<PAGE>   1

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                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON D.C. 20549

                                    FORM 10-K

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

                  FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2000

                             Commission File Number:

                                e-centives, INC.
             (Exact name of registrant as specified in its charter)

             Delaware                                  52-1988332
 (State or other jurisdiction of              (IRS Employer Identification No.)
   incorporation or organization)

               6901 ROCKLEDGE DRIVE, 7TH FLOOR, BETHESDA, MD 20817
                    (Address of principal executive offices)

                                 (301) 564-6700
              (Registrant's telephone number, including area code)
                                 ---------------

Securities registered pursuant to Section 12(b) of the Act:      Not Applicable

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

                   COMMON STOCK, PAR VALUE USD 0.01 PER SHARE
                                (Title of class)

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

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

        The aggregate market value of common stock held by non-affiliates of the
registrant, based upon the closing price of the registrant's common stock on the
SWX New Market of the SWX Swiss Exchange as of March 16, 2001 is USD 37,066,811
(1).

(1) Assumes an exchange rate of 1.712329 Swiss Francs per one U.S. Dollar as of
March 16, 2001.

        As of March 16, 2001, there were 15,168,434 shares of the registrant's
common stock outstanding.

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                                e-centives, INC.
                                    FORM 10-K

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                               PAGE
PART I
<S>                 <C>                                                                        <C>
                     Item 1.  Business.........................................................     3
                     Item 2.  Properties.......................................................    22
                     Item 3.  Legal Proceedings................................................    22
                     Item 4.  Submission of Matters to a Vote of Security Holders..............    22
PART II
                     Item 5.  Market for Registrant's Common Stock and Related Stockholder
                              Matters..........................................................    23
                     Item 6.  Selected Financial Data..........................................    25
                     Item 7.  Management's Discussion and Analysis of Financial Condition and
                              Results of Operations............................................    26
                     Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......    31
                     Item 8.  Financial Statements and Supplementary Data......................    31
                     Item 9.  Changes in and Disagreements with Accountants on Accounting and
                              Financial Disclosure.............................................    31
PART III
                     Item 10. Directors and Executive Officers of the Registrant...............    32
                     Item 11. Executive Compensation...........................................    34
                     Item 12. Security Ownership of Certain Beneficial Owners and Management...    37
                     Item 13. Certain Relationships and Related Transactions...................    38
PART IV
                     Item 14. Exhibits, Financial Statements Schedules, and Reports on
                              Form 8-K.........................................................    41
SIGNATURES.....................................................................................    42
</TABLE>





              CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

        Except for any historical information, the matters we discuss in this
Form 10-K concerning our company contain forward-looking statements. Any
statements in this Form 10-K that are not statements of historical fact, are
intended to be, and are, "forward-looking statements" under the safe harbor
provided by Section 27(a) of the Securities Act of 1933. Without limitation, the
words "anticipates," "believes," "estimates," "expects," "intends," "plans" and
similar expressions are intended to identify forward-looking statements. The
important factors we discuss below and under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations," as
well as other factors identified in our filings with the SEC and those presented
elsewhere by its management from time to time, could cause actual results to
differ materially from those indicated by the forward-looking statements made in
this Form 10-K. The Company assumes no obligation to update any forward-looking
information to reflect actual results or changes in the factors affecting such
forward-looking information.



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                                e-centives, INC.

                                     PART I

ITEM 1- BUSINESS

OVERVIEW

        We provide an online direct marketing system that enables marketers to
access consumers across the web sites of our network partners and by e-mail. Our
system allows marketers to offer a wide range of promotions for products and
services in which consumers have expressed interest. These promotions can
include, among others, digital coupons, sales notices, free shipping offers,
minimum purchase discounts and repeat purchase incentives. We call these online
promotions e-centives. We developed a web-based application that enables
consumers to register to receive e-centives at our network partners' web sites
or through our web site, www.e-centives.com. Our members provide demographic
information and indicate interests in product categories in return for
e-centives targeted to their shopping preferences. We create an online account
for each member which can be accessed on the web site of the network partner
through which they joined and on our web site. Members can also elect to receive
e-centives by e-mail. We also offer technology to our marketers that
automatically recognizes our members when they enter the marketer's web site,
and highlights and applies relevant e-centives during the shopping and purchase
process. During the year ended December 31, 2000, we delivered e-centives for
over 190 marketers, including Overstock.com, SmarterKids.com, Netgrocer.com,
Cooking.com and CarParts.com.

        Our network partners include high-traffic portal, community and content
web sites, such as Excite, ZDNet, and iVillage.com. We provide a web-based
application to our network partners that enables them to offer e-centives
accounts and promotions to their users on a co-branded basis, maintaining the
look and feel of the network partner's web site. We thereby enable our network
partners to incorporate a new member benefit into their web site without the
costs and challenges of building and maintaining their own direct marketing
system. We believe these relationships enable us to expand our database of
consumers, provide convenient access for our members and attract new marketers
to our system.

        As of March 16, 2001, we maintained over 9.2 million e-centives
accounts. Although we keep our members' identities confidential, we analyze our
database of demographic and preference information with sophisticated tracking
and data analysis to help our marketers execute more effective promotional
campaigns. We believe our combination of network partners, marketers and members
across a network of web sites creates a robust infrastructure for offering
targeted promotions over the Internet.

RECENT DEVELOPMENTS

        On March 28, 2001, we completed the acquisition of the Commerce Division
of Inktomi Corporation, a developer of scalable Internet infrastructure software
based in Foster City, California. We exchanged 2,551,700 shares of our common
stock, or 14.4% of our outstanding common stock after the acquisition, for the
assets of the division. Of the 2,551,700 shares issued to Inktomi in the
acquisition, 382,755 shares were placed into escrow and will be released upon
the achievement of revenue and performance targets for the acquired business at
the end of twelve and eighteen months following the closing. If such performance
and revenue criteria are not achieved for such periods, then all of the escrowed
shares will be returned to us. As part of the purchase price we also issued to
Inktomi a warrant to purchase an additional 1,860,577 shares upon the
achievement of additional revenue targets at the end of twelve months following
the closing. In connection with the acquisition, we entered into a license
agreement and a reseller agreement with Inktomi. Under the terms of the license
agreement, Inktomi will perpetually license certain software and technology to
us to be used in the acquired business. Pursuant to the reseller agreement,
Inktomi will resell certain products of the acquired business for a period of
twelve months from the closing.

        The Commerce Engine is the primary product offering of the Commerce
Division. Inktomi launched the first commercial version of the Commerce Engine
in mid-1999. The Commerce Engine is designed to collect and organize vast
amounts of electronic product information from online merchants and publishers
of comparative product information. The Commerce Engine is also designed to
track and confirm purchases made by end-users of our customers' services and to
generate invoices for our online merchants to support performance-based
marketing arrangements among multiple parties.

        Through this acquisition, we believe we will strengthen our position
as a leading provider of specialized Internet infrastructure solutions,
including direct marketing and distributed commerce. The combined solutions
create a compelling collection



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of technologies, content, and services that provide Internet users with
valuable, personalized tools to make better purchases decisions online and
offline. With this transaction, we also added several new clients - including
AT&T, NTT, Excite UK, and The Washington Post - as well as a broadened portfolio
of products and services to offer existing clients. We also gained an immediate
foothold in Europe with newly hired Commerce Division employees located in
London.

INDUSTRY BACKGROUND

OUR SYSTEM

        We maintain a comprehensive direct marketing system designed to enable
marketers to access consumers across the web sites of our network partners and
by e-mail. Our system includes a web-based application that enables consumers to
register to receive e-centives at our network partners' web sites or through our
web site. Our members provide demographic information and product category
interests in return for targeted e-centives. Our system then delivers e-centives
for products and services directly to the member's account or through e-mail.
Members can easily access their e-centives on the web site of the network
partner through which they joined, or on our web site. In addition, we offer
technology that enables a marketer to recognize our members when they visit the
marketer's web site and incorporate e-centives into the shopping and purchase
process. We believe that by developing a system that benefits our marketers,
network partners and members, we are well positioned to become a leading direct
marketing infrastructure on the Internet.

Marketer Benefits

    -   Access to a large membership across our network partners' web sites. We
        enable marketers to access our large member base and deliver their
        promotions across a network of web sites. By partnering with high
        traffic web sites to offer our service, we are able to increase our
        membership base and expand the audience for the marketers' promotions.
        Furthermore, by integrating our service into network partner web sites,
        we enable marketers to deliver e-centives through web sites such as
        portals which consumers often use to initiate their shopping activities.

    -   Outsourced direct marketing application. Our software applications and
        technology enable marketers to offer targeted promotions without having
        to devote the time and resources to develop their own direct marketing
        technology. Since we can rapidly deploy our technology on behalf of the
        marketer, the marketer can quickly launch its online promotional
        campaigns. We create and deliver e-centives for marketers and provide
        other promotional technologies to them.

    -   Sophisticated targeting and tracking. We deliver targeted offers for
        marketers based on the demographic and purchase preference information
        of our members. Our system also provides periodic reports to help
        marketers analyze the effectiveness of their marketing campaigns.

    -   Flexible promotional options. Our infrastructure allows us to
        electronically deliver a wide range of offers, which can include digital
        coupons, sales notices, free shipping offers, minimum purchase discounts
        and return purchase incentives. We also offer technology to marketers
        that enables them to recognize our members when they enter the
        marketer's web site, highlight the e-centive at the opportune time and
        apply the e-centive at the point of purchase.

Network Partner Benefits

    -   New service for members. We provide our network partners with a
        web-based software application so that they can offer a promotion
        service to their users. Our system is designed to help increase their
        user base and the frequency of user visits.

    -   Outsourced solution. We integrate our web-based application with our
        network partners' web sites. Consumers can register to receive
        e-centives through our network partners' web sites, often as part of the
        network partners' registration process. We then host and serve member
        accounts pages and associated offers that appear on our network
        partners' web sites. All of these elements are co- branded and maintain
        the look and feel of the network partners' web site. We also provide
        consulting services to support the relationship and customer service for
        our network partners' users and their advertising clients.

    -   Enhanced promotional capabilities. By enabling our network partners to
        offer their advertising clients access to our direct marketing system,
        we provide our network partners with additional solutions to sell.
        Network partners can offer access to our system to their advertising
        clients through their own sales forces or refer them to our sales
        representatives.



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    -   New revenue stream. We provide our network partners with a new revenue
        stream. We compensate most of our network partners for members we
        acquire through their web sites either by paying a fee for new members
        or by paying a percentage of the revenue we generate from the delivery
        of e-centives to such new members or both. We pay three of our network
        partners a fee, typically ranging from USD 0.50 to USD 1.50, for each
        new member that registers for our service through their web sites.
        Twelve of our network partners receive a percentage of the net revenue
        generated by us for the delivery of e-centives to the new members we
        obtained through their web sites. This percentage is typically between
        20% and 50% of net revenue. Three of our network partners receive a
        combination of both. We pay Excite a per member fee for up to 12 million
        new members. For each new member over 12 million, we pay Excite a
        percentage of our net revenue for the delivery of e-centives to those
        new members. We anticipate entering into more agreements with network
        partners in the future with either a per member fee or a revenue sharing
        component, or both.

Member Benefits

    -   Relevant offers. We seek to deliver relevant offers to our members based
        on the purchase preference and demographic information they provide to
        us during registration and as periodically updated.

    -   Easy to access. Our system is designed to provide members with easy and
        timely access to their e-centives. We deliver the e-centives directly to
        personal accounts which members can access at our network partners' web
        sites through which they joined or through our web site. Members can
        also elect to have e-centives delivered to them by e-mail and regulate
        the frequency of those e-mails.

    -   Convenient and organized. All e-centives delivered to members, including
        those delivered by e-mail, are stored in the member's personal account
        organizer where they are organized by category. Members can browse their
        personal account organizer by category or search for specific e-centives
        by marketer name or keyword. We automatically delete expired e-centives
        to eliminate clutter in the account.

    -   Private and secure. All information in our database is digitally
        encoded, anonymous and secure to maintain the privacy of our members. By
        combining privacy with value and convenience, we seek to create a
        trusted brand name that will enable our members to have greater
        confidence in the e-centives that they receive.

GROWTH STRATEGY

   Our goal is to provide the leading direct-marketing infrastructure on the
Internet. To achieve this objective, we intend to:

    -   Expand the number of partners and our membership base. We plan to
        attract members by broadening our existing relationships and entering
        into new relationships with high-traffic portal, community and content
        web sites, as well as by generating visits at our web site. We believe
        that our network partners are critical for attracting new members and to
        providing existing members with a convenient access point to their
        accounts. The types of payment arrangements we have with network
        partners are described above under "-- Network Partner Benefits."

    -   Increase the number of marketers and offers. We plan to attract
        additional marketers, including retailers and large national
        advertisers, by increasing our sales and marketing efforts and building
        on the established relationships of our network partners with their
        advertisers. We also work with existing marketers to increase their
        usage of our system. As the size of our membership increases, we believe
        that we will be able to attract more marketers to our system, increasing
        both the breadth and quality of our offers.

    -   Continue to develop direct marketing and promotional tools. We intend to
        continue to develop new technologies to enhance the performance of our
        infrastructure. These new technologies include additional
        direct-marketing and promotional tools for our network partners and
        marketers, along with enhanced services and features for our members. We
        intend to expand our existing team of software engineers to accelerate
        the introduction of new technologies.

    -   Increase brand awareness. We seek to make our e-centives brand a leading
        symbol for online direct marketing among marketers and network partners.
        We focus our marketing efforts on marketers and network partners
        primarily through advertising in national print and broadcast media and
        through public relations. We also believe that building awareness of the
        e-centives brand with consumers will increase the effectiveness of our
        marketers' promotions. We intend to increase brand awareness to



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        consumers primarily through relationships with our network partners as
        well as through our own advertising.

    -   Expand internationally. To date, we have focused on pursuing
        opportunities in the United States. As the Internet market outside the
        United States grows, we intend to expand into Europe and other
        countries. We believe the anticipated international growth of Internet
        usage and electronic commerce may generate significant market
        opportunities for us. Our acquisition of the Commerce Division provided
        us with new employees in London and our first presence in Europe. We
        are currently considering expanding our United Kingdom presence and
        expanding into other European countries such as Switzerland and Germany.

    -   Pursue acquisitions of related technologies and services. We believe
        that the market for online direct-marketing services and technologies is
        fragmented and growing rapidly. Through acquisitions we may obtain new
        product and service offerings and other proprietary technologies, access
        to new geographic markets or a larger consumer user base. In furtherance
        of this strategy, we acquired the Commerce Division which give us
        additional products and services to offer to our existing customer base
        and provides us new customers to which we may sell our existing
        products.

OUR SYSTEM

        Our proprietary system is designed to provide a comprehensive direct
marketing solution for each of three constituencies: marketers, network partners
and members. We provide proprietary products and services to meet the needs of
each constituency in order to effectively deliver promotions to a targeted
audience.

        Marketers. During the year ended December 31, 2000, we delivered
approximately 177.0 million e-centives for over 190 marketers. Below is a list
of our largest clients for whom we delivered e-centives during the year ended
December 31, 2000, none of whom accounted for more than 7% of our revenue.

          AT&T                 GreatFlowers.com      Omahasteaks.com
          audiobookclub.com    Half.com              OurHouse.com
          Autobuytel.com       healthshop.com        Outpost.com
          CarParts.com         hpshopping.com        Overstock.com
          Cooking.com          Kardz.com             Petstore.com
          deltathree.com       LifeMinders, Inc.     PETsMART.com
          Egghead.com          more.com              PlanetRx
          eNutrition           mySEASONS             SmarterKids.com
          Everything Wireless  Netgrocer.com         Staples.com
          FamilyWonder.com     Novica                WebRx/Health Central

        We currently offer marketers the following direct marketing services:
PromoCast(TM), PromoCommerce(TM), and PromoMail(TM). We also offer services on a
performance contract basis.

        Our PromoCast service enables marketers to deliver targeted e-centives
to our members' accounts. Once marketers purchase e-centives, we assist them in
launching their promotional campaigns quickly and easily. Marketers typically
use our client services team to create and distribute their e-centives. Once a
member clicks on the offer, our system links the member directly to the
appropriate page on the marketer's web site. We provide periodic reports to
marketers to help them assess the effectiveness of each campaign. For the year
ended December 31, 2000, PromoCast accounted for approximately 16% of our
revenue.

        Our PromoCommerce service builds on our PromoCast solution by
integrating the marketer's web site directly with our direct marketing
infrastructure. In addition to delivering e-centives to the accounts of members,
the PromoCommerce service enables marketers to recognize our members when they
enter the marketer's web site and display their offers on the web pages
determined by the marketer. A marketer can present new offers in a variety of
places on their web site including their home page, specific sections based on
product or merchandise category, or on the purchase confirmation page, all
depending on the marketer's promotional criteria. For example, offers may be
presented on the home page to entice consumers to make an impulse purchase, or
alternatively on the purchase confirmation page to motivate a repeat purchase.
Once the member accepts the new e-centive presented at the marketer's site, it
can be redeemed immediately or it is automatically stored in the member's online
account organizer to be redeemed at a later date.

        Through our PromoCommerce service, e-centives are automatically applied
at the point of purchase with pricing and any other terms of the transaction
appropriately adjusted. The member does not need to provide any additional codes
or entries. Our authentication technology helps prevent fraudulent online use of
offers. For the year ended December 31, 2000, PromoCommerce accounted for
approximately 3% of our revenue.



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        Our PromoMail service is offered as an added service and is used in
conjunction with PromoCommerce or PromoCast. Our PromoMail service enables
marketers to deliver targeted offers to members by electronic mail. PromoMail
messages can be planned to coincide with special occasions, such as Valentine's
Day and Mother's Day, and highlight specific promotions relevant to the occasion
and the member. A PromoMail message can include e-centives from a limited number
of marketers, each of which is stored in members' accounts. We track, measure
and report response rates to the marketer for each mailing. For the year ended
December 31, 2000, PromoMail accounted for approximately 56% of our revenue.

        When marketers purchase services on a performance contract basis,
e-centives are delivered by the same methods as in the PromoCast or PromoMail
services, but revenue is based solely on the performance of the e-centives. We
earn a contractually specified amount based on the number of members who click
on the offer or the amount of sales the offer generates. For the year ended
December 31, 2000, performance based contracts accounted for approximately 3%
of our revenue.

        Through the acquisition of the Commerce Division of Inktomi, we acquired
a new product offering called the Commerce Engine. The Commerce Engine is a
high-performance commerce application designed to handle the challenges of
bringing online consumers and merchants together and facilitating transactions
between them. The Commerce Engine is designed as a platform to provide a
comprehensive commerce experience for online consumers, enabling them to locate
products, compare features and prices among products, and locate and purchase
these products through participating online merchants. Similar to our web based
application we provide to our network partners, we do not plan to provide
commerce services through our own branded online commerce site. Instead, we plan
to make the Commerce Engine available to Internet portals and other Web site
customers who can, in turn, provide online commerce services through their sites
to end users.

        The Commerce Engine provides portals and other Web site customers with
an infrastructure to enable their end users to purchase goods and services
online. The Commerce Engine is designed to function the way consumers already
shop by integrating all aspects of the online commerce process, from expert
advice and word of mouth comparisons, to bargain hunting and comparison
shopping. For shoppers who generally know what product they want but not the
brand or model, the Commerce Engine enables end users to evaluate several
alternatives.

        Similar to our web based application we provide to our network partners,
we plan to provide and manage all hardware, software and operational aspects of
the Commerce Engine and the associated databases of product libraries and
purchasing locations. This will include collecting, organizing, storing and
updating vast quantities of electronic product information, and presenting this
information for display to end users. We plan to provide our customers with a
programming interface and software tools to enable them to maintain and
customize the look and feel of their commerce service user interface.

        We expect to generate revenues from the Commerce Engine primarily
through license, support and maintenance fees from Internet portal and other Web
site destination customers and revenue-sharing arrangements with online
merchants. The online commerce market is in a rapid state of evolution. The
demand for commerce infrastructure services and the aggregate amount of site
traffic and shoppers available through distribution partners are subject to
significant variation and a variety of factors that are outside of our control.

        Network Partners. We maintain relationships with network partners that
operate high-traffic portal, content and community web sites. We provide our
network partners with a web-based application that can be fully integrated
within their web pages. Our application provides network partners with the
ability to offer e-centives to their advertisers and users without the costs and
challenges of building and maintaining their own online direct marketing system.
We provide and maintain the underlying technology, host and serve co-branded
pages, create and deliver offers and provide consulting services and member
support.

        Our network partners' users can become e-centives members during the
registration process of all but three of our twenty-one network partners' web
sites. Alternatively, members can join our system through various other access
points throughout the network partner's web site. In either case, our service is
delivered on a co-branded basis maintaining the look and feel of the network
partner's web site.

        During 2000, we provided services through the following network
partners:



        AllCommunity          Excite            Prodigy Internet
        Ask Jeeves            Intuit            ThirdAge Media
        Care2.com             iVillage, Inc.    Uproar
        Chase Manhattan Bank  LifeMinders, Inc. USATODAY.com
        CoVia                 NetZero           ZDNet
        Desktop Dollars



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        As of December 31, 2000, approximately 94% of our members have come from
our relationships with our network partners, and we expect this trend to
continue. We expect to spend between USD 8 and USD 10 million in 2001 and
between USD 9 and USD 11 million in 2002 on payments to partners to acquire new
members. See "-- Network Partner Benefits" for a discussion of how we pay our
network partners for the acquisition of new members through our network
partners.

        Our agreements with Excite and ZDNet are described below.

        -   Excite. Excite has been one of our network partners since March
            1999. Since then, we have registered new members and delivered
            e-centives through Excite's web site. We entered into an
            agreement with Excite in February 2000 under which we register
            members through Excite's registration process and deliver a
            co-branded service called "Excite Special Offers, powered by
            e-centives." Excite has agreed to provide us with at least 12
            million new members during the term of our agreement. We agreed to
            pay Excite a per member fee totaling approximately USD 19.65 million
            over the term of the agreement, which is approximately USD 1.6
            million on a quarterly basis. In addition, select e-centives may be
            displayed on some of Excite's most visible web pages, including
            Excite's home page. Excite has also agreed to purchase a minimum
            number of our e-centives over three years, which would cost Excite a
            minimum of USD 3.75 million. On December 21, 2000, Excite agreed to
            amend our existing agreement to change the expiration dates for the
            e-centives purchased by Excite from six months after the end of the
            quarter in which such e-centives were purchased to the last day of
            the quarter in which such e-centives were purchased. Since we
            recognize revenue upon the resale or expiration of e-centives under
            this agreement, this amendment had the effect of allowing us to
            recognize USD 625,000 in additional revenue in 2000 that otherwise
            would have been recognized in 2001. For the year ended December 31,
            2000, we generated approximately 9% of our revenue from Excite's
            purchases under this agreement. Our agreement with Excite will
            terminate three years from the launch date. Excite is also one of
            our stockholders. See "Related Party Transactions" for details of
            Excite's ownership interest in us. Under the terms of our agreement
            and subject to our right to cure any deficiencies, Excite may
            terminate prior to the expiration of the term if our services are
            not at least comparable to that of other sources with regard to any
            two of the following: content, functionality, personalization and
            ease of use.

        -   ZDNet. ZDNet has been one of our network partners since May 1999. We
            register new members and deliver "ZDNet e-centives" through ZDNet's
            web site. As of March 16, 2001, we provide our service to over 0.8
            million members through our relationship with ZDNet. However,
            because we only deliver computer-related offers to these members, we
            do not count these members as part of our 9.2 million general
            membership. These ZDNet members sign-up through ZDNet's registration
            process, enabling customers to become e-centives members when they
            become ZDNet members. ZDNet shares with us 50% of the revenue it
            generates from the sale of e-centives to its advertising clients.
            Our agreement with ZDNet is unique in that ZDNet users currently
            receive e-centives only from ZDNet merchants and advertising
            clients. Our direct marketing system is also integrated with ZDNet's
            ComputerShopper.com web site, allowing e-centives to be displayed
            alongside product search results. Our agreement with ZDNet will
            terminate in August 2001. We also purchased banner advertisements
            from ZDNet to promote our co-branded service on its web site from
            March 2000 through October 2000 for USD 1.3 million. We have no
            obligation to purchase these banner advertisements and may cancel at
            any time.

