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, 2003

                             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, 6TH FLOOR, BETHESDA, MD 20817
                    (Address of principal executive offices)

                                 (240) 333-6100
              (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:   Not Applicable

                     COMMON STOCK, PAR VALUE $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. [  ]Yes [ X ] No

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

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]

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 Swiss Exchange as of June 30, 2003 was $7,589,233.06 (1).

         (1)  Assumes  an  exchange  rate of 1.34862  Swiss  Francs per one U.S.
Dollar as of June 30, 2003.

         As of June 15, 2004, there  were 57,762,859 shares of the registrant's
common stock outstanding.
================================================================================


                                       1
<PAGE>

                                E-CENTIVES, INC.
                                    FORM 10-K

                                TABLE OF CONTENTS

                                                                            Page
 PART I
     Item 1.    Business.................................................      3
     Item 2.    Properties...............................................     12
     Item 3.    Legal Proceedings........................................     12
     Item 4.    Submission of Matters to a Vote of Security Holders......     13
 PART II
     Item 5.    Market for Registrant's Common Stock and Related
                Stockholder Matters......................................     14
     Item 6.    Selected Financial Data..................................     16
     Item 7.    Management's Discussion and Analysis of Financial
                Condition and Results of Operations......................     17
     Item 7A.   Quantitative and Qualitative Disclosures
                About Market Risk........................................     39
     Item 8.    Financial Statements and Supplementary Data..............     39
     Item 9.    Changes in and Disagreements with Accountants
                on Accounting and Financial Disclosure...................     39
     Item 9A.   Controls And Procedures..................................     39
 PART III
     Item 10.   Directors and Executive Officers of the Registrant.......     41
     Item 11.   Executive Compensation...................................     43
     Item 12.   Security Ownership of Certain Beneficial Owners
                and Management and Related Stockholder Matters...........     46
     Item 13.   Certain Relationships and Related Transactions...........     48
     Item 14.   Principal Accounting Fees and Services...................     49
 PART IV
     Item 15.   Exhibits, Financial Statement Schedules,
                and Reports on Form 8-K..................................     50
SIGNATURES...............................................................     51


                                       2
<PAGE>

                                E-CENTIVES, INC.

                                     PART I

ITEM 1- BUSINESS

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

    Except for any historical information, the matters we discuss in this Annual
Report on Form 10-K concerning our company contain  forward-looking  statements.
Any  statements  in this Annual  Report on 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
captions  "Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations" and "Risk Factors",  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 Annual Report on 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.

AVAILABLE INFORMATION

    Our Internet website address is www.e-centives.com.  We make available, free
of charge, on or through our website our Annual Reports on Form 10-K,  Quarterly
Reports on Form 10-Q and Current  Reports on Form 8-K, and  amendments  to these
reports,  as soon as reasonably  practicable after we  electronically  file such
material  with,  or furnish  such  material  to,  the  Securities  and  Exchange
Commission.

OVERVIEW

    We provide  interactive  direct  marketing  technologies  and  services  for
marketers.  We  offer  a  suite  of  technologies,  including  several  patented
components,  which enable  businesses to acquire and retain  relationships  with
their audiences.  During 2003, our principal  products  included the Interactive
Database  Marketing System,  the Promotions  System, the E-mail Marketing System
and  advertising  and  e-commerce   related   services   provided   through  the
ConsumerREVIEW.com division.

    o    Our Interactive  Database Marketing System is a comprehensive  solution
         that  offers  a suite  of  e-marketing  technologies  including  e-mail
         marketing, online promotions and data warehousing.  Our system provides
         solutions for creating,  targeting,  publishing,  managing and tracking
         e-mails,  coupons  and  promotional  incentives,  and track  individual
         consumer's responses to such activities.

    o    Our Promotions System enables companies to create,  manage, deliver and
         track promotional  vehicles,  such as print-at-home online coupons. The
         system's  printable coupons can be individually  tailored with relevant
         content  and  different   incentive  values  based  on  the  respective
         recipients,   enabling   manufacturers  to  target  coupons  much  more
         efficiently  and   cost-effectively   than  traditional   methods.  The
         technology can also be used to build knowledge about consumers, such as
         their  prior  product  purchases  and loyalty  data,  and to get a more
         accurate measure of the actual impact of online marketing  expenditures
         on sales.

    o    Our  E-mail  Marketing  System  enables  companies  to  build  ongoing,
         personalized  dialogs with their audiences  through e-mail.  Our system
         can  improve   effectiveness  of  e-mail  marketing  campaigns  through
         segmentation  and targeting and can raise response rates,  enabling our
         clients to boost sales,  strengthen brands and build loyalty with their
         customers.

    o    ConsumerREVIEW.com   manages  web  communities  around  common  product
         interests.  The web  properties  are  dedicated to meeting the needs of
         consumers who are researching products on the Web. We focus on creating
         an online environment that fosters communication and consumer-generated
         reviews of products,  by providing an interface to a large  database of
         product information, forums, and other useful content.

    Of our total net  revenue of $6.1  million for the year ended  December  31,
2003,  one of our  Interactive  Database  Marketing  System  customers,  Reckitt
Benckiser  PLC,  contributed  $2.7  million,  or 45%, of our net  revenue.  This
customer's  initial  contract  expired in October  2002;  however,  the customer
subsequently signed two annual renewal agreements,  with the most recent renewal
expiring on December 31, 2004.  Although  each renewal  agreement  has been at a
lower  rate than the  previous  agreement,  loss of this  customer  could have a
material  adverse  effect  on our  business,  financial  condition,  results  of
operations and cash flow.


                                       3
<PAGE>

INDUSTRY BACKGROUND

    The Internet has emerged as a powerful marketing medium that allows millions
of consumers and  marketers to conduct  business and interact with each other in
unprecedented  ways. Early online  marketing  strategies were heavily focused on
customer  acquisition,  optimizing the emerging  medium's  inherent  capacity to
build brand awareness,  advertise products and services,  and promote purchases.
With the  exponential  increases  in the volume of sites and the ease with which
consumers  could  navigate  between them,  online  marketers  turned to customer
retention and  loyalty-building  efforts to  differentiate  themselves  from the
competition.

    The Internet is particularly  well suited to direct marketers because of its
ability to access both broad audiences,  as well as precisely defined groups. As
a result,  the Internet  provides  marketers with  opportunities to identify and
attract customers, as well as target specific types of users and collect data on
their  preferences.  At the same  time,  we  believe  the  Internet  appeals  to
consumers because it offers more individual control over marketing messages. The
growth of the Internet has encouraged both e-commerce and traditional  brick and
mortar companies to spend more of their marketing  budgets via the Internet.  We
believe  there is a need for a marketing  infrastructure  that could satisfy the
objectives of both  marketers and  consumers,  which would enable  businesses to
acquire and retain customers, yet operate from a consumer-centric  approach that
would provide relevance and meaningful value to the individual user.

OUR PRODUCTS AND SERVICES

    We launched our direct  marketing  services in November  1998 by  delivering
e-centives  (promotions including such items as digital coupons,  sales notices,
free shipping offers, minimum purchase discounts and repeat purchase incentives)
through our PerformOne Network (previously called Promotions Network).  While we
were introducing our Promotions  Network between November 1998 and June 1999, we
allowed  marketers  to use the  system at no charge.  We then  began  generating
revenue in the third quarter of 1999. In conjunction with the acquisition of the
Commerce Division,  from Inktomi  Corporation in March 2001, the Commerce Engine
and Commerce Network began generating  revenue in late March 2001. In July 2001,
we  started  producing  revenue  from  our  E-mail  Marketing  System.  With the
acquisition of the Promotions System from  BrightStreet.com in December 2001, we
began  generating  revenue by providing  services from the Interactive  Database
Marketing  System.  During  2002,  we decided to suspend  offering  our Commerce
Division's  products and services,  as well as the  offerings of our  PerformOne
Network.  With the  acquisition of  substantially  all of the assets of Consumer
Review, Inc. in December 2002, we began generating revenue from advertising fees
and e-commerce transaction fees from our ConsumerREVIEW.com division.

    Currently,  our  principal  products  and services  include the  Interactive
Database  Marketing System,  the Promotions  System, the E-mail Marketing System
and  advertising  and  e-commerce   related   services   provided   through  our
ConsumerREVIEW.com division.

                      INTERACTIVE DATABASE MARKETING SYSTEM

    In December 2001, we combined the Promotions  System,  our E-mail  Marketing
System,  our data warehousing  system and our online reporting system, and began
offering  the  services  of our  Interactive  Database  Marketing  System.  This
technology and  infrastructure,  which, to date, has been primarily  targeted at
consumer packaged goods companies, allows companies to establish direct consumer
relationships  through a set of integrated  tools that include  targeted  e-mail
marketing,  a consumer transaction database, a data warehouse,  a micro site and
survey generator and our patented coupon promotion  system.  This system enables
companies to acquire  consumers,  collect  consumers' brand preference and usage
information,  segment  consumers  within loyalty  categories,  communicate  with
consumers via e-mail marketing,  deliver coupons, track individual usage of each
coupon, as well as track and report every consumer  interaction with the system.
For the years ended December 31, 2003,  2002 and 2001, we generated 53%, 67% and
1%, respectively, of our revenue from our Interactive Database Marketing System.
Approximately 86%, 93% and 100% of our aggregate  Interactive Database Marketing
System  revenue  for  the  years  ended  December  31,  2003,   2002  and  2001,
respectively, was generated from our contract with Reckitt Benckiser PLC.

                                PROMOTIONS SYSTEM

    Our  Promotions  System,  which we acquired in December  2001 as part of the
acquisition  of  substantially  all of the assets of  BrightStreet.com,  enables
companies to create,  manage,  deliver and track promotional  vehicles,  such as
print-at-home online coupons. Our system's printable coupons can be individually
tailored  with  relevant  content and  different  incentive  values based on the
respective  recipients,  enabling  manufacturers  to  target  coupons  much more
efficiently and  cost-effectively  than traditional  methods.  In addition,  our
system has high tracking capabilities,  including individually coded offers that
can be cross-referenced  against specific consumer profiles.  Our technology can
also be used to build  knowledge  about  consumers,  such as their prior product
purchases  and loyalty data,  and to get a more  accurate  measure of the actual
impact of online  marketing  expenditures on sales. For the years ended December
31, 2003, 2002 and 2001,  revenues from our Promotions  System has been included
in the revenues generated from our Interactive Database Marketing System.


                                       4
<PAGE>

                             E-MAIL MARKETING SYSTEM

    Our E-mail Marketing System allows companies to build ongoing,  personalized
dialogs with their audiences by outsourcing  their e-mail marketing needs to us.
It lets businesses  cost-effectively  conduct e-mail marketing without having to
acquire or develop their own e-mail  infrastructure and manage the process. This
solution  consists  of  list  management  and  hosting,  strategy  and  creative
services,  e-mail  delivery and  management,  as well as tracking and analytical
services.  It is designed to help build an ongoing,  personalized  communication
with  the  client's  intended  audience  and  maximize   effectiveness   through
segmentation and targeting. For the years ended December 31, 2003, 2002 and 2001
we  generated  3%,  5% and 2% of our  revenue,  respectively,  from  our  E-mail
Marketing System.

                               CONSUMERREVIEW.COM

    Our ConsumerREVIEW.com division is a leading source of user-generated buying
advice for outdoor sporting goods and consumer  electronics.  Consumers visit to
learn,  interact,  and buy or sell the products  showcased within our network of
web communities,  including sites like AudioREVIEW.com and MtbREVIEW.com.  Users
find the products they are interested in, read and write reviews, participate in
discussions,  compare prices, and shop online. Our ConsumerREVIEW.com division's
services primarily include advertising and e-commerce  referrals.  For the years
ended December 31, 2003 and 2002, we generated 44% and 3%, respectively,  of our
revenue   from   our   ConsumerREVIEW.com   division.   As   we   acquired   the
ConsumerREVIEW.com  division during December 2002,  there was no revenue for the
year ended December 31, 2001.

                               PERFORMONE NETWORK

    Our direct  marketing  system was  designed to enable  marketers to access a
database of consumers across the websites of our network partners and by e-mail.
Our PerformOne  Network included a web-based  application that enabled consumers
to register to receive  promotional  offers at our network partners' websites or
through our website.  Our members provided  demographic  information and product
category  interests in return for  targeted  offers.  Our system then  delivered
offers for  products and  services  directly to the member's  account or through
e-mail.  PromoMail, the primary service we provided our marketers,  consisted of
targeted e-mails  highlighting a marketer's specific promotion.  Our application
provided  network  partners  with the  ability to present  offers to their users
without the costs and  challenges of building and  maintaining  their own online
direct  marketing  system.  Due to the closure of the PerformOne  Network during
2002, no revenue was generated during the year ended December 31, 2003; however,
for the years  ended  December  31,  2002 and  2001,  we  generated  4% and 62%,
respectively, of our revenue from the PerformOne Network.

                     COMMERCE DIVISION PRODUCTS AND SERVICES

    Through the acquisition of the Commerce  Division in March 2001, we acquired
a system that  provided  product  search,  price  comparison  and  merchandising
services.  However,  as part of our second quarter 2002  restructuring  plan, we
discontinued  offering our commerce  products and services,  the Commerce Engine
and the Commerce Network. As a result, no revenue was generated during 2003, but
for the  years  ended  December  31,  2002  and 2001 we  generated  21% and 35%,
respectively, of our total revenue from the Commerce Division.

    Commerce Engine.  The Commerce Engine was an application  designed to handle
         the  challenges  of  bringing  consumers  and  merchants  together  and
         promoting  transactions  between them. It was a platform to collect and
         organize vast amounts of  electronic  product  information  from online
         merchants and publishers of comparative  product  information.  We made
         the Commerce  Engine  available to Internet  portals and other  website
         customers who, in turn,  provided commerce services through their sites
         to end users.  We  provided  and  managed all  hardware,  software  and
         operational aspects of the Commerce Engine and the associated databases
         of product libraries and purchasing locations.

    Commerce Network.  This system  enabled  merchants to distribute and promote
         their products to the end users of our Commerce  Engine  customers.  It
         collected  product data from merchants,  normalized it into appropriate
         categories,  indexed it and made it  available  for search  through our
         Commerce Engine customers.

INFORMATION ON OUR OPERATING SEGMENTS

Basis of Reportable Segments

    In accordance with FAS 131,  Disclosures about Segments of an Enterprise and
Related Information, starting in 2002, with the acquisition of substantially all
of the assets of Consumer Review, Inc., we report our segment information in two
reportable segments: E-centives and ConsumerREVIEW.com.


                                       5
<PAGE>

    o    E-centives includes the services of the Interactive  Database Marketing
         System,  the Promotions  System and the E-mail  Marketing  System.  For
         2002,  E-centives  also included the PerformOne  Network,  the Commerce
         Engine and the Commerce Network, all of which we discontinued  offering
         during 2002.

    o    ConsumerREVIEW.com  sells advertising and e-commerce  services that are
         provided through a network of web communities.

    FAS 131 requires an enterprise to report segment information in the same way
that management  internally organizes its business for assessing performance and
making decisions regarding allocation of resources.

    The  chief  operating  decision  maker  evaluates  the  performance  of  the
Operating Segments and allocates resources based on operating profit or loss and
cash  generated  from  operations.  The  accounting  policies of the  reportable
segments are the same as those  described in Note 2 of the Notes to Consolidated
Financial Statements, which notes begin on page F-7.

Segment Financial Information

    For financial  information  regarding  our  reportable  segments,  including
operating  revenue,   operating  profit/loss,   identifiable  assets  and  other
information  by  segment,  see Note 13 of the  Notes to  Consolidated  Financial
Statements, which notes begin on page F-7.

OUR BACKLOG

    We include in our  backlog  only those  customer  orders for which we have a
signed agreement with a defined term for the customer relationship.  At December
31,  2003,  the  quantity  of backlog  orders was not  significant,  because the
majority of our  agreements  have a short  period of time between the signing of
the agreement and the providing of the service.

    Our backlog was approximately  $1.4 million and $2.4 million at December 31,
2003 and 2002,  respectively.  Backorders for both years included  contracts for
sales of our  Interactive  Database  Marketing  System and our E-mail  Marketing
System.  The  decrease  is  primarily  due  to  the  renewal  of  a  significant
Interactive  Database  Marketing  System  agreement  at a lower  rate  than  the
previous  agreement,  as well as a reduction  in the number of  agreements  with
defined terms.

ACQUISITION

    On December 4, 2002, we acquired substantially all of Consumer Review Inc.'s
assets and certain of its liabilities through an Asset Purchase  Agreement.  The
cost of the acquisition was  approximately  $2.6 million,  consisting of 400,000
shares of Series B  convertible  preferred  stock valued at  approximately  $2.1
million,  $290,000 in cash and about $216,000 in acquisition  costs. At closing,
the Series B convertible  preferred  stock was placed into escrow.  Upon the one
year  anniversary of the closing date, the conversion rate for each share of the
Series B convertible  preferred stock was determined  based upon the achievement
of contractually  defined revenue during the calculation period and was adjusted
pursuant  to a  defined  schedule.  Based  upon  the  revenue  generated  by our
ConsumerREVIEW.com  division during the calculation  period, the conversion rate
for each share of the Series B convertible preferred stock will be adjusted to 8
to 1. The stock  consideration  will then be  disbursed in  accordance  with the
terms of the Escrow Agreement.

    The  acquisition  was accounted for under the purchase  method of accounting
and,  accordingly,  the purchase price was allocated to the assets  acquired and
liabilities  assumed  based  on their  estimated  fair  values.  We  engaged  an
independent  third-party  appraiser  to  perform  a  valuation  of the  Series B
convertible   preferred  stock  and  intangible   assets   associated  with  the
acquisition.

SALES AND MARKETING

    We seek to  establish  relationships  with clients  principally  through our
direct sales force, as well as working with advertising or promotional  agencies
to reach their  clients.  During  2003,  we  maintained  sales  personnel in the
Washington, D.C. and San Francisco metropolitan areas, New York, Connecticut and
Florida.

    In order to strengthen  our existing  relationships  with clients,  we offer
account management,  technology  integration and consulting services.  We assign
account managers with knowledge of on-line marketing to clients with the goal of
increasing the performance of their marketing  efforts and overall  satisfaction
with our services. Our account managers also provide periodic reports to clients
and help  formulate  strategies to more  effectively  market their  products and
services.


                                       6
<PAGE>

    We  primarily  market our  products and  services  through  conferences  and
tradeshows.

TECHNOLOGY

    We  monitor  and test our system  and  software,  and from time to time have
identified  minor  defects.  We 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 new
software may result in greater than expected  expense and may cause  disruptions
to our business.  We spent  approximately $2.5 million,  $4.1 million,  and $7.9
million  in 2003,  2002 and 2001,  respectively,  on  research  and  development
activities.

                               CONSUMERREVIEW.COM

    To meet the demands of its network of growing  web  communities  and product
research sites,  Consumer Review,  Inc. developed a proprietary web architecture
based on  Microsoft  .NET(R)  enterprise  server  technology.  We acquired  this
technology when we purchased  substantially  all the assets of Consumer  Review,
Inc. in December 2002. The system was built for  scalability,  reliability,  and
interoperability  with  web-enabled  enterprise  partners.  It was developed for
simplified  manageability,  using  open  web  standards,  such as  XML.  The web
architecture was envisioned in 2000 and developed and launched in 2001.

         Functions:
              o    Provides  product  research and drives  purchasing  decisions
                   based on the experience of other consumers.
              o    Creates enthusiast  communities with communication on message
                   boards, marketplaces, and photo galleries.
              o    Delivers  advertising,  merchandising,  content  syndication,
                   e-commerce partnerships, and other valuable services.

         Components:
              o    User  profiling -  registration  and login for  various  site
                   services.
              o    Workflow,   content,   account,   service   and   syndication
                   management.
              o    Network  operations  on an  array of load  balanced,  dynamic
                   servers.

                                PROMOTIONS SYSTEM

    This  system  enables  companies  to  create,   manage,  deliver  and  track
promotional vehicles,  such as print-at-home online coupons. This technology was
built  to  meet  the  stringent   requirements   of  consumer   packaged   goods
manufacturers,  including  standardized  bar codes and integration with existing
coupon  clearinghouses,  but has benefits that cross many other industries.  Our
system's  printable  coupons can be individually  tailored with relevant content
and different  incentive  values based on the  respective  recipients,  enabling
manufacturers to target coupons much more efficiently and cost-effectively  than
traditional  methods.  In addition,  our system has high tracking  capabilities,
including  individually  coded  offers  that  can  be  cross-referenced  against
specific consumer  profiles.  Our technology can also be used to build knowledge
about consumers,  such as their prior product purchases and loyalty data, and to
get a more accurate  measure of the actual impact of marketing  expenditures  on
sales. The promotions system consists of the following:

         o    database servers for storing promotions,  subscribers, content and
              promotion activity data;
         o    data  collection  and  transformation  servers for  importing  and
              exporting both subscriber and promotion data;
         o    application   servers  for  promotion   content   management   and
              promotions serving;
         o    web   servers  to  support   campaign   management,   subscription
              management, and promotion activity tracking; and
         o    client-side   plug-in   software  that  manages  the  subscribers'
              identification and printable coupon assembly and printing.

    All promotions are built and managed using our proprietary web-based Maestro
campaign management software,  which was designed and built to be used either by
our account management team or by our customers directly, based upon the service
level  model  selected by our  customers.  Once  promotions  are  launched,  our
application servers, which are clustered for load balancing and fault tolerance,
serve the  promotions to the users for viewing and printing.  This  architecture
allows us to scale the system, simply by adding hardware as required.


                                       7
<PAGE>

    All of our customers'  subscribers  and content for promotions are stored in
relational databases.  These databases are replicated to a stand-by database for
fail-over  purposes,  and all data is  regularly  copied  to tape  for  disaster
recovery purposes.  We host our promotions system in a data center that provides
redundant network connectivity and diesel generated backup power. In addition we
monitor and test our system,  and as defects are  identified  they are addressed
with version and process controlled upgrades.

                             E-MAIL MARKETING SYSTEM

    We have  developed a proprietary  e-mail  marketing  system that is built to
scale with our customers. This system enables companies to communicate and build
relationships with their audience via e-mail.  This correspondence can be single
messages or a series of  messages  that can be used to form a  conversation  and
facilitate building  relationships.  The e-mail marketing system consists of the
following:

         o    database  servers for  storing  e-mail  lists,  content and e-mail
              activity data;
         o    data  collection  and  transformation  servers for  importing  and
              exporting both subscriber and e-mail activity data;
         o    application servers for content management, personalization engine
              and inbound mail handling;
         o    web   servers  to  support   campaign   management,   subscription
              management, viral marketing and activity tracking; and
         o    mail servers for sending and receiving e-mail.

    All of our clients' e-mail lists and content for e-mail campaigns are stored
in a  relational  database  prior to the sending of the e-mail  campaigns.  This
database is constantly  being  replicated  to a stand-by  database for fail over
purposes and all data is copied to tape nightly for disaster recovery purposes.

    Once an  e-mail  campaign  is run,  the  e-mails  are  assembled  using  our
applications  servers,   which  are  clustered  for  load  balancing  and  fault
tolerance.  Each e-mail can be individually  personalized  with relevant content
and targeted offers for the respective recipients. As each message is assembled,
it is sent to a farm of outbound mail servers using a load-balancing  appliance,
which is also fault tolerant. This architecture allows us to scale horizontally,
simply by adding hardware to the required  components.  After an e-mail campaign
has been sent, our data collection  component collects and aggregates all e-mail
activity and provides this to our clients via web based reporting.

    All e-mail  campaigns  are built and managed  using our  proprietary  e-mail
Content Manager, which was built to be used both by our account management team,
to provide a full service model to our clients,  as well as by our clients for a
self-service model.

    We host  our  systems  in a data  center  that  provides  redundant  network
connectivity  and diesel generated backup power. In addition we monitor and test
our system,  and as defects are  identified  they are addressed with version and
process controlled upgrades.

                      DATA WAREHOUSING AND REPORTING SYSTEM

    We have developed a data  warehousing and reporting system that was designed
to scale with our needs.  This system  enables us to collect user level activity
data from our various  marketing  applications,  including our E-mail  Marketing
System and our Promotions  System,  and provide  online  reporting and analysis.
This  system  provides  our  customers  with  the  results  of  their  marketing
campaigns,  and enables  optimizing  decision-making to improve their strategies
and  tactics.  The  data  warehousing  and  reporting  system  consists  of  the
following:

         o    database servers for storing subscribers,  marketing campaigns and
              activity data;
         o    data   collection  and   transformation   servers  for  collecting
              subscriber  activity data and importing  subscribers;
         o    reporting  servers  for  aggregating  subscriber  level  data into
              standard and custom reports;
         o    web servers for online report delivery; and
         o    client-side plug-in software for browsers that manages the display
              of  reports  in both  numerical  and  graphical  formats  with the
              ability to export  data into  various  formats,  such as Excel and
              HTML, for further distribution and analysis.

    All of our  customers'  data  are  stored  in a  relational  database.  This
database is constantly  being  replicated  to a stand-by  database for fail-over
purposes  and all  data  is  regularly  copied  to tape  for  disaster  recovery
purposes.  Our reporting  servers are fed aggregated  data and are load balanced
and fault tolerant.  Our architecture  allows us to scale the system,  simply by
adding hardware to the required components.

COMPETITION

    We believe  that the market for our  solutions  to be rapidly  evolving  and


                                       8
<PAGE>

intensely competitive. As a provider of online direct-marketing technologies and
services,  we generally compete with other marketing programs for a portion of a
marketer's total marketing budget. We compete with a variety of businesses.

         Our primary competition can be categorized as follows:
              o    both  online  and  offline  direct  marketing  and  promotion
                   companies;
              o    Internet-based marketing technology and services firms; and
              o    other companies that facilitate the marketing of products and
                   services on the Internet.

         Current or potential competitors include vendors that provide:
              o    database marketing solutions;
              o    e-mail marketing solutions;
              o    rewards programs; and
              o    coupon and promotion programs.

    We believe the market for our ConsumerREVIEW.com division to also be rapidly
evolving  and  competitive.  In this area,  some of our  current  and  potential
competitors include:

         o    other providers of product reviews
         o    publishers of content and information on special  interest product
              categories
         o    shopping comparison or price search web sites
         o    providers of community forums, message boards, and photo galleries

    The  failure to compete  successfully  would  impair our ability to generate
revenues and become profitable. Our ability to compete depends on many factors.

         Factors over which we have some level of control include:

              o    ability to enter into relationships with marketers;
              o    ability  to  provide  simple,   cost-effective  and  reliable
                   solutions;
              o    timely development and marketing of new services; and
              o    ability to manage rapidly changing technologies, frequent new
                   service introductions and evolving industry standards.

         Factors outside our control include:

              o    development,  introduction  and market  acceptance  of new or
                   enhanced services by our competitors;
              o    changes in pricing policies of our competitors;
              o    entry of new competitors in the market;
              o    ability of marketers to provide  simple,  cost-effective  and
                   reliable promotions; and
              o    market economy impacts on our clients' marketing budgets.

    We expect  competition to intensify as more  competitors  enter our markets;
however,  as  referenced  below,  one  of  our  most  important  assets  is  our
intellectual  property,  which we believe will thwart competitive  pressures for
certain of our offerings. 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, results of operations
and cash flow could be seriously harmed.

