. An impairment
review is performed whenever events or changes in circumstances indicate that
the carrying value may not be recoverable. Factors we consider important which
could trigger an impairment review include, but are not limited to, significant
underperformance relative to expected historical or projected future operating
results, significant changes in the manner of use of the acquired assets or the
strategy for our overall business, significant negative industry or economic
trends, a significant decline in our stock price for a sustained period, and our
market capitalization relative to net book value. When we determine that the
carrying value of goodwill may not be recoverable based upon the existence of
one or more of the above indicators of impairment, we measure any impairment
based on a projected discounted cash flow method using a discount rate
commensurate with the risks inherent in our current business model.

    We determined that certain storage technology purchased as part of the
original acquisition was not to be incorporated into future products as a result
of the unviable Internet advertising business model. We calculated the value of
the impairment in accordance with the Company's accounting policy.

    General and Administrative. General and administrative expenses consist
principally of charges under the corporate services agreement with Network
Associates and of salary and benefit expenses for administrative personnel.
Under the corporate services agreement, Network Associates is providing services
relating to tax, accounting, insurance, employee benefits administration,
corporate record keeping, payroll, information technology infrastructure, and
facilities management. The expenses are allocated based on relative headcount
and include a 10% mark-up from Network Associates' allocated expenses. In turn,
we allocate a portion of these charges related to facilities and information
technology infrastructure to marketing and sales and research and development.
This allocation is based on the headcount of these departments. Although we
believe that we benefit from the services provided by Network Associates, the
corporate services agreement gives us the right to obtain these services from a
third party, and we may do so to the extent that we are able to obtain these
services on more economical terms. We expect that general and administrative
expenses will increase in absolute dollars in the future, but may fluctuate as a
percentage of net revenue, as we expand our operations.


                                       35


<PAGE>   36
    Stock-Based Compensation. On April 22, 1999, Network Associates offered to
substantially all of its employees, excluding executive officers, the right to
cancel certain outstanding stock options and receive new options with exercise
prices at the current fair market value of the stock. Options to purchase a
total of 10.3 million shares were canceled and the same number of new options
was granted at an exercise price of $11.063, which was based on the closing
price of Network Associate's common stock on April 22, 1999. Under the guidance
in FIN 44 the repriced options are subject to variable accounting. The new
options vest at the same rate that they would have vested under previous option
plans. As a result, options to purchase approximately 71,237 shares at $11.063
were vested and outstanding at December 31, 2000.

    In connection with the establishment of the Company, employees who were to
transfer from Network Associates were offered the option to have their unvested
options in Network Associates cancelled and replaced with new options for the
Company's shares and keep their vested Network Associates options. This resulted
in the Company issuing options to purchase 1,224,700 shares. In addition the
Company's employees retained options to purchase 368,717 shares of Network
Associates common stock. The Network Associates options cancelled were included
in those which were repriced by Network Associates as of April 22, 2000. Under
the guidance in FIN 44 the new options issued to the employees of the Company
are considered to be replacement options and, therefore, are also subject to
variable accounting, in the same manner as the Network Associates options they
replaced In addition the Company must account for the Network Associates options
retained by its employees using the variable accounting model.

    As a result the Company must remeasure the compensation expense on these
options based on movements since July 1, 2000 in the Company's and/or Network
Associate's stock price. Until the Company's stock price exceeds $26.063 (the
price on July 1, 2000), there will not be any further impact of the variable
accounting treatment. The actual compensation charge to be recorded is
remeasured at the end of each reporting period until the option is either
exercised, cancelled without replacement or is forfeited. Once the option is
exercised, cancelled without replacement or forfeited it is remeasured for the
final time and the compensation charge fixed.

    As at July 1, 2000 the Company's stock price was $26.063, and Network
Associate's stock price was $20.38. As of December 29, 2000 the stock prices
were $5.00 and $4.188 respectively. The Company expenses the compensation charge
calculated to the statements of operations over the remaining vesting period
using the accelerated method detailed in FIN 28 "Accounting for Stock
Appreciation Rights and Other Variable Stock Option or Award Plans". If the
option is fully vested any charge is recorded in income immediately.

    As of December 31, 2000 the Company had options outstanding to purchase
678,944 shares of its common stock and 63,378 shares of Network Associates
stock, which are subject to variable accounting. For the year ended December 31,
2000 the Company recorded stock-based compensation expense of $399,000. The
ultimate amount of compensation to be recorded in respect of these options is
dependent upon movements in the stock price of the Company and Network
Associates respectively. As a result the Company's results of operations may
fluctuate in future based on these movements. In addition the actual charge
recorded could be materially different to that calculated as of December 31,
2000.

    In January 1999, five officers of Network Associates were granted options to
purchase 3,420,000 shares of our Class A common stock. These options originally
vested over four years. Since these officers are not our employees, those
options are accounted for at fair market value. The determination of the total
compensation to be recognized in connection with these grants requires the
remeasurement of the fair value of the options each reporting period until the
options are fully vested. Compensation expense is reflected in our results of
operations over the vesting period. On September 22, 1999, with the agreement of
the option holders, we cancelled options for 1,710,000 shares and amended the
remaining options to make them fully vested. As a result of this change we
recorded a charge of approximately $5.7 million, including a charge for options
to purchase 388,500 shares granted to Network Associates employees in September,
October and December 1999.

    Taxes. Our operations are included in Network Associates' consolidated U.S.
tax returns. No income tax provision has been included in our financial
statements because net losses were incurred throughout the reporting period. We
have entered into a tax sharing agreement with Network Associates effective as
of December 2, 1999. See Note 8 for a more detailed description of the Network
Associates tax sharing agreement.


                                       36


<PAGE>   37
RECENT ACCOUNTING PRONOUNCEMENTS

    In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities,". SFAS 133 was subsequently
amended by SFAS 137 and SFAS 138. SFAS 133, as amended establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities, and is effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000. We do not
currently hold derivative instruments or engage in hedging activities.

    In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements." In addition the SEC released, in October 2000, interpretative
guidance on SAB 101 in the form of frequently asked questions and responses
thereto. SAB 101 and the frequently asked questions and responses provide
guidance for revenue recognition under certain circumstances. We adopted SAB
101, as amended, as of January 1, 2000. The adoption did not have a significant
effect on our financial position or results of operations.

    In March 2000, the FASB issued FASB Interpretation No. 44 (FIN44),
"Accounting for Certain Transactions Involving Stock Compensation, an
interpretation of APB Opinion No. 25" ("Interpretation"). The Interpretation is
intended to clarify certain problems that have arisen in practice since the
issuance of APB 25. The Interpretation provides guidance, some of which is a
significant departure from current practice. The Interpretation generally
provides for prospective application for grants or modifications to existing
stock options or awards made after June 30, 2000. However, for certain
transactions the guidance is effective after December 15, 1998 and January 12,
2000. The effects of FIN 44 are discussed above and in note 9 to the notes to
these financial statements.

RESULTS OF OPERATIONS

    The following table sets forth for the periods indicated the percentage of
net revenue represented by certain items in our Statement of Operations.


<TABLE>
<CAPTION>
                                                      YEAR ENDED DECEMBER 31
                                            ----------------------------------------
                                              2000            1999            1998
                                            --------        --------        --------
<S>                                         <C>             <C>             <C>
Net revenue
Product and subscription                        67.7            80.4           100.0
Advertisement and sponsorship                   32.3            19.6               -
Total net revenue                             100.0%          100.0%          100.0%

Cost of net revenue:
  Product and subscription                      18.5            41.8            58.9
  Advertisement and sponsorship                  6.2             5.5               -
                                            --------        --------        --------
    Total cost of net revenue                   24.7            47.3            58.9

Gross profit                                    75.3            52.7            41.1

Operating expenses:
  Research and development                      28.3            28.1            42.3
  Marketing and sales                           75.6            88.7            18.3
  General and administrative                    19.5            51.6            12.2
  Amortization of intangibles                   20.1               -               -
                                            --------        --------        --------
    Total operating expenses                   143.5           168.4            72.8
                                            --------        --------        --------
Loss from operations                           (68.2)         (115.7)          (31.7)
Interest and other income, net                  10.3             1.7               -
                                            --------        --------        --------
Loss before provision for income taxes         (57.9)         (114.0)          (31.7)
                                            --------        --------        --------
Provision for income taxes                       0.6               -               -
                                            --------        --------        --------
Net loss                                       (58.6)%        (114.0)%         (31.7)%
                                            ========        ========        ========
</TABLE>


                                       37


<PAGE>   38
    Net Revenue. Net revenue increased to $46.9 million in the year ended
December 31, 2000 from $24.5 million, and $6.3 million in the years ended
December 31, 1999, and 1998, respectively. The increase in revenue in 2000
compared to 1999 was primarily a result of our success at converting trial
subscribers to the Clinic service into paying customers and to a lesser extent,
our ability to successfully sell and implement sponsorship arrangements. The
increase in revenue in 1999 compared to 1998 was primarily a result of increased
traffic to our McAfee Store in connection with the emergence of a number of new
harmful computer viruses in the first half of 1999 and the official launch of
our website in the second quarter of 1999. This increase also reflects sales of
product licenses and subscriptions related to increased product offerings as a
result of Network Associates' acquisition of CyberMedia in September 1998, as
well as revenue related to subscriptions for McAfee Clinic for the quarter ended
December 31, 1999.

    The product and subscription revenue includes revenue from product licenses
and subscriptions sold over the internet. The product and subscription revenue
as of December 31, 2000, 1999, and 1998 was $31.7 million, $19.7 million, and
$6.3 million, respectively. The increase of the product and subscription revenue
from 1998 to 1999 as well as from 1999 to 2000 is due to increases in new
customer purchases and positive results from converting trial subscribers to the
Clinic service into paying customers.

    The advertisement and sponsorship revenue includes revenue from sales of
advertisement as well as co-branding and sponsorship activities hosted on our
web site. The advertisement and sponsorship revenue as of December 31, 2000,
1999, and 1998 was $15.2 million, $4.8 million, and none, respectively. The
increase in advertisement and sponsorship revenue in 2000 from 1999 resulted
from growth in selling and implementing sponsorship arrangements. However, due
the softening of the internet industry we expect a slow down in advertisement
and sponsorship activities for future periods.

    Cost of Net Revenue. Cost of net revenue is $11.6 million in both the year
ended December 31, 2000 and the year ended December 31, 1999. For December 31,
1998, cost of net revenue was $3.7 million. The cost of net revenue remained
flat in 2000 compared to 1999 because we gained economies of scale within our
infrastructure, which enabled us to maintain our cost structure despite
increasing traffic. However, we may be unable to realize the same benefits in
coming periods.

    Cost of net product and subscription revenue as of December 31, 2000, 1999,
and 1998 was $8.7 million, $10.2 million and $3.7 million, respectively. Our
cost of net product and subscription revenue decreased to 2000 from 1999 due to
the license fee royalty rate payable to NAI declined from 13.5% of product
revenue in the first quarter of 2000 to 8.6% of product revenue in the fourth
quarter of 2000. The license fee royalty became 7% of product revenue in January
2001 and remains constant thereafter. The increase in cost of net product and
subscription revenue in 1999 compared to 1998 was primarily related to the
increase in the cost of products sold through the McAfee Store as sales volume
increased, an increase in technology costs relating to the substantial
investment in our infrastructure, as well as license fees payable to Network
Associates beginning January 1, 1999.

    Cost of net advertisement and sponsorship revenue as of December 31, 2000,
1999, and 1998 was $2.9 million, $1.3 million and none, respectively. Our cost
of net advertisement and sponsorship revenue increased in 2000 from 1999 due to
the increase in advertising and sponsorship activities. The main cost of
advertisement and sponsorship revenue is the technology cost which consists of
Internet connection charges, co-location costs for maintaining server sites,
salary and benefit expenses for personnel maintaining our web site, depreciation
of equipment such as routers and access servers, and other related costs
associated with the maintenance of the web site.

    Research and Development. Excluding the effects of stock-based compensation
of $239,000 and none in 2000 and 1999, respectively, research and development
expenses increased to $13.0 million in the year ended December 31, 2000 from
$6.9 million in the year ended December 31, 1999, an increase from $2.7 million
in the year ended December 31, 1998. These increases were primarily due to a
significant investment in research and development headcount and infrastructure
in 2000 and 1999 as we expanded and enhanced our product and service offerings.
As a percentage of net revenue, research and development expenses were 28.3% in
2000, 28.1% in 1999, and 42.3% in 1998.