        Members. As of March 16, 2001, we maintained over 9.2 million
e-centives accounts. We provide our members with control over many aspects of
our system, including what categories of offers they receive and when those
offers are redeemed. To join our system, consumers sign-up for and personalize
their e-centives account through any of our network partner web sites or our web
site. When creating or updating their account, our members provide demographic
information and select categories in which they have an interest. These
categories currently include:


        Automotive          Groceries              Pets
        Baby Stuff          Health & Beauty        Services
        Books & Magazines   Hobbies                Sports & Fitness
        Computers           Home & Gardening       Toys & Games
        Electronics         Local                  Travel
        Fashion             Music & Video          Luxury Designer
        Gifts & Gourmet     Office                 Special Events

Based on this information, we place promotions in the accounts of our members.
Members may also elect to receive e-mails that highlight specific promotions and
which are automatically placed in the member's account for their convenience.

        Our system then allows members to easily store, review, delete or redeem
their e-centives. Member accounts are accessible at the web sites of the network
partners through which the member joined or through our web site. Members may
also opt to have their offers e-mailed to them on a periodic basis, the
frequency of which is determined by the member. Unless they are redeemed or
deleted, e-centives are automatically saved in the member account until they
expire. Members can browse their personal account organizer by category or
search for specific e-centives by marketer name or keyword. Each e-centive
includes the marketer's logo, a description of the promotion being offered and
an expiration date. Members who click on the e-centive are automatically linked
to the marketer's web site. If the marketer uses our PromoCommerce solution,
the promotion may be automatically applied to



                                       8
<PAGE>   9



the purchase.

        We place a high degree of value on maintaining the privacy of our
members and believe that this commitment is critical to becoming a trusted
source of promotions online. We do not share any individual member information
with marketers or other third parties. Marketers only receive aggregate
information about our membership for purposes of targeting promotions to members
with certain demographic or purchase preference criteria. For example, we may
disclose the total number of males in the "Computers" interest category to a
marketer in connection with a promotion. Our members' personal information is
digitally encoded on our database and remains private, anonymous and secure. In
addition, we have a license from TRUSTe, an independent, non-profit privacy
organization dedicated to building users' trust and confidence in the Internet.
Under TRUSTe's program, we have agreed to adhere to established privacy
principles and to comply with ongoing oversight and consumer resolution
procedures.

SALES AND MARKETING

        We seek to establish relationships with marketers principally through
our direct sales force. We also work with our network partners to establish
relationships with their advertisers and work with advertising or promotional
agencies to reach their clients. We maintain sales personnel in major
metropolitan areas of Washington, D.C., San Francisco, New York, Los Angeles and
Denver. As of December 31, 2000, we employed 16 full-time sales persons. We plan
to significantly increase our sales force to broaden distribution of our
products and services. We intend to hire 23 sales and marketing personnel and
spend approximately USD 21.5 million on our sales and marketing efforts over the
next 12 months.

        As part of the Inktomi Commerce Division acquisition, we have hired 3 of
the division's portal sales persons, who will continue to sell the Commerce
Engine.

        In order to strengthen our existing relationships with marketers, we
offer account management, technology integration and consulting services. We
assign account managers with knowledge of direct marketing and promotions to
marketers with the goal of increasing the performance of their marketing efforts
and overall satisfaction with our services. Our integration services team
provides installation, maintenance and support to marketers who choose to
integrate our PromoCommerce software with their e-commerce systems and web
sites. We also maintain a consulting team that provides periodic reports to
marketers and helps formulate strategies to more effectively promote their
products and services.

        We have a business development group that focuses on establishing
relationships with operators of portals, content, community and other
high-traffic web sites in order to build our partner network. Once the
relationship is established, we assign relationship managers to assist with the
day-to-day operation of the integrated co-branded system and enhance our service
offerings.

        We market our products and services primarily through advertising,
public relations and network partner co-marketing efforts. We market to
potential partners and marketers through a variety of offline and online media
including magazines, newspapers, radio, outdoor and Internet advertisements. We
market to consumers primarily through the relationships with our partners and
marketers. Our partners and PromoCommerce marketers feature the e-centives
brand, logo and messages on their web sites, providing us with greater brand
awareness as a leading direct marketing infrastructure on the Internet.

TECHNOLOGY

        We have developed a proprietary and scalable technology infrastructure
that enables marketers to create, deliver, redeem and track targeted e-centives.
The e-centives system consists of:

        -   database and user interface servers;

        -   software components for PromoCommerce; and

        -   Campaign Manager(TM) software.

        All e-centives are stored in and accessed from our database servers.
These databases are developed using object-oriented database technology and are
designed for rapid identification of target members. Our database server
architecture is hardware scalable, which means that we can add new hardware
servers to increase capacity or improve access times as our membership and
number of e-centives grow. We have recently implemented the following
initiatives to improve performance and decrease system failures:



                                       9
<PAGE>   10
        -   a backup of membership and application data is completed daily;

        -   individual server failures have been mitigated through the
            deployment of redundant servers and storage devices; and

        -   all database servers have been upgraded to maximize both processor
            speed and available memory.

        However, there can be no assurance that these initiatives will be
successful in preventing future system failures.

        The user interface servers search our databases and display the
individual member's e-centives accounts as web pages. These servers control the
co-branded web pages of our marketers and partners. The user interface servers
are deployed in a way to permit uninterrupted service in the event of a failure
of one server.

        The software components of PromoCommerce enable communication between a
marketer's e-commerce server and our system. This real-time communication
enables the marketer to recognize our members when they enter the marketer's web
site and display offers on the site. These components run on Sun Solaris and
Windows NT and are compatible with most major electronic commerce software
platforms, such as Microsoft's electronic commerce software.

        Our Campaign Manager software manages the creation and presentation of
e-centives. This software can also manage the dynamic display of offers on the
web sites of marketers that use our PromoCommerce solution.

        We monitor and test our system and software, and from time to time have
identified minor defects. We currently address such defects by rewriting
software code and, if possible, replacing small portions of our proprietary
software with commercially available software components. Any difficulties in
implementing this new software may result in greater than expected expense and
may cause disruptions to our business.

        We spent approximately USD 1.2 million, USD 2.4 million, and USD 2.9
million in 1998, 1999 and 2000, respectively, on research, design and
development activities. We expect to spend approximately USD 10.0 million in
2001 on research, design and development and we expect to continue to increase
spending on these activities in the future.

COMPETITION

        As a provider of an online direct-marketing system, we generally compete
with advertising and other promotion programs for a portion of a marketer's
total marketing budget. In addition, within the promotions market, we compete
with a variety of businesses. Our primary competition can be categorized as
follows:

        -   both online and offline direct marketing and promotion companies;

        -   Internet-based marketing and advertising firms; and

        -   other companies that facilitate the marketing of products and
            services on the Internet.

        Current or potential competitors include:

        -   e-mail marketers, such as LifeMinders, Inc. and Netcreations;

        -   rewards programs, such as Netcentives and Mypoints; and

        -   coupon providers, such as coolsavings.com.

We also compete for marketing dollars with other online marketing and
advertising companies, such as providers of banner advertisements, as well as
offline marketing and promotion companies.

        Our ability to compete depends on many factors.

        Factors over which we have some level of control:

        -   success in developing and expanding our membership base;



                                       10
<PAGE>   11

        -   ability to enter into relationships with network partners and
            marketers;

        -   ability to provide simple, cost-effective and reliable promotions;

        -   timely development and marketing of new promotion services; and

        -   ability to manage rapidly changing technologies, frequent new
            service introductions and evolving industry standards.

        Factors outside our control include:

        -   development, introduction and market acceptance of new or enhanced
            services by our competitors;

        -   changes in pricing policies of our competitors; and

        -   entry of new competitors in the market.

        The failure to compete successfully would impair our ability to generate
        revenues and become profitable.

        We believe the market for our recently acquired Commerce Engine
application to be rapidly evolving and intensely competitive. Some of our
current and potential competitors include:

        -   other providers of commerce technologies and services such as
            InfoSpace;

        -   commerce destination sites including Deal Time and mySimon;

        -   commerce wallet providers such as Brodia;

        -   affiliate services including BeFree and Linkshare; and

        -   Internet portals and other captive marketplace Web sites, including
            America Online, Excite@Home and Yahoo!

        We believe the principal factors that will draw end-users to an online
commerce application include brand availability, selection, personalized
services, convenience, price, accessibility, customer service, quality of
content, and reliability and speed of fulfillment for products ordered. Because
we serve primarily as a technology and infrastructure provider and not as
a retailer or operator of a search engine, our customers and partners are
responsible for many of these factors, and we have little or no control over
them.

        We expect competition to intensify as more competitors enter our
markets. Many of our existing competitors, as well as a number of potential new
competitors, have significantly greater financial, technical, marketing and
managerial resources than we do. Many of our competitors also generate greater
revenue and are better known than we are. They may compete more effectively and
be more responsive to industry and technological change.

INTELLECTUAL PROPERTY RIGHTS

        A large part of our success depends on protecting our intellectual
property, which is one of our most important assets. If we do not adequately
protect our intellectual property, our business, financial condition and results
of operations would be seriously harmed.

        We have developed proprietary technology including database and
interface servers, offer creation and presentation software, and software to
enable communication between marketers' e-commerce systems and our system. All
of our marketer clients who desire to use our software sign our standard form
license agreement. In addition, we require employees, contractors and other
persons with access to our proprietary information to execute confidentiality
and non-compete agreements. We seek to protect our software, documentation and
other written materials under trade secret and other intellectual property laws,
which afford only limited protection. We have not registered any copyrights in
the U.S. or elsewhere related to our software or other technology.

        We have two issued U.S. patents and three pending U.S. patent
applications. Our first issued patent is entitled "Electronic couponing method
and apparatus" and relates to the method and apparatus for distributing,
generating, and redeeming discount



                                       11
<PAGE>   12

coupons, rebate or gift certificates or the like that tracks each coupon using a
consumer ID number printed on the coupon. Our second issued patent, which is a
continuation-in-part to our first patent, is entitled "Electronic discount
couponing method and apparatus for generating an electronic list of coupons."
Our pending patent applications seek to protect technology we may use in our
business. We have no issued foreign patents, but we have two pending foreign
patent applications. It is possible that no patent will issue from the currently
pending patent applications. It is also possible that our patents or any
potential future patents may be found invalid or unenforceable, or otherwise be
successfully challenged. Also, any patent we have currently or that is issued to
us may not provide us with any competitive advantages. We may not develop future
proprietary products or technologies that are patentable, and the patents of
others may seriously limit our ability to do business.

        We have filed trademark registrations for e-centives, the e-centives
logo, PromoCast, PromoCommerce, and PromoMail, all of which are pending. We also
claim rights in a number of additional tradenames associated with our business
activities.

        Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our products or to obtain and use
information that we regard as proprietary. Policing unauthorized use of our
products is difficult, and, while we are unable to determine the extent to which
piracy of our software products exists, software piracy can be expected to be a
persistent problem. In addition, the laws of some foreign countries do not
protect our proprietary rights to as great an extent as do the laws of the
United States. Our means of protecting our proprietary rights may not be
adequate, and our competitors may independently develop similar technology,
duplicate our products or design around patents issued to us or our other
intellectual property.

        There has been a substantial amount of litigation in the software
industry regarding intellectual property rights. In fact, we recently settled
litigation with one of our competitors regarding our intellectual property. See
"-- Legal Proceedings." It is possible that in the future, other third parties
may claim that our current or potential future products infringe upon their
intellectual property. We expect that software developers will increasingly be
subject to infringement claims as the number of products and competitors in our
industry segment grows and the functionality of products in different industry
segments overlaps. Any claims, with or without merit, could be time-consuming to
defend, result in costly litigation or require us to enter into royalty or
licensing agreements. These agreements, if required, may not be available on
terms acceptable to us or at all, which could seriously harm our business,
financial condition and results of operations.

        We integrate third-party software into the software we use in our
business. We license database software from Oracle Corporation and Object
Design, Inc. (now known as Excelon). The third-party software may not continue
to be available to us on commercially reasonable terms. We may not be able to
renew these agreements or develop alternative technology. If we cannot maintain
licenses to key third-party software, develop similar technology or license
similar technology from another source on a timely or commercially feasible
basis, our business, financial condition and results of operations could be
seriously harmed.

EMPLOYEES

        As of December 31, 2000, we had 110 full-time employees. Of these, 51
were sales and marketing, 27 were product development, and 32 were general and
administrative personnel. In addition, on March 28, 2001, we hired 70 of
Inktomi's employees as part of the acquisition of the Commerce Division.

        None of our employees is represented by a labor union, nor have we ever
experienced a work stoppage. We believe our employee relations are good. The
table below reflects the growth in our employee headcount at December 31 for
each of the years below:

                                    1997  16
                                    1998  31
                                    1999  74
                                    2000 110




                                       12
<PAGE>   13


                                  RISK FACTORS

        We caution you that our performance is subject to risks and
uncertainties. There are a variety of important factors like those that follow
that may cause our future results to differ materially from those projected in
any of our forward-looking statements made in this Annual Report on Form 10-K or
otherwise.

                          RISKS RELATED TO OUR BUSINESS

WE HAVE INCURRED NET LOSSES SINCE INCEPTION, EXPECT CONTINUING LOSSES AND MAY
NEVER ACHIEVE PROFITABILITY IN THE FUTURE.

        To date, we have not been profitable. We did not begin to generate
revenues until the third quarter of 1999. As of December 31, 2000, we had an
accumulated deficit of approximately USD 54.6 million. We incurred net losses in
2000, 1999 and 1998 of USD 29.9 million, USD 16.2 million and USD 4.6 million,
respectively. We expect to continue to incur significant net losses and negative
cash flow for the foreseeable future. We expect to spend significant financial
resources to expand our business. We have not yet determined the specific
amounts of operating expenses and capital expenditures we expect to incur,
although we currently anticipate spending over the next 12 months approximately
USD 9.5 million on sales, approximately USD 12.0 million on marketing,
approximately USD 8 million for acquisition of new members and approximately USD
4 million on capital expenditures and expenses associated with expanding our
system capacity. We expect that operating expenses will increase in 2001 by
approximately USD 15 million over the prior year and may increase as a
percentage of revenue. We do not know when or if we will become profitable. If
we cannot achieve operating profitability or positive cash flows from operating
activities, our stock price may decline and we may be unable to continue our
operations.

A GENERAL NATIONAL ECONOMIC DOWNTURN WILL MATERIALLY ADVERSELY AFFECT OUR
BUSINESS AND RESULTS OF OPERATIONS.

        Economic indicators suggest that the U.S. economy may be experiencing a
general national economic downturn. Such downturns typically result in adverse
affects upon advertising and marketing expenditures and retail sales. The
repercussions from any such downturn are likely to have a direct negative affect
on our business and results of operations by reducing the demand for our
services and the amount of any fees we are able to obtain. The businesses of our
network partners are likely to be affected by any downturn in such a manner as
to reduce their willingness to make advertising and marketing expenditures.
Consumer demand for goods and services offered by our partners may similarly
weaken as a result of such downturn. Numerous companies engaged in the provision
of goods and services online have recently encountered significantly reduced
revenues, lay-offs of personnel and often bankruptcy and/or liquidation. The
occurrence or continuation of such a general national economic downturn and any
of the resulting effects, including those above, is likely to materially
adversely affect our business and results of operations.

WE MAY NOT SUCCESSFULLY INTEGRATE AND MANAGE THE COMMERCE DIVISION OF INKTOMI
AND INTENDED BENEFITS OF THE ACQUISITION MAY NOT BE REALIZED, WHICH COULD HAVE A
NEGATIVE IMPACT ON THE MARKET PRICE OF SHARES OF OUR COMMON STOCK.

        The completion of the acquisition of the Commerce Division of Inktomi
poses risks for our ongoing operations and the value of shares of our common
stock, including that:

        -   we may fail to successfully integrate the acquired products and
            services into our business operations;

        -   we may incur expenses related to the integration of the Commerce
            Division into our existing business operations;

        -   we may experience difficulties and incur expenses related to the
            assimilation and retention of Inktomi employees; and

        -   whether or not successfully integrated, the acquired assets may not
            perform as well as we expect.

        We have never acquired or integrated into our business the assets of
other companies. If we fail to successfully integrate the acquired assets and/or
fail to realize intended benefits of the acquisition due to any of the foregoing
reasons, the market price of shares of our common stock could decline.

OUR FUTURE RESULTS AND THE DEMAND FOR OUR SERVICES IS UNCERTAIN, AND WE WILL NOT
BECOME PROFITABLE IF OUR SERVICES DO NOT ACHIEVE MARKET ACCEPTANCE.

        We were incorporated in August 1996 and launched our e-centives online
direct marketing system in November 1998. We did not charge for our services and
did not begin to generate revenues until the third quarter of 1999, and
therefore have had only six quarters of financial results reflecting sales of
our services. Accordingly, our future results are uncertain and our results to
date may not be representative of our future results.



                                       13
<PAGE>   14



        Since our business is new, we cannot predict the demand for our direct
marketing services. Demand for our direct marketing services is dependent upon
many factors.

        Factors over which we have some level of control include:

        -   the number of consumers, network partners and marketers we can
            attract to our system;

        -   our ability to compete successfully in our market; and

        -   our success in promoting our products and services through our
            sales, marketing and business development personnel.

        Factors outside our control include:

        -   uncertainty about the value and effectiveness of our personalized
            online direct marketing services;

        -   our clients' ability to sell their products and services to the
            consumers who participate in our system; and

        -   the quality, accuracy and utility of the information provided to us
            that we provide to marketers regarding member demographics, member
            activity and promotional success.

If our online direct marketing services do not achieve market acceptance, our
business will not become profitable.

OUR FINANCIAL RESULTS WILL SUFFER IF OUR MEMBERS DO NOT REGULARLY USE OUR
SYSTEM.

        Our ability to generate revenue depends in part on frequent and regular
member activity. During the year ended December 31, 2000, we recognized 75% of
our revenue from the delivery of e-centives to members on behalf of marketers
and network partners. Delivering e-centives to members by e-mail accounted for
approximately 56% of our revenue and delivering e-centives to members' online
accounts accounted for approximately 19% of our revenue during this period. In
the case of delivering e-centives to members' online accounts, we do not
recognize revenue from the sale of e-centives unless our members access their
online accounts. If we are unable to increase the frequency with which our
members use our system, our ability to generate revenues by the delivery of
e-centives to member accounts will be adversely affected and our business will
suffer. We currently track our members' interaction with their accounts. During
2000, approximately 4% of the then-current total membership interacted with
their accounts at least once a month. In addition, if our members do not visit
the web sites of our marketers in response to e-centives, marketers may not
continue to use our system.

OUR INABILITY TO MAINTAIN EXISTING AND ESTABLISH NEW RELATIONSHIPS WITH NETWORK
PARTNERS OPERATING HIGH-TRAFFIC PORTAL, COMMUNITY AND CONTENT WEB SITES WOULD
CAUSE OUR FINANCIAL RESULTS TO SUFFER.

        Our success depends on our ability to establish relationships with and
deliver our service through high-traffic portal, community and content web
sites, such as Excite.com. We rely on these relationships to increase our
membership base and to provide entry points into our system for members. We
compensate all of our network partners for members we acquire through their web
sites either by paying a fee for new members or by paying a percentage of the
revenue we generate from the delivery of e-centives to such new members or both.
We pay three of our network partners a fee, typically ranging from USD 0.50 to
USD 1.50, for each new member that registers for our service through their web
sites. Twelve of our network partners receive a percentage of the net revenue
generated by us for the delivery of e-centives to the new members we obtained
through their web sites. This percentage is typically between 20% and 50% of net
revenue. Three of our network partners receive a combination of both. We pay
Excite a per member fee for up to 12 million new members. For each new member
over 12 million, we pay Excite a percentage of our net revenue for the delivery
of e-centives to those new members. We agreed to pay Excite approximately USD
19.7 million, or USD 1.6 million per quarter, over the term of our agreement. We
are dependent on our relationship with Excite because as of March 16, 2001, we
have obtained approximately 62% of our new members through its web site,
www.excite.com. We expect to spend between USD 8 and USD 10 million in 2001 and
between USD 9 and USD 11 million in 2002 on payments to network partners.

        In addition, we are dependent on our relationship with ZDNet for a
significant portion of our revenue. Delivering e-mail messages to our members on
behalf of ZDNet accounted for approximately 13% of our revenue during the year
ended December 31, 2000. Furthermore, we receive 50% of the revenue ZDNet
generates from selling access to our system to its merchant and advertising



                                       14
<PAGE>   15



clients. We have also agreed to pay ZDNet 50% of the revenue we generate from
the delivery of e-centives to ZDNet members. Our agreement with ZDNet will
terminate in August 2001.

        We cannot assure you that we will be able to maintain our existing
relationships or enter into additional relationships with new network partners,
on favorable terms, if at all. Our agreement with Excite is non-exclusive,
except for services substantially similar in functionality as ours, and may be
terminated by Excite prior to the expiration of its term if our services are not
at least comparable to those of other sources, with regard to any two of the
following: content, functionality, personalization and ease of use. If we are
unable to maintain our existing relationship with Excite and ZDNet or with our
other network partners, or if we fail to establish successful relationships with
new network partners, our membership base may not continue to grow in a timely
manner, or at all, and our business and financial condition would be adversely
affected.

WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY AGAINST CURRENT AND FUTURE
COMPETITORS.

        The market to provide online direct marketing services is new, intensely
competitive and rapidly changing. We expect competition in this market to
continue to increase as a result of:

        -   our market's increasing size;

        -   our market opportunity becoming more visible;

        -   minimal barriers to entry; and

        -   industry consolidation.

We compete with companies for the dollars that marketers allocate to their
marketing budgets. We compete for these marketing dollars with many online
direct marketers in several fields, principally:

        -   e-mail marketers, such as LifeMinders, Inc. and Netcreations;

        -   rewards programs, such as Netcentives and Mypoints; and

        -   coupon providers such as coolsavings.com.

We believe the market for our recently acquired Commerce Engine application to
be rapidly evolving and intensely competitive. Some of our current and potential
competitors include:

        -   other providers of commerce technologies and services such as
            InfoSpace;

        -   commerce destination sites including Deal Time and mySimon;

        -   commerce wallet providers such as Brodia;

        -   affiliate services including BeFree and Linkshare; and

        -   Internet portals and other captive marketplace Web sites, including
            America Online, Excite@Home and Yahoo!

        We believe the principal factors that will draw end-users to an online
commerce application include brand availability, selection, personalized
services, convenience, price, accessibility, customer service, quality of search
tools, quality of content, and reliability and speed of fulfillment for products
ordered. Because we serve primarily as a technology and infrastructure provider
and not as a retailer or operator of a search engine, our customers and partners
determine many of these factors, and we have little or no control over them.

        All of the companies named above and many of our other existing and
potential competitors, have significantly greater financial, technical,
marketing and managerial resources than we do. These competitors also generate
greater revenue and are better known than we are. As a result, they may compete
more effectively than we do and be more responsive to industry and technological
change than we are. We also compete for marketing dollars with other online
marketing and advertising companies as well as offline direct marketing and
promotion companies. We do not know the exact number of existing and potential
competitors we have, but we believe



                                       15
<PAGE>   16



the number to be over one hundred.

        Our ability to successfully compete depends on many factors.

        Factors over which we have some level of control include:

        -   success in developing and expanding a membership base;

        -   ability to enter into relationships with network partners and
            marketers;

        -   timely development and marketing of new direct marketing services;
            and

        -   ability to manage rapidly changing technologies, frequent new
            service introductions and evolving industry standards.

        Factors outside our control include:

        -   development, introduction and market acceptance of new or enhanced
            services by our competitors;

        -   changes in pricing policies of our competitors;

        -   entry of new competitors in the market; and

        -   ability of marketers to provide simple, cost-effective and reliable
            promotions.