    We have developed and acquired  proprietary  technology,  including database
and interface servers, offer creation and presentation software, and software to
enable  communication  between  marketers'  systems and our  system.  All of our
marketer  clients who desire to use our software enter into a license  agreement
with us. In addition,  we generally  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.


                                       9
<PAGE>

    We have several issued U.S. patents and a number of pending U.S. and foreign
patent  applications.  Many of 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 several pending foreign patent applications.  It is possible that no
patents  will be issued  from the  currently  pending  U.S.  or  foreign  patent
applications.  It is also  possible  that our  patents or any  potential  future
patents may be found not infringed,  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 or prevent our ability to do business.  Some of our
acquired patent rights are subject to reversion if certain payments are not made
(see below regarding the acquisition of substantially all of  BrightStreet.com's
assets including patent rights for further details).

    We  have  registered  the  trademarks   E-centives,   PromoMail,   PromoMail
Spotlight,  PromoMail  Event,  and PromoCast in the U.S, and have registered the
trademark E-centives in the European Union and Switzerland. We have filed intent
to use U.S. trademark  applications for BrightStreet and BrightStreet.com,  both
of which have been  allowed  by the U.S.  Trademark  Office.  Once we have filed
proof of use of these  trademarks,  the  registrations  will issue. We have also
filed two applications for registration of the trademark MAESTRO, which are both
currently   pending.   One  of  the   applications  was  opposed  by  MasterCard
International.  We have negotiated a settlement with MasterCard International of
the opposition proceeding it filed against one of these MAESTRO applications and
a  potential  opposition  it  could  file  against  the  other  application.  In
accordance with the settlement  terms, we have filed proposed  amendments to the
description  of  services  in each  application  and are  waiting  for the  U.S.
Trademark Office to respond to the proposed amendments.  Through our acquisition
of substantially all of the assets of Consumer Review, Inc., we obtained several
additional registered U.S. trademarks,  including but not limited to Car Review,
MTB Review,  PC Photo Review,  Golf Review,  Garden  Review,  Computing  Review,
Videogame  Review and Photography  Review.  We currently own several  additional
U.S. registered trademarks related to the ConsumerREVIEW.com  business line, and
we also claim rights in a number of additional  tradenames  associated  with our
business activities.

    We hold  rights  to  various  web  domain  names  including  E-centives.com,
BrightStreet.com,   and   ConsumerREVIEW.com,   as   well   as   several   other
review-related domains.  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.

    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, in 2000, we settled litigation
with one of our competitors  regarding our  intellectual  property (see Item 3 -
"Legal  Proceedings"  for further  details).  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,  require us to
enter into royalty or licensing agreements or subject us to an injunction. These
agreements,  if required,  may not be available on terms  acceptable to us or at
all, which could materially adversely affect our business,  financial condition,
results of operations and cash flow. We have filed a patent  infringement action
against Coupons,  Inc., pending in the United States District Court for District
of Maryland and Consumer  Networks,  LLC in the United States District Court for
the  Southern  District of  California.  Other patent  infringement  enforcement
actions may be  necessary  to protect our  intellectual  property.  See Item 3 -
"Legal Proceedings" for further details.

    We integrate  third-party  software from vendors such as Oracle  Corporation
into the  software we use in our  business.  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,  results of operations and
cash flow could be materially adversely affected.


                                       10
<PAGE>

EMPLOYEES

    As of December 31, 2003,  we had a total of 50  employees,  all of whom were
based in the  United  States.  Of these,  12 were sales and  marketing,  13 were
product  development,  16 were general and  administrative  personnel and 9 were
involved in providing our services.  None of our employees are  represented by a
labor  union,  nor have we ever  experienced  a work  stoppage.  We believe  our
employee  relations are good. The table below reflects our employee headcount at
December 31 for each of the years below:

                                    1997   16
                                    1998   31
                                    1999   74
                                    2000   110
                                    2001   153
                                    2002   85
                                    2003   50

RECENT DEVELOPMENTS

(a) Credit Facility

    During  March  2004,  the  credit  facility  available  to us under  Friedli
Corporate Finance's and InVenture,  Inc.'s initial commitment was increased from
$6  million  to $12  million.  See below and Item 5 - "Market  For  Registrant's
Common  Stock  And  Related  Stockholder  Matters  -  Recent   Sale/Issuance  of
Unregistered Securities" for further details.

(b) Convertible Promissory Notes

    As part of our syndication process,  from January 2004 through June 2004, we
issued six  convertible  promissory  notes with  principal  amounts of $100,000,
$400,000, $200,000, $600,000,  $1,000,000 and $1,000,000. The terms of the notes
include, among other things:

    o    an 8% interest rate;
    o    a maturity date three years from the date of issuance;
    o    a conversion feature,  which provides that under certain  circumstances
         that the note will automatically convert to our common stock;
    o    a one-time  final payment  charge of 10% of the principal for each year
         that the principal is not paid on or before each annual  anniversary of
         the date the note was issued (with a maximum of 30%); and
    o    a security interest in substantially all of our assets.

(c) Options

    From January 2004 through  June 2004,  99,250  options that were  previously
granted to employees were exercised.

(d) Late Filings and Investigation

    On March 31, 2004,  we announced  that we would require  additional  time to
finalize  and file our  Annual  Report on Form 10-k for the  fiscal  year  ended
December 31, 2003 ("Annual Report"). In a Form 8-K filed with the SEC on May 13,
2004, we disclosed that at a May 12, 2004  semi-annual  New Venturetec  investor
conference  in  Zurich,  Switzerland,  we had  announced  that we would  require
additional time to finalize and file the Annual Report and our Quarterly  Report
on Form 10-Q for the quarter ended March 31, 2004 ("Quarterly Report").

    In our May 13, 2004 Form 8-K, we  disclosed  that,  in  connection  with the
finalizing  of our Annual  Report,  we had  encountered  a recent  non-financial
representation by a senior Company official that we deemed to be inaccurate. Our
Board  of  Directors   determined  that  it  was  appropriate  to  undertake  an
independent  investigation  to  review  this and  other  matters.  The  Board of
Directors   established   a  separate   Committee  of  the  Board  to  lead  the
investigation,  such  Committee  consisting  of  Sean  Deson  (a  non-management
director) serving as Chairman of the Committee, and Messrs. Akhavan and Friedli.
The Committee retained an independent law firm to conduct the investigation. The
independent  investigation  has now  been  completed.  For a  discussion  of the
results, see Item 9A - "Controls and Procedures."

    As of the date of this filing,  we have not filed the Quarterly  Report.  We
expect to file the Quarterly Report after filing this Annual Report.


                                       11
<PAGE>

(E) ACQUISITION

    Pursuant  to an Asset  Purchase  Agreement  dated as of june  25,  2004,  we
acquired  substantially  all of the assets and  certain  of the  liabilities  of
Collabrys, Inc. ("Collabrys").  Collabrys is a provider of interactive marketing
technologies and services to enable customer acquisition and retention.  Clients
include well-known companies in the Consumer Products, Healthcare, and Financial
Services industries.  Consideration  consists of a $15,000 cash payment and a 7%
royalty  payment on revenue,  as defined in the purchase  agreement.  We believe
that the Collabrys  acquisition  will enable us to both grow our client base and
penetrate into new vertical industries, as well as add new products and services
to our existing portfolio of solutions.


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
leased office space in Bethesda,  Maryland,  a suburb of  Washington,  D.C. This
lease,  which was renegotiated  during 2002, is for approximately  23,500 square
feet and is for a term of five years,  expiring in September  2005.  Our current
monthly rent payment under this lease is approximately  $72,000,  with increases
of 3% per year. In March 2002, we subleased  approximately 10,000 square feet of
the  office  space,  with a monthly  base  rent of  approximately  $22,000  that
increases  4%  annually.  This  sublease  commenced in March 2002 and expires in
September  2005.  In addition,  in February  2004,  we signed  another  sublease
agreement  with a monthly base rent of  approximately  $2,500 that  commenced in
February 2004 and expires in September 2005.

    During 2003,  we also  maintained an office of  approximately  11,000 square
feet in Foster City,  California.  The monthly rent payments were  approximately
$14,000 through November 2003 and increased to approximately $20,000 in December
2003. This lease expires on November 2004.

    Our ConsumerREVIEW.com  operating segment is primarily located in the Foster
City,  California office,  while the E-centives  operating segment is located in
both of our offices.

ITEM 3 - LEGAL PROCEEDINGS

    On or about  September  24,  2003,  Trifocal,  LLC  ("Trifocal")  filed suit
against us in California Superior Court, County of Santa Clara,  alleging (inter
alia)  breach of  contract  and  intentional  and  negligent  misrepresentation.
Trifocal initially claimed approximately $126,819 in specified money damages, as
well as additional  unspecified  money damages,  interest,  punitive damages and
attorneys' fees and costs.  Trifocal explicitly stated that it intended to amend
its complaint with respect to damages.  In December 2003, we removed the case to
the United States  District Court for the Northern  District of California  (San
Jose  Division),  denied any liability,  and filed  counterclaims  seeking money
damages in excess of $1.8 million for Trifocal's  breach of contract,  breach of
the implied  covenant of good faith and fair dealing,  intentional  interference
with contract,  negligent  interference  with contract,  and breach of fiduciary
duty.  Pursuant to local court rules regarding  alternative  dispute resolution,
the parties are  participating in mediation.  The initial  mediation was held on
June 28, 2004.

    On or about November 14, 2002, we filed a joint patent  infringement  action
with Black  Diamond  CCT  Holding,  LLC  against  Coupons,  Inc.  in the Federal
District Court of Maryland.  In this suit, we alleged  infringement  of two U.S.
patents   relating  to  online  coupons,   rights  of  which  we  acquired  from
BrightStreet.com.   Coupons,   Inc.  has  answered  our   complaint  by  denying
infringement and has raised  affirmative  defenses  including  non-infringement,
invalidity, unenforceability,  laches and/or estoppels, defenses under 35 U.S.C.
section  273 and other  defenses.  No counter  claims  were filed  against us by
Coupons, Inc. The case has been proceeding through discovery,  although no trial
date has yet been set. We and Black  Diamond have filed a motion to add Consumer
Networks,  LLC and  News  America  Incorporated  as  defendants  based  on their
partnerships  with Coupons,  Inc. We also have filed a motion to add another one
of our patents that relates to infringement  by Coupons,  Inc.'s email services.
The court has not yet ruled on these motions.

    On January 21, 2004, we and Black  Diamond CCT Holding,  LLC filed (but have
not yet served) a patent infringement  action against Consumer Networks,  LLC in
California.  In this suit, we alleged  infringement of two U.S. patents relating
to online coupons,  rights of which we acquired from  BrightStreet.com,  Inc. If
the  Maryland  court  grants the motion to add  Consumer  Networks,  LLC to that
action, the California suit will not be separately  pursued.  To date, no answer
has been filed by Consumer Networks, LLC.


                                       12
<PAGE>

    On or about  October  10,  2002,  we received a demand  letter from  Orrick,
Herrington & Sutcliffe,  LLP,  ("Orrick") a law firm  representing  Bowne of New
York City ("Bowne") demanding payment of $91,527 for financial printing services
allegedly  rendered by Bowne.  The letter also  indicated that if the matter was
not amicably resolved, then Bowne would commence legal proceedings.  The parties
have now settled  this dispute and entered  into a formal  settlement  agreement
whereby  we had  agreed to pay  $71,734  in equal  installments  over six months
commencing on or about February 4, 2003. Our records reflect two payments remain
outstanding.  Orrick has indicated to us that it believes that we are in default
of the settlement agreement.

    There  were no other  material  additions  to, or  changes in status of, any
ongoing,  threatened or pending legal  proceedings  during the fiscal year ended
December 31, 2003,  including  no changes in the status of the  settlement  with
coolsavings.com,   Inc.  ("coolsavings).   The  terms  of  the  settlement  with
coolsavings  provide for a cross-license  between coolsavings and us 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 may have
to make payments of up to $1.35 million to coolsavings as follows:

         o    $650,000, which was paid to coolsavings on September 29, 2000, was
              due at the signing of the settlement documents.

         o    $250,000,  which was accrued for during 2001,  was due if,  within
              one  year  from  the  date of  entry  of the  Stipulated  Order of
              Dismissal  filed on or about  March 3,  2000,  Catalina  Marketing
              Corporation  prevailed  in a  motion  for  summary  judgment  in a
              separate  litigation  between it and  coolsavings,  involving  the
              coolsavings'  patent currently in dispute.  However, a dispute has
              arisen between the parties  regarding  whether this portion of the
              license  fee  is  actually   due,   despite   Catalina   Marketing
              Corporation not prevailing in its motion. This dispute is based in
              part on the fact that we may be  entitled  to a license  under the
              coolsavings' patent at issue as a result of our acquisition of the
              assets  of   BrightStreet.com,   which  acquisition  included  the
              settlement of  infringement  litigation  between  coolsavings  and
              BrightStreet.com regarding the same coolsavings patent at issue in
              our settled litigation.  Coolsavings previously filed a lawsuit to
              collect such  $250,000  amount,  but we  understand  that it later
              voluntarily  dismissed the lawsuit without prejudice.

         o    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. This component of the settlement arrangement has
              not been accrued for because,  in the opinion of  management,  the
              possibility of us having to make this payment  continues to remain
              remote.

    Depending on the amount and timing, an unfavorable resolution of some or all
of these  matters could  materially  adversely  affect our  business,  financial
condition, results of operations and cash flow in a particular period.

    In addition,  from time to time, we are a party to various legal proceedings
incidental  to  our  business.  None  of  these  proceedings  is  considered  by
management  to be  material  to the  conduct  of  our  business,  operations  or
financial condition.

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

    During the quarter ended December 31, 2003, there were no matters  submitted
to a vote of security holders.


                                       13
<PAGE>

                                     PART II

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

MARKET INFORMATION

    Since our initial  public  offering on October 3, 2000, our common stock has
traded on 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 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             EXCHANGE RATES
---------------------------------          --------------------     -------------------     ---------------------
                                            HIGH          LOW        HIGH         LOW         HIGH         LOW
                                            ----          ---        ----         ---         ----         ---
                   2002
                  ------
<S>                                       <C>          <C>          <C>          <C>        <C>          <C>
Quarter ended March 31, 2002              CHF 1.14     CHF 1.00     $0.68        $0.60      0.59531      0.59577
Quarter ended June 30, 2002               CHF 1.14     CHF 0.38     $0.68        $0.25      0.59347      0.66796
Quarter ended September 30, 2002          CHF 0.46     CHF 0.22     $0.32        $0.15      0.69032      0.66538
Quarter ended December 31, 2002           CHF 1.58     CHF 0.19     $1.07        $0.13      0.67912      0.67195

                   2003
                  ------
Quarter ended March 31, 2003              CHF 0.85     CHF 0.30     $0.61        $0.22      0.71979      0.72296
Quarter ended June 30, 2003               CHF 0.64     CHF 0.32     $0.48        $0.23      0.75470      0.72443
Quarter ended September 30, 2003          CHF 0.98     CHF 0.46     $0.71        $0.34      0.72230      0.74010
Quarter ended December 31, 2003           CHF 1.04     CHF 0.60     $0.79        $0.48      0.76080      0.80100

</TABLE>

HOLDERS

    As of February  17,  2004,  the number of holders of our common stock was in
excess of 85 record and beneficial owners.

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  Item  7 --  "Management's  Discussion  and  Analysis  of  Financial
Conditions  and Results of Operations -- Liquidity  and Capital  Resources"  for
further details.

    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.

RECENT SALE/ISSUANCE OF UNREGISTERED SECURITIES

Options

    During the year ended  December 31, 2003,  we granted  options to purchase a
total of  8,594,897  shares of common  stock under our stock  incentive  plan to
certain of our employees and directors. During that period, 314,325 options were
exercised and 689,150  options were  cancelled due to the  forfeiture of options
resulting  from  employees  leaving the company and unearned  performance  based
options.

Convertible Promissory Notes

    In March 2003, we executed convertible  promissory notes in favor of Friedli
Corporate  Finance,  financial  advisor to us, and  InVenture,  Inc., one of our
stockholders,  for an aggregate sum of up to $6 million. The notes allowed us to
draw down against the available principal of up to $6 million at any time and in
any amount  during  the first two years of the  notes.  The terms of each of the
notes  include,  among other  things:

    o    an 8% interest rate;

    o    a maturity date three years from the date of issuance;

    o    a conversion feature,  which provides that under certain  circumstances
         each note will automatically convert to our common stock;


                                       14
<PAGE>

    o    a one-time  final payment  charge of 10% of the principal for each year
         that the principal is not paid on or before each annual  anniversary of
         the date the notes were issued (with a maximum of 30%); and

    o    a security interest in substantially all of our assets.

    Subsequent  to the  issuance  of the  promissory  notes in March  2003,  we,
Friedli Corporate Finance and InVenture,  Inc. agreed to assemble a syndicate of
third  parties  to whom we would  issue  convertible  promissory  notes on terms
similar to the March 2003 $6 million convertible promissory notes that we issued
to Friedli Corporate Finance and InVenture,  Inc. The aggregate dollar amount of
the  convertible  promissory  notes  that we  issue  to  third  parties  through
syndication  will  reduce,  on  a   dollar-for-dollar   basis,  the  $6  million
convertible  promissory notes of Friedli Corporate  Finance and InVenture,  Inc.
and the balance,  if any,  will  continue to be  available  to us under  Friedli
Corporate Finance's and InVenture, Inc.'s initial $6 million commitment.  During
2003, we received an aggregate of $3,450,000 in connection  with the issuance of
nine  convertible  promissory  notes  and  through  June  28,  2004 we  received
$3,300,000 in connection with the issuance of six convertible  promissory notes.
The terms of each of the  promissory  notes  are  substantially  similar  to the
promissory  notes  issued in March 2003,  as noted  above.  We intend to use the
funds for working capital and general corporate purposes. During March 2004, the
credit facility available to us under Friedli Corporate Finance's and InVenture,
Inc.'s initial  commitment was increased from $6 million to $12 million pursuant
to amended notes.  The general terms of the amended notes remain the same as the
terms of the $6 million notes described above.

Warrants

    On  October  8,  2002,  our Board of  Directors  approved  the  issuance  of
6,000,000  warrants  to  four  investors  as  consideration  for a  $20  million
financing  commitment,  which was  memorialized  in a letter  to us, by  Friedli
Corporate Finance,  dated September 12, 2002. In the commitment letter,  Friedli
Corporate   Finance  agreed  to  provide  us  with  the  $20  million  financing
commitment.  The warrants were issued, as directed by Friedli Corporate Finance,
to the four investors in connection with Friedli  Corporate  Finance agreeing to
provide the financing commitment. The warrants entitle each investor to purchase
one  share of our  common  stock,  $0.01 par value  per  share,  for an  initial
exercise price of Swiss francs (CHF) 0.19 per share during the exercise  period.
Pursuant to an amendment to the warrants, the exercise period began three months
from  January  6,  2003 and ends on April 7,  2008.  Two of the  warrant  holder
investors, Peter Friedli and Venturetec,  are current stockholders.  Pursuant to
the terms of the private  placement,  Peter Friedli and Venturetec each received
1,000,000  warrants.  As disclosed in our filings under the Securities  Exchange
Act of 1934, Peter Friedli beneficially owns 3% of New Venturetec AG, the parent
of Venturetec,  and is the President of both New  Venturetec AG and  Venturetec.
Mr.  Friedli has also been one of our directors  since 1996. In September  2003,
390,000 of the 1,000,000  warrants  issued to Peter Friedli were  transferred to
twelve other unrelated entities.

    For  his  continued   support  of  the  business  and  his  assistance  with
fundraising, on December 8, 2003, Peter Friedli was issued 345,000 warrants with
an exercise price of $0.50 and an expiration date of December 8, 2007.

Series B Convertible Preferred Stock

    In  connection  with our  purchase  of  substantially  all of the  assets of
Consumer  Review,  Inc.,  we issued into escrow  400,000  shares of our Series B
convertible  preferred stock as part of the  consideration  for the acquisition.
Following the one year  anniversary of the closing date, the conversion rate for
each share of the Series B convertible preferred stock was determined to be 8 to
1,  based upon the  achievement  of  contractually  defined  revenue  during the
calculation  period.  It is our  current  intention  to  register  the  Series B
convertible  preferred stock as soon as reasonably  practicable,  although in no
event later than the end of the third quarter 2004.

    Venturetec and Pine Inc. (an entity controlled by Peter Friedli,  one of our
stockholders  and directors)  were  debentureholders  in Consumer  Review,  Inc;
therefore,  as a result of such acquisition Venturetec and Pine received 240,315
shares and 4,500 shares,  respectively,  of our Series B  convertible  preferred
stock. Mr. Friedli serves as the investment advisor to both Venturetec and Pine.

Series A Convertible Preferred Stock

    On  October  19,  2001,  we closed a rights  offering  of  common  stock for
approximately  $24.6 million with  subscriptions  for  20,000,000  shares.  Each
subscriber   in  the  rights   offering   also   received,   for  no  additional
consideration, based upon the number of shares of common stock purchased by such
subscriber in the rights offering, a pro-rata portion of 2,000,000 shares of the
our Series A convertible  preferred stock  (convertible on a 10-for-1 basis into
20,000,000 shares of common stock under certain circumstances). During 2003, all
of the  shares of the  Series A  convertible  preferred  stock that had not been
previously voluntarily converted were automatically converted into shares of our
common  stock.  Such  shares of common  stock have been  listed on the SWX Swiss
Exchange since February 21, 2002.


                                       15
<PAGE>

ITEM 6 - SELECTED FINANCIAL INFORMATION

                      SELECTED CONSOLIDATED FINANCIAL DATA
                (in U.S. Dollars in thousands, except share data)

    You  should  read the  selected  consolidated  financial  data  shown  below
together with our consolidated  financial  statements and related notes and with
Item 7 -  "Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of  Operations"  and other  financial  data  included  elsewhere in this
annual report.  Our  consolidated  statements of operations data for each of the
years ended December 31, 2003, 2002 and 2001 and the consolidated  balance sheet
data as of  December  31,  2003 and  2002,  are  derived  from our  consolidated
financial statements that have been audited by KPMG LLP,  independent  certified
public  accountants,  included elsewhere in this annual report. Our statement of
operations  data for the years ended  December 31, 2000 and 1999 and the balance
sheet data as of December  31,  2001,  2000 and 1999 have been  derived from our
audited financial statements not included in this annual report. The results are
not necessarily indicative of the results that may be expected in future periods
and  are  not  comparable   between  prior  periods  as  a  result  of  business
combinations  consummated  and  the  discontinuation  of  certain  products  and
services in applicable  years.  Results of acquired  businesses are included for
the period subsequent to their respective dates of acquisition.
<TABLE>
<CAPTION>

                                                                Year Ended December 31,
                                                   2003        2002        2001       2000        1999
                                                ----------------------------------------------------------

Consolidated Statement of Operations Data:
<S>                                             <C>         <C>         <C>          <C>         <C>
Revenue                                            $ 6,059     $ 7,221     $ 5,054     $10,230       $ 740
Cost of revenue                                      2,866       4,416       8,395       2,208       1,028
Product development,
  exclusive of stock-based compensation              2,519       4,069       7,933       2,873       2,427
General and administrative,
  exclusive of stock-based compensation              7,632      10,763      12,592       8,765       4,083
Sales and marketing,
  exclusive of stock-based compensation              2,312       3,886       9,997      19,006       7,889
Network partner fees                                     -           2         986       6,354         730
Restructuring and impairment  charge                     -       1,128       9,876           -           -
Stock-based compensation:
  Product development                                  156          60         201         822         283
  General and administrative                         2,203         106         362         333         297
  Sales and marketing                                  248         193         300         558         475
                                                ----------------------------------------------------------
Loss from operations                               (11,877)    (17,402)    (45,588)    (30,689)    (16,472)
Interest expense                                      (479)        (58)         (4)          -           -
Interest income, net                                    11         296         608         694         268
Other income                                             3           -           -          50          34
                                                ----------------------------------------------------------
     Loss before income taxes                      (12,342)    (17,164)    (44,984)    (29,945)    (16,170)
Income taxes                                             -          19         (19)          -          -
                                                ----------------------------------------------------------
     Net loss                                      (12,342)    (17,145)    (45,003)    (29,945)    (16,170)
Preferred stock dividend requirements
  and accretion of convertible
  redeemable preferred stock                             -           -           -        (552)       (383)
                                                ----------------------------------------------------------
Net loss applicable to common shareholders        $(12,342)   $(17,145)   $(45,003)  $ (30,497)  $ (16,553)
                                                ==========================================================

Basic and diluted loss per common share            $ (0.29)    $ (0.46)    $ (2.68)    $ (4.09)    $ (3.40)
Shares used to compute basic and diluted
  net loss per common share                     42,521,083  37,349,270  16,810,366   7,460,272   4,869,601



                                                     2003        2002        2001       2000        1999
                                                ----------------------------------------------------------
Consolidated Balance Sheet Data:
Cash and cash equivalents                              285       2,317      8,902      27,062        427
Working capital                                     (2,671)      1,039      2,177      26,094        872
Total assets                                         5,833      12,691     27,829      36,377      5,490
Deferred revenue                                       654       1,096      2,524         904        791
Long term obligations                                3,606         246      7,369           -      2,000
Stockholders' equity                                (2,437)      7,105     10,533      30,834        995

</TABLE>


                                       16
<PAGE>

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  Consolidated  Financial Data" and
our  consolidated  financial  statements  and the  notes to  those  consolidated
financial  statements  elsewhere in this Annual Report on Form 10-K beginning on
page F-1.  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  interactive  marketing  technologies  and  services,  as well as
commerce  capabilities and solutions for companies across a range of industries.
Businesses rely on our broad range of solutions to acquire and retain customers.
With our proprietary technology,  we provide acquisition and retention solutions
for companies that do business with millions of Internet users every day. During
2003, our principal products included the Interactive Database Marketing System,
the  Promotions   System,  the  E-mail  Marketing  System  and  advertising  and
e-commerce related services provided through the ConsumerREVIEW.com division.

    We  were  established  on  August  2,  1996  as  Imaginex,   Inc.,   through
incorporation  in the State of Delaware.  During  October  1996,  we amended our
articles of  incorporation  to change our name to  Emaginet,  Inc.  and in March
1999,  we again  amended  our  articles of  incorporation  to change our name to
E-centives,  Inc.  From  inception  until June 1999,  our  principal  activities
included:

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

         o    developing and protecting our intellectual property;

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

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

         o    securing financing for working capital and capital expenditures.

    We launched  our direct  marketing  service in November  1998 by  delivering
e-centives  (promotions including such items as digital coupons,  sales notices,
free shipping offers, minimum purchase discounts and repeat purchase incentives)
through  our  Promotions  Network   (subsequently   called  PerformOne  Network)
offerings.  Between  November 1998 and June 1999,  while we were introducing our
direct  marketing  service,  we allowed  marketers  to use our direct  marketing
system at no charge.  We began generating  revenue in the third quarter of 1999.
In  conjunction  with the  acquisition  of the Commerce  Division,  our commerce
products and services  began  generating  revenue in late March 2001.  In August
2001, we started producing revenue from our e-mail marketing technology services
and through the  acquisition  of  BrightStreet.com  in December  2001,  we began
generating revenue by providing online promotions  management  solutions through
our Interactive Database Marketing System. During 2002 we suspended offerings of
the Commerce Network,  the Commerce Engine and the PerformOne Network.  With the
acquisition  of  substantially  all of the assets of  Consumer  Review,  Inc. in
December 2002, we began providing additional advertising and e-commerce services
from the ConsumerREVIEW.com division.