    Marketing and Sales. Excluding the effects of stock-based compensation of
$20,000 and none in 2000 and 1999, respectively, marketing and sales expenses
increased to $35.4 million in the year ended December 31, 2000 from $21.7
million in the year ended December 31, 1999, an increase from $1.2 million in
the year ended December 31, 1998. The increase in 2000 compared to 1999 as well
as the increase in 1999 compared to 1998 was primarily due to a significant
investment in the marketing of our products and services, including advertising
and promotions, as well as development of strategic relationships with a


                                       38


<PAGE>   39
variety of Internet companies. A significant proportion of the increase was the
result of our sponsorship agreement with AOL. In 2000, we continued a
significant advertising campaign to build brand awareness, which began in June
1999. We also increased the number of sales and marketing personnel to support
this campaign. As a percentage of net revenue, marketing and sales expenses were
75.6% in 2000, 88.7% in 1999, and 18.3% in 1998.

    General and Administrative. Excluding the effects of stock-based
compensation of $140,000 and $7,363,000 in 2000 and 1999, respectively, general
and administrative expenses increased to $9.0 million in the year ended December
31,2000 from $5.3 million in 1999, an increase from $767,000 in 1998. The
increase in 2000 as well as in 1999 was primarily due to an overall increase in
business activity and headcount and to a lesser extent our move into a new
corporate headquarters located at 535 Oakmead Parkway in Sunnyvale, California.
As a percentage of net revenue, general and administrative expenses were 19.5%
in 2000, 51.6% in 1999, and 12.2% in 1998.

    Amortization of Intangibles. Amortization of intangibles increased to $9.4
million in the year ended December 31, 2000 from none in 1999 and 1998. The
amortization of intangibles consists of $5.8 million of goodwill and purchased
technology recorded in connection with two acquisitions completed during the
year and an impairment charge of $3.6 million recorded in December 2000.

    The impairment charge was recorded as a result of our year-end review of
technology acquired in the year 2000 and an assessment of its future potential.
We determined that certain storage technology purchased as part of the original
acquisition was not to be incorporated into future products as a result of the
unviable Internet advertising business model. We calculated the value of the
impairment in accordance with the Company's accounting policy.

    Stock-Based Compensation. In the year ended December 31, 2000, stock-based
compensation relates to the repricing of NAI employee stock options owned by
Company's employees, and replacement of repriced NAI options by Company's
options. In 1999 stock-based compensation arose as a result of an acceleration
in vesting of options granted to five officers of NAI and a number of NAI
employees. We do not expect to incur charges related to option grants to NAI's
officers or employees in the future. However, we do expect stock-based
compensation charges related to NAI's repriced employee stock options and
replacement options in future periods. The charges have been included in the
appropriate operating expense categories.

    As a result, we recorded a stock-based compensation charge of $399,000,
$7,363,000 and none for the year ended December 31, 2000, 1999 and 1998,
respectively.

    Interest and Other Income. Interest and other income increased to $4.8
million in the year ended December 31, 2000 from $405,000 in 1999 and none in
1998. Interest and other income consist of interest income, interest expense and
miscellaneous non-operating income and expense items. The increase from 1999 to
2000 was due to higher interest income generated from the proceeds of the public
offering in December of 1999.

    Provision for Income Taxes. Our provision for income taxes was $317,000,
none and none for the year ended December 31, 2000, 1999 and 1998, respectively.
The provision arose as a result of withholding taxes on cash received from
foreign entities. In 2000, 1999 and 1998 the concept of an effective tax rate
was not meaningful. As of December 31, 2000 our net operating losses were $21.5
million

CONDENSED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

    The following table sets forth, unaudited quarterly condensed consolidated
statement of operations data for each of the eight most recent quarters. In our
opinion, this information has been prepared on the same basis as the audited
financial statements contained in this report and includes all adjustments,
consisting only of normal recurring adjustments, we consider necessary for fair
presentation in accordance with generally accepted accounting principles. This
information should be read in conjunction with our financial statements and the
related notes appearing elsewhere in this report. Our operating results for any
three-month period are not necessarily indicative of results for any future
period.



                                       39


<PAGE>   40
<TABLE>
<CAPTION>
                                                                     THREE MONTHS ENDED
                         ----------------------------------------------------------------------------------------------------------
                          DEC 31,      SEPT 30,       JUN 30,       MAR 31,       DEC 31,      SEPT 30,       JUN 30,       MAR. 31,
                           2000         2000           2000           2000         1999          1999          1999          1999
                         --------      --------      --------      --------      --------      --------      --------      --------
                                                           (in thousands except per share data)
<S>                      <C>           <C>           <C>           <C>           <C>           <C>           <C>           <C>
Net revenue              $ 12,140      $ 12,561      $ 11,907      $ 10,258      $  8,403      $  6,763      $  5,863      $  3,468
Gross profit                9,447         9,758         8,902         7,166         5,467         4,365         2,241           855
Operating expenses         18,313        17,039        16,796        15,096        11,999        15,501         8,998         4,761
                         --------      --------      --------      --------      --------      --------      --------      --------
Loss before provision
for income taxes           (7,802)       (6,061)       (6,658)       (6,631)       (6,127)      (11,136)       (6,757)       (3,906)
                         --------      --------      --------      --------      --------      --------      --------      --------
Provision for income
taxes                          94           130            92             -             -             -             -             -
                         --------      --------      --------      --------      --------      --------      --------      --------
Net loss                 $ (7,896)     $ (6,191)     $ (6,750)     $ (6,631)     $ (6,127)     $(11,136)     $ (6,757)     $ (3,906)
                         --------      --------      --------      --------      --------      --------      --------      --------
Net loss per share,
basic and diluted        $  (0.18)     $  (0.14)     $  (0.15)     $  (0.15)     $  (0.16)     $  (0.31)     $  (0.19)     $  (0.11)
                         --------      --------      --------      --------      --------      --------      --------      --------
Shares used in per
share calculation          44,617        44,413        43,749        43,483        38,216        36,000        36,000        36,000
</TABLE>


    Net revenue generally increased in the year ended December 31, 2000 largely
as a result of our success at attracting paid subscribers to our Clinic service
and to a lesser extent due to our success in acquiring sponsorship agreements.
In 1999, the increases were largely due to an increase in the licensing of
anti-virus software through the McAfee Store and through e-retail distributors
as well as an increase in our product offerings due to Network Associates'
acquisition of CyberMedia in the quarter ended September 30, 1998, and revenue
related to the subscriptions for McAfee Clinic and sponsorship agreements with
strategic partners.

    Gross profit has increased in each quarter except the quarter ended December
31, 2000. The increases were primarily due to increasing revenue, economics of
scale within our infrastructure that enabled us maintain our cost structure
despite increasing traffic, and the decline in the license fee royalty rate from
13.5% of product revenue in the first quarter of 2000 to 8.6% of product revenue
in the fourth quarter of 2000. The decrease in the quarter ended December 31,
2000 was due to a decrease in advertising and sponsorship revenue.

    Operating expenses have steadily increased in each quarter with the
exception of the quarter ended December 31, 1999. Operating spending declined in
that period compared to the previous period as a result of a significant stock
compensation charge related to the officers and employees of NAI in the prior
period. Otherwise, operating expense would have also increased. Operating
expenses substantially increased in all four quarters of the year ended December
31, 2000. These increases were primarily due to increased investment in our
research and development efforts, an increase in marketing and sales due to
significant spending on advertising and promotions, and an increase in
amortization of goodwill, which includes an impairment charge in the fourth
quarter of 2000.

    Our net revenue and results of operations could fluctuate significantly
quarter-to-quarter and year-to-year. Causes of such fluctuations may include the
conversion of our web site users into paying subscribers and the rate at which
they renew their subscriptions, seasonal purchasing patterns on the Internet,
the number of users of our web site purchasing products offered through our web
site and the mix of products purchased, the amount and timing of our operating
expenses and capital expenditures, the percentage of revenue which is deferred,
and costs related to potential acquisitions.

    Significant quarterly fluctuations in products and services sold will cause
significant fluctuations in our cash flows and the cash and cash equivalents,
accounts receivable and deferred net revenue accounts on our balance sheet.

LIQUIDITY AND CAPITAL RESOURCES

    At December 31, 2000, we had $25.5 million in cash and cash equivalents and
$45.9 million in marketable securities, for a combined total of $71.4 million.
Of this amount, $8.3 million is due to Network Associates related to cash
payments made on our behalf by Network Associates and intercompany charges from
Network Associates.

    Net cash used by operating activities was $9.7 million in the year ended
December 31, 2000. This resulted primarily from our net loss before
depreciation and amortization, impairment of intangibles, stock-based
compensation, and allowance for doubtful accounts. The decrease in accounts
payable and accrued liabilities, and the increase in prepaid expenses and other
current assets also attributed to net cash used. In addition, the increase in
accounts receivable and deferred revenue offset the net cash used by operating
activities.

    Net cash provided by operating activities was $456,000 and $1.5 million in
the year ended December 31, 1999 and 1998, respectively.


                                       40


<PAGE>   41
    Net cash used in investing activities was $37 million in the year ended
December 31, 2000, relating to purchases of marketable securities, fixed assets,
cash used in acquisitions, and investments in other Internet companies. For the
year ended in December 31, 1999, net cash used in investing activities was $21.8
million relating to purchases of marketable securities and fixed assets.

    Net cash provided by financing activities was $4.9 million in the year ended
December 31, 2000 consisting primarily of net proceeds from the issuance of
common stock under stock option and stock purchase plans. For the year ended in
December 31, 1999, net cash provided by financing activities was $88.7 million
consisting primarily of net proceeds from the issuance of common stock in our
initial public offering as well as the change in the amount payable to Network
Associates.

    Net cash (used in) provided by financing activities in the years ended
December 31, 1998 consisted principally of the change in the amount receivable
from Network Associates.

    We believe our available cash and anticipated cash flow from operations will
be sufficient to fund our working capital and capital expenditure requirements
for at least the next 12 months, although this may not be sufficient to fund our
working capital beyond the next 24 months. However, we may seek to raise
additional capital during that period. We cannot assure you that we will not
require additional funds during the next 12 months. Even if these additional
funds are not required, we may decide to seek additional equity or debt
financing. There can be no assurance that such financing will be available on
acceptable terms, if at all, or that such financing will not be dilutive to our
stockholders.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

    FINANCIAL RISK MANAGEMENT

    The following discussion about our risk management activities includes
"forward-looking statements" that involve risks and uncertainties. Actual
results could differ materially from those projected in the forward-looking
statements.

    We maintain investment portfolio holdings of various issuers, types and
maturities. These securities are generally classified as available-for-sale, and
consequently are recorded on the balance sheet at fair market value with
unrealized gains and losses reported as a separate component of accumulated
other comprehensive income/loss. These securities are not leveraged and are held
for purposes other than trading.

    We also maintain minority investments in non-publicly traded companies.
These investments are carried at cost less reductions for other than temporary
impairments. These other than temporary impairments may be a result of, not
limited to, the  decline in value if the related company would have insufficient
cash flow to operate for the next twelve months.

    The following tables present the hypothetical changes in fair values in the
securities held by us at December 31, 2000 that are sensitive to the changes in
interest rates. The modeling technique used measures the change in fair market
values arising from hypothetical parallel shifts in the yield curve of plus or
minus 50 basis points (BPS), 100 BPS and 150 BPS over six and twelve-month time
horizons. Beginning fair market values represent the market principal plus
accrued interest and dividends at December 31, 2000. Ending fair market values
are the fair prices of the principal plus accrued interest, dividends and
reinvestment income at six and twelve month time horizons.

    The following table estimates the fair value of the portfolio at a six-month
time horizon (in thousands):


<TABLE>
<CAPTION>
Issuer                              Valuation of securities             No change            Valuation of securities
                                     given an interest rate            in interest           given an interest rate
                                   decrease of X basis points             rate              increase of X basis points
                               ------------------------------------                    ------------------------------------
                                150BPS       100 BPS        50 BPS                      50 BPS       100 BPS       150 BPS
                               --------      --------      --------      --------      --------      --------      --------
<S>                            <C>           <C>           <C>         <C>             <C>           <C>           <C>
U.S. Government Debt
Securities                     $  5,310      $  5,310      $  5,300      $  5,300      $  5,290      $  5,290      $  5,300
Commercial Paper                 24,610        24,560        24,500        24,450        24,390        24,340        24,290
Corporate Debt Securities        34,420        34,410        34,400        34,390        34,360        34,370        34,380
                               --------      --------      --------      --------      --------      --------      --------
Total                          $ 64,340      $ 64,280      $ 64,200      $ 64,140      $ 64,040      $ 64,000      $ 63,970
                               ========      ========      ========      ========      ========      ========      ========
</TABLE>


                                       41


<PAGE>   42
    The following table estimates the fair value of the portfolio at a
twelve-month time horizon (in millions):


<TABLE>
<CAPTION>
Issuer                              Valuation of securities             No change            Valuation of securities
                                     given an interest rate            in interest            given an interest rate
                                   decrease of X basis points             rate              increase of X basis points
                               ------------------------------------                    ------------------------------------
                                150BPS       100 BPS        50 BPS                      50 BPS        100 BPS       150 BPS
                               --------      --------      --------      --------      --------      --------      --------
<S>                            <C>           <C>           <C>         <C>             <C>           <C>           <C>
U.S. Government Debt
Securities                     $  5,320      $  5,320      $  5,310      $  5,300      $  5,280      $  5,280      $  5,290
Commercial Paper                 24,420        24,420        24,400        24,380        24,360        24,340        24,320
Corporate Debt Securities        34,450        34,430        34,410        34,390        34,330        34,350        34,370
                               --------      --------      --------      --------      --------      --------      --------
Total                          $ 64,190      $ 64,170      $ 64,120      $ 64,070      $ 63,970      $ 63,970      $ 63,980
                               ========      ========      ========      ========      ========      ========      ========
</TABLE>


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    Our Financial Statements and supplementary data of required by this item are
set forth at the pages indicated at Item 14(a).