        The failure to compete successfully would impair our ability to generate
revenues and become profitable.

OUR e-centives BRAND MAY NOT ACHIEVE THE LEVEL OF RECOGNITION NECESSARY TO
ATTRACT ADDITIONAL MARKETING CLIENTS, WHICH COULD CAUSE OUR FINANCIAL RESULTS TO
SUFFER.

        To be successful, we must continue to build and increase market
recognition of our corporate brand because our market is competitive with low
barriers to entry. We do not advertise to attract visitors to our web site, but
rather are attempting to build a brand that marketers and network partners
identify with online promotions. We believe that the recognition of the
e-centives brand is critical to our success and the importance of this will
increase as more companies enter our market and competition for marketers',
network partners' and consumers' attention increases. Building recognition of
the e-centives brand will require us to expend significant funds on marketing.
We currently anticipate spending USD 12 million on marketing over the next
twelve months. The outcome of our marketing efforts are hard to predict. If we
are not successful in our marketing efforts to increase our brand awareness, our
ability to attract marketing clients could be harmed which would cause our
financial results to suffer.

WE ARE DEPENDENT ON MARKETERS FOR MOST OF OUR REVENUE AND OUR INABILITY TO
MAINTAIN EXISTING AND ESTABLISH NEW RELATIONSHIPS WITH MARKETERS WOULD CAUSE OUR
FINANCIAL RESULTS TO SUFFER.

        For the year ended December 31, 2000, 56% of our revenue came from
marketers and our success depends on our ability to enter into and maintain
agreements with marketers. We delivered e-centives for over 190 marketers during
2000. If we do not continue to enter into new agreements with marketers, we may
not be able to increase our revenues, which would materially affect our
financial condition and results of operations.

OUR INABILITY TO PROVIDE OUR MEMBERS WITH ATTRACTIVE PROMOTIONAL OFFERS FROM
MARKETERS COULD HARM OUR FINANCIAL RESULTS.

        We need to continue to attract new marketers to our system in order to
continue to provide our members with new offers on products and services. Member
loyalty and activity, and the resulting attractiveness of our system to
marketers and network partners, depends upon the desirability of the promotions
we deliver. We cannot control the quality or attractiveness of promotions our
marketers offer. If our marketers choose unpopular or unattractive promotions or
we are unable to attract new marketers to our system, we may not be able to
maintain or expand our member base. Moreover, if our members are not satisfied
with the offers, or with the products or services purchased, their negative
experiences might result in decreased usage of our system, which would adversely
affect our financial results.



                                       16
<PAGE>   17



WE MAY REQUIRE ADDITIONAL CAPITAL TO FINANCE GROWTH OF OUR OPERATIONS, AND IF
SUCH FUNDS ARE NOT AVAILABLE, WE MAY NOT BE ABLE TO FUND OUR PLANNED EXPANSION
OR CONTINUE OPERATIONS.

        We currently anticipate that our existing capital will be sufficient to
meet our need for working capital and capital expenditures for at least the next
twelve months. Further, we may need to raise additional funds sooner than we
expect. For example, we may need additional financing if we:

        -   are unable to increase our revenues as anticipated;

        -   decide to expand faster than planned;

        -   develop new or enhanced services or products ahead of schedule;

        -   need to respond to competitive pressures; or

        -   need to acquire complementary products, businesses or technologies.

        We cannot be certain that additional financing will be available on
acceptable terms, or at all. Numerous companies engaged in the provision of
goods or services online have recently encountered significant difficulty
obtaining funding from the public capital markets as well as through private
transactions. If we raise additional capital through the issuance of equity
securities, the common stock interest of investors holding shares prior to such
issuance would be diluted. In addition, we may raise any necessary additional
capital through the issuance of preferred stock, with rights superior to those
of the common stock purchased by investors prior to such issuance. If adequate
funds are not available on acceptable terms, we may not be able to fund our
expansion, develop or enhance our products or services or respond to competitive
pressures.

OUR NETWORK INFRASTRUCTURE, COMPUTING SYSTEMS OR SOFTWARE MAY FAIL OR BE
COMPROMISED OR DAMAGED, WHICH COULD HARM OUR BUSINESS, FINANCIAL CONDITION AND
REPUTATION.

        The performance of our hardware and software is critical to our business
and our ability to attract consumer members, marketers and high-traffic portal,
community and content web sites. System failures that cause an interruption in
service or a decrease in responsiveness of our transaction processing or data
storage capabilities could impair our reputation and the attractiveness of our
brand. We have experienced periodic system interruptions, which may occur from
time to time in the future. We have experienced approximately 5 disruptions over
the past year that lasted more than one hour. The average disruption time for
each was approximately 2.25 hours. Each of these disruptions was caused by
unique errors in our software code that were all subsequently corrected and did
not have a material effect on our business. Any significant increase in the
frequency or severity of future disruptions could have an adverse effect on our
business.

        The software for our online direct marketing and promotions system is
complex and may contain undetected errors or defects, especially when we
implement upgrades to our system. Any errors or defects that are discovered
after our software is released for use could damage our reputation or result in
lost revenues.

        We monitor and test our system and software, and from time to time have
identified minor defects. We currently address such defects by rewriting
software code and, if possible, replacing portions of our proprietary software
with commercially available software components. Any difficulties in
implementing this new software may result in greater than expected expense and
may cause disruptions to our business.

        Exodus Communications hosts our systems and provides us with
communications links. The delivery of our services is substantially dependent on
our ability and the ability of Exodus to protect our computer hardware and
network infrastructure against damage from, among others:

        -   human error;

        -   fire and flooding;

        -   power loss;



                                       17
<PAGE>   18



        -   telecommunications failure; and

        -   online or physical sabotage.

        We rely on Exodus for a significant portion of our Internet access as
well as monitoring and managing the power and operating environment for our
server and networking equipment. Any interruption in these services, or any
failure of Exodus to handle higher volumes of Internet use, could result in
financial losses or impair our reputation. Further, there can be no assurance
that we will be able to continue our relationship with Exodus on acceptable
terms, if at all.

OUR SYSTEM CAPACITY NEEDS ARE UNTESTED AND OUR FAILURE TO HANDLE THE GROWTH OF
OUR DATABASE MAY DAMAGE OUR BUSINESS OR REQUIRE US TO EXPEND SUBSTANTIAL
CAPITAL.

        The capacity of our system has not been tested and we do not yet know
the ability of our system to manage substantially larger numbers of users and
transactions. A substantial increase in our membership base and a corresponding
increase in the number of data records could strain our servers and storage
capacity, which could lead to slower response time or system failures. We may
not be able to handle our expected user and transaction levels while maintaining
satisfactory performance. System failures or slowdowns adversely affect the
speed and responsiveness of our transaction processing. These would have a
negative impact on the experience for our consumer members and reduce our
system's effectiveness. Such an increase could require us to expand and upgrade
our technology, processing systems and network infrastructure. Any unexpected
upgrades could be disruptive and costly. Our failure to handle the growth of our
databases could lead to system failures, inadequate response times or corruption
of our data, and could negatively affect our business, results of operations and
financial condition. We believe our system's hardware, at peak traffic levels,
runs at approximately 50% of capacity. We may be unable to expand and upgrade
our systems and infrastructure to accommodate this growth in a timely manner.
Any failure to expand or upgrade our systems could damage our reputation and our
business.

        In addition, if our usage of telecommunications capacity increases, we
will need to purchase additional networking equipment and rely more heavily on
Exodus to maintain adequate data transmission speeds. The availability of these
products or services may be limited or their cost may be significant.

OUR BUSINESS COULD SUFFER IF INTERNET USERS REDUCE OR BLOCK OUR ACCESS TO THEIR
PERSONAL DATA.

        We collect consumer demographic and purchase preference information from
our members and also collect data regarding the categories of offers viewed and
offers clicked-on by members. Privacy concerns may cause users to resist signing
up for our system, providing us with personal information and allowing us to
monitor their usage. If users were to reduce the information voluntarily
supplied to us or block our access to their data, our ability to improve our
database of consumer information and the value of our service would diminish.

PRIVACY LAWS MAY BE ENACTED OR APPLIED TO US WHICH COULD RESTRICT OUR ABILITY TO
DISCLOSE CONSUMER DATA WITH THIRD PARTIES WHICH COULD ADVERSELY EFFECT OUR
BUSINESS.

        We currently report aggregate, but not individual, consumer demographic
information and purchase preference information to network partners about the
members that joined through their service. Marketers only receive aggregate
information about our membership for purposes of targeting promotions to members
with certain demographic or purchase preference criteria. Growing concern about
privacy and the collection, distribution and use of personal information, even
in the aggregate, may lead to the enactment and application of federal or state
laws or regulations that would restrict our ability to provide customer data to
third parties. In addition, several states have proposed legislation that would
limit the uses of customer information gathered online. Consequently, any future
regulation that would restrict our ability to provide information regarding our
members would have a negative impact on our business by restricting our methods
of operation or imposing additional costs.

IF WE ARE NOT SUCCESSFUL IN PROTECTING OUR INTELLECTUAL PROPERTY OUR BUSINESS
WILL SUFFER.

        We depend heavily on technology to operate our business. Our success
depends on protecting our intellectual property, which is one of our most
important assets.

Proprietary Technology

        We have developed proprietary technology including database and
interface servers, offer creation and presentation software, and



                                       18
<PAGE>   19



software to enable communication between marketers' e-commerce systems and our
system.

Patents

        We have two issued U.S. patents and three pending U.S. patent
applications. Our first issued patent is entitled "Electronic couponing method
and apparatus" and relates to the method and apparatus for distributing,
generating, and redeeming discount coupons, rebate or gift certificates or the
like that tracks each coupon using a consumer ID number printed on the coupon.
Our second issued patent, which is a continuation-in-part to our first patent,
is entitled "Electronic discount couponing method and apparatus for generating
an electronic list of coupons." Our pending patent applications seek to protect
technology we use or may use in our business. We have no issued foreign patents,
but we have two pending foreign patent applications in the European Union. It is
possible that no patent will issue from the currently pending patent
applications.

Trademarks

        We have registered the e-centives trademark in the U.S. We have filed
U.S. trademark registrations for PromoCast, PromoCommerce, and PromoMail, all of
which are pending. We have also filed for trademark registration of e-centives
in Switzerland. We also claim rights in a number of additional tradenames
associated with our business activities.

Internet Domain Names

        We hold rights to various web domain names including "e-centives.com."
Regulatory bodies in the United States and abroad could establish additional
top-level domains, appoint additional domain name registrars or modify the
requirements for holding domain names. The relationship between regulations
governing domain names and laws protecting trademarks and similar proprietary
rights is unclear. We may be unable to prevent third parties from acquiring
domain names that are similar to or diminish the value of our trademarks and
other proprietary rights.

        We have not registered any copyrights in the U.S. or elsewhere related
to our software or other technology.

        If we do not adequately protect our intellectual property, our business,
financial condition and results of operations would be harmed. Our means of
protecting our intellectual property may not be adequate. Unauthorized parties
may attempt to copy aspects of our service or to obtain and use information that
we regard as proprietary. It is also possible that our patents or any potential
future patents may be found invalid or unenforceable, or otherwise be
successfully challenged. If any of our current or future patents are
successfully challenged by a third party, we could be deprived of our right to
prevent others from using the methods covered by such patents. In addition,
competitors may be able to devise methods of competing with our business that
are not covered by our patents or other intellectual property. Although, members
can access our service over the Internet from anywhere in the world, we
currently only have operations in the U.S. The laws of some foreign countries do
not protect our intellectual property rights to as great an extent as do the
laws of the United States. Our competitors may independently develop similar
technology, duplicate our technology or design around any patents that we may
obtain or our other intellectual property.

IF WE INFRINGE UPON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS OUR BUSINESS AND
FINANCIAL RESULTS COULD BE HARMED.

        There has been a substantial amount of litigation in the software and
Internet industry regarding intellectual property rights. It is possible that,
in the future, third parties may claim that our current or potential future
technologies infringe upon their intellectual property. We expect that software
developers will increasingly be subject to infringement claims as the number of
products and competitors in our industry segment grows. Any such claims, with or
without merit, could be time-consuming, result in costly litigation and
diversion of management resources, or require us to enter into royalty or
licensing agreements. Royalty or licensing agreements, if required, may not be
available on terms acceptable to us or at all, which could seriously harm our
ability to operate our business and our financial condition may suffer.

WE ARE, AND WILL CONTINUE TO BE, CONTROLLED BY OUR CO-FOUNDERS, WHICH COULD
RESULT IN OUR TAKING ACTIONS OF WHICH YOU DO NOT APPROVE.

        As of March 16, 2001, our co-founders, Messrs. Amjadi, Akhavan and
Friedli, owned approximately 47.1% of our outstanding common stock. As a result,
they continue to be able to control most matters requiring stockholder approval.
Among other things, they are able to elect a majority of the directors and
approve significant corporate matters, such as a merger or sale of the business.




                                       19
<PAGE>   20


WE MAY BE SUBJECT TO CLAIMS BASED ON THE CONTENT OF OUR PROMOTIONS AND OUR WEB
SITE.

        The online promotions developed by our marketers may not comply with
federal, state or local laws governing the content of advertisements and the
sale of products and services. We do not control the content of the promotions
we deliver. Our role in facilitating these promotions may expose us to liability
based on the content of the promotions. We also may face liability if the
promotional information in the promotions is defamatory, inaccurate, or
infringes on proprietary rights of others. Marketers or our employees may make
errors or enter inaccurate information, and we do not proofread or otherwise
verify the information contained in the promotions. We may face civil or
criminal liability for unlawful advertising or other marketer activities. We
could also face claims based on the content that is accessible from our web site
through links to other web sites.

        We may not be adequately insured to cover these claims. Any claims could
require us to spend significant time and money in litigation, even if we
ultimately prevail. In addition, negative publicity caused by these inaccuracies
could damage our reputation and diminish our brand.

OUR BUSINESS MAY BE AFFECTED BY SEASONAL FLUCTUATIONS IN DIRECT MARKETING
SPENDING AND INTERNET USE WHICH COULD CAUSE OUR OPERATING RESULTS AND STOCK
PRICE TO FLUCTUATE WIDELY.

        Our limited operating history and rapid growth make it difficult for us
to assess the impact of seasonal factors on our business. We expect seasonal
fluctuations will affect our business. We believe that online direct marketing
spending will be highest in the fourth quarter of each calendar year due to
increased consumer spending during the holiday period, and lowest during the
summer months of the third quarter. Because the market for Internet direct
marketing services is emerging, we cannot be certain of these seasonal patterns
and additional patterns may develop in the future as the market matures. This
could cause our operating results and stock price to fluctuate widely.

IF WE DO NOT MANAGE OUR GROWTH, OUR BUSINESS WILL BE HARMED.

        We may not be successful in managing our rapid growth. We have grown
from 60 employees on June 30, 1999 to 110 employees on December 31, 2000. We
plan to hire 23 sales and marketing personnel and 30 research and development
personnel over the next twelve months. Past growth in these areas has placed,
and future growth will continue to place, a significant strain on our management
and resources, related to the successful integration of personnel. The
acquisition and integration of the Commerce Division of Inktomi has and will
continue to divert management's attention and place an additional strain on our
management and resources.

        To manage the expected growth of our operations, we will need to improve
our existing and implement new operational and financial systems, procedures and
controls. We will also need to expand our finance, administrative, client
services and operations staff and train and manage our growing employee base
effectively. Our current and planned personnel, systems, procedures and controls
may not be adequate to support our future operations. Our business, results of
operations and financial condition will suffer if we do not effectively manage
our growth.

IF WE LOSE THE SERVICES OF ANY OF OUR KEY PERSONNEL, OUR BUSINESS AND STOCK
PRICE COULD SUFFER.

        Our success depends in large part on the contributions of Kamran Amjadi,
our Chairman and Chief Executive Officer and Mehrdad Akhavan, our President and
Chief Operating Officer, whose understanding of our services, strategy and
relationships would be extremely difficult to duplicate from outside our
company. Although we maintain employment agreements with Messrs. Amjadi and
Akhavan, we do not have and do not currently plan to enter into employment
agreements with any of our other employees. The loss of the services of Messrs.
Amjadi and Akhavan or any other key personnel could have a material adverse
effect on our business. We do not maintain "key person" life insurance policies.

IF WE ARE UNABLE TO ATTRACT AND RETAIN HIGHLY SKILLED EMPLOYEES, OUR BUSINESS
MAY BE HARMED.

        Our future success also depends on our ability to identify, attract,
retain and motivate highly skilled employees, particularly additional technical,
sales and marketing personnel. We face intense competition in hiring and
retaining personnel from a number of sectors, including technology and Internet
companies. Many of these companies have greater financial resources than we have
to attract and retain qualified personnel. We have occasionally encountered and
expect to continue to encounter difficulties in hiring and retaining highly
skilled employees, particularly qualified software developers and engineers. We
seek developers and engineers who have experience with the newest software
development tools and Internet technologies. We may be unable to retain our
highly skilled



                                       20
<PAGE>   21



employees or identify, attract, assimilate or retain other highly qualified
employees in the future, which may in turn harm our business.

WE HAVE A SIGNIFICANT AMOUNT OF STOCK-BASED COMPENSATION EXPENSE RELATING TO
STOCK OPTION GRANTS WHICH WILL DECREASE EARNINGS OVER THE NEXT FOUR YEARS.

        Stock-based compensation represents an expense associated with the
recognition of the difference between the fair market value of common stock at
the time of an option grant and the option exercise price. Stock compensation is
amortized over the vesting period of the options, generally four years. For the
year ended December 31, 2000, the charge relating to stock option grants was USD
1,713,649. We estimate the charge relating to stock option grants will be USD
1,400,000, USD 1,400,000, USD 1,400,000 and USD 500,000 in 2001, 2002, 2003, and
2004 respectively. These charges will dilute earnings for those years and may
have a negative impact on our stock price.

                          RISKS RELATED TO OUR INDUSTRY


THE DEMAND FOR INTERNET DIRECT MARKETING SERVICES IS UNCERTAIN.

        The market for online direct marketing has only recently begun to
develop. Most businesses have little or no experience using the Internet for
direct marketing and promotion. As a result, many businesses have allocated only
a limited portion of their marketing budgets to online direct marketing. In
addition, companies that have invested a significant portion of their marketing
budgets in online marketing may decide after a time to return to more
traditional methods if they find that online marketing is a less effective
method of promoting their products and services than traditional marketing
methods. We cannot predict the amount of direct marketing spending on the
Internet in general, or demand for our targeted direct marketing services in
particular. The demand for online marketing may not develop to a level
sufficient to support our continued operations or may develop more slowly than
we expect.

MANY OF OUR CLIENTS ARE EMERGING INTERNET COMPANIES THAT REPRESENT CREDIT RISKS.

        Most of our marketer clients are Internet companies, many of which have
significant losses, negative cash flow and limited access to capital. Many of
these companies represent credit risks and could fail. Any financial
difficulties of our clients may result in difficulties in our ability to collect
accounts receivable or lower than expected sales of our products and services.
If our Internet clients continue to have financial difficulties or if such
difficulties worsen, our financial results would suffer. In addition, we have
experienced decreased sales of our products due to the general economic slowdown
which has particularly impacted the Internet and technology sector.

            ADDITIONAL RISKS RELATED TO OWNERSHIP OF OUR COMMON STOCK

THE MARKET PRICE OF OUR COMMON STOCK, LIKE THE MARKET PRICES OF STOCKS OF OTHER
INTERNET-RELATED COMPANIES, MAY FLUCTUATE WIDELY AND RAPIDLY.

        The market price of our common stock, like the market prices of stocks
of other Internet-related companies, may fluctuate widely and rapidly. The
market price and trading volume of our common stock since our initial public
offering on October 3, 2000 has been and may continue to be highly volatile.
Factors such as variations in our revenue, earnings and cash flow and
announcements of new service offerings, technological innovations, strategic
alliances and/or acquisitions involving competitors or price reductions by us,
our competitors or providers of alternative services could cause the market
price of our common stock to fluctuate substantially. Additionally, broad market
fluctuations, including fluctuations of the SWX New Market of the SWX Swiss
Exchange, which result in changes to the market prices of the stocks of many
companies but are not directly related to the operating performance of those
companies, could also adversely affect the market price of our common stock.

THE LISTING OF OUR SHARES ON THE SWX NEW MARKET OF THE SWX SWISS EXCHANGE MAY
LIMIT OUR ABILITY TO RAISE CAPITAL AND COULD ADVERSELY AFFECT OUR STOCK PRICE.

        We are the first U.S. company to list solely on the SWX Swiss Exchange.
We are not listed on any U.S. exchange. Because we are the first U.S. company to
do this, we are uncertain what effect, if any, our listing on only the SWX New
Market of the SWX Exchange will have upon our ability to raise additional
financing in the U.S. capital markets. If the listing of our shares solely on
the SWX New Market of the SWX Swiss Exchange is received by investors with
uncertainty, the listing may discourage potential investors and could hinder our
ability to raise necessary financing on acceptable terms. In addition, after the
expiration of the various lock-up periods



                                       21
<PAGE>   22
]entered into by our current stockholders in connection with our initial public
offering, all of the shares of our common stock will be eligible for trading on
the SWX New Market. If a significant amount of such shares are offered for sale
on the SWX New Market after the lock-up periods expire, it could decrease our
stock price.


ITEM 2 - PROPERTIES

        We do not currently own any real estate. Our headquarters and principal
administrative, finance, legal, sales and marketing operations are located in
approximately 47,000 square feet of leased office space in Bethesda, Maryland, a
suburb of Washington, D.C. Our lease is for a term of five years and expires in
September 2005. Our rent expense under this lease is approximately USD 132,000
per month. We also maintain offices in Denver, Colorado and New York, New York.
As a result of the Commerce Division acquisition, we entered into a lease for
approximately 30,724 square feet of office space in Redwood City, California for
a term of 9 years at a rent of USD 132,236 per month. We expect that we will
need additional space as we expand our business and believe that we will be able
to obtain space as needed.

ITEM 3 - LEGAL PROCEEDINGS

        In August 1998, coolsavings.com, Inc., an online coupon provider, filed
a patent infringement lawsuit against us in the U.S. District Court for the
Northern District of Illinois. In its complaint, coolsavings.com alleges that we
have infringed and are infringing a patent held by coolsavings.com entitled
"Interactive Marketing Network and Process Using Electronic Certificates." The
patent is described in its abstract as a "data processing system issuing
electronic certificates through 'online' networks of personal computers,
televisions or other devices with video monitors or telephones." The patent
involved in this litigation relates to a data processing system used to issue
electronic certificates online.

        In April 1999, we filed a patent infringement lawsuit against
coolsavings.com in the U.S. District Court for the District of Maryland. In our
complaint, we allege that coolsavings.com is infringing a patent held by us,
U.S. Patent No. 5,710,886. Our patent, entitled "Electronic Couponing Method and
Apparatus" is described in its abstract as a "method and apparatus for
distributing, generating, and redeeming discount coupons, rebate or gift
certificates or the like that tracks each coupon using a consumer ID number
printed on the coupon."

        In March 2000, we filed an additional patent infringement lawsuit
against coolsavings.com in the U.S. District Court for the District of Maryland.
In our complaint, we alleged that coolsavings.com is infringing our U.S. Patent
No. 6,035,280. Our patent, entitled "Electronic Discount Couponing Method and
Apparatus For Generating an Electronic List of Coupons" is described in its
abstract as a "method and apparatus for distributing, generating, and redeeming
discount Virtual Coupons, rebate or gift certificates or the like which may be
used in conjunction with a frequency card program or the like." This litigation
was consolidated into the litigation filed in April 1999.