    Our E-mail Marketing System,  which we began offering in August 2001, allows
companies to outsource  their e-mail  marketing  campaigns to us. This  solution
lets  businesses  cost-effectively  conduct e-mail  marketing  without having to
acquire or develop their own e-mail  infrastructure and manage the process.  Our
e-mail marketing solution consists of list management and hosting,  strategy and
creative  services,  e-mail delivery and  management,  and tracking and analysis
services.  Our e-mail  marketing  system is  designed  to help build an ongoing,
personalized   dialogue  with  the  client's   intended  audience  and  maximize
effectiveness  through  targeting and testing.  Revenue is generated by charging
fees for list management and hosting services,  strategy and creative  services,
e-mail  delivery  and  management  services,  as well as tracking  and  analysis
services.

    On  December  3, 2001,  we entered  into an Asset  Purchase  Agreement  (the
"Agreement")  with  BrightStreet.com,   Inc.   ("BrightStreet.com")  whereby  we
acquired  substantially  all of  BrightStreet.com's  assets  and  certain of its
liabilities.  We  acquired  BrightStreet.com  for  approximately  $2.2  million,
consisting  of  approximately  $1.7  million in cash,  a  guaranteed  warrant to
purchase 500,000 shares of our common stock valued at approximately  $185,000, a
contingent  performance-based  warrant to purchase  up to 250,000  shares of our
common stock and about $369,000 in acquisition  costs.  In conjunction  with the
Agreement, we entered into a Patent Assignment Agreement (the "Assignment") with
BrightStreet.com.  Pursuant to the  Assignment,  BrightStreet.com  has agreed to


                                       17
<PAGE>

assign to us all rights, title and interest in and to all the issued and pending
BrightStreet.com  patents  (collectively,  the  "Patents"),  subject  to certain
pre-existing rights granted by BrightStreet.com to third parties  ("Pre-existing
Rights"),  provided we make a certain payment to BrightStreet.com by December 3,
2005 (the  "Payment").  If we make such  Payment by that date,  we shall own all
rights  title and interest in and to the  Patents,  subject to the  Pre-existing
Rights. Until such Payment is made, we have, subject to the Pre-existing Rights,
an   exclusive,   worldwide,   irrevocable,    perpetual,    transferable,   and
sub-licensable  right and license  under the  Patents,  including  the rights to
control  prosecution of the Patents and Patent applications and the right to sue
for the infringement of the Patents.  Until we take formal title to the Patents,
we may not grant an  exclusive  sublicense  to the  Patents to any  unaffiliated
third  party.  In the event we do not make the Payment by  December 3, 2005,  we
shall  retain a license  to the  Patents,  but the  license  shall  convert to a
non-exclusive  license,  and other rights to the Patents and Patent applications
shall revert to  BrightStreet.com  or its  designee.  In exchange for the rights
granted under the Assignment, beginning December 2002, we have been obligated to
pay BrightStreet.com 10% of revenues received that are directly  attributable to
(a)  the  licensing  or  sale  of  products  or   functionality   acquired  from
BrightStreet.com,  (b) licensing or royalty fees received  from  enforcement  or
license of the Patents covered by the  Assignment,  and (c) licensing or royalty
fees received under existing  licenses  granted by  BrightStreet.com  to certain
third parties.  If the total  transaction  compensation  paid, as defined by the
Agreement, at any time prior to December 3, 2005 exceeds $4,000,000, the Payment
will be deemed to have been made.  Additionally,  we have the right, at any time
prior to December 3, 2005, to satisfy the Payment by paying to  BrightStreet.com
the difference between the $4,000,000 and the total  compensation  already paid.

    With the acquisition of substantially all of  BrightStreet.com's  assets, we
started offering online promotions  technology and  infrastructure  that is used
for powering a variety of promotional  offerings,  including  coupons,  rebates,
sales  circulars,  surveys,  trial  offers and  loyalty  programs.  This  system
designs, deploys, and manages promotions and tracks individual consumer response
to offers for manufacturers, retailers, and websites. It also enables businesses
to gain insights about their consumer  preferences and motivations,  and enhance
consumer  relationships  with rich data  modeling and  sophisticated  targeting.
Revenue consists of fees from the sale of licenses and related services.

    On  December  4, 2002,  we acquired  substantially  all of Consumer  Review,
Inc.'s  assets  and  certain  of  its  liabilities  through  an  Asset  Purchase
Agreement.   The  cost  of  the  acquisition  was  approximately  $2.6  million,
consisting of 400,000 shares of Series B convertible  preferred  stock valued at
approximately  $2.1 million,  $290,000 in cash and about $216,000 in acquisition
costs.  At closing  the Series B  convertible  preferred  stock was placed  into
escrow.  Following the one year  anniversary of the closing date, the conversion
rate  for each  share of the  Series B  convertible  preferred  stock  was to be
determined  based upon the achievement of  contractually  defined revenue during
the  calculation  period  and was to be  accordingly  adjusted.  Based  upon the
revenue  generated by our  ConsumerREVIEW.com  division  during the  calculation
period, the conversion rate for each share of the Series B convertible preferred
stock will be adjusted to 8 to 1. The stock consideration will then be disbursed
in accordance with the terms of the Escrow Agreement.

    ConsumerREVIEW.com  manages web communities around common product interests.
The web  properties  are  dedicated  to meeting the needs of  consumers  who are
researching products on the web. It provides an interface to a large database of
product information, forums, and other useful content. Consumers visit to learn,
interact,  and buy or sell the  products  showcased  within  our  network of web
communities,  including sites like AudioREVIEW.com and MtbREVIEW.com. Users find
the products they are  interested  in, read and write  reviews,  participate  in
discussions,  compare  prices,  and  shop  online.  ConsumerREVIEW.com  business
services primarily include advertising and e-commerce referrals.

    To date we have not been profitable,  incurring net losses of $12.3 million,
$17.1 million and $45.0 million for the years ended December 31, 2003,  2002 and
2001,  respectively.  We have  undertaken a series of  cost-cutting  measures to
preserve  cash and we continue  to examine  ways to manage our human and capital
resources more efficiently.  In addition to the restructuring plans noted below,
we have undertaken  efforts to reduce marketing and general  overhead  expenses,
and  continue  to look  prudently  at all  expenditures  in order to reduce  our
ongoing operating costs.

         o    In 2001, we  implemented  restructuring  actions to respond to the
              global  economic  downturn  and to improve our cost  structure  by
              streamlining  operations and  prioritizing  resources in strategic
              areas   of   our    business.    As   a   result,    we   recorded
              restructuring/impairment  charges of $9.9 million to reflect these
              actions.   This  charge   consisted   of  costs   related  to  the
              consolidation of excess  facilities in our Bethesda,  Maryland and
              Redwood Shores, California locations, severance and other employee
              benefit costs related to the termination of 63 employees,  as well
              as a revaluation  of the  intangible  assets  associated  with the
              Commerce Division.

         o    In 2002 we recorded a net restructuring/impairment  charge of $1.1
              million.  Approximately $1.3 million of the charge occurred during
              the second quarter of 2002, in association with the termination of


                                       18
<PAGE>

              our lease for the Redwood  Shores  facility and the closure of our
              Commerce  Division.  The  charge  related  to the  Redwood  Shores
              facility was the net effect of the costs associated with

              terminating  the  lease and the  reversal  of the  remaining  2001
              accrued restructuring/impairment balance related to this facility.
              The Commerce  Division  related charge  consisted of severance and
              other employee  benefit costs for the termination of 18 employees,
              the  cost  of  closing  the   operations  of  the  United  Kingdom
              subsidiary,  the disposal and  write-down of related  tangible and
              intangible  assets,  as well as other  costs  associated  with the
              closure of the Commerce Division.  During the last two quarters of
              2002,  we  recorded  a  net  restructuring/impairment   credit  of
              approximately  $181,000.  This was the result of a $359,000 credit
              related to the revised plan for the Bethesda  facility,  which was
              partially  offset  by the  costs of  scaling  back the  PerformOne
              Network and an increase in the reserve  that was  established  for
              the closure of the  Commerce  Division.  The revised  plan for the
              Bethesda  office  was  due to the  execution  of a  partial  lease
              termination for one-half of the office space in this facility.  As
              a    result,     we     reversed     the     remaining     accrued
              restructuring/impairment  balance that was established in 2001 and
              set up a new  reserve  for  the  costs  associated  with  the  new
              agreement.  The costs  connected  with scaling back the PerformOne
              Network  included  severance and other  employee  benefits for the
              termination of 19 employees.

CRITICAL ACCOUNTING POLICIES

    E-centives consolidated financial statements are prepared in conformity with
accounting   principles   generally   accepted  in  the  United  States.  For  a
comprehensive  discussion of our accounting policies, see Note 2 of the Notes to
the Consolidated Financial Statements, which notes begin on page F-7.

    The  preparation  of financial  statements  in  conformity  with  accounting
principles   generally  accepted  in  the  United  States  of  America  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.

    Estimates are used in accounting  for,  among other things,  allowances  for
uncollectible  receivables,  recoverability  of  long-lived  assets,  intangible
assets,  and investments,  depreciation  and  amortization,  goodwill,  employee
benefits,  restructuring  accruals,  taxes  and  contingencies.   Estimates  and
assumptions are reviewed periodically and the effects of revisions are reflected
in the consolidated  financial statement in the period they are determined to be
necessary.

    Our critical accounting policies are as follows:

    (a)  Revenue Recognition

              Revenue is generated by providing  promotions  marketing services,
         e-mail  marketing  services,  advertising  services  and various  other
         consulting  services,  as well as licensing our software products.  Our
         current  products  and  services  principally  include the  Interactive
         Database  Marketing System, the Promotions System, the E-mail Marketing
         System,  and  advertising  and  e-commerce  services  provided  through
         ConsumerREVIEW.com. Although we reduced the offerings of the PerformOne
         Network and  eliminated the Commerce  Engine and the Commerce  Network,
         these systems contributed revenue into the third quarter of 2002.

              For the year  ended  December  31,  2003,  one of our  Interactive
         Database Marketing System customers, Reckitt Benckiser PLC, contributed
         $2.7 million,  or 45% of revenue.  This customer's  original  agreement
         expired in October 2002 and the customer  subsequently entered into two
         renewal  agreements,  with the most recent one expiring on December 31,
         2004;  however,  each renewal agreement has been at a lower total value
         than the  previous  agreement  based on fewer  services  ordered.  This
         customer also represented  approximately $874,000 of the $1,583,000 net
         accounts  receivable balance as of December 31, 2003. We do not believe
         there is a significant risk of  uncollectibility  due to the customer's
         payment history and credit-worthiness.

         Interactive Database Marketing System: For the years ended December 31,
              2003, 2002 and 2001, the  Interactive  Database  Marketing  System
              represented 53%, 67% and 1%, respectively, of such year's revenue.
              Revenue is generated by charging fees for system  licensing,  data
              hosting,  site hosting,  database management,  account management,
              strategy and creative  services,  e-mail  delivery and  management
              services,  as well as tracking and  analytical  services.  Revenue
              related to licensing  fees is recognized  ratably over the license
              period,  one-time  service  fees for setting up the  customer  are
              recognized   ratably  over  the  expected  term  of  the  customer
              relationship  and all other revenue is recognized when the service
              is  provided,  assuming  collection  is  reasonably  assured.  For

                                       19
<PAGE>

              agreements  that also include a  performance-based  incentive  fee
              component that is not finalized  until the end of a period of time
              specified in the agreement,  we recognize the amount that would be
              due  under  the  formula  at  interim  reporting  dates  as if the
              contract was terminated at that date. This policy does not involve
              a consideration of future  performance,  but does give rise to the
              possibility  that fees  earned by  exceeding  performance  targets
              early in the  measurement  period may be  reversed  due to missing
              performance  targets  later in the  measurement  period.  Our only
              client  with  a   performance-based   incentive  fee   contributed
              approximately  $96,000  and  $1,064,000,   respectively,  in  such
              revenue for the years ended  December 31, 2003 and 2002,  from the
              original  contract that expired in October 2002. The first renewal
              agreement,   which  began  in   November   2002,   also   includes
              performance-based  incentive  fees that  contributed  $223,000  in
              revenue for the year ended December 31, 2003. The second renewal

              agreement, which began in November 2003 and ends in December 2004,
              does not contain a performance-based incentive fee component.

         E-mail Marketing System: Revenue is generated by charging fees for list
              management and hosting services,  strategy and creative  services,
              e-mail delivery and management  services,  as well as tracking and
              analytical services.  Revenue related to one-time service fees for
              setting up the  customer is  recognized  ratably over the expected
              term of the  customer  relationship,  while all other  revenue  is
              recognized  when the service is provided.  Revenue from our E-mail
              Marketing  System  represented  3%, 5% and 2% of our total revenue
              for 2003, 2002 and 2001, respectively.

         ConsumerREVIEW.com:   Revenue  is   predominantly   generated   through
              advertising and e-commerce  fees.  Advertising  revenue is derived
              from the sale of  advertisements  on pages  delivered to community
              members of our websites.  This revenue is recognized in the period
              in which the  advertisements  are delivered.  E-commerce  fees are
              derived from on-line performance-based  programs and are earned on
              either a lead referral basis or on an affiliate  commission basis.
              We earn revenue from performance-based programs when a user of our
              websites  responds to a commerce  link by linking to a  customer's
              websites. For lead referral programs, we charge our customers on a
              cost-per-click  basis,  and recognize the revenue in the month the
              click occurs. For affiliate-commissions programs, we recognize our
              revenue when the commission is earned,  which is in the month that
              the transactions occur.  ConsumerREVIEW.com represented 44% and 3%
              of our  revenue for the years  ended  December  31, 2003 and 2002,
              respectively.

         PerformOne  Network:  Although the services of the  PerformOne  Network
              were discontinued  during 2002, the principal service,  PromoMail,
              which was purchased by marketers either on a fixed fee basis or on
              a  performance  basis,   represented   approximately  4%  and  30%
              (excluding marketing partner transactions as defined below) of our
              revenue  for  the  years  ended   December   31,  2002  and  2001,
              respectively. For the fixed fee contracts, participating marketers
              were  charged  a fixed fee for each  member to whom the  e-mail is
              sent,  and  revenue  related to the service  was  recognized  upon
              transmission of the e-mail.  When marketers  purchased the service
              on a performance basis, revenue was based solely on the actions of
              our consumer members.  We earned a contractually  specified amount
              based on the  number  of  members  who click on the offer or other
              specified  link,  the number of purchases  by our members,  or the
              amount of sales  generated  by our members.  Beginning  January 1,
              2002,  revenue for performance  related  agreements was recognized
              upon cash  receipts  from the  marketers  for the  actions  of our
              members or upon  notification  of the actions for  marketers  that
              prepay.  Prior to January 1, 2002,  revenue  was  recognized  upon
              notification of the actions of our members. This change in revenue
              recognition  policy was due to the  uncertainty  in estimating the
              revenue and,  therefore,  the  collectibility of the revenue.  The
              change in revenue  recognition  to a cash  receipts  basis did not
              have a significant impact on revenue.

         Commerce Engine: With the closure of the Commerce Division during 2002,
              this product did not contribute  any revenue during 2003,  however
              it did represent 16% and 26%,  respectively,  of our 2002 and 2001
              revenue.  Revenue was primarily generated through license, support
              and  maintenance  fees from  Internet  portal  and  other  website
              customers.  Revenue was recognized  ratably over the expected term
              of the contract.

         Commerce Network:  Due to the closure of the Commerce  Division  during
              2002,  this product did not  contribute  any revenue  during 2003,


                                       20
<PAGE>

              however it did represent 4% and 9%, respectively,  of our 2002 and
              2001  revenue.  Through  this  system,  we earned a  contractually
              specified  amount from merchants  based on the number of end users
              who  clicked  on their  specified  product  link or the  amount of
              merchant's sales generated by the end users.  Beginning January 1,
              2002,   revenue  was  recognized   upon  cash  receipts  from  the
              merchants,  and prior to January 1, 2002  revenue  was  recognized
              when an action by an end user  occurred.  This  change in  revenue
              recognition  policy was due to the  uncertainty  in estimating the
              revenue and,  therefore,  the  collectibility of the revenue.  The
              change in revenue  recognition  to a cash  receipts  basis did not
              have a significant impact on revenue.


         Consulting  Services:   Customers  may  also  contract  for  consulting
              services,  such as assistance with on-line  marketing,  promotions
              planning,  consumer acquisition and analytics.  Revenue related to
              these  consulting  services is recognized as the related  services
              are provided.

         Marketing Partner  Transactions:  Revenue for the first two quarters of
              2001  included   approximately  $1.4  million  in  barter  revenue
              ("marketing partner transactions"),  which represents exchanges of
              promotional e-mail deliveries for reciprocal  advertising space or
              traffic  on  other  websites.  There  were  no  marketing  partner
              transactions  during the years ended  December  31, 2002 and 2003.
              Revenue and expenses  from these  marketing  partner  transactions
              were recorded based upon the fair value of the promotional e-mails
              delivered at a similar quantity or volume of e-mails  delivered in
              a  qualifying  past cash  transaction.  Fair value of  promotional
              e-mails delivered was based upon our recent historical  experience
              of cash received for similar e-mail  deliveries.  Such revenue was
              recognized   when  the   promotional   e-mails   were   delivered.
              Corresponding  expenses  were  recognized  for the  advertisements
              received when our advertisements  were displayed on the reciprocal
              websites or properties,  which was typically in the same period as
              delivery of the promotional e-mails and were included in sales and
              marketing expense.

    (b)  Estimating valuation allowance for doubtful accounts

           The preparation of financial statements requires us to make estimates
        and assumptions that affect the reported amount of assets and disclosure
        of contingent assets and liabilities at the date of the financial
        statements and the reported amounts of revenues and expenses during the
        reported period. We analyze historical bad debts, customer
        concentrations, customer credit-worthiness, and current economic trends
        when evaluating the adequacy of the allowance for doubtful accounts. As
        a result, we recorded bad debt expense of approximately $44,000 for the
        year ended December 31, 2003. As of December 31, 2003, our accounts
        receivable balance was approximately $1.6 million, net of allowance for
        doubtful accounts of approximately $63,000. Although approximately
        $874,000 of the balance relates to one customer, we do not believe there
        is a significant risk of uncollectibility due to the customer's payment
        history and credit-worthiness.

    (c)  Impairment of long-lived and amortizable intangible assets

              We perform  an  on-going  analysis  of the  recoverability  of our
         long-lived and  amortizable  intangible  assets and, for the year ended
         December 31, 2003, this was done in accordance with FAS 144, Accounting
         for the Impairment or Disposal of Long-Lived  Assets,  which we adopted
         on January 1, 2002. Based on quantitative and qualitative  measures, we
         assess  the  need  to  record   impairment  losses  on  long-lived  and
         amortizable  intangible  assets  used  in  operations  when  impairment
         indicators are present.  The impairment  conditions evaluated by us may
         change  from  period to  period,  given  that we  operate in a volatile
         business  environment.  However,  such impairment conditions considered
         are the ability to maintain financial performance objectives, access to
         new markets and customers,  overall market  conditions,  as well as the
         value of new contracts.  We recorded no impairment charges during 2003;
         however,  during the second  quarter of 2002, in  conjunction  with our
         plan to close the Commerce  Division,  we wrote-off  approximately $4.7
         million  of  tangible  assets  and  recorded  an  impairment  charge of
         $694,000 for the full value of the intangible  assets  associated  with
         the Commerce Division.  This was subsequent to the impairment charge of
         $469,000  that we took during the fourth  quarter of 2001 that resulted
         from the revaluation of the Commerce Division.

              Because the  conditions  underlying the factors we use to evaluate
         our acquisitions  change from time to time, we may determine that it is
         necessary  to take  additional  material  impairment  charges in future


                                       21
<PAGE>

         periods,  which could have a material  adverse  impact on our business,
         financial condition, results of operations and cash flow.

    (d)  Estimation of Restructuring Accruals

              During 2001, we implemented  an expense  reduction plan as part of
         our  strategy  focused  on  improving   operational   efficiencies  and
         strengthening the financial performance of our business.  These efforts
         resulted in the  consolidation of excess facilities and the elimination
         of redundant  positions.  As a result of this  restructuring  plan,  we
         recorded  charges of  approximately  $9.4 million  during  2001.  These
         charges  related  mainly to the  consolidation  of the Redwood  Shores,
         California and Bethesda,  Maryland facilities and workforce  reductions
         of 63 positions.  Facility  consolidation  costs of approximately  $9.0
         million included  expected losses on subleases,  brokerage  commissions
         and other costs.  Employee  separation costs of approximately  $431,000
         included  severance and other  benefits.  During the second  quarter of
         2002,  the remaining  accrued  reserve  balance of  approximately  $6.5
         million  associated  with the  Redwood  Shores  facility  was  reversed
         because a new reserve was established to reflect the termination of the
         lease.  In addition,  during the third  quarter of 2002,  the remaining
         accrued reserve balance of approximately  $1.4 million  associated with
         the Bethesda  facility was reversed as a new reserve was established to
         reflect a partial lease termination. As of December 31, 2003, there was
         no   remaining   accrued   liability   balance   related  to  the  2001
         restructuring charges.

              During 2002,  management approved plans to terminate the lease for
         the Redwood Shores  facility,  close the Commerce  Division,  terminate
         one-half of the Bethesda facility lease and scale back the offerings of
         the   PerformOne   Network.   A   restructuring/impairment   charge  of
         approximately  $9.0 million was recorded to reflect these actions.  The
         charge  included  approximately  $2.1 million in costs  associated with
         terminating  the Redwood Shores  facility  lease,  $5.7 million for the
         disposal and  write-down  of tangible and  intangible  assets and other
         related expenses  associated with closing the Commerce  Division,  $1.0
         million in costs  associated with the partial lease  termination of the
         Bethesda  facility and $215,000 in severance and other employee benefit
         costs related to the  termination  of 37 employees.  As of December 31,
         2003,  the  balance  of the  accrued  restructuring/impairment  charges
         recorded in 2003 was approximately $77,000.

              The  calculation  of the 2001  restructuring  accrual  related  to
         consolidation  of two of our  offices  required  us to  make  estimates
         concerning:  (1) the expected  length of time to sublease the facility;
         (2) the  expected  rental  rates on  subleases;  and (3) the  estimated
         brokerage and  refurbishment  expenses  associated  with  executing the
         subleases.  Due to the early termination and partial termination of the
         Redwood Shores and Bethesda office leases, respectively,  that occurred
         during 2002,  we reversed  the  associated  2001  reserve  balances and
         established  new  reserves  for the  actual  costs  to be  incurred  in
         terminating  the  leases.  The  calculation  of the 2002  restructuring
         accrual related to closure of the Commerce Division required us to make
         estimates  concerning  the  liquidation  of  tangible  assets  and  the
         expected costs of terminating the UK office lease. The expected cost to
         terminate  the UK office  lease  consists  of  monthly  rental  through
         September  30,  2002  and   forfeiture  of  our  security   deposit  of
         approximately  $102,000.  This is based on our best estimate;  however,
         the  landlord  of the UK  office  facility  has  not  responded  to our
         requests to enter into a termination agreement.  If the landlord of the
         UK office facility does not agree to a termination agreement,  we could
         face a potential  additional  liability of  approximately  $364,000 for
         rental  payments  through  September 2004. If the actual results differ
         from the our estimates,  or as management's  best estimates change from
         quarter to quarter, based on the latest information, we are required to
         adjust  our  restructuring  accrual,   including  recording  additional
         expenses.

              The policy  regarding  restructuring  accruals  changed  effective
         January 1, 2003,  due to the adoption of FAS 146,  Accounting for Costs
         Associated  with Exit or Disposal  Activities.  In July 2002,  the FASB
         issued FAS 146, which requires a liability for a cost  associated  with
         an exit or disposal  activity be recognized  and measured  initially at
         its fair value in the period in which the  liability  is  incurred.  If
         fair  value  cannot be  reasonably  estimated,  the  liability  will be
         recognized  initially  in  the  period  in  which  fair  value  can  be
         reasonably  estimated.   The  provisions  of  FAS  146  were  effective
         prospectively for exit or disposal activities  initiated after December
         31, 2002.

    (e)  Impairment of Goodwill and  intangible  assets with  indefinite  useful
         lives


                                       22
<PAGE>

              We  adopted  the  provisions  of  FAS  142,   Goodwill  and  Other
         Intangible  Assets,  as of  January  1,  2002.  FAS 142  requires  that
         goodwill and intangible  assets with indefinite  useful lives no longer
         be amortized, but instead be tested, at least annually, for impairment.
         We  continually  evaluate  whether events and  circumstances  that have
         occurred that indicate that the remaining  value of any goodwill and/or
         intangible  assets with indefinite useful lives may not be recoverable.
         During the second  quarter of 2002,  due to the closure of the Commerce
         Division, the associated goodwill was deemed impaired and the net value
         of approximately $657,000 was written off. At December 31, 2003, we had
         no goodwill or intangible assets with indefinite useful lives.

RELATED PARTY TRANSACTIONS

    Peter  Friedli,  one  of  our  stockholders  and  directors,  serves  as the
investment  advisor to both Venturetec and Pine, and also serves as President of
Venturetec and its parent  corporation,  New Venturetec AG. Mr. Friedli also has
relationships  with  several  of  our  other  stockholders;  he  serves  as  the
investment  advisor to InVenture,  Inc.,  Joyce,  Ltd.,  Savetech,  Inc., Spring
Technology Corp. and USVentech,  Inc. Mr. Friedli also services as the President
of Friedli  Corporate  Finance,  Inc.,  a company  that  provides us  consulting
services.

    On  October  8,  2002,  our Board of  Directors  approved  the  issuance  of
6,000,000  warrants  to  four  investors  as  consideration  for a  $20  million
financing  commitment.  Two of the investors were Peter Friedli and  Venturetec,
and each received 1,000,000 warrants. As part of this financing,  in March 2003,
we executed  convertible  promissory notes in favor of Friedli Corporate Finance
and  InVenture,  Inc.  The notes  allow us to draw down  against  the  available
principal of up to $6 million at any time and in any amount during the first two
years of the notes.  All principal  drawn upon will be secured by  substantially
all of our assets.  Subsequent to the issuance of these  promissory  notes,  we,
Friedli Corporate Finance and InVenture,  Inc. agreed to assemble a syndicate of
third  parties  to whom we would  issue  convertible  promissory  notes on terms
similar to the March 2003 $6 million convertible promissory notes. The aggregate
dollar amount of the convertible promissory notes that we issue to third parties
through  syndication will reduce, on a  dollar-for-dollar  basis, the $6 million
convertible  promissory notes of Friedli Corporate  Finance and InVenture,  Inc.
and the balance,  if any,  will continue to be available to us under the initial
$6 million  commitment.  As part of the  syndication  process,  during 2003,  we
issued nine convertible  promissory notes totaling $3,450,000,  and through June
2004 we received  $3,300,000 in connection  with the issuance of six convertible
promissory notes.  During March 2004, the credit facility  available to us under
Friedli  Corporate  Finance's  and  InVenture,  Inc.'s  initial  commitment  was
increased from $6 million to $12 million, pursuant to amended notes. The general
terms of the amended  notes remain the same as the terms of the $6 million notes
described above.

    Venturetec  and  Pine  were   debentureholders   in  Consumer  Review,  Inc.
Therefore,  as a result of our  acquisition of  substantially  all the assets of
Consumer  Review,  Inc. in December 2002,  Venturetec and Pine received  240,315
shares and 4,500 shares,  respectively,  of our Series B  convertible  preferred
stock.