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

    Not applicable.


                                       42


<PAGE>   43
                                    PART III

ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT

    The information required hereunder is incorporated by reference from our
Proxy Statement to be filed in connection with our annual meeting of
stockholders to be held on May 24, 2001.


ITEM 11. EXECUTIVE COMPENSATION

    The information required hereunder is incorporated by reference from our
Proxy Statement to be filed in connection with our annual meeting of
stockholders to be held on May 24, 2001.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The information required hereunder is incorporated by reference from our
Proxy Statement to be filed in connection with our annual meeting of
stockholders to be held on May 24, 2001.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    The information required hereunder is incorporated by reference from our
Proxy Statement to be filed in connection with our annual meeting of
stockholders to be held on May 24, 2001.


                                       43


<PAGE>   44
                                     PART IV

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

(a)(1) Financial Statements:


<TABLE>
<CAPTION>
                                                            PAGE
                                                           NUMBER
                                                           ------
<S>                                                        <C>
      Report of Independent Accountants                      45
      Consolidated Balance Sheets:
        December 31, 2000 and 1999                           46
      Consolidated Statements of Operations and Other
      Comprehensive Loss:
        Years ended December 31, 2000, 1999 and 1998         47
      Consolidated Statements of Stockholders'
         Equity/Divisional Deficit:
        Years ended December 31, 2000, 1999 and 1998         48
      Consolidated Statements of Cash Flows:
        Years ended December 31, 2000, 1999, and 1998        49
      Notes to Consolidated Financial Statements             50
</TABLE>


         (a)(2) Financial Statement Schedules

               The following financial statement schedules of McAfee.com for the
years ended December 31, 2000, 1999 and 1998 are filed as part of this Form 10-K
and should be read in conjunction with McAfee.com's Consolidated Financial
Statements


<TABLE>
<S>                                                                                  <C>
                      Report of Independent Accountants                              S-1

                      Schedule II - Valuation and Qualifying Accounts                S-2


                      Schedules not listed above have been omitted because the
                      conditions required for filing do not exist or the
                      required information is included in the financial
                      statements or notes thereto.
</TABLE>


         (a)(3) Exhibits: See Index to Exhibits on Page 69. The Exhibits
                listed on the accompanying Index of Exhibits are filed or
                incorporated by reference as part of this report.


                                       44


<PAGE>   45
                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Stockholders
McAfee.com Corporation:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and other comprehensive loss, stockholders
equity/divisional deficit, and cash flows present fairly, in all material
respects, the financial position of McAfee.com Corporation and its subsidiaries
at December 31, 2000 and at December 31, 1999, and the results of their
operations and cash flows for each of the two years in the period ended December
31, 2000 and the results of its operations and cash flows of McAfee (operated as
a part of Networks Associates, Inc. and presented on a carved out basis) (See
Note 2) for the year ended December 31, 1998 all in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.



PricewaterhouseCoopers LLP


San Jose, California
January 17, 2001.


                                       45


<PAGE>   46
                             MCAFEE.COM CORPORATION

                           CONSOLIDATED BALANCE SHEETS
                        (IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                                                             DECEMBER 31,
                                                                       -------------------------
                                                                          2000            1999
                                                                       ---------       ---------
<S>                                                                    <C>             <C>
ASSETS
Current assets:
  Cash and cash equivalents .....................................      $  25,527       $  67,321
  Short-term marketable securities ..............................         20,053           6,427
  Accounts receivable, net ......................................          2,294           3,486
Prepaid expenses and other current assets .......................          1,481             943
                                                                       ---------       ---------
          Total current assets ..................................         49,355          78,177
Long-term marketable securities .................................         25,839          12,751
Property and equipment, net .....................................          8,042           4,359
Goodwill and other intangible assets, net .......................         12,757               -
Other assets ....................................................          2,139               -
                                                                       ---------       ---------
          Total assets ..........................................      $  98,132       $  95,287
                                                                       =========       =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable ..............................................      $   1,437       $   1,256
  Accrued liabilities ...........................................          8,270           8,447
  Deferred revenue ..............................................         25,608          18,152
  Payable to NAI ................................................          8,256           8,313
                                                                       ---------       ---------
          Total current liabilities .............................         43,571          36,168
                                                                       ---------       ---------

Long-term liabilities:
   Deferred revenue .............................................          1,071           3,128
                                                                       ---------       ---------
  Other long-term liabilities ...................................              9               -
                                                                       ---------       ---------
          Total liabilities .....................................         44,651          39,296
                                                                       ---------       ---------

Commitments and contingencies (Note 7 and 14 )

STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value:
  Authorized: 5,000,000 shares;
  None outstanding
Common stock, Class A; $.001 par value:
  Authorized: 100,000,000 shares;
  Issued and outstanding: 8,617,768 shares at December 31, 2000
   and 7,206,250 shares at December 31, 1999 ....................              9               7
Common stock, Class B; $.001 par value:
  Authorized 65,000,000; 36,000,000 shares issued and outstanding
at December 31, 2000 and 1999 ...................................             36              36
Additional paid-in capital ......................................        114,149          89,221
Accumulated other comprehensive loss ............................            (27)            (56)
Accumulated deficit .............................................        (60,686)        (33,217)
                                                                       ---------       ---------
          Total stockholders' equity ............................         53,481          55,991
                                                                       ---------       ---------
          Total liabilities and stockholders' equity ............      $  98,132       $  95,287
                                                                       =========       =========
</TABLE>


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


                                       46


<PAGE>   47
                             MCAFEE.COM CORPORATION

       (AS A SEPARATE LEGAL ENTITY (MCAFEE.COM) IN 2000 AND 1999 AND ON A
                        CARVE-OUT BASIS IN 1998 (MCAFEE))

       CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                                  MCAFEE.COM              MCAFEE
                                                            YEARS ENDED DECEMBER 31,     YEAR ENDED
                                                            -----------------------     DECEMBER 31,
                                                              2000           1999           1998
                                                            --------       --------     ------------
<S>                                                         <C>            <C>          <C>
Net Revenue:
Product and subscription .............................      $ 31,714       $ 19,696       $  6,292
Advertisement and sponsorship ........................        15,152          4,801              -
                                                            --------       --------       --------
      Total net revenue ..............................        46,866         24,497          6,292
                                                            --------       --------       --------

 Cost of net revenue:
   Product and subscription ..........................         8,682         10,230          3,705
   Advertisement and sponsorship .....................         2,911          1,339              -
                                                            --------       --------       --------
       Total cost of net revenue .....................        11,593         11,569          3,705
                                                            --------       --------       --------

Gross profit .........................................        35,273         12,928          2,587
                                                            --------       --------       --------

Operating expenses:
  Research and development (1) .......................        13,251          6,889          2,661
  Marketing and sales (2) ............................        35,434         21,733          1,152
  General and administrative (3) .....................         9,161         12,637            767
  Amortization of intangibles ........................         9,398              -              -
                                                            --------       --------       --------
       Total operating expenses ......................        67,244         41,259          4,580
                                                            --------       --------       --------
          Loss from operations .......................       (31,971)       (28,331)        (1,993)
Interest and other income, net .......................         4,819            405              -
                                                            --------       --------       --------
Loss before provision for income taxes ...............       (27,152)       (27,926)        (1,993)
Provision for income taxes ...........................           317              -              -
                                                            --------       --------       --------
          Net loss ...................................      $(27,469)      $(27,926)      $ (1,993)
                                                            ========       ========       ========

Other comprehensive loss, net of tax:
        Foreign currency translation loss ............          (150)             -              -
        Unrealized gains (losses) on securities ......           179            (56)             -
                                                            --------       --------       --------
Comprehensive loss ...................................      $(27,440)      $(27,982)      $ (1,993)
                                                            ========       ========       ========

Net loss per share -- basic and diluted ..............      $  (0.62)      $  (0.76)             -
                                                            ========       ========       ========
Shares used in per share calculation -- basic
and diluted ..........................................        44,066         36,554              -
                                                            ========       ========       ========

Net loss per share -- pro forma ......................             -              -       $  (0.06)
                                                            ========       ========       ========
Shares used in per share calculation -- pro
forma ................................................             -              -         36,000
                                                            ========       ========       ========
</TABLE>


(1) Includes stock compensation charge of $239, none and none for the years
    ended December 31, 2000, 1999, and 1998, respectively.

(2) Includes stock compensation charge of $20, none and none for the years ended
    December 31, 2000, 1999, and 1998, respectively.

(3) Includes stock compensation charge of $140, $7,363 and none for the years
    ended December 31, 2000, 1999, and 1998, respectively.

(4) From January 1, 1999, the Company has operated as a subsidiary of Network
    Associates.

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


                                       47


<PAGE>   48
                             MCAFEE.COM CORPORATION

        (AS A SEPARATE LEGAL ENTITY (MCAFEE.COM) IN 2000 AND 1999 AND ON
                       A CARVE-OUT BASIS IN 1998 (MCAFEE))

       CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY/DIVISIONAL DEFICIT
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                                                          Total
                                                                                                                       Stockholders'
                                                 Common Stock            Additional        Other                          equity/
                                Divisional   ----------------------       Paid-In      Comprehensive     Accumulated    Divisional
                                 Deficit       Shares       Amount        Capital          Loss            Deficit        Deficit
                                ---------    ---------    ---------      ---------     -------------    ------------   -------------
<S>                            <C>           <C>          <C>            <C>           <C>              <C>            <C>
Balance at December 31, 1997    $  (3,247)           -    $       -      $       -     $          -     $          -     $  (3,247)
Contribution of fixed assets
  from NAI                             73            -            -              -                -                -            73
Net loss                           (1,993)           -            -              -                -                -        (1,993)
Stock issued to NAI                 5,167       36,000           36            124                -           (5,291)           36
                                ---------    ---------    ---------      ---------      -----------      -----------     ---------
Balance at December 31, 1998            -       36,000           36            124                -           (5,291)       (5,131)
Contribution of fixed assets
  from NAI                              -            -            -          2,674                -                -         2,674
Stock-based compensation                -            -            -          7,363                -                -         7,363
Stock issued in initial public
  offering, net                         -        7,187            7         78,938                -                -        78,945
Issuance of common stock on
  exercise of options                   -           19            -            122                -                -           122
Unrealized loss on
  available-for-sale securities         -            -            -              -              (56)               -           (56)
Net loss                                -            -            -              -                -          (27,926)      (27,926)
                                ---------    ---------    ---------      ---------      -----------      -----------     ---------
Balance at December 31, 1999            -       43,206           43         89,221              (56)         (33,217)       55,991
Unrealized gain on
  available-for-sale securities         -                                                       179                            179
Foreign currency translation            -                                                      (150)                          (150)
Issuance of common stock on
  exercise of options                   -          705            1          3,460                                           3,461
Issuance of common stock under
  Employee Stock Purchase Plan          -          157                       1,612                                           1,612
Issuance of common stock in
  connection with acquisitions          -          550            1         19,600                                          19,601
Stock-based compensation                             -            -            399                                             399
Other                                                -            -           (143)                                           (143)
Net Loss                                                                         -                -          (27,469)      (27,469)
                                ---------    ---------    ---------      ---------      -----------      -----------     ---------
Balance at December 31, 2000            -       44,618    $      45      $ 114,149      $       (27)     $   (60,686)    $  53,481
                                =========    =========    =========      =========      ===========      ===========     =========
</TABLE>


  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
                                   STATEMENTS


                                       48


<PAGE>   49
                             MCAFEE.COM CORPORATION

        (AS A SEPARATE LEGAL ENTITY IN 2000 AND 1999 (MCAFEE.COM) AND ON
                A CARVE-OUT BASIS IN DECEMBER 31, 1998 (MCAFEE))