        On September 29, 2000, we settled all of the patent infringement
litigation matters between us and coolsavings.com. The terms of the settlement
provide for a cross-license between us and coolsavings for each of the patents
currently in dispute. There are no royalties or other incremental payments
involved in the cross-license. Pursuant to this settlement, we agreed to make
payments of up to USD 1.35 million to coolsavings as follows:

        -   USD 650,000 which was paid to coolsavings at the signing of the
            settlement documents;

        -   USD 250,000 if coolsavings prevails in a motion for summary judgment
            in a separate litigation between coolsavings and Catalina Marketing
            Corporation involving the coolsavings' patent currently in dispute;
            and

        -   up to USD 450,000 if and to the extent the coolsavings' patent
            currently in dispute survives the pending reexamination proceedings
            at the Patent and Trademark Office that were initiated by a third
            party.

        We are not a party to any material legal proceeding, arbitration or
administrative procedure.


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

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



                                       22
<PAGE>   23



                                e-centives, INC.

                                     PART II

ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

A.      MARKET INFORMATION

        There is no established public trading market for our common stock in
the United States. Since our initial public offering on October 3, 2000, our
common stock has traded on the SWX New Market of the SWX Swiss Exchange under
the symbol "ECEN." The following table reflects the high and low sales prices,
in Swiss Francs and U.S. Dollars, reported on the SWX New Market of the SWX
Swiss Exchange for each quarter listed. The amounts listed in U.S. Dollars
reflect the relevant exchange rate as of the date of such high or low price.

<TABLE>
<CAPTION>
                            PERIOD                           SWISS FRANCS           US DOLLARS
                            ------                           ------------           -----------

                                                           HIGH        LOW        HIGH       LOW
                                                           ----        ---        ----       ----
<S>                                                   <C>         <C>         <C>        <C>
        Quarter ended December 31, 2000                 CHF 21.80   CHF 11.75   USD 12.46  USD 7.04

        January 1, 2001 to March 16, 2001               CHF 15.25    CHF 8.70   USD 9.35   USD 5.15
</TABLE>

B.      RECENT SALES OF UNREGISTERED SECURITIES

        The information presented below does not reflect the conversion of our
preferred stock into common stock upon the closing of our initial public
offering on October 10, 2000:

        (a) In February 2000, we sold 2,328,434 shares of our Series C
convertible preferred stock to the following accredited investors in the
following amounts at USD 10.20 per share for an aggregate consideration of USD
23.75 million:

<TABLE>
<CAPTION>
                                                                       NUMBER OF
                                              NAME                      SHARES
                           -----------------------------------------  ----------
                         <S>                                          <C>
                           Venturetec, Inc...........................  196,080
                           Peter Friedli.............................   49,608
                           Spring Technology Corp....................   49,020
                           Swissfirst AG.............................   24,509
                           Power Equity AG...........................   24,705
                           World Communications Development AG.......   48,235
                           BG Investments Ltd........................   98,039
                           Thirty-Five East Partners (One) LLC.......  196,079
                           Excite, Inc...............................  367,648
                           Seligman Communications and Information
                           Fund, Inc.................................   98,039
                           Seligman New Technologies Fund, Inc.......  542,157
                           Seligman Investment Opportunities Fund --
                           NTV Portfolio.............................  144,118
                           Moore Global Investments, Ltd.............  196,079
                           Remington Investment Strategies, LP.......   49,019
                           Moore Technology Venture Fund, LP II......  245,099
</TABLE>

In connection with this transaction we granted our placement agent, Deutsche
Banc Alex. Brown, a warrant to purchase 119,485 shares of common stock at a
price of USD 10.20 per share. These securities were issued without registration
under the Securities Act in reliance upon exemptions from registration under
Section 4(2) thereof and Regulations D and S thereunder.

        (b) During the year ended December 31, 2000, we granted options to
purchase a total of 1,570,064 shares of common stock under our stock incentive
plan to certain of our employees and directors. During that period, 14 optionees
exercised options to purchase 65,625 shares of common stock, and options to
purchase 440,625 shares of common stock were forfeited by employees leaving the
company. These securities were issued without registration under the Securities
Act in reliance upon an exemption from registration under Securities Act Rule
701.

        None of the foregoing transactions was effected with an underwriter.

C.      HOLDERS

        The number of holders of our common stock as of March 16, 2001 was in
excess of 80 record and beneficial owners.



                                       23
<PAGE>   24



D.      DIVIDENDS

        We have never declared or paid any cash dividends on our common stock.
We intend to retain future earnings, if any, to finance the expansion of our
business, and do not expect to pay any cash dividends in the foreseeable future.
Please see our "Management's Discussion and Analysis of Financial Conditions and
Results of Operations -- Liquidity and Capital Resources" section below.

        The declaration of dividends is within the discretion of our board of
directors and subject to limitations set forth in the Delaware General
Corporation Law. Our certificate of incorporation provides that if dividends are
paid, they must be paid equally on each share of outstanding common stock.
Payment of any dividends on our common stock is subject to the rights of any
preferred stock then outstanding.

E.  USE OF PROCEEDS FROM INITIAL PUBLIC OFFERING

        Our registration statement on Form S-1 (Registration No. 333-42574) for
our public offering of 3,700,000 shares of Common Stock, par value USD 0.01,
became effective on October 3, 2000. All 3,700,000 shares were sold upon
completion of the public offering for gross proceeds of approximately
USD 40.5 million at an offering price of 19 Swiss Francs (or approximately USD
10.95) per share. Swissfirst Bank AG and Pictet & Cie. acted as managing
underwriters for the offering. Underwriting discounts and commissions for the
shares sold in the public offering totaled approximately USD 2.8 million. In
addition, in connection with the offering, we paid an estimated USD 782,000 in
expenses. After deducting underwriting discounts and commissions and other
expenses, we received approximately USD 36.7 million in proceeds from the
offering. All of our shares of preferred stock automatically converted into
shares of Common Stock on a 1-for-1 basis on the closing of the offering. As of
March 16, 2001, we have spent approximately USD 5.3 million of the proceeds of
the offering on advertising and marketing efforts to improve the recognition of
our e-centives brand, USD 3.2 million for payments to our network partners for
the acquisition of new members and USD 1.1 million for capital expenditures and
expenses associated with improving our system.




                                       24
<PAGE>   25



ITEM 6 - SELECTED FINANCIAL INFORMATION

                             SELECTED FINANCIAL DATA
                (IN U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

        You should read the selected financial data shown below together with
our financial statements and related notes and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and other financial
data included elsewhere in this annual report. Our statements of operations data
for each of the years ended December 31, 1998, 1999 and 2000 and the balance
sheet data as of December 31, 1999 and 2000, are derived from our audited
financial statements included elsewhere in this annual report. Our statement of
operations data for the period from August 2, 1996 (inception) through December
31, 1996 and for the year ended December 31, 1997 and the balance sheet data as
of December 31, 1996, 1997 and 1998 have been derived from our audited financial
statements not included in this annual report.


<TABLE>
<CAPTION>

                                        PERIOD FROM
                                       AUGUST 2, 1996
                                         (DATE OF
                                        INCEPTION)
                                          THROUGH            YEAR ENDED DECEMBER 31,
                                       DECEMBER 31,          -----------------------
                                           1996       1997       1998       1999       2000
                                       ----------- ---------- ---------- ---------- ----------
        STATEMENT OF OPERATIONS
          DATA:
<S>                                  <C>         <C>        <C>        <C>        <C>
        Revenue......................  $       --  $      --  $      --  $      740 $   10,230
        Cost of revenue..............          --         --         --       1,027      2,208
                                       ----------  ---------- ---------  ---------- ----------
          Gross profit (loss)........          --         --         --        (287)     8,022
        Product development,
          exclusive of stock-based
          compensation...............          17        814      1,160       2,427      2,873
        General and administrative,
          exclusive of stock-based
          compensation...............         159        753      1,237       4,083      8,765
        Sales and marketing,
          exclusive of stock-based
          compensation................         25      1,105      2,480       7,890     19,006
        Network partner fees..........         --         --         --         730      6,354
        Stock-based compensation:
          Product development.........         --         --         --         283        822
          General and
            administrative............         --         --         --         297        333
          Sales and marketing ........         --         --         --         475        558
                                       ----------  ---------  ---------  ---------- ----------
        Loss from operations .........       (201)    (2,672)    (4,877)    (16,472)   (30,689)
        Interest income, net. ........          4        187        310         268        694
        Other income..................         --         --         --          34         50
                                       ----------  ---------  ---------  ---------- ----------
          Loss before income
            taxes.....................       (197)    (2,485)    (4,567)    (16,170)   (29,945)
        Income taxes..................         --         --         --          --         --
                                       ----------  ---------  ---------  ---------- ----------
        Net loss......................       (197)    (2,485)    (4,567)    (16,170)   (29,945)
        Preferred stock dividend
          requirements and accretion
          of convertible redeemable
          preferred stock.............         --       (180)      (383)       (383)      (552)
                                       ----------  ---------  ---------  ---------- ----------
        Net loss applicable to
          common stockholders ........ $     (197) $  (2,665) $  (4,950) $  (16,553)$  (30,497)
                                       ==========  =========  =========  ========== ==========
        Basic and diluted loss per
          common share................ $    (0.07) $   (0.56) $   (1.02) $    (3.40)$    (4.09)
        Shares used to compute basic
          and diluted net loss per
          common share................  2,881,053  4,726,882  4,860,000   4,869,601  7,460,272
</TABLE>


<TABLE>
<CAPTION>
                                                               AS OF DECEMBER 31,
                                                               ------------------
                                                    1996     1997      1998     1999      2000
                                                  -------- --------  -------- -------- -------
                    BALANCE SHEET DATA:
<S>                                                <C>     <C>       <C>      <C>     <C>
                    Cash and cash equivalents...     521    7,084     2,377      427    27,062
                    Working capital.............     465    6,916     2,117      872    26,528
                    Total assets................   5,172    7,390     3,031    5,490    36,377
                    Deferred revenue............      --       --        --      791       904
                    Stockholders' equity........     528    7,154     2,587      995    30,834
</TABLE>



                                       25
<PAGE>   26

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

        You should read the following discussion of our financial condition and
results of operations together with "Selected Financial Data" and our financial
statements and the notes to those financial statements elsewhere in this annual
report. In addition to historical information, this discussion contains
forward-looking information that involves risks and uncertainties. Our actual
results could differ materially from those anticipated by such forward-looking
information due to competitive factors, risks associated with our expansion
plans and other factors discussed under "Risk Factors" and elsewhere in this
annual report.

OVERVIEW

        We provide an online direct marketing system that delivers promotions,
which we call e-centives, to consumers across the web sites of our network
partners and by e-mail. We developed a web-based application that enables
consumers to register to receive e-centives at our network partners' web sites
or through our web site, www.e-centives.com. Our members provide demographic
information and indicate interests in product categories in return for
e-centives targeted to their shopping preferences. We create an online account
for each member, which can be accessed on the web site of the network partner
through which they joined and on our web site. Members can also elect to receive
e-centives by e-mail. We offer technology to our marketers that automatically
recognizes our members when they enter the marketer's web site, and highlights
and applies relevant e-centives during the shopping and purchase process.

        We were organized as a Delaware corporation in August 1996. From
inception until June 1999, our principal activities included:

        -   designing and developing our online direct marketing system,
            including our infrastructure;

        -   developing and protecting our intellectual property;

        -   establishing relationships with marketers and high-traffic Internet
            sites;

        -   expanding the number of consumer members and building our database
            of consumer information; and

        -   securing financing for working capital and capital expenditures.

        We launched our e-centives service in November 1998. Between November
1998 and June 1999, while we were introducing our service, we allowed marketers
to use our system at no charge. We began generating revenue in the third quarter
of 1999 with 100% of the revenue in 1999 generated from the delivery of
e-centives to members on behalf of marketers and network partners. For the year
ended December 31, 2000 we generated 75% of our revenue from the delivery of
e-centives to members on behalf of marketers and network partners, 3% from the
purchase of services on a performance contract basis, 13% from the delivery of
e-mails for ZDNet and 9% from the purchase of e-centives by Excite for the
purpose of resale.

        We typically enter into contracts for the delivery of our service on
behalf of marketers and our network partners. We deliver e-centives through our
suite of services, which is principally comprised of PromoCast, PromoCommerce,
and PromoMail. We also offer services on a performance contract basis. During
the year ended December 31, 2000, we generated 16% of our revenue from
PromoCast, 3% from PromoCommerce, 56% from PromoMail, 3% from the purchase of
services on a performance contract basis, 13% from the delivery of e-mails for
ZDNet, and 9% from the purchase of e-centives by Excite for the purpose of
resale. In 1999, we derived 23% of our revenue from PromoCast, 8% from
PromoCommerce and 69% from PromoMail.

        We have recognized an insignificant amount of revenue from our customer
support and consulting services and expect this trend to continue.

        Marketers who subscribe to the PromoCast service enter into fixed-fee
contracts for our delivery of either a specified or unlimited number of
e-centives to the accounts of a targeted group of members over the contractual
period. Once a member receives and clicks on the offer, our system links the
member directly to the appropriate page within the marketer's site. The term of
these contracts is typically one year or less. Each e-centive has an expiration
date, typically 30 days from the date the e-centive is placed in a member's
account. An e-centive is considered delivered when a member visits his or her
account. Because we have an obligation to maintain the e-centive on our system
until it expires, we recognize revenue upon expiration of the delivered
e-centive. Revenue related to delivery



                                       26
<PAGE>   27
of an unlimited quantity of e-centives is recognized ratably over the contract
term.

        Our PromoCommerce service consists of several components including a
PromoCast package, perpetual software license and maintenance on such software.
Because we are not able to separate the fair value of the various components,
revenue related to the incorporated PromoCast package is recognized ratably over
the term of the contract. The software components enable the subscribing
merchant's site to recognize our members when they enter and automatically
detect, highlight and apply relevant e-centives during the shopping and purchase
process. The maintenance component provides subscribing marketers with product
updates and telephone support services. Our customer support contracts typically
have a one-year term, and revenue is recognized ratably over the term of the
contract.

        Our PromoMail service consists of targeted e-mails highlighting a
marketer's specific promotions. Marketers who contract to use the PromoMail
service participate in mailings to a group of members based upon those members'
preferences. Participating marketers are charged a fixed fee for each member to
whom the e-mail is sent. We recognize revenue related to the delivery of
e-centives via the PromoMail service upon transmission of the e-mail to the
members.

        We currently do not guarantee the delivery of the specific number of
e-centives that the marketer purchases under these contracts. Under these
contracts, if there are any remaining e-centives not used by the marketer at the
end of the contract period, those unused e-centives are forfeited.

        When marketers purchase services on a performance contract basis,
e-centives are delivered by the same methods as in the PromoCast or PromoMail
services, but revenue is based solely on the performance of the e-centives. We
earn a contractually specified amount based on the number of members who click
on the offer or the amount of sales the offer generates. Revenue is recognized
upon the click-through or upon notification by the marketer of the number of
applicable sales.

        We also provide consulting services to marketers, such as assistance
with promotions planning. Revenue related to these consulting services is
recognized as the related services are provided. To date, we have recognized an
insignificant amount of revenue from consulting services.

        We operate a co-branded direct marketing system for ZDNet. ZDNet sells
access to our direct marketing system to its advertising clients for a fee. We
receive 50% of these fees which we recognize as revenue at the end of each
month upon communication of the amount by ZDNet. For the year ended December 31,
2000, we generated approximately 3% of our revenue from these fees. In March
2000, we also began delivering e-mails to promote the complimentary services of
ZDNet under an addendum to our agreement which expires in August 2001. ZDNet
agreed to pay us approximately USD 167,000 per month to deliver e-mails which
contain content supplied by ZDNet. We recognize revenue upon delivery of the
e-mails. For the year ended December 31, 2000, we generated approximately 13%
of our revenue from the delivery of e-mails for ZDNet. We also purchased banner
advertisements from ZDNet to promote our co-branded service on its web site
from March 2000 through October 2000 for USD 1.3 million. We have no obligation
to purchase these banner advertisements and may cancel at any time. See
"Business - Network Partners" for a discussion of our agreement with ZDNet.

        In February 2000, we entered into an agreement with one of our other
network partners, Excite, under which Excite agreed to purchase a minimum number
of e-centives which would cost Excite at least USD 3.75 million over three
years. At the beginning of each quarter, Excite is contractually obligated to
purchase USD 312,500 worth of e-centives. For those e-centives resold by Excite,
we recognize revenue upon the expiration date of each delivered offer. If Excite
does not sell the e-centives within six months of purchase, they are forfeited
and the value of the unsold e-centives will be recognized as revenue. For the
year ended December 31, 2000, we generated approximately 9% of our revenue from
Excite's purchases under this agreement. Excite has also agreed to provide us
with at least 12 million new members during the term of our agreement for which
we shall pay Excite a per member fee of up to approximately USD 19.65 million
over the term of the agreement in quarterly payments of USD 1.6 million. If
Excite does not provide us with 12 million new members over the term, we are
entitled to a refund for users not provided. We are currently dependent on
Excite for new members and expect this trend to continue. As of March 16, 2001,
approximately 62% of our membership has come from Excite. See "Business --
Network Partners" for a discussion of our agreements with Excite.

        On December 21, 2000, Excite agreed to amend our existing agreement to
change the expiration dates for the e-centives purchased by Excite from six
months after the end of the quarter in which such e-centives were purchased to
the last day of the quarter in which such e-centives were purchased. Since we
recognize revenue upon the resale or expiration of e-centives under this
agreement, this amendment had the effect of allowing us to recognize USD 625,000
in additional revenue in 2000 that otherwise would have been recognized in
2001.

        A significant portion of our revenue is derived from network partners
and other customers from whom we purchase goods and services. For example,
Uproar pays us to deliver e-mails to its membership base and we purchase banner
advertisements from them. Additionally, Excite purchases e-centives from us and
we pay Excite for members we acquire through Excite's web site. If we stopped
purchasing goods or services from any of our network partners or customers, they
may discontinue purchasing our products and services which could have an adverse
affect on our revenue.

        Since we are often paid part or all of our services up front, but
recognize revenue upon delivery of e-centives over the contract term and
expiration of the associated promotion, we have, and expect to continue to have,
a deferred revenue liability on our balance sheet.

RECENT DEVELOPMENTS

        On March 28, 2001, we completed the acquisition of the Commerce Division
of Inktomi Corporation, a California-based Internet search infrastructure
provider, by exchanging 2,551,700 shares of our common stock, or 14.4% of our
outstanding common stock after the acquisition, for the assets of the Commerce
Division. We also assumed the liabilities associated with those assets. We
incurred acquisition costs of approximately USD 350,000 in connection with this
transaction. The acquisition was accounted for under the purchase method of

                                       27
<PAGE>   28


accounting. Of the 2,551,700 shares issued to Inktomi in the acquisition,
382,755 were placed into escrow and will be released upon the achievement of
revenue and performance targets for the acquired business at the end of twelve
and eighteen months following the closing. If such performance and revenue
criteria are not achieved for such periods, then all of the escrowed shares will
be returned to us. As part of the purchase price we also issued a warrant to
purchase an additional 1,860,577 shares upon the achievement of additional
revenue targets at the end of twelve months following the closing. Our expenses
will significantly increase as a result of this acquisition due to additional
expenses resulting from the hiring of 70 new employees and an additional rent
expense of USD 132,236 per month due to the lease of office space in Redwood
Shores, California.

        There has been a recent slowdown in the Internet sector in the United
States, particularly with respect to retail Internet companies. Many retail
Internet companies are having difficulties raising capital, borrowing money and
otherwise funding their operating losses. Most of our marketer clients are
retail Internet companies, many of which have significant losses, negative cash
flow and limited access to capital. These marketer clients are experiencing even
greater cash flow problems due to this slowdown. Therefore, many of our marketer
clients could fail. As a result of the difficulties of some of our marketer
clients, we have had to expend additional effort to collect our accounts
receivable, and in certain cases have had to settle for less than the total
amount owed. In the year ended December 31, 2000, we incurred charges related to
an increase of USD 224,891 in our provision for doubtful accounts from 1999.
While we believe that our allowance for doubtful accounts as of December 31,
2000 is adequate to cover any difficulties with the collection of our accounts
receivable balance, there can be no assurance that the allowance will be
adequate to cover any receivables later deemed to be uncollectible.

        In light of the recent turmoil in the Internet retail sector, many
advertisers are tightening their marketing budgets, which may affect our sales
in upcoming quarters. While our revenues increased for the year ended 2000
compared to the year ended 1999, we may face additional challenges in the year
2001 due to the Internet slowdown. We expect that this trend will continue for
the near future. We plan to continue to expand our business to include
additional products and services so as to grow our business over the near term.

        We also plan to seek additional strategic acquisition opportunities that
will support our business through the addition of new products and services that
we can sell to our existing client base. Further, we plan to pursue acquisitions
that would enable us to expand our client base in a broad range of markets
including portals, destination sites, retailers, banks, credit card services,
insurance providers, telecommunications providers, and wireless portals.

RESULTS OF OPERATIONS

        The following presents our financial position and results of operation
as of and for the year ended December 31, 2000. Since then, we have continued to
incur substantial losses. We expect to continue to incur losses for the
foreseeable future as we continue to promote, develop and deploy our system. We
expect our expenses to increase in absolute dollars in future periods as we
hire additional personnel and incur additional costs related to the growth of
our business and our operations as a public company.

Years ended December 31, 2000 and 1999.

        Revenue. Revenue for the year ended December 31, 2000 was USD
10,230,000. Our revenue for the year ended December 31, 1999 was USD 740,000. We
attribute the increase primarily to the expansion of our operations and to the
fact that we did not begin to charge for our services until the second half of
1999. We forged several new strategic alliances with network partners during
2000. Contracts we entered into with ZDNet, Excite, Uproar and LifeMinders, Inc.
contributed approximately 48% of the increase in revenue from 1999 to 2000.

        Cost of Revenue. Cost of revenue represents expenses related to
providing online promotions for our marketers, including a portion of the
salaries, benefits and related expenses of our client services, network
operations and technical services personnel as well as revenue sharing payments
to network partners. Cost of revenue increased by USD 1,180,000 to USD 2,208,000
in the year ended December 31, 2000 compared to USD 1,028,000 in the year ended
December 31, 1999. We attribute this increase primarily to the additional
salaries resulting from an increase in the number of personnel.

        Product Development. Product development costs include expenses we incur
for research, design and development of our proprietary online promotion
technology. We expense product development costs as we incur them. Product
development expenses increased by USD 446,000 to USD 2,873,000 in the year ended
December 31, 2000, compared to USD 2,427,000 in the year ended December 31,
1999. The majority of this increase resulted from increased product development
personnel costs associated with the development of our online direct marketing
system, including its infrastructure and computer software. We expect these
costs to increase in absolute dollars in 2001 compared to 2000. We expect to
incur approximately USD 10 million in product development expenses in 2001.



                                       28
<PAGE>   29



        General and Administrative. General and administrative expenses consist
of salaries for executive and selected senior management, finance and
administrative personnel and associated employee benefits, facilities costs,
computer and office equipment operating leases, training, and all other
corporate costs, including depreciation and amortization. General and
administrative expenses increased by USD 4,682,000 to USD 8,765,000 in the year
ended December 31, 2000, compared to USD 4,083,000 in the year ended December
31, 1999. This increase resulted principally from an increase of USD 1,295,000
from the increase in the number of general and administrative personnel and
includes increases of USD 558,000 from increased legal costs and USD 598,000
from increased rent for additional office space. In addition, we have
experienced increased depreciation of fixed assets of USD 673,000 for the year
ended December 31, 2000 in connection with our increased capital expenditures
for computer equipment. Further, the increase in general and administrative
expenses for the year ended December 31, 2000 includes a USD 650,000 payment to
coolsavings.com as part of the settlement of certain patent litigation. We
expect these costs to increase in absolute dollars in 2001 compared to 2000. We
expect to incur approximately USD 14 million in general and administrative
expenses in 2001.

        Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, associated benefits and travel expenses for our sales and marketing
personnel and promotional expenses. Sales and marketing expenses increased by
USD 11.1 million to USD 19.0 million in the year ended December 31, 2000,
compared to USD 7.9 million in the year ended December 31, 1999. We attribute
this increase mainly to increased marketing expenditures of USD 15.1 million
targeted at attracting more marketers and network partners to our direct
marketing system. We expect these costs to increase in absolute dollars in 2001
compared to 2000. We expect to incur approximately USD 21.5 million in sales and
marketing expenses in 2001.