    As part of our October  2001 rights  offering,  we sold shares of our common
stock to  Venturetec  and  Pine.  Venturetec  and Pine  each  delivered  to us a
promissory note as consideration  for the  subscription  price for the shares of

common stock for which each  company  subscribed.  Venturetec's  note (which was
only partial  consideration  for the purchase of the shares;  the  remainder was
paid in cash) was in the principal amount of CHF 8,500,000  (approximately  $5.2
million)  and  Pine's  note  was  in  the  principal  amount  of  CHF  8,687,530
(approximately $5.3 million). However, on January 22, 2002, Pine, Venturetec and
InVenture, all companies under common control, reallocated their share purchases
and/or related promissory notes. The CHF 2,500,000  (approximately $1.5 million)
in cash originally  indicated as originating  from Venturetec was reallocated as
follows:

         o    In a private sale,  InVenture purchased from Pine 1,041,667 shares
              of common  stock,  originally  purchased  by Pine  pursuant to the
              rights offering,  for CHF 2,083,334.  As part of this transaction,
              Pine was credited with paying us CHF 2,083,334 (approximately $1.3
              million)  and  delivered  to us an amended  and  restated  secured
              promissory   note,  in  the  principal  amount  of  CHF  6,604,196
              (approximately $4.1 million),  with 2% interest. We simultaneously
              returned Pine's original CHF 8,687,530 promissory note. All of the
              outstanding  principal and interest under the promissory notes was
              fully received in April 2002.

         o    Venturetec  paid  us  CHF  416,666  (approximately  $256,000)  and
              delivered to us an amended and restated  secured  promissory note,
              in the  principal  amount of CHF  10,583,334  (approximately  $6.5


                                       23
<PAGE>

              million),  with 2%.  This CHF  10,583,334  reflects an increase in
              Venturetec's   secured   promissory   note   to   CHF   11,000,000
              (approximately  $6.8 million),  reflecting  Venturetec's  original
              subscription price for the shares of our common stock for which it
              subscribed  under  the  rights  offering,  minus  the CHF  416,666
              payment.  We  simultaneously  returned  Venturetec's  original CHF
              8,500,000  promissory  note. All of the outstanding  principal and
              interest  under the  promissory  notes was fully received in April
              2002.

    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 the most recent  renewed
agreement,  which is scheduled  to expire in November  2006,  Friedli  Corporate
Finance, Inc. is paid $4,000 per month plus reimbursement of expenses related to
Mr. Friedli's services. In connection with his continued support of the business
and his  assistance  with  fundraising,  on December 8, 2003,  Peter Friedli was
issued 345,000  warrants with an exercise price of $0.50 and an expiration  date
of December  8, 2007.  As a result of the help  provided  in securing  the funds
associated with the convertible promissory notes, Peter Friedli was paid fees of
$360,000  during 2003. In  conjunction  with the $3.3 million of funds  received
during the first and second  quarters of 2004,  Peter  Friedli is to be provided
with an additional  $330,000 in fees, which Mr. Friedli has indicated to us will
be distributed to a number of third party banks and  individuals who assisted in
the financing effort. In addition, we engaged Friedli Corporate Finance, Inc. to
support us in connection  with the 2001 rights  offering and reimbursed  Friedli
Corporate  Finance,  Inc.  approximately  $100,000 in  expenses  for such rights
offering support.

    As a member of our Board of  Directors,  through  December 31,  2003,  Peter
Friedli has  received  90,000  options as Director  Compensation  (see Item 10 -
"Directors And Executive Officers Of The Registrant" for further details).

    On June 22, 2004,  Mr. Sean Deson (who was named a director  effective as of
April 19,  2004) was  appointed as Chairman of the Board.  For his  agreement to
serve as Chairman of the Board,  we agreed to award Mr. Deson  50,000  shares of
our common stock.  Mr. Deson is the founder of Deson & Co., Deson Ventures,  and
Treeline Capital,  all  technology-focused  investment  related firms.  Prior to
founding  his  investment  firms,  Mr.  Deson  was a Senior  Vice  President  at
Donaldson,  Lufkin & Jenrette,  now Credit Suisse First Boston.  Messrs. Friedli
and Deson have co-invested in a number of operating companies.

RIGHTS OFFERING

    On  October  19,  2001,  we closed a rights  offering  of  common  stock for
approximately  $24.6 million with  subscriptions  for  20,000,000  shares.  Each
subscriber   in  the  rights   offering   also   received,   for  no  additional
consideration, based upon the number of shares of common stock purchased by such
subscriber in the rights offering, a pro-rata portion of 2,000,000 shares of our
Series A  convertible  preferred  stock  (convertible  on a 10-for-1  basis into
20,000,000 shares of common stock under certain circumstances).  After deducting
expenses, underwriting discounts and any foreign currency loss, the net proceeds
from this transaction were  approximately  $22.2 million,  with $12.6 million of
the net proceeds received by December 31, 2001 and the remaining net proceeds of
$9.6  million,  which  related to  promissory  notes issued to us as part of the
consideration for the rights offering, was received during the second quarter of
2002. In connection  with the proceeds of the  promissory  notes,  we incurred a
foreign  currency loss of  approximately  $258,000 in the second quarter of 2002
based upon the  difference  between the currency  rates at the time the cash was
received and the closing of the rights offering.  During 2003, all of the shares
of the  Series A  convertible  preferred  stock  that  had not  been  previously
voluntarily  converted  were  automatically  converted into shares of our common
stock.  Such shares of common  stock have been listed on the SWX Swiss  Exchange
since February 21, 2002.

RECENT DEVELOPMENTS

(a) Credit Facility

    During  March  2004,  the  credit  facility  available  to us under  Friedli
Corporate Finance's and InVenture,  Inc.'s initial commitment was increased from
$6  million  to $12  million.  See below and Item 5 - "Market  For  Registrant's
Common  Stock  And  Related  Stockholder  Matters  -  Recent   Sale/Issuance  of
Unregistered Securities" for further details.

(b) Convertible Promissory Notes

    As part of our syndication process,  from January 2004 through June 2004, we
issued six  convertible  promissory  notes with  principal  amounts of $100,000,


                                       24
<PAGE>

$400,000, $200,000, $600,000,  $1,000,000 and $1,000,000. The terms of the notes
include,  among other  things:

    o    an 8% interest rate;
    o    a maturity date three years from the date of issuance;
    o    a conversion feature,  which provides that under certain  circumstances
         that the note will automatically convert to our common stock;
    o    a one-time  final payment  charge of 10% of the principal for each year
         that the principal is not paid on or before each annual  anniversary of
         the date the note was issued (with a maximum of 30%); and
    o    a security interest in substantially all of our assets.

(c) Options

    From January 2004 through  June 2004,  99,250  options that were  previously
granted to employees were exercised.

(d) Late Filings and Investigation

    On March 31, 2004,  we announced  that we would require  additional  time to
finalize  and file our  Annual  Report on Form 10-k for the  fiscal  year  ended
December 31, 2003 ("Annual Report"). In a Form 8-K filed with the SEC on May 13,
2004, we disclosed that at a May 12, 2004  semi-annual  New Venturetec  investor
conference  in  Zurich,  Switzerland,  we had  announced  that we would  require
additional  time to  finalize  and file our  Annual  Report on Form 10-K for the
fiscal year ended December 31, 2003 ("Annual  Report") and our Quarterly  Report
on Form 10-Q for the quarter ended March 31, 2004 ("Quarterly Report").

    In our May 13, 2004 Form 8-K, we  disclosed  that,  in  connection  with the
finalizing  of our Annual  Report,  we had  encountered  a recent  non-financial
representation by a senior Company official that we deemed to be inaccurate. Our
Board  of  Directors   determined  that  it  was  appropriate  to  undertake  an
independent  investigation  to  review  this and  other  matters.  The  Board of
Directors   established   a  separate   Committee  of  the  Board  to  lead  the
investigation,  such  Committee  consisting  of  Sean  Deson  (a  non-management
director) serving as Chairman of the Committee, and Messrs. Akhavan and Friedli.
The Committee retained an independent law firm to conduct the investigation. The
independent  investigation  has now  been  completed.  For a  discussion  of the
results, see Item 9A - "Controls and Procedures."

    As of the date of this filing,  we have not filed the Quarterly  Report.  We
expect to file the Quarterly Report after filing this Annual Report.


(E) ACQUISITION

    Pursuant  to an Asset  Purchase  Agreement  dated as of june  25,  2004,  we
acquired  substantially  all of the assets and  certain  of the  liabilities  of
Collabrys, Inc. ("Collabrys").  Collabrys is a provider of interactive marketing
technologies and services to enable customer acquisition and retention.  Clients
include well-known companies in the Consumer Products, Healthcare, and Financial
Services industries.  Consideration  consists of a $15,000 cash payment and a 7%
royalty  payment on revenue,  as defined in the purchase  agreement.  We believe
that the Collabrys  acquisition  will enable us to both grow our client base and
penetrate into new vertical industries, as well as add new products and services
to our existing portfolio of solutions.

RESULTS OF OPERATIONS

    The following presents our financial position and results of operation as of
and for the years ended December 31, 2003, 2002 and 2001.

Years ended December 31, 2003 and 2002.

    REVENUE.  Revenue  decreased by $1,162,000 to $6,059,000  for the year ended
         December 31, 2003,  compared to $7,221,000  for the year ended December
         31,  2002.  Although the  addition of the  ConsumerREVIEW.com  division
         increased revenue by $2.5 million, the closure of the Commerce Division
         and the  PerformOne  Network  during 2002 caused revenue to decrease by
         $1.8  million.  Although  we had  more  customers  for our  Interactive
         Database  Marketing  System  during  2003,  revenue  decreased  by $1.6
         million  as a  result  of the  reduced  service  fee  for  the  Reckitt
         Benckiser PLC renewal agreement.  As each renewal agreement has been at
         a lower  rate  than the  previous  agreement,  we  expect  the  revenue
         generated by Reckitt  Benckiser PLC will continue to decline;  however,
         any work orders for additional projects could offset this decline.

    COST OF REVENUE.  Cost of revenue consists  primarily of expenses related to
         providing our services, including related personnel costs, depreciation


                                       25
<PAGE>

         of servers,  network and hosting  charges.  For the year ended December
         31, 2003, the cost of revenue of $2,866,000  was $1,550,000  lower than
         the  $4,416,000  for the year ended  December 31, 2002. The decrease is
         primarily the result of the 2002 closures of the Commerce  Division and
         the PerformOne  Network,  offset by the increased costs associated with
         the acquisition of the ConsumerREVIEW.com  division. The elimination of
         the Commerce  Division and the PerformOne  Network  products  helped to
         lower  depreciation  costs and  network  and  hosting  charges  by $1.7
         million.

    PRODUCT  DEVELOPMENT.  Product  development  consists  primarily of expenses
         related  to the  development  and  enhancement  of our  technology  and
         services, including payroll and related expenses for personnel, as well
         as other associated expenses for our technology department.  We expense
         product  development costs as incurred.  Product  development  expenses
         decreased by $1,549,000 to $2,519,000  for the year ended  December 31,
         2003,  compared to $4,068,000 for the year ended December 31, 2002. The
         addition  of  the   ConsumerREVIEW.com   division  added  approximately
         $330,000  in product  development  costs,  an amount that was more than
         offset by the reduced  costs from the closure of the Commerce  Division
         and  the  PerformOne   Network.   The  Company   expects  that  product
         development  costs will remain at the same level, with no current plans
         to  significantly  increase  the  number of  personnel  related to this
         group.

    GENERAL AND  ADMINISTRATIVE.  General and  administrative  expenses  include
         payroll and related  expenses for  accounting,  finance,  legal,  human
         resources,   and   administrative   personnel,   as  well  as  selected
         executives.  In addition,  general and administrative  expenses include
         fees for professional services,  occupancy related costs, and all other
         corporate costs, including depreciation and amortization.  For the year
         ended December 31, 2003, general and administrative  expenses decreased
         by $3,131,000 to $7,632,000  when compared to $10,763,000  for the year
         ended  December  31,  2002.  Due  to  the  2002  restructuring   plans,
         depreciation  was  lower  by  $1,064,000,  rent  expense  was  lower by
         $747,000 and the closure of the Commerce Division reduced other general
         and  administrative  expenses by  $936,000.  These plans also helped to
         lower telecom related expenses,  as well as salary related expenses and
         non-capitalized   hardware/software   costs  not  associated  with  the
         Commerce Division.

    SALES AND  MARKETING.  Sales and  marketing  expenses  consist  primarily of
         payroll,  sales  commissions and related expenses for personnel engaged
         in sales,  marketing and customer  support,  as well as advertising and
         promotional  expenditures.  Sales and marketing  expenses of $2,312,000
         for the year  ended  December  31,  2003 were  lower by  $1,574,000,  a
         decrease  from  $3,886,000  over  the year  ended  December  31,  2002.
         Although  sales and  marketing  for the year ended  December  31,  2003
         included a full  year's  worth of expenses  related to the  addition of
         ConsumerREVIEW.com,  the  elimination  of  the  Commerce  Division  and
         PerformOne  Networkmore  than offset  these  additional  costs.  Salary
         related expenses, as well as travel and entertainment related expenses,
         were lower due to the  elimination  of eleven  positions.  In addition,
         direct marketing and tradeshow related expenses were lower by $158,000.

    RESTRUCTURING AND IMPAIRMENT CHARGES. For the year ended December 31, 2002,
        we recorded a restructuring/impairment charge of $1,128,000, while for
        the year ended December 31, 2003 we incurred no restructuring/impairment
        charge.

    STOCK-BASED COMPENSATION.  Stock-based  compensation expense consists 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 difference  between the estimated fair value of our common
         stock and the  exercise  price of stock  options  issued  to  employees
         recognized  ratably over the vesting period.  Stock-based  compensation
         expenses  increased  by  $2,248,000  to  $2,608,000  for the year ended
         December 31, 2003, compared to $360,000 for the year ended December 31,
         2002.  This  increase  was  primarily  attributable  to the 7.9 million
         options  issued during the fourth quarter of 2003, at a price below the
         fair value of our common stock on the measurement date. We estimate the
         future stock option grant charges of $574,000 and $320,000 for 2004 and
         2005, respectively.

    INTEREST EXPENSE.  Interest  expense of $479,000 for the year ended December
         31, 2003 was $421,000  higher than interest  expense for the year ended
         December 31, 2002, primarily due to the $224,000 in interest related to
         the convertible promissory notes issued during 2003 and the $222,000 in
         amortization of deferred financing fees.


                                       26
<PAGE>

    INTEREST INCOME.  Interest  income for 2003  consisted only of income on our
         cash balances,  while interest  income for 2002 also included  interest
         from promissory notes associated with the October 2001 rights offering.

    NET  LOSS.  Net loss decreased by $4.8 million to $12.3 million for the year
         ended  December 31, 2003,  compared to $17.1 million for the year ended
         December 31, 2002. This is the combined effect of lower revenue of $1.2
         million and decreased operating costs of $6.7 million.

Years ended December 31, 2002 and 2001.

    REVENUE. Revenue increased by $2,167,000 to $7,221,000 for the year ended
        December 31, 2002, compared to $5,054,000 for the year ended December
        31, 2001. The majority of the increase can be attributed to the addition
        of new products and services. The Interactive Database Marketing System,
        which began generating revenue in late 2001, added $4,820,000 to our
        2002 revenue, versus $58,000 for 2001. Our E-mail Marketing System,
        which began generating revenue in July 2001, generated $350,000 in
        revenue, an increase of $236,000 when compared to the prior year.
        ConsumerREVIEW.com, which we acquired in December 2002, contributed
        $214,000 in revenue for 2002.

         The Commerce  Division,  which was acquired in March 2001 and closed by
         the third quarter of 2002, generated $1.5 million in revenue, which was
         lower by  $300,000  when  compared  to  2001.  Our  PerformOne  Network
         experienced  a  $1,374,000  decrease in  revenue,  from  $1,728,000  to
         $354,000,  that  stemmed  from a decline  in the  number  of  sales,  a
         decrease in the dollar amount of the average sale, as well as our third
         quarter  2002 plan to suspend the  system's  services  and focus on our
         newer product offerings. Additionally, $1,371,000 or 27% of the revenue
         for 2001 was generated  through  marketing  partner  transactions  that
         occurred  during the first two  quarters of 2001.  We did not engage in
         any marketing partner transaction activity during 2002.

    COST OF REVENUE.  Cost of revenue  decreased by $3,979,000 to $4,416,000 for
         the year ended  December 31, 2002,  compared to $8,395,000 for the year
         ended  December 31, 2001.  The decrease is primarily  the result of the
         one-time  purchase of $1,300,000 of data and outbound  e-mail  services
         during the first half of 2001,  lower revenue share expense of $566,000
         associated with the lower PerformOne Network revenue, $334,000 in lower
         network  and  hosting  charges  due  to   consolidation  of  space  and
         equipment,  as well as the 2002 reversal of $174,000 in expenses due to
         favorable  settlements  of  liabilities  for hosting  charges  recorded
         during 2001. In addition, the closure of the Commerce Division resulted
         in  lower  depreciation  and  personnel  related  expenses  for 2002 of
         approximately $1,000,000,  while the acquisition of BrightStreet.com in
         late 2001 did not add a significant amount of expense to 2002.

    PRODUCT  DEVELOPMENT.  We expense  product  development  costs as  incurred.
         Product development  expenses decreased by $3,865,000 to $4,068,000 for
         the year ended  December 31, 2002,  compared to $7,933,000 for the year
         ended December 31, 2001.  Product  development  costs for 2002 included
         the products and services from the BrightStreet.com acquisition,  while
         2001 did not include them for the corresponding period;  however, costs
         still decreased year over year. This was the effect of the reduction in
         product development personnel and overall lower costs due to suspending
         the  services of the  PerformOne  Network,  closing  down the  Commerce
         Division, and other organizational efficiency initiatives.

    GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased by
         $1,829,000  to  $10,763,000  for the  year  ended  December  31,  2002,
         compared to  $12,592,000  for the year ended  December  31,  2001.  The
         primary  reason for the decrease  was lower rent expense of  $1,992,000
         due to  restructuring  plans associated with the Redwood Shores and the
         Bethesda offices.  Although the acquisitions of the Commerce  Division,
         BrightStreet.com and  ConsumerREVIEW.com  added expenses to 2002, lower
         amortization and professional fees offset these additional expenses.

    SALES AND  MARKETING.  As a result  of our  cost-cutting  efforts, sales and
         marketing expenses were lower by $6,111,000, decreasing from $9,997,000
         for the year ended  December 31, 2001 to $3,886,000  for the year ended
         December  31, 2002.  Although  sales and  marketing  for the year ended
         December 31, 2002  included a full year's worth of expenses  related to
         the addition of the BrightStreet.com  products and services, an overall
         decrease in advertising and promotional expenditures during 2002 led to
         the reduction in costs.  Our efforts  resulted in a decrease in printed
         publications,  on-line  media,  out-of-home  media and broadcast  media
         expenditures  of  approximately  $1,739,000,  $1,463,000,  $920,000 and
         $170,000,  respectively.  In addition,  the  reduction in the number of


                                       27
<PAGE>

         sales and marketing  personnel,  along with the closure of the Commerce
         Division, contributed to the decrease in costs.

    NETWORK PARTNER FEES.  Network  partner fees decreased by $984,000 to $2,000
         in the year ended  December 31, 2002,  compared to $986,000 in the year
         ended  December 31, 2001.  This decrease is primarily the result of the
         termination of Network Partner and Affiliate agreements associated with
         the  PerformOne  Network.  Such  agreements  included  the  Co-Branding
         Agreement  with  Excite,   the  Website   Affiliation   agreement  with
         USATODAY.com and the Affiliate Marketing  Agreement with BeFree,  which
         accounted   for   approximately   $433,000,   $225,000  and   $197,000,
         respectively,  of the  decrease.  We do not  expect  to  incur  network
         partner fees in the future.

    RESTRUCTURING AND IMPAIRMENT CHARGES.  For the year ended December 31, 2002,
         we recorded a restructuring/impairment  charge of $1,128,000, while for
         the year ended December 31, 2001 we recorded a charge of $9,876,000.

         In 2001, management took certain actions to better align our costs with
         revenues  and to position us for  profitable  growth in the future.  In
         April  2001  and  July  2001,   we  eliminated  21  and  25  positions,
         respectively,  incurring  a total  charge  of  approximately  $344,000.
         During December 2001, we announced a  restructuring  plan that involved
         scaling back the Commerce  Division,  which  resulted in a reduction of
         our workforce by 17 associates, and an assessment of the carrying value
         of the intangible assets associated with the Commerce Division.  Due to
         the decline in the Commerce  Division's customer base and the reduction
         in the Commerce  Division's  workforce,  we concluded that the benefits
         derived from the related  intangible  assets that had been  acquired in
         connection  with  the  purchase  of the  Commerce  Division  would  not
         generate   sufficient   cash  flow  to  support  its  carrying   value.
         Accordingly,  we  wrote-down  the acquired  intangible  assets to their
         estimated  fair  value,  a  reduction  of  approximately  $469,000.  In
         addition,  we  decided  to  consolidate  and more  efficiently  use our
         facilities,  leaving  approximately 50% of the office space in both the
         Bethesda,   Maryland  and  the  Redwood  Shores,  California  locations
         unoccupied and available for sub-lease.  As a consequence of this plan,
         we  recorded  a $9.0  million  charge to  operations  during the fourth
         quarter of 2001.

         During 2002, plans were approved to terminate the lease for the Redwood
         Shores facility,  close the Commerce  Division,  terminate a portion of
         the Bethesda  facility lease and suspend the services of the PerformOne
         Network. A charge of approximately $9.0 million was recorded to reflect
         these actions. The charge included  approximately $2.1 million in costs
         associated with  terminating  the Redwood Shores  facility lease,  $5.7
         million for the disposal  and  write-down  of tangible  and  intangible
         assets and other related expenses  associated with closing the Commerce
         Division,  $1.0  million in costs  associated  with the  partial  lease
         termination  of the Bethesda  facility  and  $215,000 in severance  and
         other  employee   benefit  costs  related  to  the  termination  of  37
         employees.  However,  the costs of the 2002  restructuring  plans  were
         offset by a $6.5 million  reversal  and a $1.4 million  reversal of the
         balances of the accrued  restructuring charges that were established in
         December 2001 in conjunction with our effort to consolidate our Redwood
         Shores and Bethesda facilities, respectively. We had originally planned
         to leave approximately 50% of both facilities  unoccupied and available
         for sub-lease, but subsequently decided that, due to the lack of viable
         sub-lease  alternatives,  it was more cost  effective to terminate  the
         entire  Redwood  Shores  lease  and  do a  partial  termination  of the
         Bethesda lease.

         STOCK-BASED COMPENSATION.  Stock-based  compensation expenses decreased
              by $504,000  to $359,000  for the year ended  December  31,  2002,
              compared to $863,000 for the year ended  December  31, 2001.  This
              decrease  was   attributable   to  the   reversal  of   historical
              stock-based compensation expense incurred for terminated employees
              in excess of the  expense  pertaining  to options  vested  through
              termination.  We  estimate  the charge  relating  to stock  option
              grants   will  be   $234,000   and   $54,000  in  2003  and  2004,
              respectively.

         INTEREST INCOME.  Interest  income for 2001 consisted only of income on
              our cash balances,  while  interest  income for 2002 also included
              interest  from our  promissory  notes.  However,  interest  income
              decreased by $312,000 to $296,000 for the year ended  December 31,
              2002,  compared to $608,000 for the year ended  December 31, 2001.
              The lower interest income was primarily the result of earning less
              interest  on  our  investments  due to  lower  cash  balances,  in


                                       28
<PAGE>

              addition to lower interest rates  resulting from general  economic
              conditions.

         NET  LOSS. Net loss decreased by $27.9 million to $17.1 million for the
              year ended  December 31, 2002,  compared to $45.0  million for the
              year ended December 31, 2001.  Although  revenue only increased by
              $2.2 million,  our efforts to reduce costs  resulted in a decrease
              in operating costs of $26.0 million.

LIQUIDITY AND CAPITAL RESOURCES

    Since our  inception  through  December 31, 2000,  we funded our  operations
primarily from the private sale of our  convertible  preferred  stock and common
stock, as well as our initial public offering on the SWX Swiss Exchange. Through
these  financing  activities,  we raised net  proceeds  of  approximately  $82.5
million.  In late  2001,  we  closed a  rights  offering  in  which we  received
approximately  $12.6 million in net proceeds during 2001, with the remaining net
proceeds,  associated  with  promissory  notes  delivered  as part of the rights
offering  purchase  price  consideration,  of $9.6 million  received  during the
second quarter of 2002.

    In March 2003, we executed convertible promissory notes for an aggregate sum
of up to $6  million,  from which we could draw down  against at any time and in
any amount  during the first two years of the notes.  Subsequent to the issuance
of the promissory  notes,  we agreed to assemble a syndicate of third parties to
whom we would issue  convertible  promissory notes on terms similar to the March
2003  convertible   promissory   notes.  The  aggregate  dollar  amount  of  the
convertible  promissory  notes  that we  issue  to  third  parties  through  the
syndication  process will reduce, on a  dollar-for-dollar  basis, the $6 million
convertible  promissory  notes and the  balance,  if any,  will  continue  to be
available to us under the initial $6 million commitment. During 2003 we received
an aggregate of $3,450,000 in connection  with the issuance of nine  convertible
promissory  notes,  and through June 2004 we received  $3,300,000  in connection
with the issuance of six convertible promissory notes.

    On December  31, 2003,  we held  $285,000 in cash and cash  equivalents.  In
addition,  we had restricted cash of $127,000 in the form of three  certificates
of deposit. Two of the certificates of deposit serve as collateral for letter of
credit  commitments  to secure our lease payment  obligations  for our Bethesda,
Maryland and our Foster City,  California  offices.  The third is the  remaining
balance of a certificate  of deposit that served as  collateral  for a letter of
credit  commitment  related for our D&O insurance policy. As we made our monthly
payments  on  this  policy,  the  certificate  of  deposit  was  reduced  by the
corresponding  amount and the money was transferred to our operating account. As
this D&O  policy  expired  and the new one did not  require  a letter  of credit
commitment,  the $16,000 balance was transferred to our operating account in the
first quarter of 2004.

    Cash used in operating  activities  for the year ended December 31, 2003 was
$5.1  million,  an  improvement  of $11.6 million over the $16.7 million for the
year ended December 31, 2002. The improvement primarily reflects the decrease in
net losses  adjusted for non-cash  operating  expenses of $6.3 million and $13.3
million,  respectively,  for each year.  The activity  for 2003 also  reflects a
decrease  in  accounts  receivable  of $1.3  million  and  decrease  in accounts
payable,  deferred  revenue and other  accruals of $496,000  versus the $425,000
increase and $3.5 million decrease, respectively, for 2002.