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                      MCAFEE.COM                MCAFEE
                                                                 YEAR ENDED DECEMBER 31        YEAR ENDED
                                                                -----------------------       DECEMBER 31,
                                                                  2000           1999             1998
                                                                --------       --------       ------------
<S>                                                             <C>            <C>            <C>
Cash flows from operating activities:
  Net loss ...............................................      $(27,469)      $(27,926)      $     (1,993)
  Adjustments to reconcile net loss to net cash
    provided by (used in)operating activities:
     Depreciation and amortization .......................         8,523            947                 29
     Impairment of intangibles ...........................         3,639              -                  -
     Stock-based compensation ............................           399          7,363                  -
     Allowance for doubtful accounts .....................           599            500                  -
     Changes in assets and liabilities:
       Accounts receivable ...............................           860         (2,899)            (1,087)
       Prepaid expenses and other current assets .........          (664)          (944)                 -
       Accounts payable and accrued liabilities ..........        (1,034)         8,523              1,164
       Deferred revenue ..................................         5,399         14,892              3,412
                                                                --------       --------       ------------
          Net cash provided by (used in) operating
            activities ...................................        (9,748)           456              1,525
                                                                --------       --------       ------------
Cash flows from investing activities:
  Purchases of available-for-sale marketable securities ..       (53,647)       (19,234)                 -
  Sale of available-for-sale marketable securities .......        27,056              -                  -
  Acquisition of property and equipment ..................        (6,425)        (2,567)                 -
  Investment in other securities .........................        (2,000)             -
Net cash used in acquisitions, net of cash acquired ......        (1,958)             -                  -
                                                                --------       --------       ------------
          Net cash used in investing activities ..........       (36,974)       (21,801)                 -
                                                                --------       --------       ------------
Cash flows from financing activities:
  Proceeds from issuance of common stock under
  stock option and stock purchase plans ..................         5,073            122                  -
  Change in amount due to (from) NAI .....................           (57)         9,599             (1,561)
  Other ..................................................          (143)             -                  -
  Proceeds from issuance of common stock,
    Net of offering costs ................................             -         78,945                  -
  Common stock issued to NAI .............................                            -                 36
                                                                --------       --------       ------------
          Net cash provided by (used in) financing
             activities ..................................         4,873         88,666             (1,525)
                                                                --------       --------       ------------
Effect of exchange rate changes on cash,
cash equivalents and marketable securities:
          Effect of exchange rate changes on cash,
           cash equivalents and marketable securities ....            55
Net increase (decrease) in cash and cash equivalents .....       (41,794)        67,321                  -
Cash and cash equivalents at beginning of year ...........        67,321              -                  -
                                                                --------       --------       ------------
Cash and cash equivalents at end of year .................      $ 25,527       $ 67,321       $          -
                                                                ========       ========       ============

Supplemental disclosure of cash flow information:
  Non-cash investing and financing activities:
  Issuance of common stock exchanged in purchase
  business combinations ..................................      $ 19,601       $      -       $          -
                                                                --------       --------       ------------
  Unrealized gain (loss) on available-for-sale
     securities ..........................................      $    179       $    (56)      $          -
                                                                --------       --------       ------------
Contribution of fixed assets from NAI ....................      $      -       $  2,674       $         73
                                                                --------       --------       ------------
Cash transactions:
Cash paid during the year for income taxes ...............      $     80       $      -       $          -
                                                                --------       --------       ------------
Cash paid during the year for interest ...................      $      1       $      -       $          -
                                                                --------       --------       ------------
</TABLE>


    (1) From January 1, 1999, the Company has operated as a subsidiary of
        Network Associates.

    (2) Through December 31, 1998, the Company's activities were included in the
        operations of Network Associates. The Company's financial statements for
        these periods have been prepared on a carve-out basis.


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


                                       49


<PAGE>   50
                             MCAFEE.COM CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    1. DESCRIPTION OF COMPANY


McAfee.com Corporation, a majority owned subsidiary of Networks Associates, Inc.
("NAI"), a publicly traded corporation, was incorporated in December 1998, and
commenced operations as a separate legal entity in January 1999. Prior to
January 1, 1999, this business was operated as a part of NAI. This business is
referred to herein as "McAfee". McAfee.com and McAfee are collectively referred
to as the "Company".

The Company is an Internet destination site, which allows users to secure,
repair, update, upgrade and manage their personal computers (PCs) over the
Internet. The Company's electronic commerce activities include, software
licensing, sponsorship and co-hosting, and advertising. The Company's objective
is to become the leading and most trusted online destination where consumers
secure, repair, update, upgrade and manage their PCs and other Internet access
devices.

Initial Public Offering

In December 1999, the Company completed the Initial Public Offering of 6,250,000
(7,187,500 including the underwriters' over allotment) shares of its Class A
common stock ("IPO"). Based on the offering price of $12.00 per share, the gross
proceeds from the offering were $86.2 million. After commissions paid to the
underwriters, and other offering costs, the net proceeds were $78.9 million. As
of December 31, 2000 NAI owned approximately 81% of the Company's outstanding
common stock and as a result, continues to control the Company.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements include the operations of
McAfee as a separate legal entity and its wholly owned subsidiaries from January
1, 1999 and as part of NAI (on a carved out basis as discussed below) through
December 31, 1998, (the "divisional statements"). All significant intercompany
accounts and transactions have been eliminated. The consolidated balance sheets
at December 31, 2000 and 1999, represent the balance sheet of McAfee.com as a
separate legal entity. The divisional financial statements have been derived
from the historical books and records of NAI. The divisional statements of
operations and other comprehensive loss include all revenue and expenses
directly incurred for McAfee, as well as charges for shared facilities,
functions and services used by the Company. The amounts charged for these shared
costs have been calculated based on relative headcount plus 10% of such costs.
These charges are believed by management to be based on reasonable assumptions,
however, they may not necessarily be indicative of the expenses that would have
been incurred had the Company operated as a separate unaffiliated entity during
these periods.

Beginning January 1, 1999, McAfee.com began recording intercompany charges for
services provided by NAI and technology license fees to NAI, based on agreements
with NAI (see Note 8). Except for the technology license fees, the costs for
services provided by NAI have been calculated on the same basis used in
preparing the divisional statements prior to January 1, 1999. Accordingly, the
divisional statements have been prepared on the same basis as the statements of
the Company after December 31, 1998. The pro forma impact of the technology fees
on the divisional statement for the year ended December 31, 1998 is presented in
Note 8.

Uses of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported


                                       50


<PAGE>   51
amounts of revenues and expenses during the reported period. Actual results
could differ from those estimates.


Certain Risks and Concentrations

The Company is subject to certain risks and uncertainties common to growing
technology-based companies, including rapid technological change, growth and
commercial acceptance of the Internet, dependence on third party technology, new
service introductions and other activities of competitors, dependence on key
personnel, international expansion and limited operating history.

The Company's product revenues are concentrated in the computer software
industry, which is highly competitive and rapidly changing. Significant
technological changes in the industry or customer requirements, changes in
customer buying behavior, or the emergence of competitive products with new
capabilities or technologies could adversely affect operating results. Also, a
significant portion of the Company's revenue has been derived from sponsorship,
e-commerce and advertising relationship with internet companies. Volatility in
the capital markets and a slowdown in the business of many internet companies
has impacted adversely many of Company's past and potential internet company
customers, particularly early stage companies and those companies that have
undertaken expansive advertising campaigns to build an online marketing
presence. As a result of these actual or potential difficulties, the Company's
internet company customers, many of whom are early stage companies or have in
engage in their own large advertising campaigns may face difficulties in paying
for existing or new obligations owed to the Company. In addition, a significant
portion of the Company's revenues is derived from sales fulfilled through one
company, Beyond.com. Significant changes in operations or financial stability of
Beyond.com could adversely affect operating results.

The Company's products are substantially based on technology, which is licensed
from NAI. Any significant changes in operations or financial stability of NAI
could adversely affect operating results.

The Company maintains the majority of cash balances and all of its investments
with four financial institution. The company invests with high credit quality
financial institutions and, by policy, limits the amount of credit exposure to
any one financial institution.

Fair Value of Financial Instruments

Carrying amounts of the Company's financial instruments including cash,
marketable securities, accounts receivable, amounts due to NAI, accounts payable
and accrued liabilities approximate fair value due to their short maturities.

Foreign Currency Translation

The Company considers the local currency to be the functional currency for its
international subsidiaries. Assets and liabilities denominated in foreign
currencies are translated using the exchange rate on the balance sheet date.
Translation adjustments resulting from this process are charged or credited to a
separate component of accumulated other comprehensive income (loss). Revenues
and expenses are translated at average exchange rates prevailing during the
year. Foreign currency transaction gains and losses, which to date have not been
material, are included in the determination of net income.

Cash and Cash Equivalents

Cash equivalents are comprised of highly liquid debt instruments with original
maturities or remaining maturity at date purchase of 90 days or less.


Marketable Securities

All marketable securities are classified as available-for-sale.
Available-for-sale securities are carried at fair value in accordance with
Statement of Financial Accounting Standards No. 115 ("SFAS 115").


                                       51


<PAGE>   52
Short-term marketable securities are those with maturities greater than 90 days
but less than one year. Long-term marketable securities have original maturities
greater than one year. Unrealized gains and losses on marketable securities
classified as available-for-sale, are reported net of related taxes as a
separate component of accumulated other comprehensive income (loss). Realized
gains, calculated using the specific identification method and declines in value
judged to be other-than-temporary are included in interest and other income,
net, in the accompanying consolidated statements of operations and other
comprehensive loss.

Property and Equipment

Property and Equipment are presented at carryover basis or cost less accumulated
depreciation and amortization. Depreciation and amortization of fixed assets is
computed using the straight-line method over the estimated useful lives of the
related assets (2 to 5 years). Leasehold improvements are amortized on a
straight-line basis over the shorter of the estimated life of the assets or the
remaining lease term. Repairs and maintenance expenditures, which are not
considered improvements and do not extend the useful life of property and
equipment, are expensed as incurred. The cost and related accumulated
depreciation applicable to property and equipment sold or no longer in service
are eliminated from the accounts and any gain or loss is included in operations.

Costs for development of web site applications

Cost incurred for web site design, creation and maintenance of content, graphics
and user interface are expensed as incurred. Costs for development of web site
applications and infrastructures are capitalized and amortized over their
estimated useful life. The Company did not capitalize any cost for development
of web site applications, as the cost incurred was insignificant for the
Company's financial position and results.

Goodwill and Other Intangible Assets

Goodwill and other intangibles are carried at cost less accumulated
amortization. We amortize goodwill and other identifiable intangibles on a
straight-line basis over their estimated useful lives, generally three years.

The Company assess the impairment of identifiable intangibles and related
goodwill periodically in accordance with the provisions of Statement of
Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of. The Company also
assesses the impairment of enterprise level goodwill periodically in accordance
with the provisions of Accounting Principles Board (APB) Opinion No. 17,
Intangible Assets. An impairment review is performed whenever events or changes
in circumstances indicate that the carrying value may not be recoverable.
Factors the Company consider important which could trigger an impairment review
include, but are not limited to, significant underperformance relative to
expected historical or projected future operating results, significant changes
in the manner of use of the acquired assets or the strategy for the Company's
overall business, significant negative industry or economic trends, a
significant decline in our stock price for a sustained period, and the Company's
market capitalization relative to net book value. When the Company determines
that the carrying value of goodwill may not be recoverable based upon the
existence of one or more of the above indicators of impairment, the Company
measures any impairment based on a projected discounted cash flow method using a
discount rate commensurate with the risks inherent in the Company's current
business model.

Investments

Investments consisted of minority investments in non-publicly traded companies.
These investments are included in other assets on the Company's balance sheet
and are carried at cost, less reductions for other than temporary impairments.
The Company monitors these investments for impairment and makes appropriate
reductions in carrying values when necessary.

Revenue Recognition

In December 1999, the Security and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue recognition in Financial
Statements." We adopted SAB 101 in the quarter ended


                                       52


<PAGE>   53
December 31, 2000. The adoption of SAB 101 did not have an effect on the results
of operations or financial position of the Company.

Our revenue is derived from primarily two sources:(i) product license and
subscription revenue derived primarily from software subscriptions for hosted
applications, product sales and providing software updates and support to
resellers and end users, royalty revenue, derived primarily from royalties from
product sales by OEMs; and (ii) advertisement and sponsorship revenue derived
primarily from providing advertising space on our web site and third party
sponsorship.

Revenue from fees received for providing software subscriptions for our hosted
applications, sponsorships and co-hosting arrangements is deferred at the time
of the transaction and is recognized ratably, net of any revenue share payments
over the subscription or the arrangement term, which is in general twelve
months. Revenue from banner advertising and other advertising on our web site is
typically recognized as advertisement impressions are delivered.