        Network Partner Fees. Network partner fees include the fees we pay our
network partners for members, advertising and exclusivity on the network
partners' site. Network partner fees increased by USD 5,623,000 to USD 6,354,000
in the year ended December 31, 2000, compared to USD 731,000 in the year ended
December 31, 1999. We attribute this increase mainly to the payments made to
Excite. We expect these costs to increase in absolute dollars in 2001 compared
to 2000. We expect to incur approximately USD 8 million in network partner fees
in 2001.

        Stock-based compensation. Stock-based compensation expenses consist of
the accrual of the difference between the fair value of our common stock and the
exercise price of certain performance-based options prior to the measurement
date and the accrual of the difference between the estimated fair value of our
common stock and the exercise price of stock options issued to employees.
Stock-based compensation expenses increased by USD 660,000 to USD 1,714,000 in
the year ended December 31, 2000, compared to USD 1,054,000 for the year ended
December 31, 1999. The increase resulted principally from additional options
granted to employees at exercise prices less than fair market value. We expect
to incur approximately USD 1.4 million in stock-based compensation expenses in
2001.

        Interest income, net. Interest income, net consists of income on our
cash balances less interest expense on long-term debt. Net interest income
increased by USD 425,000 to USD 693,000 in the year ended December 31, 2000,
compared to USD 268,000 for the year ended December 31, 1999. This fluctuation
was due to an increase in interest income resulting from an increase in cash
balances from the Series C funding and the IPO.

        Net Loss. Net loss increased by USD 13.7 million to USD 29.9 million in
the year ended December 31, 2000, compared to USD 16.2 million for the year
ended December 31, 1999. The increase is primarily attributed to the increase in
operating costs of USD 22.5 million to USD 38.7 million in the year ended
December 31, 2000, compared to USD 16.2 million for the year ended December 31,
1999.

Years ended December 31, 1999 and 1998.

        Revenue. We generated USD 740,000 in revenue in 1999. We did not
generate revenue in 1998 because we were a development stage entity devoting
substantially all of our efforts to develop and market our direct marketing
infrastructure.

        Cost of Revenue. We incurred USD 1,028,000 in cost of revenue expenses
in 1999. As a development stage company, we incurred no cost of revenue expenses
in 1998.

        Product Development. Product development expenses were USD 2,427,000 and
USD 1,161,000 in 1999 and 1998, respectively. We attribute USD 1.2 million of
the 1999 increase to product development personnel costs associated with the
development of our online direct marketing system, including its infrastructure
and computer software.

        General and Administrative. General and administrative expenses were USD
4,083,000 and USD 1,237,000 in 1999 and 1998, respectively. We attribute USD
440,000 of the 1999 increase to additional personnel in the general and
administrative area, USD 730,000 of the 1999 increase to higher legal costs and
USD 180,000 of the 1999 increase for rent for increased office space. In
addition, USD 250,000



                                       29
<PAGE>   30



of the 1999 increase resulted from increased depreciation of fixed assets in
connection with our increased capital expenditures for computer equipment and
USD 750,000 of the 1999 increase was caused by the amortization of a patent that
was purchased in 1999.

        Sales and Marketing. Sales and marketing expenses were USD 7,890,000 and
USD 2,480,000 in 1999 and 1998, respectively. We attribute USD 1,630,000 of the
1999 increase to increases in the number of direct sales personnel and USD 2.5
million for 1999 to increased marketing expenditures targeted at attracting
more marketers to our direct marketing system.

        Network Partner Fees. Network partner fees were USD 731,000 in 1999. We
incurred no network partner fees in 1998.

        Stock-based compensation. Stock-based compensation expenses were USD
1,054,000 in 1999. We incurred no stock-based compensation expenses in 1998.

        Interest income, net. Interest income, net was USD 268,000 and USD
310,000 in 1999 and 1998, respectively. The decrease from 1998 to 1999 was due
to a decrease in cash balances as funds were used to meet operating expenses.

        Net Loss. Net loss was USD 16.2 million and USD 4.6 million in 1999 and
1998, respectively. The increase from 1998 to 1999 is primarily attributed to
the increase in operating costs of USD 11.3 million to USD 16.2 million in the
year ended December 31, 1999, compared to USD 4.9 million for the year ended
December 31, 1998.


LIQUIDITY AND CAPITAL RESOURCES

        Since inception through December 31, 2000, we funded our operations
primarily from the private sale of our convertible preferred stock and common
stock, issuance of convertible debt and our initial public offering, through
which we raised net proceeds of USD 82,497,287 through December 31, 2000. As of
December 31, 2000, cash and cash equivalents and short-term investments totaled
USD 27,719,515.

        Our last private offering was completed in February 2000, in which we
issued 2,328,434 shares of our Series C convertible preferred stock with
approximate total gross proceeds of USD 23,800,000. On October 3, 2000, we
completed an initial public offering in Switzerland of shares of our common
stock which are listed on the SWX New Market Segment of the SWX Swiss Exchange
(the "Swiss IPO"). After deducting expenses and underwriting discounts, we
received approximately USD 36.7 million in proceeds from this transaction. All
of our shares of preferred stock converted automatically on the closing of the
Swiss IPO.

        Cash used in operating activities was USD 4,299,091, USD 12,904,109
and USD 27,589,831 for the years ended December 31, 1998, 1999 and 2000,
respectively. Net cash flows from operating activities in each period reflect
increasing net losses and, to a lesser extent, increases in accounts receivable
and prepaid expenses due to increased operations.

        Cash used in investing activities was USD 407,744, USD 4,570,697
and USD 3,081,390 for the years ended December 31, 1998, 1999 and 2000,
respectively. Net cash used for investing activities in each period primarily
reflects purchases of computer equipment. Cash used in investing activities for
the year ended December 31, 1999 was also impacted by the USD 3.0 million
purchase of a patent.

        Cash provided by financing activities was USD 15,524,688 for the year
ended December 31, 1999 and USD 57,306,475 for the year ended December 31, 2000.
Cash provided by financing activities for the year ended December 31, 2000 was
impacted by the USD 36.7 million in proceeds from the Swiss IPO and USD 20.5
million from private sales of our convertible preferred stock. Cash provided by
financing activities for the year ended December 31, 1999 was impacted by USD
13.5 million from private sales of our convertible preferred stock. There was no
cash provided by financing activities for the year ended December 31, 1998.

        We expect to expand our operations through continued capital investment.
We are not currently generating sufficient cash flows from operations to support
our current operating and capital requirements. We believe current working
capital is sufficient to continue operations through 2001. However, we may need
to raise additional funds sooner to fund our planned expansion, to develop new
or enhanced products or services, to respond to competitive pressures or to make
acquisitions. We cannot be certain that additional financing will be available
to us on acceptable terms, or at all. If adequate funds are not available, or
not available on acceptable terms, we may not be able to expand our business.



                                       30
<PAGE>   31



        In addition, pursuant to an agreement with the SWX Swiss Exchange, we
have agreed not to issue our shares in capital raising transactions until April
10, 2001 (six months from completion of the Swiss IPO). We may conduct a U.S.
offering after the expiration of the lock-up period depending on market
conditions and our need for capital at the time. The timing of such an offering
in the U.S. cannot be determined at the present time. We are not party to any
arrangement or understanding under which an offering would be triggered
automatically in the event of an increase in our share price.

RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS

        In June 1998, the Financial Accounting Standards Board issued SFAS 133,
Accounting For Derivative Instruments and Hedging Activities. In June 2000, the
FASB issued SFAS 138, Accounting for Certain Derivative Instruments and Certain
Hedging Activity, an amendment of SFAS 133. SFAS 133 and SFAS 138 require that
all derivative instruments be recorded on the balance sheet at their respective
fair values. SFAS 133 and SFAS 138 are effective for all fiscal quarters of all
fiscal years beginning after 2000. We will adopt SFAS 133 and SFAS 138 on
January 1, 2001. We do not expect the adoption of these standards will have a
material impact on our financial condition, results of operations or cash flows.


        In May 2000, the Emerging Issues Task Force released Issue No. 00-2,
Accounting for Web Site Development Costs. EITF 00-2 establishes standards for
determining the capitalization or expensing of incurred costs relating to the
development of Internet web sites based upon the respective stage of
development. The Issue is effective for fiscal quarters beginning after June 30,
2000 (including costs incurred for projects in process at the beginning of the
quarter of adoption). The adoption of EITF 00-2 did not have a material impact
on our financial condition, results of operations or cash flows.

        In December 1999, the SEC issued Staff Accounting Bulletin No. ("SAB")
101, Revenue Recognition in Financial Statements, which provides additional
guidance in applying generally accepted accounting principles for revenue
recognition. We believe our revenue recognition policy is in compliance with SAB
101.

        In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB Opinion No. 25. With the exception of
certain provisions which require earlier application, this interpretation is
effective for all applicable transactions beginning July 1, 2000. Adoption of
this Interpretation did not have a material impact on our financial condition,
results of operations or cash flows.

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        To date, we do not have any derivative financial instruments and do not
plan to use any derivatives in our investment portfolio. We invest our cash in
short-term, interest-bearing, investment-grade securities. We believe that our
exposure to interest rate risk is not material to our results of operations.

        We do not believe that we have any material exposure to any foreign
currency exchange rate risk.


ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The financial statements and supplementary data of the Company required
by this item are attached as pages F-1 to F-16 and are listed under Item
14(A)(1) and (2).


ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES

        None.



                                       31
<PAGE>   32



                                e-centives, INC.

                                    PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        The following table presents information about each of our executive
officers, key employees and directors.

<TABLE>
<CAPTION>
                                   NAME                       AGE  POSITION(s) WITH COMPANY
                         ---------------------                ---  ---------------------------
<S>                      <C>                                 <C>   <C>
                          Kamran Amjadi..............          37  Chairman and Chief Executive Officer
                          Mehrdad Akhavan............          37  President, Chief Operating Officer,
                                                                   Secretary and Director
                          Lawrence Brand.............          46  Senior Vice President of Sales and
                                                                   Business Development
                          Homayoon Tajalli...........          41  Senior Vice President of
                                                                   Products and Engineering
                          Jason Karp.................          32  Vice President and General
                                                                   Counsel and Assistant Secretary
                          Barbara Barclay............          36  Vice President of Client Services
                          Ira Becker..........                 32  Vice President of Strategic Alliances
                          Sandra Keeling-Wainwright..          47  Vice President of Marketing
                          Peter Friedli..............          46  Director
                          James Caccavo..............          38  Director
</TABLE>


        Kamran Amjadi has served as our Chairman and Chief Executive Officer
since he co-founded our business in August 1996. From September 1990 until
August 1996, Mr. Amjadi was the Executive Vice President and Director of United
States Operations for MP Technologies, a software company. From July 1986 until
August 1990, Mr. Amjadi was a software engineer with the Hewlett-Packard
Corporation.

        Mehrdad Akhavan has served as our President and Chief Operating Officer
since October 1999, having served as our Executive Vice President and Secretary
since he co-founded our business in August 1996. Mr. Akhavan was elected to our
board of directors in October 1996. From November 1994 until August 1996, Mr.
Akhavan was President of TechTreK, a children's computer entertainment and
education center. From January 1991 until November 1994, Mr. Akhavan was
President of Trident Software, a company he co-founded, which digitized works of
art.

        Lawrence Brand joined us in November 1997 as our Vice President of
Sales. He became our Senior Vice President of Sales and Business Development in
November 1999. From September 1990 until April 1997, Mr. Brand was the Executive
Vice President and General Manager of InterBase Software, a division of Borland
International, a developer of application, tools and relational databases. From
July 1984 until February 1990, Mr. Brand held various positions with Oracle
Corporation, serving most recently as National Director of Financial Services.

        Homayoon Tajalli was recently promoted to be our Senior Vice President
of Products and Engineering, having served as our Vice President of Engineering
since October 1999. Mr. Tajalli held various positions with Trusted Information
Systems from October 1987 until June 1999, and served most recently as Executive
Vice President. Prior to Trusted Information Systems, Mr. Tajalli held various
management positions at Digital Equipment Corporation from 1983 until 1987.

        Jason Karp joined us as our Vice President and General Counsel in March
2000. From July 1998 to March 2000, Mr. Karp held several positions with Net2000
Communications, Inc., an integrated provider of local, long distance, data and
internet access services, and served most recently as Assistant Vice President
of Legal and Regulatory Affairs. From October 1996 to June 1998, Mr. Karp held
several management positions with MCI Communications. From December 1994 to
September 1996, Mr. Karp was a senior attorney in the Common Carrier Bureau of
the FCC.

        Barbara Barclay joined us in January 1998 as Director of Business
Development and was promoted to Vice President of Client Services in January
1999. From August 1997 until January 1998, Ms. Barclay had the dual role of
General Manager and European Product Manager at ACNielsen in the United Kingdom.
From February 1994 until August 1996, Ms. Barclay was Director of Client Sales &
Service for ACNielsen. From July 1992 until February 1994, Ms. Barclay was
European Client Services/Project Director of Information Resources, Inc., a
software consulting and placement company.

        Ira Becker joined us in September 1998 as Director of Business
Development and was promoted to Vice President of Strategic



                                       32
<PAGE>   33



Alliances in May 1999. From November 1997 until September 1998, Mr. Becker was
Director of Sales Development at PointCast, an Internet news and information
company. From September 1995 until September 1997, Mr. Becker was Vice President
of Sales of inquiry.com, an Internet resource for information technology
professionals. From September 1989 until September 1995, Mr. Becker was a
manager with Ziff-Davis Publishing.

        Sandra Keeling-Wainwright has served as our as Vice President of
Marketing since April 1998. From January 1990 until March 1998, Ms.
Keeling-Wainwright was a partner with Poppe Tyson (now Modem.Media). From
January 1986 until December 1987, Ms. Keeling-Wainwright co-founded and ran a
marketing and communication firm.

        Peter Friedli co-founded our business in August 1996. Mr. Friedli was
elected to our board of directors in October 1996. Mr. Friedli has been the
principal of Friedli Corporate Finance, Inc., a venture capital firm, since its
inception in 1986. Prior to joining Friedli Corporate Finance, Mr. Friedli
worked as an international management consultant for service and industrial
companies in Europe and the U.S. Mr. Friedli also serves as the President of New
Venturetec, Inc., a publicly traded Swiss venture capital investment company and
currently serves as a director of VantageMed Corporation, a publicly traded
provider of healthcare information services.

        James Caccavo has served as one of our directors since March 2000. Mr.
Caccavo is a partner with Moore Capital Management's private equity group. From
May 1999 to August 1999, Mr. Caccavo served as Executive Vice President and
President of Internet Operations of Tickets.com. Mr. Caccavo served as President
and Chief Executive Officer of California Tickets.com from December 1997 until
its merger with Tickets.com in May 1999. From August 1988 to November 1996, Mr.
Caccavo held various positions with Sullivan Communications, Inc., a graphic
arts services company, most recently serving as Senior Vice President. Mr.
Caccavo currently serves as a director of Tickets.com.

BOARD OF DIRECTORS

        Our board of directors consists of Kamran Amjadi, Mehrdad Akhavan, Peter
Friedli and James Caccavo. Kamran Amjadi is the Chairman of our board of
directors. James Caccavo was elected to the board of directors by the holders of
the Series C convertible preferred stock pursuant to the terms of the Series C
convertible preferred stock.

Board Committee

        Our board of directors currently has a compensation committee. The
compensation committee determines the salaries and incentive compensation of our
officers and provides recommendations for the salaries and incentive
compensation of other employees and consultants. The compensation committee also
administers our various incentive compensation, stock and benefit plans. The
compensation committee consists of Mr. Friedli, the committee's chairman, and
Mr. Amjadi.

Director Compensation

        We do not currently compensate our directors who are also employees.
Each non-employee director currently is reimbursed for reasonable travel
expenses for each board meeting attended. In addition, each non-employee
director receives 10,000 stock options per year of service, with vesting one
year from the date of grant.

Compensation Committee Interlocks and Insider Participation

        None of our executive officers serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving on our board of directors or compensation committee.



                                       33
<PAGE>   34



ITEM 11 - EXECUTIVE COMPENSATION

   The following table sets forth in U.S. Dollars the compensation paid to or
earned by our named executive officers which includes our Chief Executive
Officer and the four other most highly compensated executive officers whose
salary and bonus for services rendered in all capacities for the fiscal year
ended December 31, 2000 exceeded USD 100,000. We will use the term "named
executive officers" to refer to these people later in this annual report.

                           SUMMARY COMPENSATION TABLE


<TABLE>
<CAPTION>


                                                                                                      LONG-TERM
                                                                                                     COMPENSATION
                                                                                                    --------------
                                                                               ANNUAL COMPENSATION    SECURITIES
                                                                               -------------------    UNDERLYING
                  NAME AND PRINCIPAL POSITION(s)                      YEAR     SALARY ($)  BONUS($)    OPTIONS
               --------------------------------------------------   --------   ----------  --------   ----------
<S>                                                                 <C>       <C>         <C>         <C>
               Kamran Amjadi
                 Chairman and Chief Executive Officer ............    2000      $170,000    $40,000     275,000

               Mehrdad Akhavan
                 President, Chief Operating Officer, Secretary and
                 Director.........................................    2000      $150,000    $40,000     275,000

               Michael Sullivan (1)
                 Chief Financial Officer and Treasurer............    2000      $139,375    $20,000      50,000

               Homayoon Tajalli
                 Senior Vice President of Products and
                 Engineering......................................    2000      $150,000    $30,000         --

               Lawrence Brand
                 Senior Vice President of Sales and Business
                 Development......................................    2000      $150,000    $50,000      49,564
----------
</TABLE>

   (1) Michael Sullivan served as our Chief Financial Officer and Treasurer
from May 1999 until March 2001.


Employment Agreements

        Kamran Amjadi and Mehrdad Akhavan are employed under employment
agreements which terminate on August 31, 2002. Mr. Amjadi and Mr. Akhavan's
employment agreements provide for annual base salaries of USD 170,000 and USD
150,000, respectively, subject to increase by the board of directors. Each of
Mr. Amjadi and Mr. Akhavan is eligible for an annual bonus of USD 50,000. Each
of Messrs. Amjadi and Akhavan may be terminated without cause by us at any time
provided that we are required to pay the full balance of their salaries for the
term. If we are taken over, sold, or involved in a merger or acquisition of any
kind and the same salary is not offered to Messrs. Amjadi and Akhavan for the
remaining term of their agreements then they shall be entitled to payment of the
full balance of their salaries for the term. Each of Messrs. Amjadi and Akhavan
has agreed for a period of one year not to compete directly with or be employed
by any person or organizations that compete directly with our products or
services developed or in development at the time of their termination.

                        OPTION GRANTS IN LAST FISCAL YEAR

        The following table summarizes the options granted to each of our named
executive officers during the fiscal year ended December 31, 2000.



                                       34
<PAGE>   35



<TABLE>
<CAPTION>

                                     INDIVIDUAL GRANTS
                      ---------------------------------------------
                       NUMBER OF   PERCENT OF
                       SECURITIES TOTAL OPTIONS                      POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF
                       UNDERLYING  GRANTED TO                             STOCK PRICE APPRECIATION FOR OPTION TERM (1)
                        OPTIONS   EMPLOYEES IN  EXERCISE  EXPIRATION      ---------------------------------------------
     NAME               GRANTED    FISCAL YEAR    PRICE      DATE              0%              5%              10%
--------------        --------------------------------- -----------      --------------- --------------- ----------
<S>                   <C>         <C>        <C>        <C>            <C>              <C>              <C>
Kamran Amjadi......   275,000      17.52%    USD 13.00       7/1/10        USD 45,430    USD 2,322,300   USD 5,815,461
Mehrdad Akhavan....   275,000      17.52%        13.00       7/1/10            45,430        2,322,300       5,815,461
Michael Sullivan...    25,000       1.59%         3.50       1/1/10           140,060          283,171         502,732
Michael Sullivan...    25,000       1.59%         6.50       7/1/10           166,630          373,618         691,178
Homayoon Tajalli...        --         --           --          --               --               --              --
Lawrence Brand ....    49,564       3.16%         3.50       1/1/10           277,677          561,404         996,696
</TABLE>

----------

(1) The potential realizable value is calculated based on the 10-year term of
    the option at the time of grant. The 0% assumed annual rate of stock price
    appreciation is indicative of the difference between the exercise price per
    share and the estimated fair value of our common stock on the date of grant.

                          FISCAL YEAR-END OPTION VALUES

   The following table presents information with respect to stock options owned
by each of our named executive officers at December 31, 2000.

<TABLE>
<CAPTION>
                                         NUMBER OF SECURITIES UNDERLYING     VALUE OF UNEXERCISED
                                            UNEXERCISED OPTIONS AT         IN-THE-MONEY OPTIONS AT
                                               DECEMBER 31, 2000              DECEMBER 31, 2000
                                          --------------------------      --------------------------
                        NAME              EXERCISABLE  UNEXERCISABLE      EXERCISABLE  UNEXERCISABLE
                   ---------------        -----------  -------------      -----------  -------------
<S>                                         <C>           <C>             <C>          <C>
                   Kamran Amjadi......      175,000       200,000         $  681,000   $       --
                   Mehrdad Akhavan....      175,000       200,000            681,000           --
                   Michael Sullivan...       56,250        43,750            320,563      235,438
                   Homayoon Tajalli...      220,800            --          1,282,848           --
                   Lawrence Brand.....      181,018        39,782          1,182,951      231,133
----------
</TABLE>


STOCK INCENTIVE AND OPTION PLAN

        Our Amended and Restated Stock Incentive and Option Plan provides for
the grant of options, restricted stock and other stock-based compensation to our
employees, consultants and advisors. We have 3,700,000 shares of common stock
reserved for issuance under this plan. As of March 16, 2001, there were options
to purchase 2,907,350 shares of common stock at a weighted average exercise
price of USD 5.92 per share outstanding under our 1996 Stock Incentive Plan.
Options granted under both plans typically vest over time, usually ratably over
four years from the date of grant, subject to acceleration in the event of a
change of control of e-centives. Typically, an option granted under either plan
expires ten years after it is granted. In addition, the plans allow for grants
of options the vesting of which is tied to the employee's performance. As of the
date of this annual report, our board of directors has issued only stock options
under the 1996 Stock Incentive Plan.

        Our compensation committee administers our plans. The compensation
committee is authorized to determine:

        -   which eligible individuals receive option grants or share issuances;

        -   the number of shares under each option grant or share issuance;

        -   the exercise price per share under each option;

        -   the term of each option; and

        -   the vesting schedule for individual option grants or share
            issuances.

The plans provide for the granting of both incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986 and non-statutory
options.



                                       35
<PAGE>   36



401(k) PLAN

        We have a tax-qualified employee savings plan which covers all of our
employees who are at least 21 years of age. Eligible employees may defer up to
20% of their pre-tax earnings, subject to the Internal Revenue Service's annual
contribution limit. Our 401(k) plan permits us to make additional discretionary
matching contributions on behalf of all participants in our 401(k) plan in an
amount determined by us. Our 401(k) plan is intended to qualify under Section
401 of the Internal Revenue Code of 1986 so that contributions by employees or
by us to our 401(k) plan, and income earned on plan contributions, are not
taxable to employees until withdrawn from the plan, and so that contributions by
us, if any, will be deductible by us when made.

LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

        Our certificate of incorporation provides that our directors will not be
personally liable to us or our stockholders for monetary damages for breach of
their fiduciary duties as a director, except for liability:

        -   for any breach of the director's duty of loyalty to us or our
            stockholders;

        -   for acts or omissions not in good faith or which involve intentional
            misconduct or a knowing violation of law;

        -   under a provision of Delaware law relating to unlawful payment of
            dividends or unlawful stock purchase or redemption of stock; or

        -   for any transaction from which the director derives an improper
            personal benefit.

As a result of this provision, we and our stockholders may be unable to obtain
monetary damages from a director for breach of his or her duty of care.