    Investing  activities for the year ended December 31, 2003 and 2002 provided
$195,000  and  $58,000,  respectively,  in  cash.  Cash  provided  by  investing
activities  for the  year  ended  December  31,  2003  included  a  decrease  in
restricted  cash  of  $618,000  due to the  reduction  of the  security  deposit
required  for the  Maryland  office,  as well as the  reduction in the letter of
credit commitment  related to our D&O insurance  policy.  Activity for 2003 also
reflected  the   transaction   compensation   for  the  Patent  related  to  the
BrightStreet.com  acquisition of $411,000. Cash provided by investing activities
for the year ended December 31, 2002 included the  conversion  into cash of $1.0
million in restricted  cash  associated with the certificate of deposit that was
used as collateral  for the letter of credit  commitment  for the Redwood Shores
office. In accordance with the amendment to the sublease agreement that provided
for an early termination of the sublease, this cash was subsequently transferred
to Inktomi  Corporation.  Cash  provided by investing  activities  for 2002 also
reflected $428,000 used to purchase property and equipment, the $255,000 for the
letter of credit  commitment  related to our D&O  insurance  policy,  as well as
acquisition costs for  ConsumerREVIEW.com  and  BrightStreet.com of $175,000 and
$34,000, respectively.

    For the year  ended  December  31,  2003,  net cash  provided  by  financing
activities of $2.8 million reflects the $3.5 million in funding  associated with
issuance of nine convertible  promissory notes, $360,000 in debt issuance costs,


                                       29
<PAGE>

$286,000 in payments for capital lease  obligations and $41,000 in proceeds from
the exercising of stock options.  The net cash provided by financing  activities
of $10.1 million, for the year ended December 31, 2002, primarily reflects $10.3
million in proceeds from the notes receivable from stockholders that were issued
in  conjunction  with our October 2001 rights  offering and $208,000 in payments
for capital lease obligations.

    We currently  anticipate that our existing cash resources will be sufficient
to meet our anticipated cash needs for working capital and capital  expenditures
into the third quarter of 2005. This forecast is based on the current  remaining
available line of credit at June 29, 2004 of up to $5.25 million from our credit
facility,  structured  in the  form  of two $6  million  three-year  convertible
promissory notes that were issued in March 2003 and March 2004. Funds underlying
the notes  have  been  verified  as fully  available  for our use as  necessary,
although  the  ultimate  funding  of these  notes  may come  from a  variety  of
different  available  sources.  If future revenue is  insufficient  to cover our
operating  costs,  we will need to  secure  additional  funds to  ensure  future
viability.  We may need to raise  additional  funds  sooner  to fund our  future
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.  To the extent that our existing  funds and
funds from the convertible  promissory  notes are not sufficient to enable us to
operate into the third quarter of 2005 and beyond, Friedli Corporate Finance has
provided a written  commitment to provide us with a capital infusion of up to an
additional $8 million for continued  operations  and future  business  expansion
purposes,  in both sales and  marketing and merger and  acquisition  activities.
However, no formal terms and conditions have been agreed upon.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

    As  of  December  31,  2003,  our  contractual  obligations  and  commercial
commitments, which consist of future minimum lease payments under non-cancelable
leases and long-term debt, are as follows:
<TABLE>
<CAPTION>
                                 less than
Contractual Obligations           1 year       1-3 years    after 3 years     total
--------------------------------------------------------------------------------------
<S>                              <C>           <C>                  <C>    <C>
capital lease obligations (1)      $ 199,136      $ 32,745           $ -     $ 231,881
operating lease obligations        1,096,895       613,521             -     1,710,416
long-term debt (2)                         -     5,313,000             -     5,313,000
                                  ----------------------------------------------------
   total                         $ 1,296,031   $ 5,959,266           $ -   $ 7,255,297
                                  ====================================================
</TABLE>

---------------
(1)  Includes  approximately  $8,700 in  interest.

(1)  Includes approximately $828,000 in interest and $1,035,000 in final payment
     fees.

Lease Obligations

    We are obligated under  non-cancelable  capital leases for certain  computer
and office  equipment  that expire by early 2006. In addition,  we are obligated
under  non-cancelable operating leases for office space, which expire by October
2005.

    In March 2002, we subleased  approximately  10,000 square feet of the office
space in our  Bethesda,  MD office,  with a monthly  base rent of  approximately
$22,000 that  increases 4% annually.  This sublease  commenced in March 2002 and
expires in September  2005. In addition,  in February  2004,  we signed  another
sublease  agreement  with a  monthly  base  rent of  approximately  $2,500  that
commenced in February 2004 and expires in September 2005.

    Rent expense under operating leases was approximately  $829,000,  $1,549,000
and  $3,541,000  for  the  years  ended  December  31,  2003,   2002  and  2001,
respectively.  In February  2002,  we signed a Sublease  Agreement to sublease a
portion of the sixth floor at the Bethesda,  Maryland facility that commenced on
March 1, 2002 and expires on September 30, 2005.

Long-Term Debt

    In March 2003, we executed convertible  promissory notes in favor of Friedli
Corporate  Finance,  financial  advisor to us, and  InVenture,  Inc., one of our


                                       30
<PAGE>

stockholders,  for an aggregate sum of up to $6 million. The notes allowed us to
draw down against the available principal of up to $6 million at any time and in
any amount  during  the first two years of the  notes.  The terms of each of the
notes include, among other things:

    o    an 8% interest rate;
    o    a maturity date three years from the date of issuance;
    o    a conversion feature,  which provides that under certain  circumstances
         each note will automatically convert to our common stock;
    o    a one-time  final payment  charge of 10% of the principal for each year
         that the principal is not paid on or before each annual  anniversary of
         the date the notes were issued (with a maximum of 30%); and
    o    a security interest in substantially all of our assets.

    Subsequent  to the  issuance  of the  promissory  notes in March  2003,  we,
Friedli Corporate Finance and InVenture,  Inc. agreed to assemble a syndicate of
third  parties  to whom we would  issue  convertible  promissory  notes on terms
similar to the March 2003 $6 million convertible promissory notes that we issued
to Friedli Corporate Finance and InVenture,  Inc. The aggregate dollar amount of
the  convertible  promissory  notes  that we  issue  to  third  parties  through
syndication  will  reduce,  on  a   dollar-for-dollar   basis,  the  $6  million
convertible  promissory notes of Friedli Corporate  Finance and InVenture,  Inc.
and the balance,  if any,  will  continue to be  available  to us under  Friedli
Corporate Finance's and InVenture, Inc.'s initial $6 million commitment.  During
2003, we received an aggregate of $3,450,000 in connection  with the issuance of
nine convertible  promissory notes, and through June 2004 we received $3,300,000
in connection with the issuance of six convertible  promissory  notes. The terms
of each of the  promissory  notes are  substantially  similar  to the $6 million
convertible  promissory notes issued in March 2003, as noted above. In addition,
during March 2004, the credit facility  available to us under Friedli  Corporate
Finance's and InVenture, Inc.'s initial commitment was increased from $6 million
to $12 million,  pursuant to amended  notes.  These  additional  funds have been
verified as fully available for our use as necessary, although Friedli Corporate
Finance and InVenture may ultimately fund such obligations  through a variety of
different  sources  available to them.  The general  terms of the amended  notes
remain  the same as the terms of the $6  million  convertible  promissory  notes
described above.

    At December 31, 2003,  we had accrued  interest of  approximately  $100,000,
which is due  within  one year,  and we had  accrued  final  payment  charges of
approximately $124,000,  which is due at the time the corresponding  convertible
promissory note's principal payment is made.

Patent Assignment

    On December 3, 2001, in conjunction  with the  acquisition of  substantially
all  the  assets  of  BrightStreet.com,  we  entered  into a  Patent  Assignment
Agreement (the "Assignment") with BrightStreet.com.  Pursuant to the Assignment,
BrightStreet.com  has agreed to assign to us all rights,  title and  interest in
and to all the issued and pending  BrightStreet.com  patents, subject to certain
pre-existing rights granted by  BrightStreet.com  to third parties,  provided we
make a certain payment to BrightStreet.com by December 3, 2005 (the "Payment").

    In exchange for the rights granted under the Assignment,  beginning December
2002, we are obligated to pay  BrightStreet.com ten percent of revenues received
that are  directly  attributable  to (a) the  licensing  or sale of  products or
functionality  acquired  from  BrightStreet.com,  (b)  licensing or royalty fees
received from  enforcement or license of the patents  covered by the Assignment,
and (c) licensing or royalty fees received  under existing  licenses  granted by
BrightStreet.com to certain third parties. If the total transaction compensation
paid, at any time prior to December 3, 2005 exceeds $4,000,000, the Payment will
be deemed to have been made. Additionally,  we have the right, at any time prior
to December 3, 2005,  to satisfy the Payment by paying to  BrightStreet.com  the
difference  between the  $4,000,000  and the total  compensation  already  paid.

RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS

    In July 2002, the FASB issued FAS 146,  Accounting for Costs Associated with
Exit  or  Disposal  Activities,  which  nullifies  EITF  Issue  94-3,  Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring). FAS 146 requires
that a liability  for a cost  associated  with an exit or  disposal  activity be
recognized  when the  liability is incurred.  If fair value cannot be reasonably
estimated,  the liability  shall be recognized  initially in the period in which
fair value can be  reasonably  estimated.  Under Issue 94-3, a liability  for an
exit cost was recognized at the date of an entity's  commitment to an exit plan.
The provisions of FAS 146 are effective for exit or disposal activities that are
initiated  after  December 31,  2002.  We adopted the  provisions  of FAS 146 on
January 1, 2003. The adoption did not have a significant impact on our business,
financial condition, results of operations or cash flow.


                                       31
<PAGE>

    In  November  2002,  the FASB  issued  FIN 45,  Guarantor's  Accounting  and
Disclosure  Requirements  for  Guarantees,   Including  Indirect  Guarantees  of
Indebtedness  to Others.  FIN 45 elaborates on the  disclosures  to be made by a
guarantor in its interim and annual  financial  statements about its obligations
under guarantees  issued.  FIN 45 also clarifies that a guarantor is required to
recognize,  at inception of a guarantee,  a liability  for the fair value of the
obligation undertaken. The initial recognition and measurement provisions of FIN
45 are applicable to guarantees  issued or modified after December 31, 2002. The
disclosure  requirements  are effective for financial  statements of interim and
annual  periods  ending  after  December 15,  2002.  We have certain  guarantees
disclosable under FIN45:

         o    We  guarantee  the payment of sublease  rentals to our landlord on
              the property that we sublet.  As of December 31, 2003, the maximum
              guarantee  on  this  property  is  approximately   $498,000.  This
              sub-lease expires in September 2005.

         o    We sometimes  indemnify  certain of our customers against damages,
              if any,  they might incur as a result of a claim  brought  against
              them related to patent  infringement from the use of our products.
              We  are  unable  to  estimate   the   maximum   exposure  of  such
              indemnifications  due to the inherent  uncertainty and the varying
              nature of the contractual terms.

    In  November  2002,  the EITF  reached  consensus  on Issue  00-21,  Revenue
Arrangements with Multiple  Deliverables on a model to be used to determine when
a revenue arrangement with multiple deliverables should be divided into separate
units of  accounting  and, if  separation is  appropriate,  how the  arrangement
consideration  should be allocated to the identified  accounting units. The EITF
also reached a consensus that this guidance  should be effective for all revenue
arrangements  entered into during fiscal periods  beginning after June 15, 2003.
The  adoption  did not have a  significant  impact  on our  business,  financial
condition, results of operations or cash flow.

    In  December  2002,  the FASB  issued FAS 148,  Accounting  for  Stock-Based
Compensation - Transition and  Disclosure,  which amended FAS 123 Accounting for
Stock-Based  Compensation.  The new  standard  provides  alternative  methods of
transition  for a voluntary  change to the fair value based method of accounting
for stock-based employee  compensation.  Additionally,  the statement amends the
disclosure  requirements  of FAS 123 to  require  prominent  disclosures  in the
annual and  interim  financial  statements  about the method of  accounting  for
stock-based employee  compensation and the effect of the method used on reported
results.  This statement is effective for financial  statements for fiscal years
ending  after  December  15,  2002.  We have  elected to  continue to follow the
intrinsic value method in accounting for our stock-based  employee  compensation
arrangement as defined by APB 25,  Accounting for Stock Issued to Employee,  and
as allowed under FAS 123 and have made the  applicable  disclosures  in Notes to
the consolidated financial statements as required by FAS 148.

    In January 2003, the FASB issued FIN 46,  Consolidation of Variable Interest
Entities,  an  Interpretation  of ARB No. 51. In December 2003, the FASB revised
FIN No. 46 to reflect  decisions  it made  regarding a number of  implementation
issues.  FIN No. 46, as  revised,  requires  that the primary  beneficiary  of a
variable interest entity consolidate the entity even if the primary  beneficiary
does not have a majority voting interest. This interpretation applies to certain
entities  in  which  equity  investors  do not  have  the  characteristics  of a
controlling  financial interest or do not have sufficient equity at risk for the
entity to finance  its  activities  without  additional  subordinated  financial
support.   This   interpretation   also  identifies  those  situations  where  a
controlling  financial interest may be achieved through arrangements that do not
involve  voting  interests.   The  interpretation  also  establishes  additional
disclosures,  which are required  regarding an enterprise's  involvement  with a
variable  interest  entity  when  it  is  not  the  primary   beneficiary.   The
requirements  of this  interpretation  are  required  to be applied  for all new
variable  interest  entities  created or acquired  after  January 31, 2003.  For
variable  interest  entities  created or acquired prior to February 1, 2003, the
provisions  must be applied for the first  interim or annual period ending after
December  15,  2003.  We do  not  have  any  controlling  interest,  contractual
relationships  or other  business  relationships  with  unconsolidated  variable
interest  entities and  therefore  the adoption of this standard did not have an
impact on our business, financial condition, results of operations or cash flow.

    In April  2003,  the FASB  issued FAS 149,  Amendment  of  Statement  133 on
Derivative  Instruments  and Hedging  Activities.  FAS 149 amends and  clarifies
accounting for derivative instruments,  including certain derivative instruments
embedded in other  contracts,  and for  hedging  activities  under FAS 133.  The
statement  requires that contracts with comparable  characteristics be accounted
for  similarly and clarifies  when a derivative  contains a financing  component
that  warrants  special  reporting in the  statement  of cash flows.  FAS 149 is


                                       32
<PAGE>

effective for contracts  entered into or modified after June 30, 2003, except in
certain circumstances,  and for hedging relationships  designated after June 30,
2003. The adoption did not have an impact on our business,  financial condition,
results of operations or cash flow.

    In May 2003,  the FASB  issued FAS 150,  Accounting  for  Certain  Financial
Instruments  with  Characteristics  of  Both  Liabilities  and  Equity.  FAS 150
establishes  standards for how certain free standing financial  instruments with
characteristics  of both  liabilities  and equity are  classified  and measured.
Financial instruments within the scope of FAS 150 are required to be recorded as
liabilities,   or   assets  in   certain   circumstances,   which  may   require
reclassification  of amounts previously reported in equity. FAS 150 is effective
for  financial  instruments  entered into or modified  after May 31,  2003,  and
otherwise is effective at the  beginning of the first interim  period  beginning
after June 15, 2003. The cumulative  effect of a change in accounting  principle
should be reported for financial instruments created before the issuance of this
Statement  and still  existing at the  beginning of the period of adoption.  The
adoption did not have a significant impact on our business, financial condition,
results of operations or cash flow.

    On December 17, 2003, the Securities  and Exchange  Commission  (SEC) issued
SAB 104,  Revenue  Recognition,  which amends SAB 101,  Revenue  Recognition  in
Financial  Statements.  SAB  104's  primary  purpose  is to  rescind  accounting
guidance contained in SAB 101 related to multiple element revenue  arrangements,
superseded  as a result of the  issuance  of EITF 00-21.  Additionally,  SAB 104
rescinds the SEC's Revenue Recognition in Financial Statements  Frequently Asked
Questions  and Answers  (the FAQ) issued with SAB 101 that had been  codified in
SEC  Topic  13,  Revenue  Recognition.  Selected  portions  of the FAQ have been
incorporated  into SAB 104.  While the wording of SAB 104 has changed to reflect
the issuance of EITF 00-21, the revenue recognition principles of SAB 101 remain
largely  unchanged by the issuance of SAB 104. The adoption of this standard did
not have an impact on our business,  financial condition,  results of operations
or cash flow.

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 business,  financial conditions,  results of operations and cash flow
to  differ  materially  and/or  adversely  from  those  projected  in any of our
forward-looking statements made in this Annual Report on Form 10-K or otherwise.
The following  risk factors and other  information in this Annual Report on Form
10-K should be carefully considered. The risks and uncertainties described below
are not the only ones we face.  Additional risks and uncertainties not presently
known to us or that we currently  deem  immaterial may also impair our business,
financial conditions, results of operations and cash flow.

                          RISKS RELATED TO OUR BUSINESS

WE HAVE INCURRED NET LOSSES SINCE INCEPTION,  EXPECT TO INCUR 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, 2003, we had an  accumulated
deficit of approximately  $129.1 million.  We incurred net losses in 2003, 2002,
and 2001 of $12.3 million, $17.1 million and $45.0 million, respectively. We may
continue to incur losses and may never achieve  profitability in the future.  We
expect to incur lower net losses and negative  cash flow during the next year or
so, with the overall goal of achieving profitability for the business. We expect
to spend additional  financial  resources to expand our business during the next
12  months  until we are able to fund  expansion  initiatives  through  existing
working capital resources.  We have quantified the specific amounts of operating
expenses  and  capital  expenditures  we  expect  to  incur,  and  we  currently
anticipate  spending  approximately  $200,000 over the next 12 months on capital
expenditures and expenses  associated with expanding our system capacity.  If we
cannot achieve operating profitability or positive cash flows from our operating
activities,  we may be unable to secure additional funding,  our stock price may
decline and we may be unable to continue our operations.

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

    We were incorporated in August 1996 and launched our 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.  Since  then,  we have
discontinued  offering  certain  services and have started  offering  additional
services,  some  through  acquisitions  and  others  through  the  launching  of
internally developed services. Accordingly, our future results are uncertain and
our  results to date may not be  representative  of our future  results.  If our
products and services do not achieve  market  acceptance,  our business will not
become profitable.


                                       33
<PAGE>

    Since some of our services are new, we cannot  predict their demand.  Demand
for our services is dependent upon many factors.

    Factors over which we have some level of control include:

    o    the number of customers we can attract to our solutions;
    o    our ability to compete successfully in our market; and
    o    our success in promoting  our products and services  through our sales,
         marketing and business development personnel.

    Factors outside our control include:

    o    uncertainty   about  the  value  and  effectiveness  of  our  marketing
         solutions;
    o    our  customers'  ability to sell their  products  and services to their
         consumers; and
    o    the  quality,  accuracy and utility of the  information  provided to us
         that we provide to  marketers  regarding  member  demographics,  member
         activity and promotional success.

LOSS OF A  SIGNIFICANT  CUSTOMER  COULD  HAVE A MATERIAL  ADVERSE  EFFECT ON OUR
BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND CASH FLOW.

    Approximately  45% and 62% of our revenue for the years ended  December  31,
2003 and 2002,  respectively,  was derived from one of our Interactive  Database
Marketing System customers,  Reckitt Benckiser.  While this customer has renewed
its contract for the past three years,  revenue generated from this customer has
decreased  due to the  renewals  being at lower  rates.  If we lose this client,
there could be a material adverse effect on our business,  financial  condition,
results of operations and cash flow.

WE MAY REQUIRE ADDITIONAL  CAPITAL TO FINANCE THE 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 cash resources will be sufficient
to meet our anticipated cash needs for working capital and capital  expenditures
into the third quarter of 2005. This forecast is based on the current  remaining
available line of credit at June 29, 2004 of up to $5.25 million from our credit
facility,  structured  in the  form  of two $6  million  three-year  convertible
promissory note that were issued in March 2003 and March 2004. If future revenue
is insufficient to cover our operating costs, we will need to secure  additional
funds to ensure future  viability.  We may need to raise additional funds sooner
than  anticipated  to fund our  future  expansion,  to develop  new or  enhanced
products  or  services,   to  respond  to  competitive   pressures  or  to  make
acquisitions.  To the  extent  that  our  existing  funds  and  funds  from  the
convertible  promissory note are not sufficient to enable us to operate into the
third quarter of 2005 and beyond,  Friedli  Corporate Finance provided a written
commitment to provide us with a capital infusion of up to $20 million,  of which
$12 million was the previously mentioned convertible  promissory notes. However,
no formal terms and  conditions  have been agreed upon,  other than the terms of
the  $12  million  convertible   promissory  notes.  If  Peter  Friedli  becomes
incapacitated  or  otherwise  is unable to fulfill the  commitment  made through
Friedli Corporate Finance, we may not be able to replace such committed funds on
favorable terms or at all. No trustee or other  arrangement  currently exists to
guarantee us will receive the committed funding in the case of such incapacity.

    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  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.

LOSS OF A SIGNIFICANT  SOURCE OF FUNDING MAY LIMIT ABILITY TO EXPAND OR CONTINUE
OPERATIONS.

    We rely on the services and financial  assistance of Peter Friedli,  who has
been supportive of us from a fundraising  perspective.  If Peter Friedli were to
decide not to support the business  from a financial  perspective  in the future
and we are not able to secure funds from other external  investors,  our ability
to expand or continue operations may be limited.

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


                                       34
<PAGE>

    The market to provide our  services  is  intensely  competitive  and rapidly
changing.  We expect  competition  to  continue  to increase as a result of such
factors as:

         o    other providers of product reviews;
         o    publishers of content and information on special  interest product
              categories;
         o    shopping comparison or price search web sites; and
         o    providers  of  community   forums,   message  boards,   and  photo
              galleries.

    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,  such as vendors that provide:

         o    marketing technologies and services;
         o    e-mail marketing solutions;
         o    rewards programs;
         o    coupon and promotions programs; and
         o    interactive advertising agencies.

    We believe the market for our ConsumerREVIEW.com division to also be rapidly
evolving  and  competitive.  In this area,  some of our  current  and  potential
competitors include:

         o    marketing technologies and services;
         o    e-mail marketing solutions;
         o    rewards programs;
         o    coupon and promotions programs; and
         o    interactive advertising agencies.

    Many of our other  existing and  potential  competitors  have  significantly
greater  financial,  technical,  marketing and managerial  resources than we do.
Many 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 operate in an intensely competitive
environment with a significant number of existing and potential competitors.

    Our ability to successfully compete depends on many factors.

    Factors over which we have some level of control include:

         o    ability to enter into relationships with marketers;
         o    ability to provide simple, cost-effective and reliable solutions;
         o    timely development and marketing of new services; and
         o    ability to manage  rapidly  changing  technologies,  frequent  new
              service introductions and evolving industry standards.

    Factors outside our control include:

         o    ability to enforce our intellectual property portfolio;
         o    development, introduction and market acceptance of new or enhanced
              services by our competitors;
         o    changes in pricing policies of our competitors;
         o    entry of new competitors in the market; and
         o    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 CLIENTS, AND BUILDING RECOGNITION OF THE E-CENTIVES BRAND MAY
REQUIRE  US TO EXPEND  SIGNIFICANT  FUNDS ON  MARKETING,  EITHER OF WHICH  COULD
MATERIALLY  ADVERSELY  AFFECT  OUR  BUSINESS,  FINANCIAL  CONDITION,  RESULTS OF
OPERATIONS AND CASH FLOW.

    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 website,  but rather are
attempting to build a brand that businesses  identify with online marketing.  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'  attention  increases.  Building  recognition of the
E-centives brand may require us to expend  significant  funds on marketing.  The
outcome of our marketing efforts is 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 a materially  adverse affect
on our business, financial condition, results of operations and cash flow.


                                       35
<PAGE>

OUR  CONSUMERREVIEW  BRAND,  AND THE BRANDS OF OUR RESPECTIVE WEB SITES, MAY NOT
ACHIEVE THE LEVEL OF  RECOGNITION  NECESSARY TO ATTRACT  ADDITIONAL  CLIENTS AND
CONSUMERS,  AND  BUILDING  RECOGNITION  OF SUCH  BRANDS MAY REQUIRE US TO EXPEND
FUNDS ON  MARKETING,  EITHER OF WHICH  COULD  MATERIALLY  ADVERSELY  AFFECT  OUR
BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND CASH FLOW.

    To be  successful,  we also  must  continue  to build  and  increase  market
recognition of the brands within our ConsumerReview network of sites. We believe
that  the  recognition  of these  brands  is  critical  to our  success  and the
importance  of this  will  increase  as more  companies  enter  our  market  and
competition  for  marketers'  and  consumers'  attention   increases.   Building
recognition of the  ConsumerReview  brands may require us to expend  significant
funds  on  marketing.  If we are not  successful  in our  marketing  efforts  to
increase our brand  awareness,  our ability to attract  consumers  and marketing
clients  could be harmed  which would cause a materially  adverse  affect on our
business, financial condition, results of operations and cash flow.

OUR  NETWORK  INFRASTRUCTURE,  COMPUTING  SYSTEMS  OR  SOFTWARE  MAY  FAIL OR BE
COMPROMISED OR DAMAGED,  WHICH COULD HARM OUR REPUTATION,  AS WELL AS MATERIALLY
ADVERSELY AFFECT OUR BUSINESS,  FINANCIAL  CONDITION,  RESULTS OF OPERATIONS AND
CASH FLOW.

    The  performance  of our hardware and software is critical to our  business.
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.
All such disruptions were caused by unique errors in our software code that were
all  subsequently  corrected and did not have a material  adverse  effect on our
business.  Any  significant  increase  in the  frequency  or  severity of future
disruptions  could have a material  adverse  effect on our  business,  financial
condition, results of operations and cash flow.

    The software for our systems 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 regularly monitor and test our system and software, and from time to time
we 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.

    Savvis  (formerly  Cable & Wireless  USA) hosts our systems and  provides us
with  communications  links.  The  delivery  of our  services  is  substantially
dependent on our ability and the ability of the provider to protect our computer
hardware and network infrastructure against damage from, among other things:

         o    human error;
         o    fire and flooding;
         o    power loss;
         o    telecommunications failure; and
         o    online or physical sabotage.

    We rely on Savvis 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
Savvis to handle  higher  volumes of Internet  use,  could  result in  financial
losses or impair our reputation.

OUR SYSTEM  CAPACITY  NEEDS ARE UNTESTED AND OUR FAILURE TO HANDLE THE GROWTH OF
OUR DATABASE MAY MATERIALLY ADVERSELY EFFECT OUR BUSINESS,  FINANCIAL CONDITION,
RESULTS OF OPERATIONS AND CASH FLOW 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  amounts  of users and
related data. A substantial  increase in the number of users 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 clients' users 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


                                       36
<PAGE>

of our data,  and could  materially  adversely  affect our  business,  financial
condition,  results of operations and cash flow. We believe that on average, our
various systems' hardware,  at peak traffic levels, run at approximately  10-50%
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 our
web hosting  providers  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
users and also collect data regarding the offers viewed and offers clicked-on by
such  users.  Privacy  concerns  may cause  users to resist  signing  up for our
system,  providing personal  information and allowing us to monitor their usage.
If users were to reduce the information  voluntarily supplied or block access to
their  data,  our ability to improve our  database of user  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 TO THIRD PARTIES,  WHICH COULD  MATERIALLY  ADVERSELY
AFFECT OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND CASH FLOW.

    We currently  report consumer  information to our clients about their users.
Our clients receive  detailed and specific  information  about the activities of
their users for  purposes of targeting  marketing  messages  and  promotions  to
subscribers 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
user  data  to  third  parties.  In  addition,   several  states  have  proposed
legislation  that  would  limit the uses of user  information  gathered  online.
Consequently,  any future  regulation that would restrict our ability to provide
information  regarding  users  would  have a  materially  adverse  impact on our
business,   financial  condition,   results  of  operations  and  cash  flow  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 and enforcing our intellectual property,  which is one of our most
important  assets.  We  have  developed  and  acquired  proprietary   technology
including  database and  interface  servers,  offer  creation  and  presentation
software,  and software to enable  communication  between marketers' systems and
our system.