Revenue from product license sales to end users is recognized when persuasive
evidence of an arrangement exists, the fee is fixed and determinable, collection
is probable, and delivery and acceptance of the software products have occurred.
When contracts contain multiple elements wherein vendor specific objective
evidence exists for all undelivered elements, we recognize revenue for the
delivered elements and defer revenue for the undelivered elements until the
remaining obligations have been satisfied. Any maintenance included in these
arrangements is recognized ratably over the term of the agreement, which is
generally twelve months. For the majority of our contracts containing multiple
elements wherein vendor specific objective evidence does not exist for all
undelivered elements, revenue for the delivered and undelivered elements is
deferred until remaining obligations have been satisfied, which typically do not
extend beyond twelve months.

Maintenance and support revenues are recognized ratably over the term of the
contract, which is generally twelve months. We have recognized revenue from
resellers upon sale by the reseller since we have historically not been able to
make reasonable estimates for product returns for these resellers.

We perform ongoing credit evaluations of our customers' financial condition and
do not require collateral. We maintain allowances for potential credit losses
and such losses have been within our expectations.

Research and Development

Research and development expenditures prior to establishing technological
feasibility are charged to operations as incurred. Under the Company's
development process, technological feasibility is established on completing a
working model. Subsequent expenses for the Company have not been significant and
all software development expenses have therefore been expensed.

Advertising Expenses

Advertising production expenses are expensed as incurred. Other advertising
expenses are expensed as the advertisement is published or broadcast. Total
advertising expenses were $12.8 million, $10.3 million and $46,000 for the
years ended December 31, 2000, 1999 and 1998, respectively.

Stock-based Compensation

As permitted by Financial Accounting Standards Board Statement 123 (SFAS 123),
"Accounting for Stock-Based Compensation," the Company accounts for employee
stock-based compensation in accordance with Accounting Principles Board Opinion
No. 25 ("APB 25"), "Accounting for Stock Issued to Employees", and FASB
Interpretation No. 44 (FIN44), "Accounting for Certain Transactions Involving
Stock Compensation, an interpretation of APB Opinion No. 25" ("Interpretation")
and related interpretations in accounting for its stock-based compensation
plans. Stock Compensation related to non-employees is based on the fair value of
the related stock or options in accordance with SFAS 123 and its
interpretations.

Income Taxes


                                       53


<PAGE>   54
The Company is not a separate taxable entity for federal, state or local income
tax purposes and its operations are included in the tax returns of NAI. The
Company calculates its income taxes under the separate return method and
accounts for income taxes in accordance with Financial Accounting Standards
Board Statement 109 (SFAS 109), "Accounting for Income Taxes." Deferred tax
assets and liabilities are recognized for the expected future tax consequences
of temporary differences between the tax basis of assets and liabilities and
their financial statement reported amounts. The Company records a valuation
allowance against deferred tax assets when it is more likely than not that such
assets will not be realized.

Comprehensive Income

The Company has adopted Statement of Accounting Standards No. 130 (SFAS 130),
"Reporting Comprehensive Income," which establishes standards for reporting
comprehensive income and its components in the financial statements. Unrealized
gains (losses) on available-for-sale securities and foreign currency translation
adjustments are included in the Company's components of comprehensive income
(loss), which are excluded from net income (loss).

Segment Information

The Company identifies its operating segments based on business activities,
management responsibility and geographical location. The Company has organized
its operations into a single operating segment, providing delivery of
personalized e-commerce offerings and local content. Further, the Company
derives the significant majority of its revenues from operations in North
America..

Net Income (Loss) Per Share

Basic net income (loss) per share is computed using the weighted average common
shares outstanding during the period. Diluted net income per share is computed
using the weighted average common shares and common equivalent shares
outstanding during the period.

The Company issued Common Stock in December 1998 and commenced operations as a
separate legal entity in January 1999. Accordingly, historical earnings per
share have been presented for the years ended December 31, 2000 and 1999. Pro
forma earnings per share information are presented for the year ended December
31, 1998 as if the Company's capitalization occurred on January 1, 1998.


3. MARKETABLE SECURITIES

AS OF DECEMBER 31, 2000:
(IN THOUSANDS)

<TABLE>
<CAPTION>
                                               AVAILABLE-FOR-SALE-SECURITIES
                                             ------------------------------------
                                             AMORTIZED     AGGREGATE   UNREALIZED
                                               COST       FAIR VALUE     GAINS
                                                                        (LOSSES)
                                             ---------    ----------   ----------
<S>                                          <C>          <C>          <C>
U.S. Government Debt Securities               $ 5,200      $ 5,201            1
Commercial Paper                               32,273       32,269           (4)
Corporate Debt Securities                      31,546       31,672          126
                                              -------      -------      -------
                                              $69,019      $69,142      $   123
                                              -------      -------      -------
</TABLE>


At December 31, 2000, all marketable debt securities had scheduled maturities of
less than three years. Marketable debt securities totaling $23.2 million have
maturities less than three months and are classified as cash and cash
equivalents. During the year ended December 31, 2000 gross realized gains and
losses were not significant.

AS OF DECEMBER 31,1999:
(IN THOUSANDS)

<TABLE>
<CAPTION>
                                          AVAILABLE-FOR-SALE-SECURITIES
                                       --------------------------------------
                                       AMORTIZED     AGGREGATE     UNREALIZED
                                         COST       FAIR VALUE       GAINS
                                                                    (LOSSES)
                                       ---------    ----------     ----------
<S>                                    <C>          <C>            <C>

</TABLE>


                                       54


<PAGE>   55
<TABLE>
<S>                                    <C>           <C>                   <C>
Commercial Paper                       $ 52,304      $ 52,306              2
Corporate Debt Securities                 6,092         6,053            (39)
Foreign Debt Securities                   6,717         6,698            (19)
                                       --------      --------       --------
                                       $ 65,113      $ 65,057       $    (56)
                                       --------      --------       --------
</TABLE>


At December 31, 1999, marketable debt securities totaling $45.9 million have
maturities less than three months and are classified as cash and cash
equivalents. During the year ended December 31, 1999 gross realized gains and
losses were not significant.

4. RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities,". SFAS 137 and SFAS 138 amended SFAS 133.
SFAS 133, as amended establishes methods of accounting for derivative financial
instruments and hedging activities related to those instruments as well as other
hedging activities, and is effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The Company does not currently hold derivative
instruments or is engaged in hedging activities.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements." In
addition the SEC released, in October 2000, interpretative guidance on SAB 101
in the form of frequently asked questions and responses thereto. SAB 101 and the
frequently asked questions and responses provide guidance for revenue
recognition under certain circumstances. The Company adopted SAB 101, as
amended, as of January 1, 2000. The adoption did not have a significant effect
on the Company's financial position or results of operations.

In March 2000, the FASB issued FASB Interpretation No. 44 (FIN44), "Accounting
for Certain Transactions Involving Stock Compensation, an interpretation of APB
Opinion No. 25" ("the Interpretation"). The Interpretation is intended to
clarify certain problems that have arisen in practice since the issuance of APB
25. The Interpretation provides guidance, some of which is a significant
departure from current practice. The Interpretation generally provides for
prospective application for grants or modifications to existing stock options or
awards made after June 30, 2000. However, for certain transactions the guidance
is effective after December 15, 1998 and January 12, 2000. The effects of FIN 44
are discussed in note 9 to the notes to these consolidated financial statements.


5. BALANCE SHEET DETAIL

PROPERTY AND EQUIPMENT

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


<TABLE>
<CAPTION>
AT DECEMBER 31,                                 2000           1999
                                              --------       --------
<S>                                           <C>            <C>
  Computers and software                      $  8,242       $  5,192
  Furniture and fixtures                         1,507            131
  Leasehold improvements                         2,069             42
                                              --------       --------
                                                11,818          5,365
                                              --------       --------

Less accumulated depreciation                   (3,776)        (1,006)
                                              --------       --------
     Total                                    $  8,042       $  4,359
                                              --------       --------
</TABLE>

Depreciation and amortization expense for the years ended December 31, 2000,
1999 and 1998 was $2.6 million, $947,000 and $29,000, respectively.

GOODWILL AND OTHER INTANGIBLES ASSETS


                                       55


<PAGE>   56
Goodwill and other intangible assets consisted of the following (in thousands):

<TABLE>
<CAPTION>
AT DECEMBER 31,                       2000           1999
                                    --------       --------
<S>                                 <C>            <C>
Goodwill and purchased technology   $ 22,304              -
Less accumulated amortization         (9,547)             -
                                    --------       --------
                                    $ 12,757              -
</TABLE>

Amortization expense for the year ended December 31, 2000, 1999 and 1998 was
$9.5 million, including $3.6 million impairment charge, none, and none,
respectively.

ACCRUED LIABILITIES

The following table presents the detailed categories of the Company's accrued
liabilities that, on an individual basis, exceed five percent of total current
liabilities (in thousands):


<TABLE>
<CAPTION>
AT DECEMBER 31,                           2000        1999
                                         ------      ------
<S>                                      <C>         <C>
Accrued liabilities:
  Accrued compensation                   $1,649      $  946
  Accrued legal and accounting            1,524       2,321
  Accrued taxes                           1,045         750
  Accrued marketing                       1,393       1,456
  Accrued outside services                1,048       1,119
  Other accrued expenses                  1,611       1,855
                                         ------      ------
                                         $8,270      $8,447
                                         ------      ------
</TABLE>

6. BUSINESS COMBINATIONS

On February 15, 2000, the Company acquired all of the outstanding capital stock
of Signal 9 Solutions Canada, Inc. ("Signal 9"), a privately held provider of
personal firewall software, for $2.0 million in cash and 385,001 shares of the
Company's Class A common stock. The acquisition was accounted for using the
purchase method of accounting and the total purchase price was approximately
$18.3 million, including transaction costs. The Company analyzed the intangible
assets to determine whether any amount should be recorded as in-process research
and development, however the Company determined that the acquired technologies
and products are largely dependent on the core technology and that new versions
are released frequently and contain incremental rather than fundamental
improvements. Based on this analysis $18.0 million was recorded as goodwill and
purchased technology, and is being amortized on a straight-line basis over three
years.

As of March 31, 2000 the Company finalized its purchase price allocation as
follows (in thousands):

<TABLE>
<S>                                                          <C>
    Cash                                                     $ 2,000
    Stock                                                     16,074
    Transaction costs                                            237
                                                             -------
    Total purchase price                                     $18,311
                                                             -------
    Net assets acquired and liabilities assumed              $   302
                                                             -------
    Goodwill and purchased technology                         18,009
                                                             -------
    Total allocation of purchase price                       $18,311
                                                             -------
</TABLE>

In June 2000, the Company acquired another company, for $250,000 in cash and
165,000 shares of Class A common stock. The acquisition was accounted for using
the purchase method of accounting and the total purchase price was approximately
$4.3 million, including transaction costs. The Company analyzed the intangible
assets to determine whether any amount should be recorded as in-process research
and development, however the Company determined that the acquired technologies
are largely dependent on the core technology and that new versions are released
frequently and contain incremental rather than fundamental improvements. Based
on this analysis $4.3 million was recorded as goodwill and purchased technology.

In December 31, 2000, in accordance with its accounting policy the Company
performed a review of the carrying of the intangibles associated with this
acquisition and recognized an impairment charge of $3.6


                                       56


<PAGE>   57
million. The Company performed a review of the carrying value of the goodwill
and purchased technology as it had been assessed that the Company would not use
the technology purchased as part of the original acquisition. Accordingly the
full value of the unamortized goodwill and purchased technology was written off.

Pro forma information (unaudited).

Pro forma information with respect to revenue and net loss, as if the Company
had acquired these companies on January 1, 1999 does not materially differ from
the historical information presented, subject to the amortization of goodwill,
which would have been approximately $1.9 million in each of the three months
ended December 31, 2000 and December 31, 1999 and approximately $7.4 million in
each of the twelve months ended December 31, 2000 and December 31, 1999.

7. COMMITMENTS

We lease office space under non-cancelable operating lease agreements, which
expire at various dates through May 2006. We are responsible for maintenance,
insurance, and property taxes and have five-year extension options on our
primary facility leases. Future minimum payments under the non-cancelable
operating leases consist of the following at December 31, 2000 (in thousands):


<TABLE>
<S>                                                     <C>
2001                                                    $1,254
2002                                                     1,320
2003                                                     1,386
2004                                                     1,452
2005                                                     1,518
Thereafter                                                 776
                                                        ------
Total minimum lease payments                            $7,706
                                                        ------
</TABLE>


Rent expense was approximately $916,000 none and none for the year ended
December 31, 2000, 1999 and 1998, respectively. During the years 1999 and 1998
rent was included in the charge from NAI as part of the corporate management
services agreement.


8. RELATED PARTY TRANSACTIONS

The Company has entered into certain agreements with NAI for the purpose of
defining their ongoing relationship. These agreements were developed in the
context of a parent/subsidiary relationship and therefore are not the result of
arms-length negotiations between independent parties. Although these agreements
or the transactions contemplated by these agreements may not have been effected
on terms at least as favorable to the Company as could have been obtained from
unaffiliated third parties, the Company believes that these agreements taken as
a whole are fair to both parties and that the amount of the expenses
contemplated by the agreements would not be materially different if the Company
operated on a stand-alone basis.