        Our bylaws provide for the indemnification of our directors and officers
and any person who is or was serving at our request as a director, officer,
employee, partner or agent of another corporation or of a partnership, joint
venture, limited liability company, trust or other enterprise. This
indemnification is provided to the fullest extent authorized by, and subject to
the conditions set forth in, the Delaware General Corporation Law. This
indemnification will include the right to be paid the expenses by us in advance
of any proceeding for which indemnification may be had in advance of its final
disposition.



                                       36
<PAGE>   37



ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The following table presents information regarding the beneficial
ownership of common stock as of March 16, 2001:

        -   each person, or group of affiliated persons, who is the beneficial
            owner of more than five percent of our outstanding common stock;

        -   each of our named executive officers;

        -   each of our directors; and

        -   all of our executive officers and directors as a group.

        Unless otherwise indicated, the address of each person identified is c/o
e-centives, Inc., 6901 Rockledge Drive, 7th Floor, Bethesda, Maryland 20817.

        Holders of our common stock are entitled to one vote for each share held
on all matters submitted to a stockholder vote. The persons named in this table
have sole voting power for all shares of our common stock shown as beneficially
owned by them, subject to community property laws where applicable and except as
indicated in the footnotes to this table. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission. In
computing the number of shares beneficially owned by a person and the percentage
ownership of that person, shares of common stock subject to options and warrants
held by that person that are currently exercisable or exercisable within 60 days
after the date of this annual report are deemed outstanding. These shares,
however, are not deemed outstanding for the purpose of computing the percentage
ownership of any other person.

<TABLE>
<CAPTION>


                                                            SHARES
                                                          BENEFICIALLY
                                                              OWNED     PERCENT
                                                           ---------      OF
                                     NAME                    NUMBER     CLASS
                     -----------------------------------   ---------    -----
<S>                                                       <C>           <C>
                     Kamran Amjadi(1)...................   1,871,000     12.3
                     Mehrdad Akhavan(2).................     935,000      6.2
                     Peter Friedli(3)...................   5,234,341     34.5
                     Venturetec, Inc....................   3,696,080     24.4
                       c/o Friedli Corporate Finance AG
                       Freigutstrasse 5
                       8002 Zurich, Switzerland
                     J. & W. Seligman & Co.
                     Incorporated(4) ...................     784,314      5.2
                     Michael Sullivan(5)................      68,750       *
                     Homayoon Tajalli(6)................     220,800      1.5
                     Lawrence Brand(7)..................     181,018      1.2
                     James Caccavo(8)...................      10,000       *
                     All executive officers and directors
                     as a group (6 persons)(9)..........   8,520,909     56.2
----------
</TABLE>


        *   Less than 1% of the outstanding shares of common stock.

(1)     Includes 275,000 shares issuable upon exercise of vested stock options.

(2)     Includes 275,000 shares issuable upon exercise of vested stock options.

(3)     Includes 30,000 shares issuable upon exercise of vested stock options
        and 110,000 shares issuable upon exercise of warrants to purchase held
        by Mr. Friedli individually, as well as shares of common stock and
        common stock underlying warrants held by entities over which Mr. Friedli
        has control, as follows: Joyce, Ltd. -- 235,000 shares of common stock;
        Pine Inc. -- 255,000 shares of common stock and 20,000 warrant shares;
        Savetech, Inc. -- 165,383 shares of common stock; Spring Technology
        Corp. -- 317,520 shares of common stock and 200,000 warrant shares;
        Venturetec, Inc. -- 3,696,080 shares of common stock; and USVentech --
        145,750 shares of common stock. As investment advisor to these entities,
        Mr. Friedli has voting and investment power with respect to these
        shares. See "Related Party Transactions -- Stock Purchases and Related
        Matters" for a description of Mr. Friedli's relationships with these
        entities. New Venturetec AG may be deemed to control Venturetec by
        virtue of its ownership of 100% of Venturetec's capital stock and its
        corresponding right to elect Venturetec's directors, and, therefore, our
        capital stock owned by Venturetec may also be deemed to be beneficially
        owned by New Venturetec.


                                       37
<PAGE>   38


(4)     Includes 784,314 shares of common stock held by entities over which J. &
        W. Seligman & Co. Incorporated has control, as follows: Seligman New
        Technologies Fund, Inc. - 98,039 shares of common stock; Seligman New
        Technologies Fund, Inc. - 542,157 shares of common stock; and Seligman
        Investment Opportunities Fund - NTV Portfolio - 144,118 shares of common
        stock. Mr. William C. Morris, as the owner of a majority of the
        outstanding voting securities of J. & W. Seligman & Co., may be deemed
        to beneficially own the shares controlled by J. & W. Seligman & Co.

(5)     Includes 68,750 shares issuable upon exercise of vested stock options.

(6)     Includes 220,800 shares issuable upon exercise of vested stock options.

(7)     Includes 181,018 shares issuable upon exercise of vested stock options.

(8)     Includes 10,000 shares issuable upon exercise of stock options that vest
        within 60 days of April 2, 2001.

(9)     Includes 1,060,568 shares issuable upon exercise of vested stock options
        and 330,000 shares issuable upon exercise of warrants.


ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

STOCK PURCHASES AND RELATED MATTERS

        Peter Friedli, a stockholder and one of our directors, has relationships
with several of our other stockholders. He serves as the investment advisor to
Joyce, Ltd., Pine, Inc., Savetech, Inc., Spring Technology Corp., USVentech,
Inc., and Venturetec, Inc. Mr. Friedli serves as President of Venturetec and its
parent corporation New Venturetec AG. As of December 31, 2000, Mr. Friedli
beneficially owned approximately 10% of Pine, 3% of New Venturetec and 12% of
Spring Technology.

        In October 1996, we sold 235,000 shares of our common stock to Joyce,
35,000 shares of our common stock to Pine, 10,000 shares of our common stock to
Peter Friedli and 720,000 shares of our common stock to Savetech, Inc. at a
price of USD 0.25 per share. At the same time, we granted to Mr. Friedli
warrants exercisable for 56,000 shares of our common stock at an exercise price
of USD 0.10 per share.

        In December 1996, we sold 200,000 shares of our common stock to Pine,
120,000 shares of our common stock to Spring Technology and 172,000 shares of
our common stock to USVentech at a price of USD 1.00 per share. In February
1997, we sold 700,000 shares of our common stock to Venturetec at a price of USD
2.50 per share.

        In June 1997, we sold 1,700,000 shares of our Series A convertible
preferred stock at a per share price of USD 4.50 for an aggregate consideration
of USD 7.65 million to raise capital to finance our operations. Each share of
Series A convertible preferred stock automatically converted into one share of
common stock upon the completion of our initial public offering on October 3,
2000. The following table summarizes purchases, valued in excess of USD 60,000,
of shares of our Series A convertible preferred stock by our directors,
executive officers and 5% stockholders, including the number of shares of Series
A convertible preferred stock bought, the aggregate consideration paid for the
shares and the aggregate value of the shares at the time of our initial public
offering based upon the offering price of USD 11.03 per share:

<TABLE>
<CAPTION>
                            NUMBER OF
                         SHARES OF SERIES    AGGREGATE
                           A PREFERRED    STOCKHOLDER PRICE     AGGREGATE
                              STOCK            PAID            VALUE AT IPO
                          ------------     -------------       -------------
<S>                      <C>              <C>                <C>
    Venturetec...........     800,000      USD 3,600,000      USD 8,824,000
    Spring Technology....     140,000            630,000          1,544,200
</TABLE>


        These affiliates purchased the securities described above at the same
price and on the same terms and conditions as the unaffiliated investors in the
private financing. In connection with this offering, we granted warrants
exercisable for 50,000 shares, 100,000 shares and 20,000 shares, respectively,
of our common stock to Mr. Friedli, Spring Technology and Pine at an exercise
price of USD 4.50 per



                                       38
<PAGE>   39



share.

        In February 1999, we sold 2,500,000 shares of our Series B convertible
preferred stock at a per share price of USD 6.00 for an aggregate consideration
of USD 15 million. Each share of Series B convertible preferred stock
automatically converted into one share of common stock upon the closing of our
initial public offering on October 3, 2000.

        The following table summarizes purchases, valued in excess of USD
60,000, of shares of our Series B convertible preferred stock by our directors,
executive officers and 5% stockholders, including the number of shares of Series
B convertible preferred stock bought, the aggregate consideration paid for the
shares and the aggregate value of the shares, assuming the conversion of the
shares into our common stock and the offering price of USD11.03 per share:

<TABLE>
<CAPTION>
                                 NUMBER OF
                              SHARES OF SERIES     AGGREGATE
                                B PREFERRED     STOCKHOLDER PRICE   AGGREGATE
                                   STOCK              PAID         VALUE AT IPO
                                ------------     --------------   -------------
<S>                           <C>               <C>              <C>
           Venturetec .....     2,000,000        USD 12,000,000   USD 22,060,000
</TABLE>

        Venturetec purchased the shares of our Series B convertible preferred
stock in this offering at the same price and on the same terms as the
unaffiliated investors in this private financing. In connection with this
offering, we granted warrants exercisable for 4,000 shares and 100,000 shares,
respectively, of our common stock to Mr. Friedli and Spring Technology at an
exercise price of USD 6.00 per share.

        In February 2000, we sold 2,328,434 shares of our Series C convertible
redeemable preferred stock at a price of USD 10.20 per share for an aggregate
consideration of USD 23.75 million to raise capital to finance our operations.
Each share of Series C convertible redeemable preferred stock automatically
converted into one share of common stock upon the completion of our initial
public offering on October 3, 2000. The following table summarizes purchases,
valued in excess of USD 60,000, of shares of our Series C convertible preferred
stock by our directors, executive officers and 5% stockholders, including the
number of shares of Series C convertible redeemable preferred stock bought, the
aggregate consideration paid for the shares and the aggregate value of the
shares at the time of our initial public offering based upon the offering price
of USD 11.03 per share:

<TABLE>
<CAPTION>
                              NUMBER OF
                          SHARES OF SERIES   AGGREGATE
                            C PREFERRED   STOCKHOLDER PRICE    AGGREGATE
                                STOCK          PAID           VALUE AT IPO
                            ------------  --------------     ---------------
<S>                        <C>            <C>                <C>
      Venturetec...........    196,080    USD 2,000,016      USD  2,162,762
      Spring Technology....     49,020          500,004             540,691
      Peter Friedli........     49,608          506,002             547,176
</TABLE>

        These affiliates purchased the securities described above at the same
price and on the same terms and conditions as the unaffiliated investors in the
private financing. We also sold 367,648 shares at the same price in this
offering to Excite, Inc., one of our network partners. See "Business -- Our
Direct Marketing System -- Network Partners" for a discussion of our agreement
with Excite.

        Each of the warrants we have granted entitles its registered holder to
"piggyback" registration rights for the common stock underlying the warrants in
certain public offerings of our securities, subject to underwriter restrictions.

        Our board of directors determined the respective per share purchase
prices for the above-listed transactions based on the respective prices of our
securities sold contemporaneously to third parties who were not affiliated with
us.

LOANS TO MEMBERS OF MANAGEMENT AND BOARD OF DIRECTORS

        We do not have any outstanding loans to officers or the board of
directors.

OTHER TRANSACTIONS

        In July 1996, we entered into a consulting agreement with Friedli
Corporate Finance, Inc., whereby Mr. Friedli provides us with financial
consulting services and investor relations advice. Pursuant to this agreement,
Friedli Corporate Finance is paid USD 4,000 per month plus reimbursement of
expenses related to Mr. Friedli's services and accrues an additional USD 2,000
per month upon profitability. We paid Friedli Corporate Finance USD 63,000, USD
87,000 and USD 63,000, respectively, for Mr. Friedli's services rendered to us
during 1998, 1999 and 2000, under this agreement. In addition, under this
agreement, we granted Friedli Corporate



                                       39
<PAGE>   40



        Finance:

        -   a preemptive right to purchase any debt or equity securities issued
            by us in a financing transaction;

        -   a preemptive right to allocate 10% of the share offering in our
            initial public offering;

        -   a veto right on an single capital expenditure of USD 500,000 or more
            until our initial public offering; and

        -   a seat on our board of directors and its compensation committee.

        In October 2000, Friedli Corporate Finance permanently waived its rights
to purchase shares of common stock in our initial public offering and our future
offerings.



                                       40
<PAGE>   41



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

a)      1.  FINANCIAL STATEMENTS

        The following financial statements required by this item are submitted
        in a separate section beginning on page F-1 of this report.


        INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
<S>                                             <C>
        Independent Auditors' Report............   F-1
        Balance Sheets..........................   F-2
        Statements of Operations................   F-3
        Statements of Stockholders' Equity......   F-4
        Statements of Cash Flows................   F-5
        Notes to Financial Statements...........   F-6
</TABLE>


2.      FINANCIAL STATEMENT SCHEDULE

        See Schedule II attached.

b)      REPORTS ON FORM 8-K

        There were no reports on Form 8-K filed by the registrant during the
        fourth quarter of the fiscal year ended December 31, 2000.



c)      EXHIBITS

        See Exhibit Index attached.




                                       41
<PAGE>   42


                                   SIGNATURES


        Pursuant to the requirements of Section 13 or 15(d) of the Securities
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 Bethesda,
State of Maryland, on April 2, 2001.

                                         E-CENTIVES, INC.

                                         By: /s/ KAMRAN AMJADI
                                            ----------------------------------
                                            Kamran Amjadi
                                            Chairman and Chief Executive Officer

        Pursuant to the requirements of the Securities Act of 1934, this annual
report has been signed by the following persons on April 2, 2001 in the
capacities and on the date indicated.

<TABLE>
<CAPTION>
              NAME                               TITLE                          DATE
------------------------------------    -------------------------------   ---------------

<S>                                     <C>                               <C>
/s/ KAMRAN AMJADI
------------------------------------                                       April 2, 2001
Kamran Amjadi                           Chairman and Chief Executive
                                          Officer (Principal
                                          Executive Officer)

/s/ MEHRDAD AKHAVAN
------------------------------------                                       April 2, 2001
Mehrdad Akhavan                         President, Chief Operating
                                          Officer, Secretary and
                                          Director

/s/ TRACY SLAVIN
------------------------------------    Director of Accounting (Principal  April 2, 2001
Tracy Slavin                             Accounting Officer)

/s/ PETER FRIEDLI
------------------------------------                                       April 2, 2001
Peter Friedli                           Director

/s/ JAMES CACCAVO
------------------------------------                                       April 2, 2001
James Caccavo                           Director

</TABLE>



                                       42
<PAGE>   43


                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
e-centives, Inc.:

        We have audited the accompanying balance sheets of e-centives, Inc. as
of December 31, 1999 and 2000, and the related statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 2000. 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 in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of e-centives, Inc. as
of December 31, 1999 and 2000 and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States of
America.

KPMG LLP
McLean, Virginia
February 9, 2001




                                       F-1
<PAGE>   44



                                e-centives, INC.

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                              DECEMBER 31,
                                                                                       ------------------------
                                                                                            1999          2000
                                                                                       ------------------------
                                           ASSETS

<S>                                                                                  <C>             <C>
           Current assets:
             Cash and cash equivalents............................................   $    426,787    $  27,062,040
             Short-term investments...............................................        109,020          657,475
             Accounts receivable, net of allowance for doubtful
                accounts of $27,125 and $252,016 at December 31, 1999 and
               2000, respectively.................................................        793,490        3,007,426
             Prepaid expenses.....................................................        276,414        1,339,185
             Other................................................................         17,461            4,209
                                                                                     ------------    -------------
                     Total current assets.........................................      1,623,172       32,070,335
           Property and equipment, net............................................      1,584,273        2,993,413
           Intangible asset, net..................................................      2,250,000        1,250,000
           Other assets...........................................................         32,926           62,917
                                                                                     ------------    -------------
                     Total assets.................................................   $  5,490,371    $  36,376,665
                                                                                     ============    =============

                                          LIABILITIES AND STOCKHOLDERS' EQUITY
           Current liabilities:
             Accounts payable.....................................................      1,361,348        2,440,372
             Accrued expenses.....................................................        321,282          962,159
             Deferred revenue.....................................................        791,027          904,218
             Dividends payable....................................................             --        1,235,688
             Other liabilities....................................................         21,580               --
                                                                                     ------------    -------------
                     Total current liabilities....................................      2,495,237        5,542,437
           Long-term debt.........................................................      2,000,000               --
                                                                                     ------------    -------------
                     Total liabilities............................................      4,495,237        5,542,437
                                                                                     ------------    -------------
           Commitments and contingencies..........................................             --               --
           Stockholders' equity:
             Series A convertible preferred stock (voting),
                $.01 par value, 2,000,000 shares authorized,
                1,700,000 and 0 shares issued and outstanding at December 31,
                1999 and 2000, respectively.......................................         17,000               --
             Series B convertible preferred stock (voting),
                $.01 par value, 3,000,000 shares authorized,
                2,500,000 and 0 shares issued and outstanding at December 31,
                1999 and 2000, respectively.......................................         25,000               --
             Common stock, $.01 par value, 25,000,000 shares
                authorized, 4,874,375 and 15,168,434 shares issued and
                outstanding at December 31, 1999 and 2000 , respectively..........         48,744          151,684
             Additional paid-in capital...........................................     24,323,640       85,282,822
             Accumulated deficit..................................................    (23,419,250)     (54,600,278)
                                                                                     ------------    -------------
                 Total stockholders' equity.......................................        995,134       30,834,228
                                                                                     ------------    -------------
                 Total liabilities and stockholders' equity.......................   $  5,490,371    $  36,376,665
                                                                                     ============    =============


</TABLE>

                See accompanying notes to financial statements.


                                      F-2
<PAGE>   45



                               e-centives, INC.

                           STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                          ----------------------------------------
                                                              1998         1999           2000
                                                          -----------   -----------    -----------

<S>                                                       <C>          <C>          <C>
          Revenue.....................................    $        --  $    740,305  $ 10,230,035
          Cost of revenue
          (exclusive of
            depreciation and
            amortization).............................             --     1,027,696     2,207,855
                                                          -----------     ---------   -----------
              Gross profit (loss).....................             --      (287,391)    8,022,180
          Operating expenses:
            Product development, exclusive
              of stock-based
              compensation............................      1,160,521     2,426,695     2,872,572
            General and administrative,
              exclusive of stock-based
              compensation............................      1,236,685     4,083,459     8,764,830
            Sales and marketing, exclusive
              of stock-based
              compensation............................      2,479,863     7,889,517    19,005,844
            Network partner fees......................             --       730,550     6,353,937
            Stock-based compensation:.................
              Product development.....................             --       282,538       822,052
              General and administrative..............             --       297,155       333,215
              Sales and marketing.....................             --       474,503       558,382
                                                          -----------    ----------   -----------
               Loss from operations...................     (4,877,069)  (16,471,807)  (30,688,652)
          Interest income, net........................        309,691       267,712       693,312
          Other income................................             --        33,764        50,000
                                                          -----------    ----------   -----------
               Loss before income
                taxes.................................     (4,567,378)  (16,170,331)  (29,945,340)
          Income taxes................................             --            --            --
                                                          -----------    ----------   -----------
                   Net loss...........................     (4,567,378)  (16,170,331)  (29,945,340)
          Preferred stock dividend
            requirements and accretion of
            convertible redeemable
            preferred stock...........................       (382,500)     (382,500)     (551,773)
                                                          -----------     ---------   -----------
          Net loss applicable to common
            stockholders..............................    $(4,949,878) $(16,552,831) $(30,497,113)
                                                          ===========  ============  ============
          Basic and diluted net loss per
            common share..............................    $     (1.02) $      (3.40) $      (4.09)
          Shares used to compute basic and
            diluted net loss per common
            share.....................................      4,860,000     4,869,601     7,460,272
</TABLE>

                See accompanying notes to financial statements.




                                      F-3
<PAGE>   46


                                e-CENTIVES, INC.

                       STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                         SERIES A                    SERIES B
                                      PREFERRED STOCK             PREFERRED STOCK
                                   --------------------        -------------------
                                     SHARES     AMOUNT          SHARES    AMOUNT
                                   ---------  ---------        --------  --------
<S>                               <C>        <C>              <C>       <C>
Balance, December 31,
 1997........................       1,700,000 $ 17,000               --  $     --
Net loss.....................              --       --               --        --
                                    --------- ---------        --------  --------
Balance, December 31,
 1998........................       1,700,000   17,000               --        --
Issuance of Series B
 convertible preferred
 stock.......................              --       --         2,500,000   25,000
Exercise of stock options....              --       --               --        --
Stock-based compensation.....              --       --               --        --
Net loss.....................              --       --               --        --
                                    --------- ---------        --------  --------
Balance, December 31,
 1999........................       1,700,000   17,000         2,500,000   25,000
Issuance of warrants related
 to convertible redeemable
 preferred stock.............              --       --               --        --
Issuance of common stock in
 connection with initial public
 offering, net of offering costs           --       --               --        --
Exercise of stock options....              --       --               --        --
Conversion of Series A
 preferred stock to common
 stock........................     (1,700,000) (17,000)              --        --
Conversion of Series B
 preferred stock to common
 stock........................             --       --       (2,500,000)  (25,000)
Conversion of Series C
 convertible redeemable
 preferred stock to common
 stock .......................             --       --               --        --
Stock-based compensation......             --       --               --        --
Accretion of convertible
 redeemable preferred stock
 to redemption value..........             --       --               --        --
Declaration of dividends                   --       --               --        --
Net loss......................             --       --               --        --
                                    --------- ---------        --------  --------
Balance, December 31,
 2000.........................             -- $     --               --  $     --
                                    ========= =========        ========  ========
</TABLE>




<TABLE>
<CAPTION>
                                         COMMON STOCK     ADDITIONAL                  TOTAL
                                     -------------------    PAID-IN  ACCUMULATED  STOCKHOLDERS'
                                       SHARES    AMOUNT     CAPITAL     DEFICIT      EQUITY
                                      -------    ------   ---------- ----------    ----------
<S>                                 <C>        <C>       <C>         <C>          <C>
Balance, December 31,
 1997..........................      4,860,000  $ 48,600 $9,769,900   $(2,681,541) $ 7,153,959
Net loss.......................             --        --         --    (4,567,378)  (4,567,378)
                                     ---------  -------- ----------   -----------  -----------
Balance, December 31,
 1998..........................      4,860,000    48,600  9,769,900    (7,248,919)   2,586,581
Issuance of Series B
 convertible preferred
 stock.........................             --        -- 13,475,000            --   13,500,000
Exercise of stock options......         14,375       144     24,544            --       24,688
Stock-based compensation.......             --        --  1,054,196            --    1,054,196
Net loss.......................             --        --         --   (16,170,331) (16,170,331)
                                     ---------  -------- ----------   -----------  -----------
Balance, December 31,
 1999..........................      4,874,375    48,744 24,323,640   (23,419,250)     995,134
Issuance of warrants related
 to convertible redeemable
 preferred stock...............             --        --    773,068            --      773,068
Issuance of common stock in
 connection with initial public
 offering, net of offering cost      3,700,000    37,000 36,667,896            --   36,704,896
Exercise of stock options....           65,625       656    144,031            --      144,687
Conversion of Series A
 preferred stock to common
 stock........................       1,700,000    17,000         --            --           --
Conversion of Series B
 preferred stock to common
 stock........................       2,500,000    25,000         --            --           --
Conversion of Series C
 convertible redeemable
 preferred stock to common
 stock .......................       2,328,434    23,284 21,925,436            --   21,948,720
Stock-based compensation......              --        --  1,713,649            --    1,713,649
Accretion of convertible
 redeemable preferred stock
 to redemption value..........              --        --   (264,898)           --     (264,898)
Declaration of dividends                    --        --         --    (1,235,688)  (1,235,688)
Net loss......................              --        --         --   (29,945,340) (29,945,340)
                                    ----------  -------- ----------   -----------  -----------
Balance, December 31,
 2000.........................      15,168,434  $151,684 $85,282,822 $(54,600,278) $30,834,228
                                    ==========  ======== ===========  ===========  ===========
</TABLE>

                 See accompanying notes to financial statements.