    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 do not adequately protect our
intellectual property, our business,  financial condition, results of operations
and cash flow could be materially adversely affected.

IF WE INFRINGE UPON THE  INTELLECTUAL  PROPERTY RIGHTS OF OTHERS,  OUR BUSINESS,
FINANCIAL  CONDITION,  RESULTS OF  OPERATIONS  AND CASH FLOW COULD BE MATERIALLY
ADVERSELY AFFECTED.

    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


                                       37
<PAGE>

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, require us to enter into royalty or licensing
agreements or subject us to an injunction.  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. For more information on pending  intellectual  property  litigation,
see Item 3 - "Legal Proceedings" for further details.

WE MAY BE SUBJECT TO CLAIMS BASED ON THE CONTENT OF PROMOTIONS WE DELIVER.

    The online promotions  developed by our clients 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 for which
we provide promotions technology.  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.  Our clients or our
employees may make errors or enter inaccurate information,  and we do not verify
the  accuracy of  information  contained  in the  promotions  or  otherwise  for
compliance  with  applicable  advertising  laws.  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 website  through
links to other websites.

    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 STOCK PRICE TO FLUCTUATE WIDELY
AND/OR MATERIALLY ADVERSELY AFFECT OUR BUSINESS, FINANCIAL OPERATIONS, FINANCIAL
RESULTS AND CASH FLOW.

    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  and/or
materially  adversely  affect  our  business,  financial  operations,  financial
results and cash flow.

IF WE DO NOT MANAGE OUR GROWTH, OUR BUSINESS,  FINANCIAL  CONDITION,  RESULTS OF
OPERATIONS AND CASH FLOW COULD BE MATERIALLY ADVERSELY AFFECTED.

    We may not be  successful  in  managing  our  growth.  We have  gone from 60
employees at June 30, 1999 to 153 employees at December 31, 2001 to 50 employees
at December 31, 2003. Past growth has placed, and future growth will continue to
place, a significant  strain on our  management  and  resources,  related to the
successful integration of personnel.

    To manage the expected growth of our operations, we will need to improve our
operational and financial systems, procedures and controls. We will also need to
manage 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,  financial condition, results of operations and
cash flow could be materially adversely affected 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 Mehrdad Akhavan,
our  Chief  Executive   Officer,   and  certain  other  key  executives,   whose
understanding  of our services,  strategy and  relationships  would be extremely
difficult to duplicate from outside our company. The loss of the services of any
of such key  personnel  could have a material  adverse  effect on our  business,
financial condition,  results of operations and cash flow. On June 17, 2004, our
co-founder  Kamran Amjadi resigned as our Chairman and Chief Executive  Officer.
On June 22, 2004, Mr.  Akhavan,  our co-founder and previously our President and
Chief Operating Officer,  succeeded Mr. Amjadi as Chief Executive  Officer,  and
Mr.  Sean Deson (who was named a director  effective  as of April 19,  2004) was
appointed as Chairman of the Board.  David  Samuels  resigned as our Senior Vice


                                       38
<PAGE>

President, Chief Financial Officer and Treasurer,  effective as of May 14, 2004,
by mutual  agreement.  Tracy L. Slavin  (previously  our  Controller  and Senior
Director of Accounting) Chief Financial Officer,  effective as of June 22, 2004.
While we believe that we can effectively  manage the transition,  the departures
of Messrs. Amjadi and Samuels could have an adverse effect on our business.

    We previously had an employment  agreement with Mr.  Akhavan,  although such
agreement expired and Mr. Akhavan is currently operating in his capacity without
a written employment  agreement.  We do not maintain "key person" life insurance
policies.  In  addition,  on December 8, 2003  Messrs.  Amjadi and Akhavan  were
awarded, 3,311,791 and 1,868,256 stock options, respectively, of which 2,311,791
and 1,304,134,  respectively, vest upon issuance, although the underlying common
stock is subject to a twelve  (12) month  trading  restriction  from the date of
issuance  of  the  options.   Each  officer's   respective  trading  restriction
automatically sunsets upon such officer's respective termination from us for any
reason. Thus,  commencing on June 17, 2004 when Mr. Amjadi resigned from service
with us, Mr.  Amjadi's  trading  restriction  was  terminated  and he may freely
exercise  such stock  options and sell all shares of  underlying  common  stock,
which sale could adversely  impact our stock price. If Mr. Akhavan leaves us, he
would be free, without restriction,  to exercise such stock options and sell all
shares of underlying  common stock,  which sale could adversely impact our stock
price.  The  remaining  1,000,000  and  564,122  stock  options,   respectively,
automatically  vest on the two year  anniversary of the issuance date,  although
vesting may be accelerated upon the achievement of certain performance criteria.

IF WE ARE UNABLE TO ATTRACT AND RETAIN HIGHLY SKILLED  EMPLOYEES,  OUR BUSINESS,
FINANCIAL  CONDITION,  RESULTS OF  OPERATIONS  AND CASH FLOW COULD BE MATERIALLY
ADVERSELY AFFECTED.

    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 competition in hiring and retaining personnel
from  a  number  of  sectors,   including  technology  and  Internet  companies,
government contractors and traditional businesses.  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  employees  or
identify,  attract, assimilate or retain other highly qualified employees in the
future,  which may in turn materially  adversely affect our business,  financial
operations, financial results and cash flow.

WE HAVE STOCK-BASED  COMPENSATION EXPENSE RELATING TO STOCK OPTION GRANTS, WHICH
WILL DECREASE EARNINGS OVER, AT LEAST, THE NEXT THREE 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, 2003,  the charge  relating to stock option  grants was
approximately  $2.6  million.  We estimate  the charge  relating to stock option
grants  will be  $574,000,  $320,000  and  $243,000  in  2004,  2005  and  2006,
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.
Many  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 THE  CLIENTS  FOR OUR  CONSUMERREVIEW.COM  BUSINESS  UNIT  ARE  EMERGING
INTERNET COMPANIES THAT REPRESENT CREDIT RISKS.


                                       39
<PAGE>

    Many of our  ConsumerREVIEW.com  clients are Internet companies,  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 business,  financial  condition,  results of operations
and cash flow could be materially adversely affected.

            ADDITIONAL RISKS RELATED TO OWNERSHIP OF OUR COMMON STOCK

WE ARE,  AND WILL  CONTINUE  TO BE,  CONTROLLED  BY OUR  CO-FOUNDERS  AND  BOARD
MEMBERS, WHO MAY APPROVE CORPORATE ACTIONS WITH WHICH YOU MAY DISAGREE.

    We are, and will  continue to be,  controlled by our  co-founders  and board
members,  who may approve corporate  actions with which you may disagree.  As of
December  31,  2003,  our  Board of  Directors,  owned  directly  or  indirectly
approximately  51.4% of our outstanding  common stock.  Mr. Amjadi resigned as a
director and officer on June 17, 2004,  and  continues to hold his common stock.
Effective  as of April  19,  2004,  Sean  Deson  was  appointed  to our Board of
Directors and, as of June 29, 2004,  owned none of our common stock.  As of June
29,  2004,  our  current  Board  of  Directors   owned  directly  or  indirectly
approximately  48.5% of our  outstanding  common stock. To the extent that these
stockholders  exercise  their voting  rights in concert,  they may to be able to
control most matters requiring stockholder approval, such as electing a majority
of the directors and approving significant corporate matters, including a merger
or sale of the  business.  The  interest  of  these  stockholders  may at  times
conflict with the interests of our other stockholders.

ALTHOUGH  OUR  COMMON  STOCK IS LISTED ON THE SWX SWISS  EXCHANGE,  IT IS THINLY
TRADED.  THE MARKET PRICE OF OUR COMMON STOCK,  LIKE THE MARKET PRICES OF STOCKS
OF OTHER INTERNET-RELATED COMPANIES, MAY FLUCTUATE WIDELY AND RAPIDLY.

    For the most part,  trading in our common  stock has been low.  Although our
common stock has been listed on the SWX Swiss  Exchange  since  October 3, 2000,
there is no  assurance  that more  trading  activity  in the  common  stock will
develop.

    In addition, 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 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.  Also, broad market  fluctuations,  including
fluctuations  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 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 solely on the SWX Swiss
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 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  entered into by our current  stockholders in connection with our recent
acquisition of substantially all of the assets of Consumer Review,  Inc., and in
connection  with the issuance of warrants to certain  insider and  third-parties
and the related  registering and listing of such stock, all of the shares of our
common  stock  will be  eligible  for  trading on the SWX Swiss  Exchange.  If a
significant amount of such shares are offered for sale on the SWX Swiss Exchange
after such lock-up  periods  expire,  and  registration  is completed,  it could
decrease our stock price, among other things.

    DURING 2003, STOCKHOLDERS EXPERIENCED DILUTION IN THEIR EQUITY OWNERSHIP AND
VOTING POWER IN OUR COMPANY DUE TO THE  CONVERSION  OF OUR SERIES A  CONVERTIBLE
PREFERRED  STOCK,  AND THEY  MAY  EXPERIENCE  FURTHER  DILUTION  IF  OUTSTANDING
OPTIONS,  WARRANTS  AND  CONVERTIBLE  PREFERRED  STOCK  ARE  EXERCISED,  IF  THE
AUTOMATIC CONVERSION OF OUR OUTSTANDING  CONVERTIBLE PROMISSORY NOTES OCCURS AND
IF WE OFFER ADDITIONAL SHARES OF OUR COMMON STOCK FOR SALE IN FUTURE MONTHS.


                                       41
<PAGE>

    During  2003,   stockholders   experienced  substantial  dilution  of  their
percentage  of equity  ownership  interest and voting  power in our company.  In
addition,   stockholders  may  experience  substantial  dilution  based  on  the
conversion of our Series B convertible  preferred stock and/or the exercising of
outstanding  warrants and options, as well as the possible automatic  conversion
of our outstanding convertible promissory notes. It is also possible that it may
be necessary or appropriate for us to seek to raise additional equity capital in
the future and shares of common stock may be offered for sale in the future.  In
that  event,  the  relative  voting  power and equity  interests  of persons who
purchased the common stock in the rights offering could be reduced. No assurance
can be given that such future sale will not occur, and, if it did, at what price
or other terms.

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    The  following   discussion  about  our  market  risk  disclosures  involves
forward-looking  statements.  Actual results could differ  materially from those
projected in  forward-looking  statements.  We maintain  instruments  subject to
interest  rate. We categorize  all of our market risk  sensitive  instruments as
non-trading or other instruments.

Interest Rate Sensitivity

    We  maintain a portfolio  of cash  equivalents  in a variety of  securities.
Substantially  all amounts are in money market and certificates of deposit,  the
value of which is generally  not subject to interest  rate  changes.  We believe
that a 10%  increase or decline in  interest  rates would not be material to our
interest income or cash flows.

    Our long-term debt bears interest at fixed rates; therefore,  our results of
operations  would be not be affected  by  interest  rate  changes.  However,  if
interest  rates decline below our fixed rates,  we would be paying out of market
rates.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    Our financial  statements and  supplementary  data required by this Item are
attached  starting on page F-1 and are set forth on the pages  indicated in Item
15.

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

    None.

ITEM 9A - CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

    Our management,  with the  participation of the Chief Executive  Officer and
Chief Financial  Officer,  has evaluated the Company's  disclosure  controls and
procedures (as defined in Rules  13a-15(e) and 15d-15(3) under the Exchange Act)
as of December 31, 2003. Based on such evaluation,  the Chief Executive  Officer
and Chief  Financial  Officer have concluded that, as of the end of such period,
except as noted below,  the Company's  disclosure  controls and procedures  were
designed to ensure that  information  required to be disclosed by the Company in
the  reports  that it files or  submits  under  the  Exchange  Act is  recorded,
processed,  summarized  and reported  within the time  periods  specified in the
SEC's rules and forms and were operating in an effective manner.

Limitations on the Effectiveness of Controls

    A control system is subject to inherent  limitations  and, as a result,  can
provide only reasonable,  not absolute,  assurance that the system's  objectives
will be achieved.  In the first  instance,  the design of a control  system must
reflect  the fact that  there are  resource  constraints,  and the  benefits  of
controls must be considered relative to their costs. Further, decision-making in
connection  with system design or operation can be faulty,  and  breakdowns  can
occur  because  of  simple  error  or  mistake.  In  addition,  controls  can be
circumvented  by the acts of single  individuals,  by  collusion  of two or more
individuals, or by management override of the controls. The design of any system
of controls is based in part upon certain  assumptions  about the  likelihood of
future  events,  and there can be no  assurance  that any design will succeed in
achieving its stated  objectives  under all potential  future  conditions.  Over
time,  controls  may become  inadequate  because of  changes  in  conditions  or
deterioration in the degree of compliance with policies or procedures.  In light
of the inherent  limitations in a cost-effective  control system,  misstatements
due to error or fraud may occur and not be detected.

Scope of the Controls Evaluation


                                       42
<PAGE>

    In a Form 8-K filed with the SEC on May 13,  2004,  we  disclosed  that,  in
connection  with  finalizing  our Annual  Report,  we had  encountered  a recent
non-financial  representation  by a senior Company official that we deemed to be
inaccurate.  Our  Board  of  Directors  determined  that it was  appropriate  to
undertake an independent  investigation  to review this and other  matters.  Our
Board of  Directors  established  a separate  Committee of the Board to lead the
investigation,  with Sean Deson (a non-management  director) serving as Chairman
of the Committee.  The Committee  retained an independent  law firm,  which then
conducted  the  investigation  and looked into various  matters,  including  the
following:

o   the adequacy of Company procedures regarding the issuance of press releases,
    including a possible  misstatement  in a certain press release issued by the
    Company,

o   corporate governance and Board independence  issues,  including the adequacy
    of the Company's  internal controls  governing employee and officer conduct,
    and

o   the accuracy and  completeness  of financial  disclosures,  including  those
    related to certain expense reversals or accruals.

    In connection  with its  investigation,  the independent law firm reviewed a
significant  number of Company documents and records,  and interviewed  numerous
individuals with relevant knowledge of the matters at hand. As of the conclusion
of the investigation, all matters reviewed had no material impact to our current
or  previously  reported  financial  results  or  disclosures.  The two areas of
concern noted by the investigation were related to:

o   A certain press release issued by the Company in late 2003  introducing four
    new technology features that had misstated certain factual information about
    the availability of one of the new technology features at the time the press
    release was issued.  Specifically,  a senior Company  official likely made a
    misrepresentation  to the Company's auditors  concerning the availability of
    that one feature at the time when the press release was issued.

o   A  single,  isolated  episode  in which a small  number  (approximately  300
    prints) of a pilot program's coupons were improperly printed by unauthorized
    users. In connection with such  unauthorized  use, a senior Company official
    directed the allocation of such coupons to known user accounts to, according
    to the senior Company official,  enable the proper tracking of such coupons.
    The investigation  suggested that this action may have been inappropriate or
    could have been construed as misleading by an external party.

    The investigation  also determined that neither of these two matters had any
impact on current or previously reported financial statements or disclosures.

    In response to  recommendations  by the independent law firm as to a plan of
remediation,  we have  taken or expect to take the  actions  recommended  by the
independent law firm, including certain changes in management as noted below.

    In performing  its audit of our  consolidated  financial  statements for the
year ended December 31, 2003,  and in connection  with its review of the results
of the independent investigation described above, our independent auditors, KPMG
LLP, noted two matters  involving our internal controls that it considered to be
reportable  conditions under the standards established by the American Institute
of Certified Public  Accountants.  A reportable  condition is a matter coming to
the  auditors'   attention   that,  in  its  judgment,   relate  to  significant
deficiencies in the design or operation of internal  control and could adversely
affect our  ability to record,  process,  summarize  and report  financial  data
consistent with the assertions of management in the financial statements.

    The first identified reportable condition related to appropriate segregation
of duties to ensure that accurate  information  is contained in certain types of
internal and external corporate  communications,  including press releases.  The
second  identified  reportable  condition  related  to the  absence  of  certain
controls such as a mechanism for  employees to report  concerns of  questionable
employee  behavior to an independent  party for  investigation  and  resolution.
Neither reportable condition was considered to be a material weakness.

    In response, in part, to the results of the investigation,  and, in part, in
order to pursue new  professional  opportunities,  the Company's  co-founder and
then  Chairman  & Chief  Executive  Officer  voluntarily  decided  to resign his
positions from the Company  effective  June 17, 2004. On June 22, 2004,  Mehrdad
Akhavan,  the Company's  co-founder,  President and Chief Operating Officer, was
appointed  as the new  Chief  Executive  Officer.  Sean  Deson  (who was named a
non-management director effective as of April 19, 2004 and served as Chairman of
the special  Committee  that led the  investigation)  was  appointed  as the new
Chairman of the Board.  Tracy L. Slavin,  the  Company's  Controller  and Senior
Director of Accounting, was appointed Chief Financial Officer effective June 22,
2004.


                                       43
<PAGE>

    Also, the Company  intends to make changes to its controls and procedures to
enhance integrity, accuracy and reliability, including the following:

o   Strengthening  its internal  processes and review  procedures to assure that
    accurate information is contained in external corporate communications,

o   Implementing a mechanism for employees to properly  communicate  and address
    their concerns, including to an independent party,

o   Expanding  its  current  Board of  Directors  to  accommodate  a  separately
    designated Audit Committee, and

o   Adding an independent director to the Board of Directors.

    The  Company  believes  that its  efforts  should  resolve  both  reportable
conditions.

    The Company is fully  committed to implementing  controls  identified by the
Company's  independent  auditors,  and  anticipates  completing its  remediation
efforts  in  connection  with  the  reportable   conditions  identified  by  its
independent auditors as soon as possible.

Internal Control over Financial Reporting

    No change in the Company's  internal  control over  financial  reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during
the fiscal quarter ended December 31, 2003 that has materially  affected,  or is
reasonably  likely to materially  affect,  the Company's  internal  control over
financial  reporting.  As  previously  discussed,  the  Company  intends to take
necessary  steps to address  certain  reportable  conditions  noted  above while
enhancing and improving its internal controls and procedures.

                                    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 as of December 31, 2003.
<TABLE>
<CAPTION>
Name                    Age     Position(s) with Company
---------------------------------------------------------------------------------------------
<S>                     <C>     <C>
Kamran Amjadi           40      Chairman, Chief Executive Officer and Director
Mehrdad Akhavan         40      President, Chief Operating Officer, Secretary and Director
David Samuels           42      Senior Vice President, Chief Financial Officer and Treasurer
Wendy Roberts           39      Senior Vice President, Business Development
Paul Wassem             33      Vice President and General Manager for ConsumerREVIEW.com
Ira Becker              36      Vice President of Strategic Alliances
Alex Sukhenko           35      Vice President of Engineering
John Hoffman            44      Vice President of Network Operations
Amori Langstaff         32      Vice President of Client Services
Tracy Slavin            34      Controller and Senior Director of Accounting
Peter Friedli           49      Director
</TABLE>

    Kamran Amjadi resigned as our Chairman and Chief  Executive  Officer on June
17, 2004.  Prior to that time, he had 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 was  appointed as our Chief  Executive  Officer on June 22,
2004.  Prior to that time, he had 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.

    David Samuels resigned as our Senior Vice President, Chief Financial Officer
and Treasurer,  effective as of May 14, 2004, by mutual agreement. Prior to that
time,  Mr.  Samuels had served as our Senior  Vice  President,  Chief  Financial
Officer  and   Treasurer   since  April  2001  and  oversaw  all  financial  and
investor-related  matters  for  E-centives.  Prior to  joining  E-centives,  Mr.


                                       44
<PAGE>

Samuels served as Vice President of Finance for Teligent International where, as
a member of the senior  management team, he played a pivotal role  orchestrating
the financial  management  and funding  initiatives  for multiple  joint venture
businesses in Europe, Asia, and Latin America. He spent February 1990 to January
2000 with Host  Marriott  Services  Corporation,  serving most  recently as Vice
President  of Finance,  Development  and  Operations  for New  Markets  where he
functioned  in the capacity of a divisional  CFO driving  strategic and business
growth  initiatives  for a $200  million  revenue  business  unit.  He began his
financial career as an auditor with KPMG LLP.

    Wendy Roberts  oversees the  development  of new market  strategies  and was
hired as our Vice  President  of Emerging  Markets in May 2002 and in March 2003
she was promoted to Senior Vice President,  Business  Development.  Wendy brings
more  than 18 years of  experience  in the  areas of new  business  development,
management  consulting and strategic planning.  From 1997 to 2001, she served as
Senior  Partner at  ionStrategy  and served as Vice  President  of New  Business
Development  and  as  Partner  of  Strategy  at  Agency.com,  a  leader  in  the
development of Digital Relationship Management for Fortune 1000 companies. There
she developed and grew vertical market strategies and relationships in the areas
of Pharmaceuticals,  Financial Services and Insurance,  High Technology,  Retail
and Travel.  Through  various senior roles in Sales,  Marketing,  Consulting and
Client  Management  areas,  Wendy  has  lead  efforts  to  develop  Relationship
Management strategies for many leading companies.

    Paul Wassem joined us in December 2002, in conjunction  with the acquisition
of the  ConsumerREVIEW.com  division,  as Vice President and General Manager for
ConsumerREVIEW.com.  Prior to the  acquisition,  he was the President and CEO of
ConsumerREVIEW,  Inc. Before joining  ConsumerREVIEW.com  in June 2000, he was a
channel  manager  at  BuyersEdge.com,  an  online  marketplace  backed by CMGI @
Ventures. From 1998 to 2000, Paul was vice president and general manager of GSS,
Inc.,  a  start-up  staffing  firm.  Until  1998,  he was a general  manager  at
Borg-Warner Security Corporation. During his nine years at Borg-Warner, Paul was
promoted from  front-line  sales and consulting  positions to executive  general
management.

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

    Alex Sukhenko  resigned as our Vice  President of  Engineering,  Messaging &
Data  Warehouse  during May 2004.  Prior to that time,  he had served in various
positions  with  us  since  March  1999,  most  recently  as Vice  President  of
Engineering,  Messaging & Data Warehouse.  From September 1996 to February 1999,
Alex  served as  District  Manager of AT&T  Solutions  for  Advanced  Networking
Solutions and prior to AT&T Solutions,  Alex served as a consulting  manager for
Noblestar  Systems.  Alex  has also  served  as a senior  scientist  for  Vector
Research  Inc.  He began his  career  at  Eastman  Kodak,  focusing  on  process
re-engineering for Kodak's circuit board manufacturing operations.

    John Hoffman oversees our internal and external computer services,  security
and operation as our Vice President of Network Operations. He became a member or
our team when we acquired  BrightStreet.com  in December  2001. At  BrightStreet
Inc.'s he oversaw  their network  infrastructure,  where he managed more than 24
systems providing scalability and high availability  architectures.  John brings
more than 19 years of experience in computer  operations,  software  development
and security. He has obtained varied development and operational experience both
in high security  government work and the Internet.  Prior to  BrightStreet,  he
held various  positions at Lockheed Missile & Space Company,  from 1998 to 2000,
and at Netcom Online Communications, from 1994 to 1998.

    Amori Langstaff,  our Vice President of Client Services,  joined us in March
2000.  Amori  oversees all client  implementations,  managing such  processes as
account services,  business strategy,  performance analyses and production.  She
brings  to  E-centives   ten  years  of  experience   designing  and  delivering
results-based  database and customer loyalty marketing  solutions for retail and
hospitality  companies,  including  the Mandarin  Oriental  Hotel  Group,  Asset
Marketing and Regent  International  Hotels.  Amori has extensive  experience in
creating and implementing marketing campaigns, customer segmentations,  database
marketing  programs and corporate  business plans,  and in leading  consultative
client  engagements.  At E-centives,  her contributions have promoted better and
more  profitable  client   relationships,   streamlined  sales  and  fulfillment
processes, and produced standardized training and performance programs.

    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


                                       45
<PAGE>

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.

    Tracy Slavin  became our Chief  Financial  Officer in June 2004.  Ms. Slavin
joined us in September  2000,  and until her promotion  served as Controller and
Senior  Director of Accounting.  Ms.  Slavin,  a CPA, has an MBA and over twelve
years of corporate accounting, finance and auditing experience. Prior to joining
E-centives,  she served as Vice President of Accounting for Thomson Financial, a
division  of  The  Thomson   Corporation,   a  leading   provider  of  financial
information,  analysis,  research and software products.  From 1993 to 1997, Ms.
Slavin  served as  Assistant  Controller  for  Phillips  International,  Inc., a
consumer and  business-to-business  information  company.  Ms.  Slavin began her
career as an auditor with PriceWaterhouseCoopers LLP.

BOARD OF DIRECTORS

    As of December 31, 2003, our Board of Directors  consisted of Kamran Amjadi,
Mehrdad  Akhavan and Peter  Friedli,  with Mr. Amjadi serving as Chairman of the
Board.  Effective as of April 19, 2004, Sean Deson was appointed to our Board of
Directors. On June 17, 2004, Mr. Amjadi resigned as director and Chairman of our
Board of Directors,  and on June 22, 2004,  Mr. Deson was appointed  Chairman of
the Board.  For his  agreement  to serve as Chairman of the Board,  we agreed to
award Mr.  Deson  50,000  shares of our  common  stock.  Our Board of  Directors
currently consists of Sean Deson, Mehrdad Akhavan and Peter Friedli.

    Compensation 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.  As of December 31, 2003,  the  Compensation  Committee  consisted of Mr.
Friedli, the committee's chairman,  and Mr. Amjadi. Mr. Amjadi resigned from the
Compensation Committee on June 17, 2004.

    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.

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:

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

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

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

         o    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.


                                       46
<PAGE>

AUDIT COMMITTEE/AUDIT COMMITTEE FINANCIAL EXPERT

    We do not have a separately designated standing Audit Committee of our Board
of  Directors,  and  therefore we do not have any  independent  audit  committee
financial  experts under Item 401(h) of Regulation S-K. We are listed on the SWX
Swiss Exchange,  which exchange does not currently require that listed companies
have an audit  committee.  We intend to expand our current Board of Directors to
accommodate a separately  designated Audit Committee,  and to appoint members of
such an Audit Committee, at a later date.

BENEFICIAL OWNERSHIP REPORTING COMPLIANCE UNDER SECTION 16

    To our  knowledge,  based  solely on review of the copies of  reports  under
Section  16(a) of the  Exchange  Act that have been  furnished to us and written
representations  that no other  reports  were  required,  during the fiscal year
ended December 31, 2003 all executive  officers,  directors and greater than 10%
beneficial  owners  have  complied  with all  applicable  Section  16(a)  filing
requirements.

CODE OF ETHICS

    The Board of  Directors  has not yet adopted a Code of Ethics,  but plans to
establish  one  during  2004  that  will  apply  to all of our  employees.  Once
established,  the Code of  Ethics  will be  publicly  available  at our  website
(www.e-centives.com)  and we intend to disclose  any  amendments  to the Code of
Ethics or any waiver from a provision of the Code of Ethics on our website.

ITEM 11 - EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

    The following table sets forth the  compensation  paid during the year ended
December  31,  2003 to our Chief  Executive  Officer,  our two other most highly
compensated  executive  officers at December 31, 2003,  and two other  employees
(collectively, the "Named Executive Officers").