Corporate Management Services Agreement. On January 1, 1999, the Company entered
into a Corporate Management Services Agreement with NAI under which NAI provides
the Company certain administrative services. Under this agreement, NAI provides
to the Company services relating to tax, accounting, insurance, employee
benefits administration, corporate record-keeping, payroll, information
technology infrastructure, and facilities management. In addition, the Company
may request certain additional services to be provided from time-to-time in the
future, with the fee for such additional services subject to negotiation between
the parties. The initial monthly fee that the Company is required to pay for
these services under the agreement is a portion of the costs to NAI plus a 10%
mark-up. The Company's share of such costs is calculated based on headcount.
During the years ended December 31, 2000 and 1999, NAI charged the Company $5.8
million and $3.7 million respectively under this agreement. For the fiscal
periods prior to 1999, general and administrative expenses allocated to the
Company were based on a similar calculation.

The corporate management services agreement may be terminated either by the
Company upon 30 days notice, or by NAI when it ceases to own a majority of the
Company's outstanding voting stock. Following a


                                       57


<PAGE>   58
termination of this agreement, the Company may be unable to secure these
services from others on acceptable terms. If the Company is unsuccessful in
obtaining acceptable provision of these services upon termination of the
corporate management services agreement, the Company's future financial
performance could be adversely affected.

Cross License Agreement. The Company entered into a technology cross license
agreement with NAI through one of NAI's wholly owned subsidiaries. Under this
agreement, NAI has granted the Company worldwide non-exclusive patent licenses
and exclusive copyright licenses for the sale or licensing of software products
or software services to certain OEMs and end users solely via the Internet.
Eligible end users include only single-node and individual consumers. In
consideration for the license and rights granted under this license, the Company
is required to pay NAI a royalty on revenues from related product and
subscription sales, initially at a rate of 20% commencing on January 1, 1999 and
declining 1.625% per quarter until the rate is 7% in the quarter beginning
January 1, 2001, and remaining at 7% thereafter. Also under this agreement, the
Company has granted NAI a non-exclusive patent licenses and exclusive copyright
licenses for the sale of products to enterprise customers through any method of
distribution including the Internet and to end users through any method
excluding the Internet. In consideration for the rights granted under this
license, NAI is required to pay the Company a royalty of $250,000 per quarter.
Under this cross technology agreement, NAI will provide end user support to the
Company's customers. Charges for such support will be equal to a portion of the
costs to NAI plus a 10% markup.

During the year ended December 31, 2000 and 1999, the Company was charged $2.2
million and $2.4 million for royalties, respectively. For the year ended
December 31, 1999, there were $4.4 million for support services. There are no
support services charges for the year ended December 31, 2000. As of January 1,
2000, NAI agreed to no longer charge the Company for support services as the
Company provide these services to their customers on an on going basis. Had the
technology agreement been in effect prior to January 1, 1999, royalties,
exclusive of the royalty payable from NAI, would have been $1.2 million for the
year ended December 31, 1998.

Asset Contribution and Receivables Settlement Agreement. The Company entered
into an asset contribution agreement with NAI effective as of January 1, 1999
that transfers ownership of certain assets to the Company. Among the assets
transferred to the Company are: a number of co-hosting and technology agreements
to which NAI is a party; revenues from advertising and sponsorship agreements
involving the Company; ownership rights in 3 patent applications; computers and
Internet infrastructure hardware; and any other assets which both NAI and the
Company's board of directors agree to transfer at a future date. All assets
transferred from NAI have been recorded as a permanent contribution to capital,
at NAI's carryover basis. No liabilities were transferred to the Company, except
for those directly resulting from the assets transferred.

Tax Sharing Agreement. The Company and NAI have entered into a tax-sharing
agreement under which the Company calculates income taxes on a separate return
basis. The Company will be included in NAI's consolidated group for federal
income tax purposes for so long as NAI beneficially owns at least 80% of the
total voting power and the value of the outstanding common stock. Each member of
a consolidated group is jointly and severally liable for the federal income tax
liability of each other member of the consolidated group. Accordingly, although
the tax-sharing agreement allocates tax liabilities between the Company and NAI,
during the period in which the Company is included in NAI's consolidated group,
the Company could be liable in the event that any federal tax liability is
incurred, but not discharged, by any other members of NAI's consolidated group.

Under the tax sharing agreement, NAI and each other member has agreed to
indemnify the Company if the Company is required to pay any tax liability amount
in excess of its hypothetical separate income tax liability, provided the
Company is not in default in its obligation to pay such hypothetical separate
income tax liability to NAI.

The tax sharing agreement will terminate if the Company is no longer eligible to
join NAI in the filing of a consolidated federal income tax return. In the event
of such termination, any net operating losses or other carry forward amounts
would not be available to the Company upon departure from the group. Under the
tax sharing agreement, the Company will not be reimbursed for any such loss of
tax benefits.


                                       58


<PAGE>   59
Joint Cooperation Agreement. The Company has entered into a Joint Cooperation
and Master Services Agreement with NAI, which governs the provision of
technology, services among the parties. Under this agreement, NAI's anti-virus
emergency response team (AVERT) will provide us with research and solutions for
virus events. The agreement also contains standard terms and conditions
governing the provision of technology services from one party to the other under
statements of work that may be negotiated from time to time. Currently we have
entered into one such statement of work under which we provide Network
Associates the infrastructure and technical support services for Network
Associates' web site (www.nai.com). Network Associates pays us a fee for these
services in an amount equal to ten percent of our total quarterly technology
costs plus a ten percent service charge. Although we are obligated to provide
these services until December 31, 2000 under this statement of work, the Company
and NAI agreed mutually that NAI take over the running of the NAI web site as of
May 1, 2000. The charge to NAI under this statement of work for the year ended
December 31, 2000 was approximately $247,000 and approximately $834,000 for the
year ended December 31, 1999. This amount has been offset against technology
costs.

Indemnification and Voting Agreement. The Company has entered into an
indemnification and voting agreement with NAI which became effective on December
2, 1999. Except under certain specified circumstances, NAI will indemnify the
Company for all losses related to any third party claims relating to events or
circumstances arising out of actions or inaction of NAI, including its
subsidiaries and officers and directors, on or prior to December 2, 1999.
Additionally, for so long as NAI owns at least 20% of the Company's outstanding
voting power, it will vote its shares of the Company's common stock in favor of
the election of two independent directors.

Registration Rights Agreement. The Company has entered into a registration
rights agreement with NAI that entitles NAI to include its shares of Company
common stock in any future registration of common stock made by the Company,
other than any registration statement relating to an acquisition or a stock
option plan. In addition, at any time after six months from December 2, 1999,
NAI or certain transferees can request that the Company file a registration
statement so they can publicly sell their shares. The Company has agreed
pursuant to the terms of this registration rights agreement to pay all costs and
expenses, other than underwriting discounts and commissions, related to shares
to be sold by NAI or certain transferees in connection with any such
registration.

Japanese Distribution Agreement. On April 28, 2000, the Company entered into a
Master Distribution Agreement, retroactive to January 1, 2000, with NAI KK, a
majority-owned Japanese subsidiary of Network Associates, Inc. Under the terms
of the agreement, NAI KK will be the exclusive distributor of the Company's
products in the Japanese PC OEM channel for an initial term of three years. The
Company will receive a license fee of fifty percent (50%) net sales revenue
received by NAI KK from its distribution in this channel. The Company, in turn,
will pay NAI KK a revenue share of ten percent (10%) of net sales revenue it
initially receives from PC OEM customers that subsequently purchase a
subscription to McAfee Clinic. During the year ended December 31, 2000, the
Company recognized product revenue of $861,000 relating to license revenue from
NAI KK. At December 31, 2000 a total amount of $47,000 was recorded as accounts
receivable from NAI KK.

Lease Agreement. In February 2000, the Company entered into a lease agreement to
rent a facility of approximately 55,000 square feet commencing on May 1, 2000.
This lease is set to expire in 2006. The lease agreement required a letter of
credit for approximately $305,000. This letter of credit has been guaranteed by
NAI.

Change in Control Agreements

Srivats Sampath entered into an agreement with the Company dated July 14, 2000,
which provides that, if his employment is involuntarily terminated other than
for cause within twelve months of (i) a sale of 50% of the Company's shares,
(ii) a Network Associates change of control, if the Company is majority owned by
them at the time, or (iii) a sale of substantially all of the Company's assets,
he will be entitled to receive severance payments for twelve months after such a
termination. The payments would be based on his base salary at the time of
termination. In addition, the agreement provides that if his employment with the
Company is terminated other than for cause within twelve months of any such
event, his outstanding options, that would vest two years from the date of
termination, will become fully vested and immediately exercisable.


                                       59


<PAGE>   60
Evan Collins entered into an agreement with the Company dated July 14, 2000,
which provides that, if his employment is involuntarily terminated other than
for cause within twelve months of (i) a sale of 50% of the Company's shares,
(ii) a Network Associates change of control, if the Company is majority owned by
them at the time, or (iii) a sale of substantially all of the Company's assets,
he will be entitled to receive severance payments for twelve months after such a
termination. The payments would be based on his base salary at the time of
termination. In addition, the agreement provides that if his employment with the
Company is terminated other than for cause within twelve months of any such
event, his outstanding options, that would vest two years from the date of
termination, will become fully vested and immediately exercisable.



9. STOCK-BASED COMPENSATION

Repricing of Stock Options

On April 22, 1999, NAI offered to substantially all of its employees, excluding
executive officers, the right to cancel certain outstanding stock options and
receive new options with exercise prices at the current fair market value of the
stock. Options to purchase a total of 10.3 million shares were canceled and the
same numbers of new options were granted at an exercise price of $11.063, which
was based on the closing price of NAI's common stock on April 22, 1999. Under
the guidance in FIN 44 the repriced options are subject to variable accounting.
The new options vest at the same rate that they would have vested under previous
option plans. As a result, options to purchase approximately 71,237 shares at
$11.063 were vested and outstanding at December 31, 2000.

In connection with the establishment of the Company, employees who were to
transfer from NAI were offered the option to have their unvested options in NAI
cancelled and replaced with new options for the Company's shares and keep their
vested NAI options. This resulted in the Company issuing options to purchase 1.1
million shares. In addition the Company's employees retained options to purchase
368,717 shares of NAI common stock. The NAI options cancelled were included in
those which were repriced by NAI as of April 22, 2000. Under the guidance in FIN
44 the new options issued to the employees of the Company are considered to be
replacement options and, therefore, are also subject to variable accounting, in
the same manner as the NAI options they replaced. In addition the Company must
account for the NAI options retained by its employees using the variable
accounting model.

 As a result the Company must remeasure the compensation expense on these
options based on movements since July 1, 2000 in the Company's and/or NAI's
stock price. Until the Company's stock price exceeds $26.063 (the price on July
1, 2000), there will not be any further impact of the variable accounting
treatment. The actual compensation charge to be recorded is remeasured at the
end of each reporting period until the option is either exercised, cancelled
without replacement or is forfeited. Once the option is exercised, cancelled
without replacement or forfeited it is remeasured for the final time and the
compensation charge fixed.

As at July 1, 2000 the Company's stock price was $26.063, and NAI's stock price
was $20.38. As of December 29, 2000 the stock prices were $5.00 and $4.188
respectively. The Company expenses the compensation charge calculated to the
statements of operations over the remaining vesting period using the accelerated
method detailed in FIN 28 "Accounting for Stock Appreciation Rights and Other
Variable Stock Option or Award Plans". If the option is fully vested any charge
is recorded in income immediately.

As of December 31, 2000 the Company had options outstanding to purchase 678,944
shares of its common stock and 63,378 shares of NAI stock, which are subject to
variable accounting. For the year ended December 31, 2000 the Company recorded
stock-based compensation expense of $399,000 for options exercised, with a final
remeasurement value above the Company's and NAI's stock price at July 1, 2000
of $26.063 and $20.38, respectively. The ultimate amount of compensation to be
recorded in respect of these options is dependent upon movements in the stock
price of the Company and NAI respectively. As a result the Company's results of
operations may fluctuate in future based on these movements. In addition the
actual charge recorded could be materially different to that calculated as of
December 31, 2000.

Options granted to NAI employees


                                       60


<PAGE>   61
In January 1999, five officers of NAI were granted options to purchase 3,420,000
shares of our Class A common stock. These options originally vested over four
years. Since these officers are not our employees, those options are accounted
for at fair market value. The determination of the total compensation to be
recognized in connection with these grants requires the remeasurement of the
fair value of the options each reporting period until the options are fully
vested. Compensation expense is reflected in our results of operations over the
vesting period. The Company recorded compensation charge of approximately $1.6
million for the six month period ended June 30, 1999. On September 22, 1999,
with the agreement of the option holders, we cancelled options for 1,710,000
shares and amended the remaining options to make them fully vested. As a result
of this change we recorded a compensation charge of approximately $5.7 million,
including a charge for options to purchase 388,500 shares granted to NAI
employees in September, October and December 1999.