                                      F-4
<PAGE>   47



                                e-CENTIVES, INC.

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                   ----------------------------------------------
                                                        1998            1999            2000
                                                   -------------    ------------    -------------

<S>                                                <C>             <C>             <C>
        Cash flows from operating activities:
          Net loss..............................   $  (4,567,378)   $(16,170,331)   $ (29,945,340)
          Adjustments to reconcile net loss to
            net cash used in operating
            activities:
            Depreciation and amortization.......         143,442       1,170,829        2,093,805
            Stock-based compensation ...........              --       1,054,196        1,713,649
            Provision for doubtful accounts.....              --              --          489,973
            (Increase) decrease in:
              Accounts receivable...............              --        (793,490)      (2,703,909)
              Prepaid expenses and other
                 assets.........................         (83,599)       (216,085)      (1,049,519)
            Increase (decrease) in:
              Accounts payable..................         (86,832)      1,170,441        1,079,023
              Deferred revenue..................              --         791,027          113,191
              Accrued expenses and other
                 liabilities....................         295,276          89,304          619,297
                                                   -------------    ------------    -------------
                 Net cash used in operating
                   activities...................      (4,299,091)    (12,904,109)     (27,589,830)
                                                   -------------    ------------    -------------
        Cash flows from investing activities:
          Purchases of short-term investments,
            net.................................         (43,125)         (4,390)        (548,455)
          Acquisition of property and
            equipment...........................        (364,619)     (1,566,307)      (2,502,945)
          Purchase of intangible asset..........              --      (3,000,000)              --
          Increase in security deposits.........              --              --          (29,991)
                                                   -------------    ------------    -------------
                 Net cash used in investing
                   activities...................        (407,744)     (4,570,697)      (3,081,391)
                                                   -------------    ------------    -------------
        Cash flows from financing activities:
          Proceeds from issuance of debt........              --       2,000,000               --
          Issuance of common stock..............              --              --       36,704,896
          Issuance of Series B convertible
            preferred stock.....................              --      13,500,000               --
          Issuance of Series C convertible
            redeemable preferred stock                        --              --       20,456,891
          Exercise of stock options.............              --          24,688          144,687
                                                   -------------    ------------    -------------
                 Net cash provided by financing
                   activities...................              --      15,524,688       57,306,474
                                                   -------------    ------------    -------------
                 Net increase (decrease) in cash
                   and cash equivalents.........      (4,706,835)     (1,950,118)      26,635,253
        Cash and cash equivalents, beginning
          of period.............................       7,083,740       2,376,905          426,787
                                                   -------------    ------------    -------------
        Cash and cash equivalents,
          end of period.........................   $   2,376,905       $ 426,787    $  27,062,040
                                                   =============    ============    =============
        Supplemental Disclosure of Noncash
          Financing Activities:
</TABLE>

        In conjunction with the issuance of Series C convertible redeemable
preferred stock in 2000, the Company issued warrants, valued at $773,068, for
the purchase of 119,485 shares of common stock.

        On February 18, 2000, the long-term debt was converted into 196,078
shares of Series C convertible redeemable preferred stock at $10.20 per share.

        During September 2000, the Company declared dividends of $1,235,688 on
Series A convertible preferred stock.

        Each share of Series A and Series B convertible preferred stock and
Series C convertible redeemable preferred stock automatically converted into one
share of common stock subsequent to closing of the Company's initial public
offering on October 10, 2000.



                 See accompanying notes to financial statements.



                                      F-5
<PAGE>   48



                                e-CENTIVES, INC.

                          NOTES TO FINANCIAL STATEMENTS

(1) ORGANIZATION

        e-centives, Inc. ("e-centives" or the "Company") was established as
Imaginex, Inc. on August 2, 1996, through incorporation in the State of
Delaware. During October 1996, the Company amended its articles of incorporation
to change its name to Emaginet, Inc. In March 1999, the Company amended its
articles of incorporation to change its name to e-centives, Inc.

        The Company provides an online direct-marketing system to a network of
merchants, high-traffic Internet sites and consumers. This direct-marketing
system enables merchants to target and deliver personalized electronic
incentives ("e-centives") to consumers.

        The Company operates in a highly competitive environment and inherent in
the Company's business are various risks and uncertainties including its limited
operating history and unproven business model. The Company's success may depend
in part upon the continuance of the Internet as a communications medium,
prospective product and service development efforts, and the acceptance of the
Company's offerings by the marketplace. The Company expects to expand its
operations through continued capital investment. The Company is not currently
generating sufficient cash flows from operations to support its current
operating and capital requirements and is dependent on additional financing to
fund these requirements. Management believes current existing capital will be
sufficient to continue operations through 2001.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Cash and Cash Equivalents and Short-Term Investments

        All highly liquid investments with a maturity of three months or less
    when purchased are considered cash equivalents and those with a maturity
    between three and twelve months are considered short-term investments. Cash
    and cash equivalents consists of cash on deposit with banks and money market
    funds stated at cost which approximates fair value. In accordance with
    Statement of Financial Accounting Standards No. ("SFAS") 115, Accounting for
    Certain Investments in Debt and Equity Securities, the Company classifies
    all short-term investments as available-for-sale. Accordingly, these
    investments are carried at fair value. The fair value of such securities
    approximates cost and there were no material unrealized gains or losses at
    December 31, 1999 or 2000. The Company's portfolio of short-term investments
    at December 31, 2000 matures during 2001. Short-term investments consist of
    certificates of deposit.

(b) Concentration of Credit Risk

        Financial instruments which potentially subject the Company to
    concentrations of credit risk consists of cash and cash equivalents,
    short-term investments and accounts receivable. The Company maintains its
    cash and cash equivalents and short-term investments with high quality
    financial institutions. At times, these accounts may exceed federally
    insured limits. The Company has not experienced any losses in such bank
    accounts.

        There has been a recent slowdown in the Internet sector in the United
    States, particularly with respect to retail Internet companies. Many retail
    Internet companies are having difficulties raising capital, borrowing money
    and otherwise funding their operating losses. Most of our marketer clients
    are retail Internet companies, many of which have significant losses,
    negative cash flow and limited access to capital. These marketer clients are
    experiencing even greater cash flow problems due to this slowdown.
    Therefore, many of our marketer clients could fail. As a result of the
    difficulties of some of our marketer clients, we have had to expend
    additional effort to collect our accounts receivable, and in certain cases
    have had to settle for less than the total amount owed. In the year ended
    December 31, 2000, we incurred charges related to a net increase of $225,000
    in our provision for doubtful accounts from 1999. While we believe that our
    allowance for doubtful accounts as of December 31, 2000 is adequate to cover
    any difficulties with the collection of our accounts receivable balance,
    there can be no assurance that the allowance will be adequate to cover any
    receivables later deemed to be uncollectible.

        The Company believes it is not exposed to significant credit risk
    related to cash and cash equivalents and short-term investments.




                                      F-6
<PAGE>   49



        One customer accounted for 11% of the Company's accounts receivable at
    December 31, 1999. There were two customers that accounted for 15% and 18%,
    respectively, of the Company's accounts receivable at December 31, 2000. For
    the year ended December 31, 1999, no one customer accounted for more than
    10% of revenue. For the year ended December 31, 2000, three customers
    accounted for 15%, 12% and 12%, respectively of the Company's revenue.

(c) Fair Value of Financial Instruments

        The Company considers the carrying value of the Company's financial
    instruments, which include cash equivalents, short-term investments,
    accounts receivable, accounts payable, and accrued expenses to approximate
    fair value at December 31, 1999 and 2000 because of the relatively short
    period of time between origination of the instruments and their expected
    realization or settlement. The carrying value of the Company's long-term
    debt approximates fair value at December 31, 1999 because of the relatively
    short period of time between origination of the debt and its expected
    maturity or conversion into Series C Convertible Redeemable Preferred Stock.

(d) Allowance for Doubtful Accounts Receivable

        The Company maintains reserves for potential credit losses based on
    historical experience and ongoing customer credit evaluations.

(e) Property and Equipment

        Property and equipment are stated at cost. Depreciation is calculated
    using the straight-line method over the estimated useful lives of the assets
    which range from three to seven years. The costs of leasehold improvements
    are capitalized and amortized using the straight-line method over the
    shorter of their estimated useful life or the term of the respective lease.

(f) Intangibles

        Intangible assets consists of a purchased patent which is amortized over
    the economic useful life of three years and reviewed for impairment whenever
    the facts and circumstances indicate that the carrying amount may not be
    recoverable. As of December 31, 2000, the related accumulated amortization
    was $1,750,000.

(g) Revenue Recognition

        Revenue is generated by providing e-centives related services, licensing
    the Company's software product and providing other services including
    maintenance and technical support and consulting. The Company's suite of
    e-centives related services is principally comprised of PromoCast,
    PromoCommerce, PromoMail. We also offer services on a performance contract
    basis.

        Merchants who subscribe to the PromoCast service enter into fixed-fee
    contracts for delivery of either a specified or unlimited number of
    e-centives by the Company to the accounts of a targeted group of members
    over the contractual period, not to exceed one year. Each e-centive has an
    expiration date, typically 30 days from the date the e-centive is placed in
    a member's account. An e-centive is considered delivered when a member
    visits their account. Because the Company has an obligation to maintain the
    e-centive on its system until it expires, the Company recognizes revenue
    upon expiration of the delivered e-centive. Revenue related to delivery of
    an unlimited quantity of e-centives is recognized ratably over the contract
    term.

        The PromoCommerce service, sold to merchants, represents a fixed-fee
    contract consisting of several components including a PromoCast package,
    perpetual software license and maintenance on the accompanying software.
    Revenue for this service is recognized ratably over the term of the
    contract. The Company has not sold software or maintenance separately;
    therefore, vendor specific objective evidence has not been established. The
    related revenue is recognized ratably over the term of the contract in
    accordance with AICPA Statement of Position ("SOP") No. 97-2, Software
    Revenue Recognition, as amended by SOP 98-9, Modification of SOP 97-2,
    Software Revenue Recognition, With Respect to Certain Transactions.

        The PromoMail service, sold to merchants, consists of targeted e-mails
    highlighting specific e-centives. Participating merchants are charged a
    fixed fee for each member to whom the e-mail is sent. Revenue related to the
    PromoMail service is recognized upon transmission of the e-mail.



                                      F-7
<PAGE>   50



        When marketers purchase services on a performance contract basis,
    e-centives are delivered by the same methods as in the PromoCast or
    PromoMail services, but revenue is based solely on the performance of the
    e-centives. The Company earns a contractually specified amount based on the
    number of times a member clicks on the offer or the amount of sales the
    offer generates. Revenue is recognized upon the click-through or upon
    notification by the marketer of the number of applicable sales.

        Merchants may contract for consulting services, such as assistance with
    promotions planning. Revenue related to these consulting services is
    recognized as the related services are provided.

(h) Deferred Revenue

        Deferred revenue represents billings or collections on contracts in
    advance of performance of services and is amortized into revenue as the
    related service is performed based upon the applicable revenue recognition
    methodology.

(i) Cost of Revenue

        Cost of revenue represents expenses related to providing online
    promotions to merchants and includes a portion of the salaries, benefits and
    related expenses of Company personnel responsible for creating and
    delivering e-centives, installing and supporting the Company's software
    applications and related technology, revenue share amounts due to network
    partners and hosting the Company's web-based applications.

(j) Product Development Costs

        Product development costs represent expenses related to maintaining and
    enhancing the Company's service offerings, and includes a portion of the
    salaries, benefits and related expenses of Company personnel responsible for
    maintaining and enhancing the Company's proprietary database, offer creation
    and delivery software, e-mail delivery infrastructure, and creation and
    management of member accounts. Product development costs are expensed as
    incurred.

        Development costs related to the software product marketed by the
    Company are accounted for in accordance with SFAS 86, Accounting for the
    Costs of Computer Software to be Sold, Leased or Otherwise Marketed. Under
    the standard, capitalization of software development costs begins upon the
    establishment of technological feasibility, subject to net realizable value
    considerations. To date, the period between achieving technological
    feasibility and the general availability of such software has been short;
    therefore, software development costs qualifying for capitalization have
    been immaterial. Accordingly, the Company has not capitalized any software
    development costs and has charged all such costs to product development
    expense.

(k) Sales and Marketing Expense

        Sales and marketing costs include expenses incurred by the Company for
    ongoing sales, marketing and advertising activities, which are expensed as
    incurred.

(l) Network Partner Fees

        Network partner fees includes contractual payments made to network
    partners for members, advertising, and exclusivity on the network partners'
    sites. These partner payments are being accrued ratably into network partner
    fees over the term of the respective agreement.

(m) Stock-Based Compensation

        The Company accounts for employee stock-based compensation arrangements
    in accordance with the provisions of Accounting Principles Board Opinion No.
    ("APB") 25, Accounting for Stock Issued to Employees, and complies with the
    disclosure provisions of SFAS 123, Accounting for Stock-Based Compensation.
    Under APB 25, compensation expense is based upon the difference, if any, on
    the date of the grant, between the fair value of the Company's stock and the
    exercise price.

(n) Advertising

        Advertising costs are expensed as incurred. Advertising expense was
    $472,764, $3,738,570 and $12,537,281 during 1998, 1999, and 2000,
    respectively.


                                      F-8
<PAGE>   51



(o) Income Taxes

        The Company uses the asset and liability method of accounting for income
    taxes. Under the asset and liability method, deferred tax assets and
    liabilities are recognized for future tax consequences attributable to
    differences between the financial statement carrying amounts of existing
    assets and liabilities and their respective tax bases. Deferred tax assets
    and liabilities are measured using enacted tax rates expected to apply to
    taxable income in the years in which those temporary differences are
    expected to be recovered or settled. The effect on deferred tax assets and
    liabilities of a change in tax rates is recognized in income in the period
    that includes the enactment date.

(p) Start-Up Costs

        The costs of start-up activities, including organizational costs, are
    expensed as incurred in accordance SOP 98-5, Reporting on the Costs of
    Start-Up Activities.

(q) Long-Lived Assets

        The Company assesses the recoverability of long-lived assets whenever
    adverse events or changes in circumstances or business climate indicate that
    an impairment may have occurred. If the future undiscounted cash flows
    expected to result from the use of the related assets are less than the
    carrying value of such assets, an impairment has been incurred and a loss is
    recognized to reduce the carrying value of the long-lived assets to fair
    value, which is determined by discounting estimated future cash flows. The
    Company has not recognized an impairment loss in any of the periods
    presented.

(r) Net Income (Loss) Per Share

        The Company computes net income (loss) available per share in accordance
    with SFAS 128, Earnings Per Share, and SEC Staff Accounting Bulletin No.
    ("SAB") 98. Under the provisions of SFAS 128 and SAB 98, basic net income
    (loss) available per share is computed by dividing the net income (loss)
    available to common stockholders for the period by the weighted average
    number of common shares outstanding during the period. Diluted net income
    (loss) available per share is computed by dividing the net income (loss) for
    the period by the weighted average number of common and dilutive common
    equivalent shares outstanding during the period. The Company has presented
    historical basic and diluted net income (loss) available per share in
    accordance with SFAS 128. As the Company had a net loss in each of the
    periods presented, basic and diluted net income (loss) available per share
    is the same.

(s) Use of Estimates

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

(t) Comprehensive Income

        Effective January 1, 1998, the Company adopted the provisions of SFAS
    130, Reporting Comprehensive Income. SFAS 130 establishes standards for
    reporting comprehensive income and its components in financial statements.
    Comprehensive income, as defined, includes all changes in equity (net
    assets) during a period from non-owner sources. To date, the Company has not
    had any transactions that are required to be reported as other comprehensive
    income.

(u) Segment Information

        The Company operates in a single reportable segment and will evaluate
    additional segment disclosure requirements as it expands its operations.

(v) Retirement Plan

        The Company sponsors a defined contribution retirement plan established
    under the provisions of Internal Revenue Code


                                      F-9
<PAGE>   52



    401(k). Participating employees may elect to contribute up to 20% of their
    eligible wages. The Company contributes amounts to the plan on a
    discretionary basis up to 5% of each eligible employees' wages. The Company
    has not made any discretionary contributions.

(w) Recent Accounting Pronouncements

        In June 1998, the Financial Accounting Standards Board issued SFAS 133,
    Accounting For Derivative Instruments and Hedging Activities. In June 2000,
    the FASB issued SFAS 138, Accounting for Certain Derivative Instruments and
    Certain Hedging Activity, an amendment of SFAS 133. SFAS 133 and SFAS 138
    require that all derivative instruments be recorded on the balance sheet at
    their respective fair values. SFAS 133 and SFAS 138 are effective for all
    fiscal quarters of all fiscal years beginning after 2000. The Company will
    adopt SFAS 133 and SFAS 138 on January 1, 2001. The Company does not expect
    the adoption of these standards will have a material impact on its financial
    condition, results of operations or cash flows.

        In May 2000, the Emerging Issues Task Force released Issue No. 00-2,
    Accounting for Web Site Development Costs. EITF 00-2 establishes standards
    for determining the capitalization or expensing of incurred costs relating
    to the development of Internet web sites based upon the respective stage of
    development. The Issue is effective for fiscal quarters beginning after June
    30, 2000 (including costs incurred for projects in process at the beginning
    of the quarter of adoption). The adoption of EITF 00-2 did not have a
    material impact on the Company's financial condition, results of operations
    or cash flows.

        In December 1999, the SEC issued Staff Accounting Bulletin No. ("SAB")
    101, Revenue Recognition in Financial Statements, which provides additional
    guidance in applying generally accepted accounting principles for revenue
    recognition. The Company believes its revenue recognition policy is in
    compliance with SAB 101.

        In March 2000, the Financial Accounting Standards Board issued FASB
    Interpretation No. 44, Accounting for Certain Transactions Involving Stock
    Compensation, an Interpretation of APB Opinion No. 25. With the exception of
    certain provisions which require earlier application, this interpretation is
    effective for all applicable transactions beginning July 1, 2000. Adoption
    of this Interpretation did not have a material impact on the Company's
    financial condition, results of operations or cash flows.

(3) PROPERTY AND EQUIPMENT

    Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                     DECEMBER 31,
                                                -----------------------
                                                    1999        2000
                                                ----------    ---------
<S>                                           <C>          <C>
            Computer equipment................  $2,046,520   $4,041,020
            Furniture and equipment...........     127,021      501,506
            Leasehold improvements............      19,986      153,946
                                                ----------    ---------
                                                 2,193,527    4,696,472
            Less: accumulated depreciation and
            amortization......................    (609,254)  (1,703,059)
                                                ----------   ----------
                                                $1,584,273   $2,993,413
                                                ==========   ==========
</TABLE>

(4) INTANGIBLE ASSET ACQUIRED

        The Company acquired a patent for "Electronic couponing method and
    apparatus" in April 1999 from SellectSoft, a software developer, for
    $3,000,000. The patent was recorded at the estimated fair value on the date
    of the acquisition and is being amortized on a straight-line basis over
    three years. As of December 31, 2000, the accumulated amortization on the
    patent was $1,750,000.

(5) LONG-TERM DEBT

        During 1999, the Company issued two debt instruments totaling
    $2,000,000. Each instrument had a face value of $1,000,000, accrued interest
    at 7.0 percent and was convertible into Series C Convertible Redeemable
    Preferred Stock ("Series C") during the period from initial designation of
    the Series C shares through February 15, 2000 unless extended by the
    Company. On February 18, 2000, the debt was converted into 196,078 shares of
    Series C stock at $10.20 per share. As a result of this conversion, the debt
    was classified as long-term as of December 31, 1999. In accordance with the
    terms of Series C, all accrued unpaid interest became payable in a single
    installment on the date of conversion.

(6) CONVERTIBLE PREFERRED STOCK

        In June 1997, the Company sold 1,700,000 shares of its Series A
    convertible preferred stock at a per share price of $4.50 for an aggregate
    consideration of $7.65 million to raise capital to finance its operations.
    In February 1999, the Company sold



                                      F-10
<PAGE>   53



    2,500,000 shares of its Series B convertible preferred stock at a per share
    price of $6.00 for an aggregate consideration of $15 million.

        On January 19, 2000, the Company amended and restated its Articles of
    Incorporation to authorize 2,330,000 shares of Series C stock with a par
    value of $.01. On February 18, 2000, the Company issued 2,328,434 shares of
    Series C stock at a price of $10.20 per share and approximate total gross
    proceeds of $23,800,000 including $2,000,000 related to the conversion of
    long-term debt. In conjunction with the Series C Preferred Stock sale, the
    Company issued warrants to purchase 119,485 shares of common stock at $10.20
    per share. These warrants were valued at $773,068.

        On September 22, 2000, the Company declared dividends of $1,235,688 on
    Series A convertible preferred stock.

        Each share of Series A, Series B and Series C convertible preferred
    stock automatically converted into one share of common stock subsequent to
    closing of the Company's initial public offering on October 10, 2000.

(7) RELATED PARTY TRANSACTION

        In July 1996, the Company entered into a consulting agreement with
    Friedli Corporate Finance, Inc. ("FCF"). Peter Friedli, President of FCF, is
    related to the Company through his significant direct and indirect ownership
    of common stock, options and warrants. The agreement expires during December
    2004.

        Under the agreement, FCF provides services to the Company in the form of
    consultation, advice and other assistance upon the Company's request. Such
    services may include, but are not limited to, (a) providing general
    business, financial and investment advice to the Company during the term of
    the agreement, and (b) serving as liaison between FCF clients/investors and
    the Company by disseminating information to such investors on behalf of the
    Company. Consulting expense under the FCF agreement was approximately
    $63,000, $87,000 and $63,000 for the years ended December 31, 1998, 1999 and
    2000, respectively.

        During 1999, the Company issued a convertible long-term debt instrument
    for $1,000,000 to an investment group controlled by FCF. This instrument was
    converted into common stock upon consummation of the IPO.

 (8) STOCK COMPENSATION

(a) Stock Options

        The Company has a stock option plan which provides for the granting of
    options to directors and employees of the Company to purchase shares of its
    common stock within prescribed periods. The options generally vest over four
    years, one-fourth of the shares on each of the first through fourth
    anniversaries of the date of grant, and expire ten years after the grant
    date. As of December 31, 2000, the Company has reserved 3,200,000 shares of
    common stock for issuance under the plan.

        During 1997 and 1998, 100,018 performance-based option grants were made
    to certain key employees at an exercise price of $2.50. During 1999, 160,400
    additional performance-based option grants were made to certain key
    employees, with an exercise price of $2.50 for 50,000 of these options and
    $3.50 for the remaining 110,400 options. No performance-based option grants
    were made in 2000. Compensation expense of $681,972 and $733,137 was
    recorded in 1999 and 2000, respectively, related to these options.

        The Company has elected to follow APB 25 and related interpretations in
    accounting for its employee stock options rather than the alternative fair
    value accounting method allowed by SFAS 123. APB 25 provides that
    compensation expense relative to the Company's employee stock options is
    measured based upon the intrinsic value of the stock option. SFAS 123
    requires companies that continue to follow APB 25 to provide pro forma
    disclosure of the impact of applying the fair value method of SFAS 123.

        In accordance with APB 25, because the exercise price of the Company's
    employee stock options equaled the fair value of the underlying stock on the
    date of grant, no compensation expense was recognized in 1998. In 1999 and
    2000, the Company recorded equity-based compensation expense of $372,224 and
    $980,512, respectively relating to options to purchase 960,800 shares
    granted in 1999 and 1,517,564 shares granted in 2000 equal to the difference
    between the fair value of the Company's common stock on the grant date and
    the exercise price of the options. Additionally, the Company expects to
    incur approximately $4.7 million of compensation expense during the period
    2001 through 2004 relating to options granted in 1999 and 2000 equal to the
    difference between the fair value of the Company's common stock on the grant
    date and the exercise price of the options. The expense will be recognized
    ratably over the vesting period of the options, which is generally 4 years.