<TABLE>
<CAPTION>
                                                                                                                         Long-Term
                                                                                                                       Compensation
                                                                               Annual                                  -------------
                                                                             Compensation                                Securities
                                                                        -----------------------                          Underlying
                Name and Principal Position(s)                   Year   Salary ($)        Bonus ($)       Other ($)        Options
------------------------------------------------------------------------------------------------------------------------------------
Kamran Amjadi
<S>                                                            <C>      <C>       <C>   <C>      <C>        <C>          <C>
  Chairman, Chief Executive Officer and Director                 2003     $160,083  (1)   $25,000  (2)      $ -          3,311,971
                                                                 2002     $170,000        $ -               $ -                  -
                                                                 2001     $170,000        $ -               $ -                  -

Mehrdad Akhavan
  President, Chief Operating Officer, Secretary and Director     2003     $141,250  (1)   $25,000  (2)      $ -          1,868,256
                                                                 2002     $150,000        $ -               $ -                  -
                                                                 2001     $150,000        $ -               $ -                  -

David Samuels (3)
   Senior Vice President, Chief Financial Officer and Treasurer  2003     $171,289  (1)   $25,000  (2)      $ -            350,000
                                                                 2002     $170,000        $ -               $ -                  -
                                                                 2001     $123,958  (3)   $ -               $ -            100,000

Wendy Roberts  (4)
  Senior Vice President, Business Development                    2003     $188,333  (1)   $ -               $ -            350,000
                                                                 2002     $116,667        $ -               $ -            150,000

Ira Becker
  Vice President of Strategic Alliances                          2003     $141,250  (1)   $15,000   (2)     $ 2,814  (5)   350,000
                                                                 2002     $143,313        $ -               $ 3,840  (5)         -
                                                                 2001     $135,000        $15,000           $ -                  -

</TABLE>
----------------
(1)  Salaries for 2003 included a 10% deferral that began in June 2003.
(2)  Bonuses paid during 2003 were earned during 2002.
(3)  David Samuels joined  E-centives in April 2001 as Chief  Financial  Officer
     and Treasurer. Accordingly, the 2001 information for Mr. Samuels is for the
     period from April 2001 to December 31, 2001.  David Samuels left E-centives
     in May 2004.


                                       47
<PAGE>

(4)  Wendy Roberts  joined  E-centives in May 2002 as Vice President of Emerging
     Markets  and in March  2003 she was  promoted  to  Senior  Vice  President,
     Business  Development.
(5)  Represents Commissions paid.


EMPLOYMENT AGREEMENTS

    Mehrdad  Akhavan has been employed by us under an employment  agreement that
expired on August 31, 2002, and until June 17, 2004,  Kamran Amjadi was employed
by us under an employment  agreement that expired on August 31, 2002. Mr. Amjadi
and Mr.  Akhavan's  employment  agreements  provided for annual base salaries of
$170,000  and  $150,000,  respectively,  subject  to  increase  by the  Board of
Directors.  Each employment  agreement  provided for an annual bonus of $50,000.
Pursuant  to such  agreements,  each of  Messrs.  Amjadi  and  Akhavan  could be
terminated  without  cause at any time,  so long as we 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 was not offered to Messrs. Amjadi
and Akhavan for the remaining term of their  agreements,  they would be entitled
to payment of the full balance of their salaries for the term.  Pursuant to such
agreements,  each of Messrs.  Amjadi and Akhavan agreed for a period of one year
following  resignation or  termination of the agreement 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. On June 17, Mr. Amjadi resigned as our Chairman and Chief Executive
Officer. To date, we have not renewed Mr. Akhavan's employment agreement, and as
such he remains  employee  "at will." In  addition,  on December 8, 2003 Messrs.
Amjadi  and  Akhavan  were  awarded   3,311,791and   1,868,256   stock  options,
respectively,  of  which  2,311,791  and  1,304,134,   respectively,  vest  upon
issuance, although the underlying common stock is subject to a twelve (12) month
trading  restriction  from the date of issuance of the options.  Each  officer's
respective  trading  restriction   automatically  sunsets  upon  such  officer's
respective  termination  from us for any  reason.  Thus,  Mr.  Amjadi's  trading
restriction terminated as of June 17, 2004 and he may freely exercise such stock
options and sell all shares of underlying common stock, which sale can adversely
impact our stock  price.  If Mr.  Akhavan  leaves us, he would be free,  without
restriction,  to exercise  such stock  options and sell all shares of underlying
common stock,  which sale could adversely  impact our stock price. The remaining
1,000,000 and 564,122 stock options, respectively, automatically vest on the two
(2) year  anniversary of the issuance date,  although vesting may be accelerated
upon the achievement of certain performance criteria.

OPTION GRANTS IN LAST FISCAL YEAR

    The following table contains information  concerning grants of stock options
made to each of the Named Executive  Officers during the year ended December 31,
2003:
<TABLE>
<CAPTION>
                                                                                  Potential Realizable Value
                                          % of Total                                at Assumed Annual Rates
                     Number of Shares      Options                                of Stock Price Appreciation
                     of Common Stock       Granted to    Exercise                       for Option Term (4)
                        Underlying         Employees     Price Per   Expiration   ------------------------------
       Name           Options Granted      in 2003        Share        Date             5%            10%
----------------------------------------------------------------------------------------------------------------
<S>                      <C>                <C>          <C>          <C>           <C>            <C>                 <C>
Kamran Amjadi            3,311,791 (1)      38.8%        $ 0.13       10/08/12      $ 270,760      $ 686,158
Mehrdad Akhavan          1,868,256 (1)      21.9%        $ 0.13       10/08/12        152,742        387,077
David Samuels              350,000 (2)       4.1%        $ 0.13       10/08/12         28,615         72,515
Wendy Roberts              350,000 (2)       4.1%        $ 0.13       10/08/12         28,615         72,515
Ira Becker                 350,000 (2)       4.1%        $ 0.13       10/08/12         28,615         72,615

</TABLE>
------------------------------
(1) These options were authorized by the board of directors in October 2002 and
have a grant date of October 8, 2002, but were not issued until December 2003.

(2) These options were authorized by the board of directors in October 2002 and
have a grant date of October 8, 2002, but were not issued until November 2003.

(3) These options were authorized by the board of directors in December 2002 and
have a grant date of December 2, 2002, but were not issued until May 2003.

(4) The potential realizable value is calculated based on the term of the option
at its grant date (ten years). It is calculated assuming that the fair market
value of our common stock on the date of grant appreciates at the indicated
annual rate compounded annually for the entire term of the option and that the
option is exercised and sold on the last day of its term for the appreciated
stock price.


                                       48
<PAGE>

AGGREGATED OPTION EXERCISES AND HOLDINGS

    The  following  table  presents  information  with respect to stock  options
exercised by each of our Named Executive Officers during the year ended December
31,  2003 and stock  options  owned by each of our named  executive  officers at
December 31, 2003 on an aggregated basis.
<TABLE>
<CAPTION>


                 Number of Shares                       Number of Securities Underlying       Value of Unexercised
                    Aquired on           Value             Unexercised Options at            In-the-Money Options at
       Name          Exercise        Realized (1)            December 31, 2003                  December 31, 2003
--------------------------------------------------------------------------------------------------------------------------
                                                     Exercisable     Unexercisable     Exercisable         Unexercisable
                                                     ---------------------------------------------------------------------
<S>                     <C>             <C>            <C>             <C>              <C>                 <C>
Kamran Amjadi                -             $ -         2,686,791       1,000,000        $ 928,179           $ 401,498
Mehrdad Akhavan              -               -         1,679,134         564,122          523,607             226,494
David Samuels                -               -           150,000         300,000           35,131             105,393
Wendy Roberts                -               -           125,000         375,000           36,312             108,937
Ira Becker              87,500             $32,943       100,000         262,500                -             105,393
</TABLE>

---------------------
(1)  Represents  the  difference  between the exercise price and the fair market
     value of our common stock on the date of exercise.

ITEM 12 - SECURITY  OWNERSHIP  OF CERTAIN  BENEFICIAL OWNERS  AND MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS

    The following table presents information  regarding the beneficial ownership
of common stock as of March 1, 2004:

         o    each person, or group of affiliated persons, who is the beneficial
              owner of more than 5% of our outstanding common stock;
         o    each of our Named Executive Officers;
         o    each of our directors; and
         o    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, 6th 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  March 1, 2004 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
                                             ----------------------------
Name                                         Number      Percent of Class
-------------------------------------------------------------------------
<S>                                         <C>              <C>
Kamran Amjadi (1)                            4,282,791        7.1
Mehrdad Akhavan (2)                          2,339,134        3.9
Peter Friedli (3)                           29,529,341       49.3
      c/o Friedli Corporate Finance AG
      Freigutstrasse 5
      8002 Zurich, Switzerland
Venturetec, Inc. (4)                         8,112,743       13.8
      c/o Friedli Corporate Finance AG
      Freigutstrasse 5
      8002 Zurich, Switzerland
New Venture AG (5)                           8,112,743       13.8
      c/o Friedli Corporate Finance AG
      Freigutstrasse 5
      8002 Zurich, Switzerland
InVenture, Inc.   (6)                       11,983,337       20.8
      c/o Friedli Corporate Finance AG
      Freigutstrasse 5
      8002 Zurich, Switzerland


                                       49
<PAGE>

Bank J Vontobel & Co AG (7)                  5,000,000        8.0
      Bahnhofstrasse 3
      8002 Zurich, Switzerland
Rahn & Bodmer Banquiers (8)                  4,187,535        6.8
      Talstrasse 15, Postfach
      8002 Zurich, Switzerland
David Samuels (9)                              168,750         *
Paul Wassem  (10)                               49,500         *
Lawrence Brand (11)                                  0         *
All executive officers and directors as a
    group (6 persons) (12)                  36,369,516       56.4
</TABLE>
------------
*    Less than 1% of the outstanding shares of common stock.

(1)  Includes 2,686,791shares issuable upon exercise of vested stock options.

(2)  Includes 1,679,134 shares issuable upon exercise of vested stock options.

(3)  Includes  7,299,608  shares of common stock,  90,000  shares  issuable upon
     exercise  of vested  stock  options  and  1,065,000  shares  issuable  upon
     exercise of warrants 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:  InVenture,  Inc. -- 11,983,337
     shares of common stock; Joyce, Ltd. -- 235,000 shares of common stock; Pine
     Inc. -- 255,000 shares of common stock; Savetech, Inc. -- 165,383 shares of
     common stock;  Spring  Technology  Corp. -- 177,520 shares of common stock;
     USVentech  -- 145,750  shares of common  stock;  and  Venturetec,  Inc.  --
     7,112,743  shares of common  stock and  1,000,000  issuable  on exercise of
     warrants.  Mr. Friedli has sole voting and investment power with respect to
     8,454,608  shares and shared  voting and  investment  power with respect to
     21,074,733 shares.  See Item 13 - "Certain  Relationships and Related Party
     Transactions -- Stock  Purchases and Related  Matters" for a description of
     Mr. Friedli's relationships with these entities.

(4)  Includes  7,112,743  shares  of  common  stock and  1,000,000  issuable  on
     exercise of warrants.  Venturetech,  Inc. has shared voting and  investment
     power with respect to 8,112,743 shares.

(5)  Includes  7,112,743  shares  of  common  stock and  1,000,000  issuable  on
     exercise of warrants  held by  Venturetech,  Inc. New  Venturetec AG may be
     deemed to control  Venturetec,  Inc. by virtue of its  ownership of 100% of
     Venturetec,  Inc.'s  capital  stock  and its  corresponding  right to elect
     Venturetec,  Inc.'s directors,  and, therefore,  our capital stock owned by
     Venturetec,  Inc.  may  also be  deemed  to be  beneficially  owned  by New
     Venturetec,  Inc. New Venturetech AG has shared voting and investment power
     with respect to 8,112,743 shares.

(6)  Includes  11,983,337  shares of common  stock.  InVenture,  Inc. has shared
     voting and investment power with respect to 11,983,337 shares.

(7)  Includes 5,000,000 shares of common stock.

(8)  Includes 4,187,535 shares of common stock.

(9)  Includes 168,750 shares issuable upon exercise of vested stock options.

(10) Includes 49,500 shares issuable upon exercise of vested stock options.

(11) Lawrence Brand left the company in February 2002.

(12) Includes 29,630,341 shares of common stock,  4,674,175 shares issuable upon
     exercise  of vested  stock  options  and  2,065,000  shares  issuable  upon
     exercise of warrants.


SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

    Below is  information  as of December 31, 2003 with respect to  compensation
plans under which equity securities are authorized for issuance.


                                       50
<PAGE>

<TABLE>
<CAPTION>

                                           A                                 B                                     C
------------------------------------------------------------------------------------------------------------------------------------
                         Number of securities to be issued     Weighted-average exercise          Number of securities remaining
                          upon exercise of outstanding          price of outstanding options,    available for future issuance under
                          options, warrants and rights          warrants and rights             equity compensation plans (excluding
                                                                                                  securities reflected in column A)
------------------------------------------------------------------------------------------------------------------------------------
<S>                        <C>                                     <C>                                     <C>        <C>
Equity compensation
plans approved by
security holders (1)               9,708,222                       $         1.10                              11,201,778 (2)

Equity compensation
plans not approved by
security holders                        -                                      -                                       -
------------------------------------------------------------------------------------------------------------------------------------
         Total                     9,708,222                                                                   11,201,778
                         ===========================================================================================================

</TABLE>

(1) Plans approved by stockholders include the Amended and Restated Stock
Incentive and Option Plan.


(2) 90,000 options were granted to Peter Friedli, one of our directors, as
compensation for a non-employee member of our board of directors.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

STOCK PURCHASES AND RELATED MATTERS

    Peter  Friedli,  one  of  our  stockholders  and  directors,  serves  as the
investment  advisor to both Venturetec and Pine, and also serves as President of
Venturetec and its parent  corporation,  New Venturetec AG. Mr. Friedli also has
relationships  with  several  of  our  other  stockholders;  he  serves  as  the
investment  advisor to InVenture,  Inc.,  Joyce,  Ltd.,  Savetech,  Inc., Spring
Technology Corp. and USVentech, Inc.

    On  October  8,  2002,  the Board of  Directors  approved  the  issuance  of
6,000,000  warrants  to  four  investors  as  consideration  for a  $20  million
financing commitment.  Two of the investors,  Peter Friedli and Venturetec,  are
our  stockholders  and  pursuant  to the terms of the  private  placement,  each
received  1,000,000  warrants.  As part of this  financing,  in March  2003,  we
executed convertible  promissory notes in favor of Friedli Corporate Finance and
InVenture,  Inc. The notes allow us to draw down against the available principal
of up to $6 million at any time and in any amount  during the first two years of
the notes. All principal drawn upon will be secured by substantially  all of our
assets.  Subsequent  to the  issuance of these  promissory  notes,  we,  Friedli
Corporate  Finance and InVenture,  Inc.  agreed to assemble a syndicate of third
parties to whom we would issue convertible  promissory notes on terms similar to
the March 2003 $6 million  convertible  promissory  notes.  The aggregate dollar
amount  of the  convertible  promissory  notes  that we issue  to third  parties
through  syndication will reduce, on a  dollar-for-dollar  basis, the $6 million
convertible  promissory notes of Friedli Corporate  Finance and InVenture,  Inc.
and the balance,  if any,  will continue to be available to us under the initial
$6 million  commitment.  As part of the  syndication  process,  during 2003,  we
issued nine convertible promissory notes totaling $3,450,000. During March 2004,
the credit  facility  available  to us under  Friedli  Corporate  Finance's  and
InVenture,  Inc.'s  initial  commitment  was  increased  from $6  million to $12
million,  pursuant  to amended  notes.  The general  terms of the amended  notes
remain the same as the terms of the $6 million notes described above.

    Peter Friedli also earns fees for his help in raising funds for the Company.
As a result of his help in securing the funds  associated  with the  convertible
promissory  notes,  Peter Friedli was paid $360,000  during 2003. In conjunction
with the $3.3 million of funds received  during the first and second quarters of
2004, Peter Friedli is to be provided with an additional $330,000 in fees, which
Mr.  Friedli has indicated to us will be  distributed to a number of third party
banks and individuals who assisted in financing effort. In addition, on December
8, 2003,  Peter Friedli was issued  345,000  warrants with an exercise  price of
$0.50  and an  expiration  date of  December  8,  2007 in  connection  with  his
continued support of the business and his assistance with fundraising.

    Venturetec  and  Pine  were   debentureholders   in  Consumer  Review,  Inc.
Therefore,  as a result of our acquisition of substantially all of the assets of
Consumer  Review,  Inc. in December 2002,  Venturetec and Pine received  240,315
shares and 4,500 shares,  respectively,  of our Series B  convertible  preferred
stock.


                                       51
<PAGE>

    As part of our October  2001 rights  offering,  we sold shares of our common
stock to  Venturetec  and  Pine.  Venturetec  and Pine  each  delivered  to us a
promissory  note dated as of October 19, 2001, with a maturity date of March 31,
2002, as consideration for the subscription price for the shares of common stock
for which each company  subscribed under the rights offering.  Venturetec's note
(which was only  partial  consideration  for the  purchase  of the  shares;  the
remainder  was  paid in  cash)  was in the  principal  amount  of CHF  8,500,000
(approximately  $5.2 million) and Pine's note was in the principal amount of CHF
8,687,530  (approximately  $5.3 million).  However,  on January 22, 2002,  Pine,
Venturetec and InVenture, all companies under common control,  reallocated their
share  purchases  and/or related  promissory  notes  associated  with the rights
offering.  The CHF 2,500,000  (approximately  $1.5  million) in cash  originally
indicated as originating from Venturetec was reallocated as follows:

    o    In a private sale,  InVenture  purchased from Pine 1,041,667  shares of
         common  stock,  originally  purchased  by Pine  pursuant  to the rights
         offering,  for CHF  2,083,334.  As part of this  transaction,  Pine was
         credited with paying us CHF 2,083,334  (approximately $1.3 million) and
         delivered to us an amended and restated  secured  promissory note dated
         as of  October  19,  2001,  in the  principal  amount of CHF  6,604,196
         (approximately  $4.1 million),  with 2% interest  accruing from October
         19,  2001 and a maturity  date that was  extended to May 15,  2002.  We
         simultaneously  returned Pine's original CHF 8,687,530 promissory note.
         All of the  outstanding  principal  and interest  under the  promissory
         notes was fully received in April 2002.

    o    Venturetec paid us CHF 416,666  (approximately  $256,000) and delivered
         to us an  amended  and  restated  secured  promissory  note dated as of
         October  19,  2001,   in  the  principal   amount  of  CHF   10,583,334
         (approximately  $6.5 million),  with 2% interest  accruing from October
         19, 2001 and a maturity  date that was extended to June 30, 2002.  This
         CHF 10,583,334 reflects an increase in Venturetec's  secured promissory
         note  to  CHF  11,000,000  (approximately  $6.8  million),   reflecting
         Venturetec's  original  subscription price for the shares of our common
         stock for which it subscribed under the rights offering,  minus the CHF
         416,666 payment. We simultaneously  returned  Venturetec's original CHF
         8,500,000  promissory  note.  All  of  the  outstanding  principal  and
         interest under the promissory notes was fully received in April 2002.

    On June 22, 2004,  Mr. Sean Deson (who was named a director  effective as of
April 19,  2004) was  appointed as Chairman of the Board.  For his  agreement to
serve as Chairman of the Board,  we agreed to award Mr. Deson  50,000  shares of
our common stock.  Mr. Deson is the founder of Deson & Co., Deson Ventures,  and
Treeline Capital,  all  technology-focused  investment  related firms.  Prior to
founding  his  investment  firms,  Mr.  Deson  was a Senior  Vice  President  at
Donaldson,  Lufkin & Jenrette,  now Credit Suisse First Boston.  Messrs. Friedli
and Deson have co-invested in a number of operating companies.

LOANS TO MEMBERS OF MANAGEMENT AND BOARD OF DIRECTORS

    We do not have any outstanding  loans to officers or members of the Board of
Directors.

OTHER TRANSACTIONS

    In July 1996, we entered into a consulting  agreement with Friedli Corporate
Finance,  whereby Mr. Friedli provides us with financial consulting services and
investor relations advice.  Pursuant to a renewed agreement,  which is scheduled

to expire in November 2006, Friedli Corporate  Finance,  Inc. is paid $4,000 per
month  plus  reimbursement  of  expenses  related  to  Mr.  Friedli's  services.
Consulting   expense  under  the  Friedli   Corporate   Finance   agreement  was
approximately  $63,000 for each of the years ended  December 31, 2003,  2002 and
2001. In addition, under the original agreement, we granted:

    o    a preemptive right to purchase any debt or equity  securities issued by
         us in a financing transaction;
    o    a preemptive right to allocate 10% of the share offering in our initial
         public offering;
    o    a veto right on a single capital  expenditure of $500,000 or more until
         our initial public offering; and
    o    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.

    We engaged  Friedli  Corporate  Finance to support us in connection with our
2001 rights offering.  In association with this support,  we reimbursed  Friedli
Corporate Finance approximately $100,000 in expenses.


                                       52
<PAGE>

    On June 22, 2004,  Mr. Sean Deson (who was named a director  effective as of
April 19,  2004) was  appointed as Chairman of the Board.  For his  agreement to
serve as Chairman of the Board,  we agreed to award Mr. Deson  50,000  shares of
our common stock.  Mr. Deson is the founder of Deson & Co., Deson Ventures,  and
Treeline Capital,  all  technology-focused  investment  related firms.  Prior to
founding  his  investment  firms,  Mr.  Deson  was a Senior  Vice  President  at
Donaldson,  Lufkin & Jenrette,  now Credit Suisse First Boston.  Messrs. Friedli
and Deson have co-invested in a number of operating companies.

ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES

    Aggregate fees for professional services rendered to the Company by KPMG LLP
as of or for the years ended  December 31, 2003 and 2002 are  summarized  in the
table below.

                                      2003               2002
                                   ------------------------------
Audit fees (1)                     $210,345           $195,655

Audit Related fees                        0                  0

Tax fees (2)                         33,380             51,865

All Other fees                            0                  0
                                   ------------    -------------
Total fees                         $243,725           $247,520
                                   ============    =============

-------------------------
(1)  Audit fees include  consents and review of and  assistance  with  documents
     filed with the SEC.
(2)  Tax  fees  consisted  of fees  for  tax  consultation  and  tax  compliance
     services.


    Approximately  21% and 14% of the total revenues we paid to KPMG LLP in 2002
and  2003,  respectively,  were  fees for tax  consultation  and tax  compliance
services.

AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES

    As we do not have an Audit Committee, the Board of Directors has established
a policy regarding  pre-approval of all audit and non-audit services provided to
us by our  independent  auditor.  On an ongoing basis,  management  communicates
specific  projects and  categories of service for which the advance  approval of
the Board of  Directors  is  requested.  The Board of  Directors  reviews  these
requests  and  advises  management  if  the  Board  of  Directors  approves  the
engagement of the independent  auditor. On a periodic basis,  management reports
to the Board of Directors  regarding  the actual  spending for such projects and
services  compared to the  approved  amounts.  The projects  and  categories  of
service are as follows:

    o    Audit  fees:  Professional  services  rendered  for the  audits  of the
         consolidated  financial  statements of the Company and assistance  with
         review of documents filed with the SEC.
    o    Audit Related fees:  Services  related to employee benefit plan audits,
         business  acquisitions,   accounting  consultations  and  consultations
         concerning financial and accounting and reporting standards.
    o    Tax fees: Services related to tax compliance, including the preparation
         of tax returns, tax planning and tax advice.
    o    All   Other   fees:    Other   services   are    pre-approved   on   an
         engagement-by-engagement basis.

                                     PART IV

ITEM 15 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

FINANCIAL STATEMENTS AND SCHEDULES

    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

Report of Independent Registered Public Accounting Firm                      F-1
Consolidated Balance Sheets                                                  F-2
Consolidated Statements of Operations                                        F-3
Consolidated Statements of Stockholders' Equity (Deficit)
  and Comprehensive Loss                                                     F-4
Consolidated Statements of Cash Flows                                        F-6
Notes to Consolidated Financial Statements                                   F-7


                                       53
<PAGE>


    See Schedule II - Valuation and Qualifying Accounts and Reserves

    All other  schedules  have been  omitted,  as the  required  information  is
    included in our Consolidated  Financial  Statements or the notes thereto, or
    is not applicable or required.

REPORTS ON FORM 8-K

    On November 14, 2003 we filed a Form 8-K under Item 12 reporting that we had
    issued a press  release  announcing  our  financial  results for the quarter
    ended September 30, 2003.

EXHIBITS

    See Exhibit Index attached.


                                       54
<PAGE>

                                   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 June 30, 2004.

                                                  E-CENTIVES, INC.

                                                  By: /s/ Mehrdad Akhavan
                                                      --------------------------
                                                      Mehrdad Akhavan
                                                      Chief Executive Officer

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

         Name                         Title                            Date
         ----                         -----                            ----

/s/ Mehrdad Akhavan                                                June 30, 2004
------------------------
Mehrdad Akhavan               Chief Executive Officer (Principal
                              Executive Officer) and Director


/s/ Tracy L. Slavin                                                June 30, 2004
------------------------
Tracy L. Slavin               Chief Financial Officer (Principal
                              Financial and Accounting Officer)

/s/ Sean Deson                                                     June 30, 2004
------------------------
Sean Deson                    Chairman and Director


/s/ Peter Friedli                                                  June 30, 2004
------------------------
Peter Friedli                 Director


                                       55
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
E-centives, Inc.:

    We have audited the accompanying  consolidated balance sheets of E-centives,
Inc.  and  subsidiary  as of  December  31,  2003  and  2002,  and  the  related
consolidated  statements  of  operations,  stockholders'  equity  (deficit)  and
comprehensive loss and cash flows for each of the years in the three-year period
ended  December  31,  2003.  These  consolidated  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

    We  conducted  our audits in  accordance  with the  standards  of the Public
Company Accounting Oversight Board (United States). 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.

    As discussed in Note 1 to the consolidated financial statements, the Company
is dependent upon its principal stockholder for continued funding.

    In our opinion,  the  consolidated  financial  statements  referred to above
present fairly, in all material respects,  the financial position of E-centives,
Inc.  and  subsidiary  as of December 31, 2003 and 2002 and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December 31, 2003, in conformity  with  accounting  principles  generally
accepted in the United States of America.

    As  discussed  in Notes 2 and 7 to the  consolidated  financial  statements,
effective  January 1, 2002,  the Company  adopted the provisions of Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets".