10.  EMPLOYEE BENEFIT PLANS

401(k) and Profit Sharing Plan

NAI has a 401(k) Savings Plan that covers substantially all Company full-time
employees. Participants may make tax-deferred contributions of up to 15% of
annual compensation (subject to other limitations specified by the Internal
Revenue Code). Administrative and matching expenses, which are charged to the
Company by NAI, have, to date, not been significant.

Employee Stock Purchase Plan

In September 1999 the Company's Board of Directors adopted the Company's
Employee Stock Purchase Plan, (the "1999 Purchase Plan"). A total of 500,000
shares of common stock have been reserved for issuance under the 1999 Purchase
Plan, plus annual increases equal to the lesser of: (1) 1 million shares; (2) 3%
of the outstanding shares on such date; or (3) an amount determined by the Board
of Directors. All Company full-time employees are eligible to participate in the
Plan. The Plan is comprised of two year offering periods with exercise dates
approximately every six months (beginning each August and February), with the
exception of the first offering period, which commenced on December 2, 1999,
with the first exercise date on January 31, 2000. Shares are purchased through
employees' payroll deductions at exercise prices equal to 85% of the lesser of
the fair market value of the Company's common stock at either the first day of
an offering period or the last day of such offering period. No participant may
purchase more than $25,000 worth of common stock in any one calendar year and
the maximum number of shares a participant may purchase during a single purchase
period is 2,500 shares. Purchase periods occur twice yearly and each offering
effectively contains a 6, 12, 18 and 24-month option. In fiscal year 2000,
156,582 shares were issued under the Plan at weighted average purchase price of
$6.32. At December 31, 2000 343,418 shares were reserved for future issuance
under the plan.

Under SFAS 123, the fair value of employee's purchase rights under the Employee
Stock Purchase Plan was estimated using the multiple options approach with the
following assumptions:,


<TABLE>
<CAPTION>
                                             2000             1999
                                           --------         --------
<S>                                        <C>              <C>
Risk free interest rate ...........            6.03%            5.40%
Expected life (yrs) ...............        6 months         6 months
Volatility ........................             201%              85%
Dividend yield ....................               0                0
</TABLE>


Based on the above assumptions, the aggregate fair value and weighted average
fair value per share of those purchase rights granted in 2000 was $989,598 and
$6.32.

11. STOCKHOLDERS' EQUITY

Preferred Stock

The Company has authorized 5,000,000 shares of preferred stock, par value $.001
per share. The Company's Board of Directors has authority to provide for the
issuance of the shares of preferred stock in


                                       61


<PAGE>   62
series, to establish from time-to-time the number of shares to be included in
each such series and to fix the designation, powers, preferences and rights of
the shares of each such series and the qualifications, limitations or
restrictions thereof, without any further vote or action by the shareholders. As
of December 31, 2000, no shares of preferred stock have been issued.

Common Stock

The Company has authorized 100,000,000 shares of Class A common stock, par value
$.001 per share. The Company also has authorized 65,000,000 shares of Class B
common stock, par value $.001 per share. As of December 31, 2000, 36,000,000
shares of Class B common stock have been issued to NAI, and 8,617,768 shares of
Class A common stock have been issued.

Class A and B shares are identical in all respects except for voting rights and
certain conversion rights. Class A shares are entitled to one vote per share and
Class B shares are entitled to three votes per share. Class A common stock is
not convertible. Class B common stock is convertible, in whole or in part, at
any time and from time-to-time at the option of the holder, on the basis of one
share of Class A common stock for each share of Class B common stock. Class A
and Class B common stock will be treated as a single class in the event of
liquidation of the Company. Any share of Class B common stock transferred by NAI
will automatically convert into Class A common stock upon transfer.

Stock Option Plans

1999 Stock Plan

In January 1999, the Board of Directors approved the 1999 Stock Plan (the
"Plan"), as amended June 19, 1999. Under the Plan, the Company has reserved
10,873,000 shares for issuance to employees, officers, directors and
consultants. The Plan also provides for automatic annual increases to be added
at the annual stockholder's meeting, equal to the lower of: (a) 2.5 million
shares of Class A common stock, (b) 5% of the outstanding shares of all Class A
common stock on that date, or (c) an amount determined by the Company's Board of
Directors. The Plan provides for an option price no less than 100% of the fair
market value of the Company's common stock on the date of grant for incentive
stock options granted to employees and officers (including directors who are
also employees) or 85% of the fair market value on the date of grant for all
others. The options may be exercisable immediately, or over time, generally vest
25% one year after commencing employment or from date of grants and vest
thereafter in monthly increments over three years. All options under the Plan
expire ten years after grant. Unvested options on termination of employment are
canceled and returned to the Plan.

Director Option Plan

In September 1999, the Company adopted the 1999 Director Option Plan. The
Company has reserved 150,000 shares for issuance under the plan to certain
members of its Board who are not employees of the Company or any affiliated
corporation. Under the plan the number of shares reserved under the plan will
automatically increase at the date of the Annual Stockholder's Meeting by the
number of shares required to restore the reserve available for new options to
150,000 shares. Each outside director will automatically be granted an option to
purchase 40,000 shares of Company common stock on the date at which they become
a director. Each anniversary thereafter, each outside director will
automatically be granted an option to purchase 10,000 shares of Company common
stock. Both the initial and subsequent grants vest at a rate of 25% after one
year and 1/48 each month thereafter. All options under the Plan expire ten years
after grant. Unvested options on termination of employment are canceled and
returned to the Plan.

Aggregate activity under the stock option plans is as follows (in thousands,
except per share data):


                                       62


<PAGE>   63

<TABLE>
<CAPTION>
                                                                                       OPTIONS OUTSTANDING
                                                                  -----------------------------------------------------------
                                                   SHARES                                                            WEIGHTED
                                                  AVAILABLE       NUMBER OF            PRICE         AGGREGATE       AVERAGE
                                                  FOR GRANT        SHARES            PER SHARE         PRICE         EX PRICE
                                                  ---------------------------------------------------------------------------
<S>                                               <C>             <C>             <C>                <C>             <C>
Options authorized January 1999                       8,388              -                     -             -              -
Options authorized September 1999                       150              -                     -             -              -
Options granted - company employees                  (3,482)         3,482        $3.67 - $44.00      $ 18,806           5.40
Options granted - NAI officers and employees         (3,809)         3,809          3.67 - 12.00        15,295           4.02
Options exercised - company employees                     -              -                     -             -              -
Options exercised - NAI officers and employees            -            (19)                 6.55          (123)          6.55
Options cancelled - company employees                   227           (227)         4.64 - 12.00        (1,464)          6.46
Options cancelled - NAI officers and employees        1,710         (1,710)                 3.67        (6,270)          3.67
                                                   --------       --------       ---------------      --------       --------
Balance at December 31, 1999                          3,184          5,335          3.67 - 44.00        26,244           4.92
Options authorized May 2000                           2,335
Options granted -- company employees                 (1,295)         1,295         3.125 - 50.38        24,026          18.55
Options exercised -- company employees                                (321)          4.64 - 6.55        (1,499)          4.67
Options exercised -- NAI officers and employees                       (384)         3.67 - 12.00        (1,962)          5.11
Options cancelled -- company employees                  816           (816)         4.64 - 50.38       (10,022)         12.28
Options cancelled -- NAI officers and employees           7             (7)         6.55 - 12.00           (54)          7.71
                                                   --------       --------       ---------------      --------       --------
Balance at December 31, 2000                          5,047          5,102       $3.125 - $50.38      $ 36,733       $   7.20
                                                   ========       ========       ===============      ========       ========
</TABLE>

At December 31, 2000 and 1999, approximately 2,502,000 and 2,080,000 options
were exercisable at weighted average exercise prices per share of $4.389 and
$4.28.

The options outstanding and currently exercisable by exercise price at December
31, 2000 are as follows (in thousands, except per share data):

<TABLE>
<CAPTION>
                                     OPTIONS OUTSTANDING                          OPTIONS EXERCISABLE
                        ---------------------------------------------         ---------------------------
                                          WEIGHTED
                           NUMBER          AVERAGE           WEIGHTED                           WEIGHTED
                       OUTSTANDING        REMAINING          AVERAGE           NUMBER            AVERAGE
RANGE OF                    AT           CONTRACTUAL        EXERCISE         EXERCISABLE        EXERCISE
EXERCISE PRICES          12/31/00        LIFE (yrs)           PRICE          AT 12/31/00          PRICE
                       -----------       -----------        ---------        -----------        ---------
<S>                     <C>              <C>                <C>              <C>                <C>
     $3.13                    267              9.99         $    3.13                 -                 -
     $3.67                  2,394              8.04         $    3.67             1,925              3.67
     $4.64                    755              8.58         $    4.64               137              4.64
 $5.25 - $7.33                883              8.83         $    6.95               401              6.90
$10.75 - $22.25               517              9.39         $   16.95                37             12.00
$22.50 - $50.38               286              9.35         $   31.37                 2             42.21
                        ---------         ---------         ---------         ---------         ---------
                            5,102              8.57         $    7.25             2,502         $   4.389
                        ---------         ---------         ---------         ---------         ---------
</TABLE>

We have elected to continue to follow the provisions of Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, for financial
reporting purposes and have adopted the disclosure-only provisions of Statement
of Financial Accounting Standards No. 123, or SFAS 123, Accounting for
Stock-Based Compensation. Accordingly, no compensation cost has been recognized
for the options granted under the 1999 Stock Plan and the 1999 Director Option
Plan.

The following information regarding the stock options granted to non-employees
is provided in compliance with SFAS 123:

The fair market value of the options granted has been calculated using the
Black-Scholes option-pricing model using the multiple option approach. Options
granted to employees typically vest over a four-year period. The options granted
to non-employees are fully vested. Parameters for the option analysis are listed
below.

                                       63


<PAGE>   64

<TABLE>
<CAPTION>
                                   OPTIONS GRANTED TO                OPTIONS GRANTED TO
                                   COMPANY EMPLOYEES                   NON-EMPLOYEES
                                ------------------------          -----------------------
                                 2000             1999             2000            1999
                                -------          -------          -------         -------
<S>                             <C>              <C>              <C>             <C>
Risk free interest rate            5.23%            5.40%               -            5.40%
Expected life (yrs)                   5                5                -            0.90
Volatility                          201%              85%               -              76%
Dividend yield                        0                0                -               0
</TABLE>


The weighted average expected life of the option grants was estimated based on
historical exercise patterns. For year ended 1999, volatility was estimated
based on the weighted average volatility of five public companies in similar
business to the Company. The Company has not paid a dividend and has no plans to
do so.

The weighted average grant date fair value of options granted to employees year
ended December 31, 2000 was $17.54. There were no options granted to
non-employees during the year ended December 31, 2000.


Pro Forma Stock Compensation Cost

For pro forma purposes, had compensation cost for the 1999 Stock Plan, Director
Option Plan and the Employee Stock Purchase Plan been determined based on the
fair value at the grant date for awards from 1999 through 2000 consistent with
the provisions of SFAS No. 123, our net loss, basic and diluted loss per share
for 2000 and 1999 would have been as follows (in thousands, except per share
data):


<TABLE>
<CAPTION>
                                          2000                1999
                                       ----------          ----------
<S>                                    <C>                 <C>
Net loss (thousands) .........         $  (37,834)         $  (31,265)
Net loss per share ...........         $    (0.86)         $    (0.88)
</TABLE>


The impact on pro forma earnings per share and net loss in the table above may
not be indicative of the effect in future years as options vest over several
years and the company continues to grant stock options to new employees. This
policy may or may not continue.

Reverse Stock Split

On July 28, 1999, the Company effected a 5:3 reverse stock split. All share and
per share information included in these financial statements has been
retroactively adjusted to reflect this reverse stock split.


12. SEGMENT AND MAJOR CUSTOMER INFORMATION

The Company identifies its operating segments based on business activities,
management responsibility and geographical location. The Company has organized
its operations into a single operating segment, providing delivery of
personalized e-commerce offerings and local content.

Revenue information on a product basis is as follows (in thousands):


<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31,
                                            ------------------------------------------
                                              2000             1999             1998
                                            --------         --------         --------
<S>                                         <C>              <C>              <C>
Product ...........................         $ 14,189         $ 18,364         $  6,292
Subscription ......................           17,525            1,332                -
Advertisement and Sponsorship .....           15,152            4,801                -
                                            --------         --------         --------
Total .............................         $ 46,866         $ 24,497         $  6,292
                                            --------         --------         --------
</TABLE>


We market our products and related services to customers in the North America,
Europe and Asia Pacific. The Company derives significant majority of their
revenues from operations in North America. Also a significant majority of our
long-lived assets are in North America.