                                      F-11
<PAGE>   54



        Had compensation expense for the Company's stock option plan been
    determined based upon the fair value methodology under SFAS 123, the
    Company's net loss would have increased to these pro forma amounts:


<TABLE>
<CAPTION>

                                                              YEAR ENDED DECEMBER 31,
                                                     ------------------------------------------
                                                          1998         1999           2000
                                                     ------------  ------------   -------------
<S>                                                 <C>           <C>            <C>
    Net loss applicable to common stockholders:
      As reported.................................   $ (4,949,878) $(16,552,831)  $(30,497,113)
      Pro forma...................................     (4,998,884)  (16,682,893)   (31,675,819)
    Basic and diluted net loss per share:
      As reported.................................   $     (1.02)  $     (3.40)   $      (4.09)
      Pro forma...................................         (1.03)        (3.43)          (4.25)
</TABLE>


        The fair value of these options was estimated at the date of grant using
    the Black-Scholes option pricing model on the date of grant using the
    following assumptions:

<TABLE>
<CAPTION>

                                                               YEAR ENDED
                                                               DECEMBER 31,
                                                            ------------------
                                                            1998  1999   2000
                                                            ----- ------ -----
<S>                                                        <C>    <C>    <C>
                Risk-free interest rates.............        4.6%  6.4%   5.0%
                Expected lives (in years)............        5.0   5.0    5.0
                Dividend yield.......................         --    --     --
                Expected volatility (1)...............        --    --    100%
</TABLE>


    (1) 0% expected volatility was used for all options granted prior to the
        initial public offering on October 3, 2000.

        The weighted-average fair value of stock options granted during 1998,
    1999 and 2000 was $0.53, $4.46, and $5.78, respectively.

    A summary of the Company's stock option activity and weighted average
    exercise price is as follows:



<TABLE>
<CAPTION>

                                                         WEIGHTED
                                                         --------
                                            NUMBER        AVERAGE
                                            ------        -------
                                              OF          EXERCISE
                                              --          --------
                                            SHARES         PRICE
                                            ------         -----
<S>                                       <C>           <C>
        Balance, December 31, 1997          265,736       $ 2.18
        Granted........................     381,500         2.50
        Exercised......................          --           --
                                          ---------
        Balance, December 31, 1998          647,236         2.37
        Granted........................   1,183,300         2.95
        Exercised......................     (14,375)        1.72
        Canceled.......................     (65,125)        2.33
                                          ---------
        Balance, December 31, 1999        1,751,036         2.77
        Granted........................   1,570,064         8.28
        Exercised......................     (65,625)        2.11
        Canceled.......................    (440,625)        2.98
                                          ---------
        Balance, December 31, 2000.....   2,814,850       $ 5.82
                                          =========
</TABLE>

        The following table summarizes information concerning currently
    outstanding and exercisable options at December 31, 2000:


<TABLE>
<CAPTION>

                                  OPTIONS OUTSTANDING
                                  ----------------------
                                               WEIGHTED-
                                  NUMBER       AVERAGE                  OPTIONS
                RANGE OF        OUTSTANDING   REMAINING               EXERCISABLE
                EXERCISE             AT      CONTRACTUAL                  AT
                 PRICES          12/31/00        LIFE                  12/31/00
                --------        ----------   ------------             ----------
             <S>                <C>        <C>                       <C>
                 $ 0.25             5,000      5.9 years                 5,000
                 $ 1.00            10,000      6.0 years                 7,500
                 $ 2.50           814,986      7.9 years               567,111
                 $ 3.50           764,864      8.8 years               381,582
                 $ 6.50           625,500      9.5 years                45,000
                 $ 8.02- $8.75     18,000      9.9 years                    --
                 $10.56- $12.46    26,500      9.8 years                    --
                 $13.00           550,000      9.5 years               150,000
                                 ========                            ---------
                                2,814,850      8.8 years             1,156,193
                                                                     =========
</TABLE>

(b) Warrants

                                      F-12
<PAGE>   55




        The Company has issued warrants to purchase common shares in connection
    with several equity issuances. The 1997 grant was in connection with the
    issuance of Series A preferred stock. The 1999 grant was in connection with
    the issuance of Series B preferred stock. The 2000 grant was in conjunction
    with the issuance of Series C convertible redeemable preferred stock. The
    following table sets forth the warrants outstanding and their weighted
    average exercise price:

<TABLE>
<CAPTION>
                                                           SHARES    PRICE
                                                          -------    ------
<S>                                                     <C>        <C>
                 Balance, December 31, 1997.........      230,000    $ 3.35
                 Granted............................           --        --
                 Exercised..........................           --        --
                                                          -------
                 Balance, December 31, 1998.........      230,000      3.35
                 Granted............................      250,000      6.00
                 Exercised..........................           --        --
                                                          -------
                 Balance, December 31, 1999.........      480,000      4.73
                 Granted............................      119,485     10.20
                 Exercised..........................           --        --
                                                          -------
                 Balance, December 31, 2000.........      599,485    $ 5.82
                                                          =======
</TABLE>

        As of December 31, 1998, 1999 and 2000, all of the warrants were
    exercisable on a one-for-one basis into shares of common stock at the option
    of the holder. As of December 31, 2000, the remaining life of all
    outstanding warrants was 3 years.

(9) COMMITMENTS

(a) Leases

      The Company is obligated under several noncancelable operating lease
   agreements for office space expiring through 2005. As of December 31, 2000,
   future minimum lease payments required under these noncancelable operating
   leases are as follows:


<TABLE>
<CAPTION>

                           <S>                           <C>
                             2001                          $ 1,741,000
                             2002                            1,652,000
                             2003                            1,702,000
                             2004                            1,753,000
                             2005                            1,227,000
                                                             ---------
                                                           $ 8,075,000
</TABLE>

        Rent expense under operating leases was approximately $185,000, $357,000
    and $955,000 for the years ended December 31, 1998, 1999 and 2000,
    respectively.

(b) Partner Payments

        During March 1999, the Company entered into a two-year agreement with
    Excite. This agreement required monthly payments commencing in March 1999
    and totaling approximately $540,000 over the two-year term of the agreement
    for sponsorship and advertising fees. Such amount was being accrued ratably
    into network partner fees over the term of the agreement. In return for
    these fees, the partner must have run a specified number of the Company's
    advertising banners and promotional placements on its high-traffic Internet
    site. The terms of the contract were to be extended if this specified number
    was not met within the two-year period. During February 2000, this agreement
    was renegotiated.

        On February 16, 2000, the Company entered into a new agreement with
    Excite whereby members will be registered through Excite's registration
    process. Excite has agreed to provide the Company with at least 12,000,000
    new members during the three-year term of the agreement in exchange for a
    per member fee. Over the term of the agreement, the Company is obligated to
    make a total of $19,650,000 in payments for these members, payable at
    $1,637,500 on a quarterly basis. However, at the end of the term of the
    agreement, to the extent Excite has not provided 12,000,000 members, the
    Company is entitled to a refund calculated on a ratable basis. Such payments
    are recorded as prepaid expense and accrued into sales and marketing expense
    on a pro-rata basis based upon the number of members provided pursuant to
    the terms of the agreement.

        Under this agreement, Excite agreed to purchase a minimum number of
    e-centives for at least $3.75 million over three years. At the beginning of
    each fiscal quarter, Excite is contractually obligated to purchase
    e-centives worth $312,500. Revenue will be recognized upon the expiration
    date of each resold e-centive. Pursuant to the agreement, Excite is required
    to sell these e-centives within six months. If Excite does not sell the
    e-centives within six months of purchase, the e-centives are forfeited and
    the value of the unsold e-centives will be recognized as revenue.

        On December 21, 2000, Excite agreed to amend our existing agreement to
    change the expiration dates for the e-centives purchased by Excite from six
    months after the end of the quarter in which such e-centives were purchased
    to the last day of the quarter in which such e-centives were purchased.
    Since we recognize revenue upon the resale or expiration of e-centives
    under this agreement, this amendment had the effect of allowing us to
    recognize $625,000 in additional revenue in 2000 that otherwise would have
    been recognized in 2001.

                                     F-13
<PAGE>   56



        Excite participated in the Series C financing round in February 2000.

        During May 1999, the Company entered into another agreement with the
    operator of a high-traffic Internet site requiring a payment of $250,000 at
    inception of the contract and monthly payments totaling approximately
    $350,000 over the two-year term of the agreement, commencing in September
    1999. These non-refundable payments are prepayments of potential transaction
    and licensing fees as well as for the placement of a specified number of the
    Company's advertising banners and promotional placements on the partner's
    Internet site. The initial payment is included in prepaid expenses and is
    being amortized ratably into network partner fees over the term of the
    agreement. The monthly payments are being accrued ratably into network
    partner fees over the term of the agreement.

        In November 1999, the Company renegotiated two partner agreements
    entered into in September 1998, thereby eliminating the agreements' revenue
    share provisions and changing the future payments due. All future payments
    made in conjunction with both of these renegotiated agreements are
    recognized as network partner fees. For one of the partner agreements, in
    1999, the Company made an additional quarterly payment of $150,000. The
    renegotiated contract changed the remaining payment structure from quarterly
    payments totaling $600,000 to equal monthly installments totaling $300,000,
    commencing November 1999. For the other 1998 partner agreement, the Company
    is obligated to make one additional payment (for total monthly payments
    approximating $420,000) as the term of the agreement was extended by one
    month due to the renegotiated contract. All contractual partner payments
    referred to above are being accrued ratably into network partner fees over
    the terms of the respective agreements.

        Beginning in March 2000, the Company began delivering e-mails to members
    on behalf of ZDNet which contain content supplied by ZDNet and do not
    contain an e-centive. These e-mails serve as notification to the members of
    an offer or promotion maintained on ZDNet's site. ZDNet is charged a fixed
    fee for each e-mail. Revenue related to the delivery of these e-mails is
    recognized upon delivery to the members.

        As of December 31, 2000, the Company was party to agreements with 23
    network partners. These agreements typically cover periods from one to three
    years and require the Company to make monthly or quarterly payments for
    members, advertising and exclusivity on the network partners' sites.

        The Company's remaining commitment related to all partner agreements for
    the years 2001 and 2002 is approximately $7.0 million and $6.6 million,
    respectively.

(c) Employment Agreements

        The Company has employment agreements with certain officers and
    employees. The Company also has bonus agreements with certain officers and
    employees as defined in the agreements.

(10) INCOME TAXES

        The Company has incurred operating losses since its inception and has
recognized no current or deferred tax provision or benefit. The provision for
income taxes is different from that which would be obtained by applying the
statutory federal income tax rate to loss before income taxes. The items causing
this difference are as follows:

<TABLE>
<CAPTION>
                                                               YEAR ENDED          YEAR ENDED
                                                            DECEMBER 31, 1999   DECEMBER 31, 2000
                                                            -----------------   -----------------


<S>                                                         <C>                   <C>
       Expected tax benefit at statutory rate..........     $    5,497,913        $ 10,181,416
       State tax,  net of federal......................            765,362           1,375,744
       Research and development tax credits............            (65,396)                  0
       Stock-based compensation, not deductible........           (126,556)           (797,050)
       Other, net......................................            205,540              84,335
       Increase in valuation allowance.................         (6,276,863)        (10,844,445)

                                                           --------------        ------------
                                                            $           --        $         --
                                                            ==============        ============

</TABLE>



                                      F-14
<PAGE>   57



        Temporary differences and carryforwards that give rise to deferred tax
assets and liabilities are as follows:


<TABLE>
<CAPTION>
                                                                                               DECEMBER 31,
                                                                                            ------------------
                                                                                            1999          2000
                                                                                        -----------   ------------
<S>                                                                                     <C>           <C>
                        Deferred tax assets:
                          Net operating loss and generalbusiness credits
                             carryforwards.....................................         $ 5,212,842   $ 16,742,577
                          Start-up costs and organizational costs..............           3,439,739      2,600,287
                          Deferred compensation................................             318,286         19,946
                          Intangible assets....................................             237,300        543,753
                          Accrued expenses.....................................              26,368         45,023
                          Allowance for doubtful accounts receivable...........                  --         97,882
                          Property and equipment...............................             (21,290)         8,222
                                                                                        -----------   ------------

                               Total gross deferred tax assets                            9,213,245     20,057,690
                                  Valuation allowance..........................          (9,213,245)   (20,057,690)
                                                                                        -----------   ------------
                                                                                        $        --   $         --
                                                                                        ===========   ============
</TABLE>

        The net change in the valuation allowance for the years ended December
31, 1999 and December 31, 2000 was an increase of $6,276,863 and $10,844,445,
respectively. The valuation allowances at December 31, 1999 and December 31,
2000 are results of the uncertainty regarding the ultimate realization of the
tax benefits related to the deferred tax assets. The net operating loss
carryforward period expires commencing in 2011 through the year 2020. Further,
as a result of certain financing and capital transactions, an annual limitation
on the future utilization of a portion of the net operating loss carryforward
may occur. As a result, the net operating loss carryforward may not be fully
utilized before expiration.

(11) BASIC AND DILUTED NET LOSS PER SHARE

        The Company computes net income (loss) per share in accordance SFAS 128,
Earnings Per Share, which requires certain disclosures relating to the
calculation of earnings (loss) per common share. The following represents a
reconciliation of the numerators and denominators of the basic and diluted
earnings per common share computations for net income (loss).

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                     ----------------------------------------------
                                                         1998             1999             2000
                                                     -------------    -------------   -------------
<S>                                                  <C>              <C>             <C>
Net loss.........................................    $  (4,567,378    $(16,170,331    $(29,945,340)
Preferred stock dividend requirements............         (382,500)       (382,500)       (551,773)
                                                     -------------    -------------   -------------
Net loss applicable to common stockholders.......    $  (4,949,878)   $ (16,552,831   $ (30,497,113)
                                                     =============    =============   =============
Weighted average shares of common stock
  outstanding....................................        4,860,000       4,869,601        7,460,272
                                                     =============    =============   =============
Basic and diluted net loss per common share......    $       (1.02)   $      (3.40)   $      (4.09)
                                                     =============    =============   =============
</TABLE>

        Diluted net loss applicable to common stockholders for the years ended
December 31, 1998 and 1999 excludes convertible preferred stock, stock options,
and warrants at a weighted average price of $3.86 and $4.64, respectively, due
to their antidilutive effect. Diluted net loss applicable to common stockholders
for the year ended December 31, 2000 excludes stock options and warrants at
weighted average price of $5.82 due to their antidilutive effect.

(12) CONTINGENCIES

        In 1998, the Company was named as the defendant in a lawsuit made by
coolsavings.com ("coolsavings") alleging patent infringement. The Company filed
counterclaims alleging invalidity of the patent and interference with their
prospective economic advantage and is seeking damages and injunctive relief.

        In April 1999, the Company initiated a separate lawsuit against
coolsavings alleging infringement of the patent acquired from SellectSoft in
1999.

        On September 29, 2000, the Company reached an agreement to settle the
patent infringement litigation matters between the Company and coolsavings. The
terms of the settlement provide for a cross-license between the Company and
coolsavings for each of the patents that were in dispute. Pursuant to this
settlement, the Company made a $650,000 payment to coolsavings and will make
additional payments of up to $700,000 to coolsavings as follows:

    -   $250,000 if coolsavings prevails in a motion for summary judgment in a
        separate litigation between coolsavings and Catalina


                                      F-15
<PAGE>   58



Marketing Corporation involving the coolsavings patent currently in dispute; and

    - up to $450,000 if and to the extent the coolsavings patent currently in
dispute survives the pending reexamination proceedings at the Patent and
Trademark Office that were initiated by a third party.

    The $650,000 payment to coolsavings was recorded as general and
administrative expense for the year ended December 31, 2000. The Company has not
accrued for the $700,000 in additional payments to coolsavings as payment of
this amount is not probable.

(13) INITIAL PUBLIC OFFERING

    On October 3, 2000, the Company completed its initial public offering
("IPO") in which it sold 3,700,000 shares of its common stock to investors in
Switzerland, resulting in proceeds to the Company of approximately $36.7
million, after deducting underwriters' commissions and other offering-related
expenses. In connection with the IPO, 1,560,000 shares of Series A convertible
preferred stock, 2,500,000 shares of Series B convertible preferred stock, and
2,328,434 shares of Series C convertible redeemable preferred stock were
converted to common stock on a one-for-one basis.

(14) SUBSEQUENT EVENTS

    In March 2001, the Company completed the acquisition of the Commerce
Division of Inktomi Corporation ("Commerce Division"), a developer of scalable
Internet infrastructure software based in Palo Alto, California. The Company
exchanged 2,551,700 shares of its common stock for the assets, including 382,755
shares that were placed into escrow to be released based upon the achievement of
contractually defined revenue and performance targets. As part of the purchase
price, the Company also issued a warrant to purchase an additional 1,863,231
shares upon the achievement of additional revenue targets at the end of 12
months following the closing. The primary product offering of the Commerce
Division is the Commerce Engine. The Commerce Engine collects and organizes
electronic information from online merchants and publishers of comparative
product information, tracks and confirms purchases made by end-users of the
Company's services and generates invoices for the Company's online merchants to
support performance-based marketing arrangements among multiple parties. The
acquisition will be accounted for under the purchase method of accounting.




                                      F-16
<PAGE>   59
(15) QUARTERLY DATA (UNAUDITED)




<TABLE>
<CAPTION>
                                                                                           1998
                                                            -------------------------------------------------------------------
                                                                1st              2nd              3rd               4th
                                                              Quarter          Quarter          Quarter           Quarter
                                                              -------          -------          -------           -------
<S>                                                       <C>               <C>              <C>              <C>
Revenues                                                  $              -  $             -  $             -  $              -
Operating loss                                                    (723,251)      (1,175,999)      (1,259,721)       (1,718,098)
Loss before income taxes                                          (632,893)      (1,113,889)      (1,175,174)       (1,645,422)
Net loss attributable to common stockholders                      (728,518)      (1,209,514)      (1,270,799)       (1,741,047)
                                                            ---------------   --------------   --------------   ---------------

      Net loss per common shareholder - basic and diluted $          (0.15) $         (0.25) $         (0.26) $          (0.36)

                                                            ===============   ==============   ==============   ===============



                                                                                            1999
                                                            -------------------------------------------------------------------
                                                                1st              2nd              3rd               4th
                                                              Quarter          Quarter          Quarter           Quarter
                                                              -------          -------          -------           -------

Revenues                                                  $              -  $            99  $       143,963  $        596,243
Operating loss                                                  (1,850,320)      (3,748,920)      (4,320,993)       (6,551,574)
Loss before income taxes                                        (1,746,041)      (3,644,176)      (4,250,886)       (6,529,228)
Net loss attributable to common stockholders                    (1,841,666)      (3,739,801)      (4,346,511)       (6,624,853)
                                                            ---------------   --------------   --------------   ---------------

      Net loss per common shareholder - basic and diluted $          (0.38) $         (0.77) $         (0.89) $          (1.36)

                                                            ===============   ==============   ==============   ===============



                                                                                           2000
                                                            -------------------------------------------------------------------
                                                                1st               2nd              3rd              4th
                                                              Quarter          Quarter          Quarter           Quarter
                                                              -------          -------          -------           -------

Revenues                                                  $      1,042,150  $     2,161,416  $     2,424,909  $      4,601,560
Operating loss                                                  (5,893,427)      (8,168,775)      (8,994,421)       (7,632,029)
Loss before income taxes                                        (5,776,130)      (8,022,168)      (8,913,303)       (7,233,739)
Net loss attributable to common stockholders                    (5,871,755)      (8,223,752)      (9,115,487)       (7,286,119)
                                                            ---------------   --------------   --------------   ---------------

      Net loss per common shareholder - basic and diluted $          (1.20) $         (1.69) $         (1.81) $          (1.35)

                                                            ===============   ==============   ==============   ===============
</TABLE>

   The sum of quarterly per share net losses does not necessarily agree to the
net loss per share for the year due to the timing of the stock issuances.


                                      F-17
<PAGE>   60


                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
e-centives, Inc.:

    Under date of February 9, 2001, we reported on the balance sheets of
e-centives, Inc. as of December 31, 1999 and 2000 and the related statements of
operations, stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 2000 which are included in this Annual
Report on Form 10-K. In connection with our audits of the aforementioned
financial statements, we also audited the related financial statement schedule.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.

    In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.

KPMG LLP
McLean, Virginia
February 9, 2001


<PAGE>   61



                                                                     SCHEDULE II

                                e-CENTIVES, INC.

                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                  YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000

<TABLE>
<CAPTION>

        COLUMN A                         COLUMN B          COLUMN C           COLUMN D     COLUMN E
---------------------------------       ----------   ----------------------  ----------   ----------
                                                      ADDITIONS   CHARGED                  BALANCE
                                        BALANCE AT    CHARGED TO  TO OTHER    AMOUNTS      AT END
                                        BEGINNING     COSTS AND   ACCOUNTS    WRITTEN        OF
CLASSIFICATION                          OF PERIOD     EXPENSES   DESCRIBE(1)    OFF        PERIOD
--------------                          ----------   ----------- ----------  ----------   ----------
<S>                                     <C>          <C>          <C>        <C>          <C>
Year ended December 31, 1998
Allowance for doubtful
  accounts..............                $       --   $        --  $    --    $       --   $       --
                                        ==========   ===========  =======    ==========   ===========
Valuation allowance on deferred
  tax asset.............                $  975,384   $ 1,960,998  $    --    $       --   $ 2,936,382
                                        ==========   ===========  =======    ==========   ===========
Year ended December 31, 1999
Allowance for doubtful
  accounts..............                $       --   $        --  $27,125    $       --   $    27,125
                                        ==========   ===========  =======    ==========   ===========
Valuation allowance on deferred
  tax asset.............                $2,936,382   $ 6,276,863  $    --    $       --   $ 9,213,245
                                        ==========   ===========  =======    ==========   ===========
Year ended December 31, 2000
Allowance for doubtful
  accounts..............                $   27,125   $   489,973  $          $  265,082   $   252,016
                                        ==========   ===========  =======    ==========   ===========
Valuation allowance on deferred
  tax asset.............                $9,213,245   $10,844,445  $    --    $       --   $20,057,690
                                        ==========   ===========  =======    ==========   ===========
----------
</TABLE>

(1) deferred revenue





<PAGE>   62


                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
                          EXHIBIT
                          NUMBER                      DESCRIPTION
                         --------- -------------------------------------------------------------

                        <S>       <C>
                           3.1(1)  Restated Certificate of Incorporation of e-centives, Inc.
                           3.2(1)  Certificate of Elimination to Certificate of
                                   Designations, Rights and Preferences of Series C
                                   Convertible Preferred Stock of e-centives, Inc.
                           3.3(1)  Amended and Restated Bylaws of e-centives, Inc.
                           4.1(1)  Specimen certificate representing the Common Stock.
                           4.2(1)  Registration Rights Agreement, dated February 18, 2000, by
                                   and among e-centives, Inc. and certain stockholders named
                                   therein.
                          10.1(1)  1996 Stock Incentive Plan.
                          10.2(1)  e-centives -- Excite@Home Co-Branding Agreement, dated
                                   February 16, 2000, by and between e-centives,
                                   Inc. and At
                                   Home Corporation.
                          10.3(1)  Technology and Marketing Agreement, dated May
                                   13, 1999, by
                                   and between e-centives, Inc. and ZDNet, as
                                   amended.
                          10.4(1)  Internet Data Center Services Agreement, dated March 23,
                                   1998, by and between e-centives, Inc. and
                                   Exodus Communications, Inc.
                          10.5(1)  Employment Agreement for Kamran Amjadi, dated May 8, 1998,
                                   as amended.
                          10.6(1)  Employment Agreement for Mehrdad Akhavan, dated May 8, 1998,
                                   as amended.
                          10.7(1)  Lease Agreement, dated September 23, 1997, by and between
                                   e-centives, Inc. and Democracy Associates Limited
                                   Partnership, as amended and modified on June 29, 2000.
                          10.8(1)  Amended and Restated e-centives, Inc. Stock Option Plan.
</TABLE>

---------

(1) Incorporated by reference to the Registrant's Registration Statement on Form
    S-1 (333-42574).