At December 31, 2000, one customer had an accounts receivable balance
representing 13% of our total accounts receivable balance. No other customer had
an accounts receivable balance that exceeded 10% at


                                       64
<PAGE>   65
December 31, 2000. For the year ended December 31, 2000 the largest customer
accounted for 19% of our total revenue.

At December 31, 1999, three customers had accounts receivable balances
representing 46%, 12% and 11% of our total accounts receivable balance. No other
customer had an accounts receivable balance that exceeded 10% at December 31,
1999. For the year ended December 31, 1999, the largest customer accounted for
38% of our total revenue.


13. PROVISION FOR INCOME TAXES

Under the Company's tax sharing agreement with NAI, it calculates its income
taxes on a separate return basis, including utilization of any carry back or
carry forward amounts.

The Company has provided a full valuation allowance against its deferred tax
assets due to the uncertainty that such assets may be realizable.

The Company's effective tax rate on income before income taxes differs from the
U.S. Federal statutory regular tax rate as follows:


<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                                               ----------------------------------------------
                                                 2000               1999               1998
                                               --------           --------           --------
<S>                                            <C>                <C>                <C>
Federal tax at statutory rate                      35.0%                35%                34%
Revenue previously recognized                         0%                 9%                 0%
Goodwill & other permanent differences            (12.3)%                0%                 0%
Tax credits                                         5.6%                 0%                 0%
Non-deductible stock compensation                  (0.5)%               (9)%                0%
                                               --------           --------           --------
Change in valuation allowance                     (27.8)%              (35)%              (34)%
                                               --------           --------           --------
Effective tax rate                                    0%                 0%                 0%
                                               --------           --------           --------
</TABLE>


Significant components of the Company's deferred tax assets and liabilities at
December 31 are as follows (in thousands):


<TABLE>
<CAPTION>
                                           2000              1999              1998
                                         --------          --------          --------
<S>                                      <C>               <C>               <C>
Accrued Liabilities and Reserves         $ 15,064          $  2,106          $    264
Depreciation & Amortization                 2,085                 0                 0
Net Operating Loss Carryover                2,918             8,589               966
R&D Credit Carryover                        1,500               248                 0
                                         --------          --------          --------
                                           21,567            10,943             1,230
                                         --------          --------          --------

Valuation allowance                      $(21,567)         $(10,943)         $ (1,230)
                                         --------          --------          --------
</TABLE>


At December 31, 2000, the Company has available federal net operating loss carry
forwards for income tax purposes totaling $21.5 million, which expire in 2020,
and state net operating loss carry forwards for income tax purposes totaling
$11.8 million, which expire in 2005.


14. CONTINGENCIES


                                       65


<PAGE>   66
Litigation

From time to time, the Company is involved in various disputes and litigation
matters that arise in the ordinary course of business. These include disputes
and lawsuits related to intellectual property, licensing, contract law,
distribution arrangements, and employee arrangement matters. As of the date of
this report, the Company is not a party to any litigation or other legal
proceeding, including product liability claims that, in our opinion, could have
a material adverse effect on our business operating results or financial
condition.

Other Litigation

SIMPLE.COM V. MCAFEE.COM, CIVIL ACTION NO. CV-00-20816 RMW, UNITED STATES
DISTRICT COURT, NORTHERN DISTRICT OF CALIFORNIA, SAN JOSE DIVISION. On August 1,
2000, Simple.com ("Simple") filed a complaint against McAfee.com ("McAfee"),
alleging that McAfee misappropriated Simple's trade secrets and infringed
Simple's copyrights in certain software code. The complaint includes seven
claims for relief: copyright infringement; breach of contract; misappropriation
of trade secrets; statutory unfair competition under Cal. Bus. & Prof. Code
Section 17200; common-law unfair competition; conversion; and breach of the
covenant of good faith and fair dealing. The complaint seeks preliminary and
permanent injunctive relief preventing McAfee from, inter alia, using the
information McAfee allegedly acquired from Simple. The complaint also seeks
compensatory damages in an amount alleged to be not less than $18 million, plus
interest. The complaint also seeks statutory, exemplary and punitive damages as
well as recovery for unjust enrichment. McAfee answered the complaint on August
30, 2000, denying all the material allegations in the complaint and asserting
affirmative defenses. The parties have served discovery requests on one another.
By the Court's December 1, 2000 case management order, fact discovery is
scheduled to close March 31, 2001, expert discovery is scheduled to close July
13, 2001, and the trial is scheduled for October 9, 2001.

JEFF PLATON V. MCAFEE.COM, CIVIL ACTION NO. CV794576, SANTA CLARA SUPERIOR
COURT. On January 5, 2001, Jeff Platon ("Platon") filed a complaint against
McAfee.com alleging that McAfee breached the terms of a severance agreement and
seeks compensatory damages of approximately $125,000 for remaining benefits owed
at the time of his separation from the company plus all attorney's fees and
costs related to this lawsuit. McAfee.com has filed an answer to the complaint,
but either side has initiated no discovery.

Network Associates is a party to a litigation matter, described below, that
relates to the anti-virus software technology they license to the Company. Under
the terms of our inter-company license agreement and indemnification and voting
agreement, Network Associates has agreed to indemnify us with respect to these
existing matters. See "Related Party Transactions -- Inter-company Agreements."

HILGRAEVE V. NETWORK ASSOCIATES. On September 15, 1997, Network Associates was
named as a defendant in a patent infringement action filed by Hilgraeve
Corporation ("Hilgraeve") in the United States District Court, Eastern District
of Michigan. Hilgraeve alleges that Network Associates' VirusScan product
infringes a Hilgraeve patent, which was issued on June 7, 1994. Hilgraeve's
action seeks injunctive relief and unspecified money damages. The District Court
granted Network Associates' motion for summary judgment of non-infringement on
May 20, 1999 and entered judgment in favor of Network Associates on July 7,
1999. On August 2, 2000 the United States Court of Appeal for the Federal
Circuit vacated in part, affirmed in part, and remanded the case to the District
Court for further proceedings. The Court has set a schedule for a further
summary judgment hearing, which will be held in or around April 2001. No trial
date is set.


15. NET INCOME (LOSS) PER SHARE

Net income (loss) available to common shareholders and weighted average shares
outstanding are the same for basic and fully diluted earnings per share
calculations for all periods presented.

The fully diluted earnings per share calculation for the year ended December 31,
2000 exclude options to purchase 5.1 million shares as they are anti-dilutive.


                                       66


<PAGE>   67
                                   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, in the City of Santa
Clara, State of California, on the 20th day of March, 2000.

MCAFEE.COM CORPORATION.


/s/     Srivats Sampath
------------------------------------
Srivats Sampath
President, Chief Executive Officer
and Director

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March, 20 2001 by the following persons on
behalf of the Registrant and in the capacities indicated.


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

     /s/   Srivats Sampath                      President, Chief Executive Officer
     -------------------------------            and Director  (Principal Executive
     (Srivats Sampath)                          Officer)

     /s/   Evan S. Collins                      Vice President, Chief Financial
     -------------------------------            Officer and Secretary
     (Evan S. Collins)                          (Principal Financial and Accounting
                                                Officer)

     /s/   George Samenuk                       Director
     -------------------------------
     (George Samenuk)

     /s/   Frank Gill                           Director
     -------------------------------
     (Frank Gill)

     /s/  Richard Schell                        Director
     -------------------------------
     (Richard Schell)
</TABLE>


                                       67


<PAGE>   68
                      REPORT OF INDEPENDENT ACCOUNTANTS ON
                         FINANCIAL STATEMENT SCHEDULES


To the Board of Directors and Stockholders
McAfee.com Corporation:

Our audits of the consolidated financial statements referred to in our report
dated January 17, 2001 appearing in this Annual Report on Form 10-K of
McAfee.com Corporation also included an audit of the financial statement
schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.




San Jose, California
January 17, 2001



                                       68
<PAGE>   69
                                   SCHEDULE II

                                McAfee.com, Inc.

       Schedule of Valuation and Qualifying Accounts at December 31, 2000
                             (Dollars in Thousands)


<TABLE>
<CAPTION>
                                               BALANCE AT
                                               BEGINNING           ADDITIONS                              BALANCE
                                               OF PERIOD           CHARGED TO                              AT END
                                             OTHER ACCOUNTS        EXPENSE OR        DEDUCTIONS           OF PERIOD
                                             --------------        ----------        ----------           ---------
<S>                                          <C>                   <C>               <C>                  <C>
Year Ended December 31, 2000

    Allowance for Doubtful Accounts              $   650            $   599            $   (93)            $ 1,156

    Valuation allowance for deferred
     Tax assets                                  $10,943            $10,624                  -             $21,567

Year ended December 31, 1999

     Allowance for Doubtful Accounts             $   150            $   500                  -             $   650

     Valuation allowance for
      deferred tax assets                        $ 1,230            $ 9,713                  -             $10,943

Year ended December 31, 1998
     Valuation allowance for deferred
      Tax assets                                 $   724            $   506                  -             $ 1,230
</TABLE>


                                       69


<PAGE>   70
                                INDEX TO EXHIBITS


<TABLE>
<CAPTION>
EXHIBIT NO.                               EXHIBIT TITLE                                   PAGE NO.
-----------                               -------------                                   --------
<S>            <C>                                                                        <C>
3.2            Amended and Restated Certificate of Incorporation of McAfee.com
               Corporation, dated December 2, 1999 (1)

10.1           Form of Indemnification Agreement between the Company and each of
               its directors and officers (1)

10.2           1999 Amended and Restated Stock Plan and form of agreements
               thereunder (1)

10.3           1999 Director Option Plan and form of agreements thereunder (1)

10.4           1999 Employee Stock Purchase Plan and form of agreements
               thereunder (1)

10.5           Corporate Management Services Agreement between the Company and
               Networks Associates, Inc., dated as of January 1, 1999 (1)

10.6           Technology Cross License Agreement between McAfee.com and
               Networks Associates, Inc., dated as of January 1, 1999 (1)

10.7           Registration Rights Agreement between McAfee.com and Networks
               Associates, Inc., dated as of January 1, 1999 (1)

10.8           Asset Contribution and Receivables Settlement Agreement between
               McAfee.com and Networks Associates, Inc., dated as of January 1,
               1999 (1)

10.9           Intercompany Revolving Loan Agreement between McAfee.com and
               Networks Associates, Inc., dated as of January 1, 1999 (1)

10.10          Tax Sharing Agreement between McAfee.com and Networks Associates,
               Inc., dated as of January 1, 1999 (1)

10.11          Indemnification and Voting Agreement between McAfee.com and
               Networks Associates, Inc. dated August 20, 1999 (1)

10.12          Joint Cooperation and Master Services Agreement between
               McAfee.com and Networks Associates, Inc. dated as of January 1,
               1999 (1)

10.13          Amended and Restated Electronic Software Reseller/Web Site
               Services Agreement between Beyond.com Corporation and McAfee.com,
               dated as of May 17, 1999 (1)

10.14          Stockholders Agreement between McAfee.com and Network Associates,
               Inc., dated as of October 31, 1999 (1)

10.15          Lease Agreement dated February 14, 2000 for facility at 535
               Oakmead Parkway, Sunnyvale, California by and between RNM 535
               Oakmead L.P.(2)

10.16          Master OEM Distributor Agreement between McAfee.com and Network
               Associates K.K. (3)

10.17          Change in Control Agreement dated July 14, 2000, between
               McAfee.com and Srivats Sampath. (4)

10.18          Change in Control Agreement dated July 14, 2000, between
               McAfee.com and Evan Collins.(4)

10.19          Amendment No. 1 to the Amended and Restated Electronic Software
               Reseller/Web Site Services Agreement between Beyond.com
               Corporation and McAfee.com, dated as of May 17, 2000. (4)

10.20          Registration Rights Agreement dated as of June 14, 2000, between
               McAfee.com and certain of the former stockholders of Tufan
               Technology Corp.

21.1           List of Subsidiaries

23.1           Consent of Independent Accountants
</TABLE>


(1)     Incorporated by reference from the Registrant's Registration Statement
        on Form S-1 filed with the Commission on December 2, 1999. Incorporated
        by reference from the Registrant's Registration Statement on Form S-1
        filed with the Commission on December 2, 1999.

(2)     Incorporated by reference from the Registrant's Current Report on Form
        10-K filed with the Commission on March 29, 2000.

(3)     Incorporated by reference from the Registrant's Current Report on Form
        10-Q filed with the Commission on May 8, 2000.

(4)     Incorporated by reference from the Registrant's Current Report on Form
        10-Q filed with the Commission on August 11, 2000.


                                       70