/s/ KPMG LLP
McLean, Virginia
June 29, 2004


                                       F-1
<PAGE>

                                E-CENTIVES, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                        December 31, 2003          December 31, 2002
                                                                     ----------------------      --------------------

                              ASSETS

Current assets:
<S>                                                                        <C>                      <C>
  Cash and cash equivalents                                                     $ 285,076                $ 2,317,354
  Accounts receivable, net of allowance for doubtful
     accounts of $63,086 and $75,108 at December 31, 2003
     and December 31, 2002, respectively                                        1,582,763                  2,973,129
  Other receivables                                                                     -                    140,169
  Prepaid expenses                                                                 67,367                    297,888
  Restricted cash                                                                  57,069                    635,049
  Other                                                                                 -                     16,203
                                                                   -----------------------    -----------------------
          Total current assets                                                  1,992,275                  6,379,792
Property and equipment, net                                                       849,407                  2,281,155
Other intangible assets, net                                                    2,063,507                  3,185,213
Restricted cash                                                                    70,000                    110,000
Deferred financing fee                                                            857,840                    720,000
Other assets                                                                            -                     14,790
                                                                   -----------------------    -----------------------
          Total assets                                                        $ 5,833,029               $ 12,690,950
                                                                   =======================    =======================

                     LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
  Accounts payable                                                            $ 2,654,601                $ 1,957,590
  Accrued expenses                                                                765,691                  1,254,773
  Accrued restructuring costs                                                      77,276                    717,079
  Deferred revenue                                                                653,741                  1,095,613
  Current portion of capital leases                                               297,327                    224,914
  Other liabilities                                                               214,783                     90,552
                                                                   -----------------------    -----------------------
          Total current liabilities                                             4,663,419                  5,340,521
Capital leases, net of current portion                                             31,718                    245,614
Long-term debt                                                                  3,450,000                          -
Other long-term liabilities                                                       124,465                          -
                                                                   -----------------------    -----------------------
          Total liabilities                                                     8,269,602                  5,586,135
                                                                   -----------------------    -----------------------
Commitments and contingencies
Stockholders' equity (deficit):
  Series A convertible preferred stock (voting), $.01 par value, 9,600,000
    shares of preferred stock authorized, 0 and 2,000,000 shares issued and
    outstanding at December 31, 2003
    and December 31, 2002, respectively.                                                -                     20,000
  Series B convertible preferred stock (voting), $.01 par value,
    400,000 shares of preferred stock authorized, issued,
    and outstanding at December 31, 2003 and December 31, 2002.                     4,000                      4,000
  Common stock, $.01 par value, 120,000,000 shares authorized
     57,663,609 and 37,349,284 shares issued and outstanding
     at December 31, 2003 and December 31, 2002, respectively.                    576,636                    373,493
  Additional paid-in capital                                                  126,073,611                123,452,566
  Accumulated other comprehensive gain                                                  -                      3,386
  Accumulated deficit                                                        (129,090,820)              (116,748,630)
                                                                   -----------------------    -----------------------
          Total stockholders' equity (deficit)                                 (2,436,573)                 7,104,815
                                                                   -----------------------    -----------------------
                                                                   -----------------------    -----------------------
          Total liabilities and stockholders' equity (deficit)                $ 5,833,029               $ 12,690,950
                                                                   =======================    =======================
</TABLE>


          See accompanying notes to consolidated financial statements.


                                       F-2
<PAGE>

                                E-CENTIVES, INC.

                      CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                       Year ended December 31,
                                                  2003              2002               2001
                                       ----------------------------------------------------------
<S>                                       <C>               <C>                <C>
Revenue                                       $ 6,059,123       $ 7,220,798        $ 5,053,624
Operating expenses:
   Cost of revenue                              2,866,193         4,415,722          8,395,162
   Product development, exclusive
     of stock-based compensation                2,518,649         4,068,402          7,933,192
   General and administrative, exclusive
     of stock-based compensation                7,632,263        10,763,390         12,591,620
   Sales and marketing, exclusive
     of stock-based  compensation               2,311,809         3,885,839          9,997,131
   Network partner fees                                 -             2,271            985,593
   Restructuring and impairment charges                 -         1,128,400          9,876,123
   Stock-based compensation:
     Product development                          156,316            60,409            200,822
     General and administrative                 2,203,114           105,825            362,365
     Sales and marketing                          248,146           193,282            299,932
                                       ----------------------------------------------------------
         Loss from operations                 (11,877,367)      (17,402,742)       (45,588,316)
Interest expense                                 (479,172)          (58,078)            (3,630)
Interest income                                    10,963           296,457            607,957
Other income                                        3,386                 -                  -
         Loss before income taxes             (12,342,190)      (17,164,363)       (44,983,989)
Income taxes                                            -            19,476            (19,476)
                                       -----------------------------------------------------------
Net loss                                    $ (12,342,190)    $ (17,144,887)     $ (45,003,465)
                                       ===========================================================

Basic and diluted net loss per
   common share                                    ($0.29)           ($0.46)            ($2.68)
Shares used to compute basic and
   diluted net loss per common share           42,521,083        37,349,270         16,810,366
</TABLE>


          See accompanying notes to consolidated financial statements.


                                       F-3
<PAGE>

                                E-CENTIVES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
                                                                Series A Preferred Stock       Series B Preferred Stock
                                                                ------------------------       ------------------------
                                                                 Shares       Amount           Shares         Amount
                                                              ----------     ------------     -----------   -----------
Balance at December 31, 2000                                         --    $      --              --      $      --
                                                              ===========    ============     ===========   ============
<S>                                                           <C>             <C>           <C>
Rights Offering                                               2,000,000       20,000              --             --
Exercise of stock options                                            --           --              --             --
Acquisition of Commerce Division                                     --           --              --             --
Acquisition of BrightStreet.com                                      --           --              --             --
Stock-based compensation                                             --           --              --             --
Foreign Currency Translation Adjustment                              --           --              --             --
Net loss                                                             --           --              --             --
Comprehensive loss
                                                              ----------     ------------     -----------   -----------
Balance at December 31, 2001                                  2,000,000       20,000              --             --
                                                              ===========    ============     ===========   ============
Rights Offering                                                      --           --              --             --
Exercise of stock options                                            --           --              --             --
Issuance of Warrants                                                 --           --              --             --
Acquisition of the Consumer Review                                   --           --          400,000          4,000
Stock-based compensation                                             --           --              --             --
Foreign Currency Translation Adjustment                              --           --              --             --
Net loss                                                             --           --              --             --
Comprehensive loss
                                                              ----------     ------------     -----------   -----------

Balance at December 31, 2002                                  2,000,000       20,000          400,000          4,000
                                                              ===========    ============     ===========   ============
Conversion of Series A preferred stock to common stock       (2,000,000)     (20,000)            --              --
Issuance of Warrants                                                 --           --              --             --
Exercise of stock options                                            --           --              --             --
Stock-based compensation                                             --           --              --             --
Foreign Currency Translation Adjustment                              --           --              --             --
Net loss                                                             --           --              --             --
Comprehensive loss
                                                              -----------    ------------     -----------   -----------
Balance at December 31, 2003                                         --    $      --          400,000     $    4,000
                                                              ===========    ============     ===========   ============
</TABLE>
<TABLE>
<CAPTION>
                                                                              Common Stock                  Additional
                                                                   -------------------------------           paid-in
                                                                      Shares              Amount             Capital
                                                                   ------------       ------------     ----------------
<S>                                                             <C>                <C>              <C>
Balance at December 31, 2000                                       15,168,434         $  151,684       $   85,282,822
                                                                   ============       =============    ================
Rights Offering                                                    20,000,000            200,000           22,222,571
Exercise of stock options                                              11,875                119               28,006
Acquisition of Commerce Division                                    2,168,945             21,690           11,755,682
Acquisition of BrightStreet.com                                           --                 --               185,000
Stock-based compensation                                                  --                 --               863,119
Foreign Currency Translation Adjustment                                   --                 --                   --
Net loss                                                                  --                 --                   --
Comprehensive loss
                                                                   ------------       ------------     ----------------
Balance at December 31, 2001                                       37,349,254            373,493          120,337,200
                                                                  ==============      ============     ================
Rights Offering                                                           --                 --                  (27,855)
Exercise of stock options                                                  30                 --                   105
Issuance of Warrants                                                      --                 --               720,000
Acquisition of the Consumer Review                                        --                 --             2,063,600
Stock-based compensation                                                  --                 --               359,516
Foreign Currency Translation Adjustment                                   --                 --                   --
Net loss                                                                  --                 --                   --
Comprehensive loss
                                                                   ------------       ------------     ----------------
Balance at December 31, 2002                                       37,349,284            373,493          123,452,566
                                                                  ==============      ============     ================
Conversion of Series A preferred stock to common stock             20,000,000            200,000                (180,000)
Issuance of Warrants                                                      --                 --               155,250
Exercise of stock options                                             314,325              3,143               38,219
Stock-based compensation                                                  --                 --             2,607,576
Foreign Currency Translation Adjustment                                   --                 --                   --
Net loss                                                                  --                 --                   --
Comprehensive loss
                                                                   ------------       ------------     ----------------
Balance at December 31, 2003                                       57,663,609         $  576,636       $  126,073,611
                                                                  ==============      ============     ================
</TABLE>
          See accompanying notes to consolidated financial statements.
                                       F-4
<PAGE>

                                E-CENTIVES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE LOSS

<TABLE>
<CAPTION>

                                                                                                       Accumulated
                                                      Notes                               Other                             Total
                                                 Receivable from   Comprehensive      Comprehensive      Accumulated   Stockholders'
                                                   Shareholders       Loss             Gain (Loss)         Deficit          Equity
                                                                                                                           (Deficit)
<S>                                          <C>                 <C>                 <C>             <C>             <C>
Balance at December 31, 2000                  $             --    $      --          $      --       $  54,600,278)   $  30,834,228
                                              ==================  ==============     ==============  ==============   ==============
Rights Offering                                     (10,576,941)                            --                --         11,865,630
Exercise of stock options                                   --                              --                --             28,125
Acquisition of Commerce Division                            --             --               --                --         11,777,372
Acquisition of BrightStreet.com                             --             --               --                --            185,000
Stock-based compensation                                    --             --               --                --            863,119
Foreign Currency Translation Adjustment                     --             --            (16,997)           --              (16,997)
Net loss                                                    --             --               --         (45,003,465)     (45,003,465)
                                                                          (16,997)
Comprehensive loss                                                    (45,003,465)
                                              ------------------  -----------------  -------------  --------------   --------------
Balance at December 31, 2001                        (10,576,941)      (45,020,462)       (16,997)      (99,603,743)      10,533,012
                                              ==================  =================  ==============  ==============   ==============
Rights Offering                                      10,576,941                             --                --         10,549,086
Exercise of stock options                                   --                              --                --                105
Issuance of Warrants                                        --             --               --                --            720,000
Acquisition of the Consumer Review                          --             --               --                --          2,067,600
Stock-based compensation                                    --             --               --                --            359,516
Foreign Currency Translation Adjustment                     --             --             20,383              --             20,383
Net loss                                                    --             --               --         (17,144,887)     (17,144,887)
                                                                           20,383
Comprehensive loss                                                    (17,144,887)
                                              ------------------  -----------------=  -------------  --------------   --------------
Balance at December 31, 2002                                --        (17,124,504)         3,386      (116,748,630)       7,104,815
                                              ==================  =================  ==============  ==============   ==============
Conversion of Series A preferred
     stock to common stock                                  --                              --                --               --
Issuance of Warrants                                        --                              --                --            155,250
Exercise of stock options                                   --             --               --                --             41,362
Stock-based compensation                                    --             --               --                --          2,607,576
Foreign Currency Translation Adjustment                     --             --             (3,386)             --             (3,386)
Net loss                                                    --             --               --         (12,342,190)     (12,342,190)
                                                                           (3,386)
Comprehensive loss                                                    (12,342,190)
                                              ------------------  -----------------=  -------------  --------------   --------------
Balance at December 31, 2003                          $     --      $ (12,345,576)       $     0    $ (129,090,820)    $ (2,436,573)
                                              ==================  =================  ==============  ==============   ==============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       F-5
<PAGE>

                                E-CENTIVES, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                           Year ended December 31,
                                                                 2003                 2002              2001
                                                               --------------------------------------------------
Cash flows from operating activities:
<S>                                                         <C>                <C>               <C>
  Net loss                                                     $ (12,342,190)     $ (17,144,887)    $ (45,003,465)
   Adjustments to reconcile net loss to
     net cash used in operating activities:
       Depreciation and amortization                               3,006,890          5,274,070         6,182,141
       Amortization of deferred financing fee                        222,160                  -                 -
       Stock-based compensation                                    2,607,576            359,516           863,119
       Provision for doubtful accounts                                44,097             35,263           493,168
       Issuance of warrants for consulting services                  155,250                  -                 -
       Foreign currency translation gain                              (3,386)                 -                 -
       Restructuring charge                                                -         (2,096,982)          469,397
       Foreign currency loss on notes receivable                           -            258,230                 -
       (Increase) decrease in:
          Accounts receivable                                      1,346,269           (425,369)          481,335
          Prepaid expenses and other current assets                  246,724            (43,022)        1,002,351
          Other receivable                                           140,169            534,397           146,613
       Increase (decrease) in:
          Accounts payable                                           721,845            (35,187)         (447,594)
          Deferred revenue                                          (441,872)        (1,428,114)          795,724
          Accrued expenses and other liabilities                    (775,759)        (2,014,053)       10,248,497
                                                                 -------------------------------------------------
       Net cash used in operating activities                      (5,072,227)       (16,726,138)      (24,768,714)
                                                                 -------------------------------------------------
Cash flows from investing activities:
  Sale of short-term investments                                           -                  -           114,491
  Decrease (increase) in restricted cash                             617,980            711,812          (913,877)
  Acquisition of property and equipment                              (51,531)          (428,254)         (895,323)
  Decrease (increase) in security deposits                            14,790            (15,641)          (37,855)
  Refund of purchase of  property and equipment                       25,050                  -                 -
  Purchase of intangible asset                                      (411,299)                 -                 -
  Acquisition of ConsumerREVIEW.com                                        -           (175,302)                -
  Acquisition of BrightStreet.com                                          -            (34,254)       (1,924,380)
  Acquisition of Commerce Division                                         -                  -        (1,115,955)
                                                                 -------------------------------------------------
       Net cash provided by (used in) investing activities           194,990             58,361        (4,772,899)
                                                                 -------------------------------------------------
Cash flows from financing activities:
  Payments on obligations under capital lease                       (286,403)          (208,331)          (16,621)
  Proceeds from issuance of debt                                   3,450,000                  -                 -
  Debt issuance costs                                               (360,000)                 -                 -
  Net proceeds from rights offering                                        -            (27,855)       12,606,016
  Proceeds from notes receivable                                           -         10,318,953                 -
  Exercise of stock options                                           41,362                105            28,125


  Payment of dividends                                                     -                  -        (1,235,688)
                                                                 -------------------------------------------------
       Net cash provided by financing activities                   2,844,959         10,082,872        11,381,832
                                                                 -------------------------------------------------
       Net decrease in cash and cash equivalents                  (2,032,278)        (6,584,905)      (18,159,781)
Cash and cash equivalents, beginning of period                     2,317,354          8,902,259        27,062,040
                                                                 -------------------------------------------------
Cash and cash equivalents, end of period                           $ 285,076        $ 2,317,354       $ 8,902,259
                                                                 -------------------------------------------------
Supplemental disclosure of cash flow information:
    Cash paid for interest                                          $ 32,973           $ 58,078           $ 3,630
</TABLE>

Supplemental disclosure of non-cash investing and financing activities:
    During  2003,  2,000,000  shares  of  the  Company's  series  A  convertible
      preferred  stock was  converted  into  20,000,000  shares of the Company's
      common stock.
    During  December  2003,  the  Company  issued  345,000  warrants  valued  at
      $155,250.
    During  September  2003,  the  Company  entered  into a  capital  lease  for
      approximately $114,000 for hardware.
    During  January  2003,  the  Company   entered  into  a  capital  lease  for
      approximately $24,000 for telephone related equipment.
    During  October  2002,  the board of  directors  approved  the  issuance  of
      6,000,000 warrants valued at $720,000.
    Inconjunction with the acquisition of  ConsumerREVIEW.com  in December 2002,
      the Company issued 400,000 shares of series B preferred  stock,  valued at
      $2,067,600.


                                       F-6
<PAGE>

    Inconjunction  with the  acquisition of  BrightStreet.com,  Inc. in December
      2001, the Company issued warrants, valued at $185,000, for the purchase of
      500,000 shares of common stock and a contingent  performance-based warrant
      to purchase up to 250,000 shares of the Company's common stock, which were
      not earned and therefore cancelled in June 2003.
    Inconjunction  with the acquisition of the Commerce  Division in March 2001,
      the  Company  issued   2,168,945   shares  of  common  stock,   valued  at
      $11,755,682,  and  a  contingent  performance-based  warrant  to  purchase
      1,860,577  shares of the Company's common stock. The right to exercise the
      contingent performance-based warrant expired on March 27, 2002.

          See accompanying notes to consolidated financial statements.

                         E-CENTIVES, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED 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.  and again,  in March  1999,  the Company
amended its articles of  incorporation  to change its name to  E-centives,  Inc.
During  March  2001,  the  Company  expanded  its  international  operations  by
establishing a subsidiary in the United Kingdom,  E-centives  Limited.  However,
the  operations  of this  subsidiary  were  terminated in  conjunction  with the
Company's second quarter 2002  restructuring plan that involved closing down the
operating activities of the Commerce Division.

    E-centives provides  interactive direct marketing  technologies and services
for global  marketers.  The  Company  offers a complete  suite of  technologies,
including  several patented  components,  which enable businesses to acquire and
retain  relationships  with their  audiences.  The Company's  current  principal
products are the Interactive  Database  Marketing System, the Promotions System,
the E-mail  Marketing  System and  advertising and e-commerce  related  services
provided  through  its  ConsumerREVIEW.com  division.  During  2002,  plans were
approved to close the Commerce  Division  and, by August 30,  2002,  the Company
discontinued  offering the services provided by its Commerce Engine and Commerce
Network  systems.  In addition,  in July 2002, the Company reduced its workforce
due to its decision to close down its PerformOne Network system.

    One  of the  Company's  Interactive  Database  Marketing  System  customers,
Reckitt Benckiser PLC, contributed 45% and 62%,  respectively,  of the Company's
revenue for the years ended December 31, 2003 and 2002. This customer's  initial
contract  expired in October 2002, its first renewal  agreement with the Company
expired in October  2003,  and the customer  entered  into a subsequent  renewal
agreement that expires in December 2004. However, due to the lower scope of work
to be performed by the Company,  and the customer's savings through  automation,
the  fixed  fees  associated   with  the  most  recent   contract   renewal  are
approximately  one-half of the fixed fees associated  with the renewal  contract
that expired in October  2003.  Such fees may increase  with the addition of new
countries,  brands and services with the customer, which additions are currently
under negotiation. Loss of this customer, or failure to complete negotiations to
increase the fixed fees  associated  with the renewal  contract to  pre-November
2003 levels  could have a material  adverse  effect on the  Company's  business,
financial condition, results of operations and cash flow.

    The Company  currently  anticipates that its existing cash resources will be
sufficient to meet its  anticipated  cash needs for working  capital and capital
expenditures  into the third  quarter  of 2005.  This  forecast  is based on the
remaining  available line of credit at June 29, 2004 of up to $5.25 million from
the  credit  facility,  structured  in the  form  of two $6  million  three-year
convertible  promissory  notes that were  issued in March 2003 and during  March
2004.  Should future revenue be  insufficient  to cover the Company's  operating
costs,  the  Company  will need to  secure  additional  funds to  ensure  future
viability.   The  Company  may  need  to  raise  additional  funds  sooner  than
anticipated to fund its future expansion, to develop new or enhanced products or
services,  to respond to competitive  pressures or to make acquisitions.  To the
extent  that the  Company's  existing  funds  and  funds  from  the  convertible
promissory  notes are not  sufficient  to enable the Company to operate into the
third quarter of 2005 and beyond,  Friedli  Corporate Finance provided a written
commitment to provide the Company with an additional  capital  infusion of up to
$8 million. However, no formal terms and conditions have been agreed upon, other
than the terms of the $6 million, amended to $12 million, convertible promissory
notes. The Company cannot be certain that additional financing will be available
to them on acceptable terms, or at all. If adequate funds are not available,  or
not  available on  acceptable  terms,  the Company may not be able to expand its
business.


                                       F-7
<PAGE>

The Company is dependent upon its principal shareholder for continued funding.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation

    The accompanying  consolidated  financial statements include the accounts of
the Company and its  subsidiary,  which was closed during 2002. All  significant
intercompany accounts and transactions have been eliminated in consolidation.

(b) Use of Estimates

    The  preparation  of financial  statements  in  conformity  with  accounting
principles   generally  accepted  in  the  United  States  of  America  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.

    Estimates are used in accounting  for,  among other things,  allowances  for
uncollectible  receivables,  recoverability  of  long-lived  assets,  intangible
assets,   depreciation   and   amortization,    goodwill,   employee   benefits,
restructuring accruals,  taxes and contingencies.  Estimates and assumptions are
reviewed  periodically  and  the  effects  of  revisions  are  reflected  in the
consolidated  financial  statements  in the  period  they are  determined  to be
necessary.

(c) Cash and Cash Equivalents

    All highly liquid  investments  with maturities of three months or less when
purchased are considered cash  equivalents.  Those  investments  with maturities
less than twelve  months at the  balance  sheet date are  considered  short-term
investments. Cash and cash equivalents consist of cash on deposit with banks and
money market funds stated at cost, which approximates fair value.

 (d) Property and Equipment

    Property and equipment are stated at cost and equipment under capital leases
are stated at the  present  value of minimum  lease  payments.  Depreciation  is
calculated using the straight-line method over the estimated useful lives of the
assets,  which range from three to seven years.  Equipment  under capital leases
and 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 (see Note 6).

    Expenditures for maintenance and repairs are charged to expense as incurred.
Expenditures  for major renewals and betterments that extend the useful lives of
property and equipment are capitalized and depreciated over the remaining useful
lives of the asset.  When  assets  are  retired  or sold,  the cost and  related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the results of operations.

(e) Long-Lived and Amortizable Intangible Assets

    Effective  January 1, 2002,  the Company  adopted the provisions of FAS 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, which supercedes
both FAS 121 and the  accounting  and  reporting  provisions  of APB Opinion 30,
Reporting  the  Results of  Operations-Reporting  the  Effects of  Disposal of a
Segment of a Business,  and  Extraordinary,  Unusual and Infrequently  Occurring
Events  and  Transactions,  for the  disposal  of a segment  of a  business  (as
previously defined in that Opinion).  The Company assesses the recoverability of
long-lived assets,  including  amortizable  intangible assets,  whenever adverse
events or  changes  in  circumstances  or  business  climate  indicate  that the
carrying  value of the asset may not be  recoverable.  Each  impairment  test is
based on a comparison of the  undiscounted  cash flows to the recorded  value of
the asset. If impairment is indicated,  the asset is written down by the amount,
if any, in which the carrying  value of the asset exceeds the related fair value
of the asset.  In connection with the  restructuring  plans adopted during 2001,
certain assets were deemed to be impaired.  Accordingly, the Company recorded an
impairment charge of approximately  $469,000 during 2001. No impairment  charges
were recorded during 2002 or 2003.

    In accordance  with the  amortization  provisions  of FAS 142,  Goodwill and
Other Intangible Assets,  the Company amortizes  intangible assets with definite
useful lives over their  respective  estimated  useful lives to their  estimated
residual values, and reviews them for impairment in accordance with FAS 144.


                                       F-8
<PAGE>

    Amortizable  intangible  assets at December 31, 2003,  consisted of patents,
technology  and   tradenames,   which  were  acquired  in  connection  with  the
BrightStreet.com and ConsumerREVIEW.com acquisitions, while at December 31, 2002
amortizable  intangible  assets  consisted of technology and  tradenames.  As of
December 31, 2003, the Company had the following amortizable intangible assets:

<TABLE>
<CAPTION>
                                                      Gross Carrying     Accumulated        Net
                                                          Amount         Amortization      Value
                                                      ---------------------------------------------
Amortizable intangible assets:
<S>                                                       <C>           <C>             <C>
         Patents                                            $ 411,299     $ (102,418)     $ 308,881
         Technology                                         3,774,685     (2,091,875)     1,682,810
         Tradenames                                           112,408        (40,592)        71,816
                                                      ---------------------------------------------
            Total amortizable intangible assets           $ 4,298,392    $(2,234,885)   $ 2,063,507
                                                      ---------------------------------------------

Aggregate Amortizaton Expense:
         For the year ended December 31, 2003                            $ 1,428,574

Estimated Amortizaton Expense:
         For the year ended December 31, 2004                            $ 1,529,221
         For the year ended December 31, 2005                              $ 534,286
         For the year ended December 31, 2006                                    $ -

</TABLE>

    Had the  amortization  provisions  of FAS 142 been  applied as of January 1,
2001 for all of the  Company's  acquisitions,  it would not have had a  material
adverse  effect on the Company's net loss and loss per common share for the year
ended December 31, 2001.

(f) Goodwill

    Goodwill  represents  the excess of costs over fair  value of  tangible  and
separately  identifiable  intangible assets of businesses acquired.  The Company
adopted the provisions of FAS 142 as of January 1, 2002. Goodwill and intangible
assets acquired in a purchase  business  combination that are determined to have
an indefinite  useful life are not amortized,  but instead tested for impairment
at least  annually in accordance  with the provisions of FAS 142. At Janauary 1,
2002,  goodwill related to the  reclassification  of employee workforce that was
recorded in connection  with the purchase of the Commerce  Division.  During the
second  quarter  of 2002,  due to the  closure  of the  Commerce  Division,  the
goodwill  was deemed  impaired and the net value of  approximately  $657,000 was
written  off.  At  December  31,  2003,  the  Company  had no  goodwill or other
intangible assets with indefinite useful lives.

(g) Deferred Revenue

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

(h) Revenue Recognition

    Revenue is generated  by providing  promotions  marketing  services,  e-mail
marketing services and various other consulting  services,  as well as licensing
the Company's software products.  The Company's current products are principally
the Interactive  Database Marketing System, the Promotions System and the E-mail
Marketing  System,  as well as  advertising  and  e-commerce  services  provided
through ConsumerREVIEW.com. The Company eliminated the offerings of the Commerce
Engine,  the Commerce  Network and the PerformOne  Network during 2002, so these
products did not  contribute  any revenue for the year ended  December 31, 2003,
but did for the years ended December 31, 2002 and 2001.

    The Company's  Interactive Database Marketing System, which represented 53%,
67% and 1% of the  Company's  2003,  2002 and 2001 revenue,  respectively,  is a
solution targeted at consumer packaged goods companies that allows businesses to
establish direct consumer  relationships  through a set of integrated tools that
include  targeted e-mail  marketing,  a customer  transaction  database,  a data
warehouse,  a micro site and survey  generator and a patented  coupon  promotion
system.  It is primarily the combination of the Company's  Promotions System and
E-mail  Marketing  System.  Revenue is  generated  by  charging  fees for system
licensing, data hosting, site hosting, database management,  account management,
strategy services,  creative services,  e-mail delivery and management services,
as well as tracking and analytical  services.  Revenue related to licensing fees


                                       F-9
<PAGE>

is recognized ratably over the license period, one-time service fees for setting
up the customer is  recognized  ratably  over the expected  term of the customer
relationship  and all other revenue is recognized  when the service is provided,
assuming  collection is reasonably  assured.  For agreements that also include a
performance-based  incentive  fee  component  that  is  not  finalized  until  a
specified  date,  the Company  recognizes the amount that would be due under the
formula at interim  reporting  dates as if the contract was  terminated  at that
date. This policy does not involve a consideration  of future  performance,  but
does give rise to the  possibility  that fees  earned by  exceeding  performance
targets  early  in the  measurement  period  may  be  reversed  due  to  missing
performance  targets later in the measurement  period. The Company's only client
with  a  performance-based  incentive  fee  contributed  approximately  $96,000,
$1,064,000  and $0,  respectively,  in such revenue for the years ended December
31,  2003,  2002 and 2001,  from the original  contract  that expired in October
2002. The first renewal  agreement,  which began in November 2002, also includes
performance-based  incentive fees that  contributed  $223,000 in revenue for the
year ended  December  31, 2003.  The second  renewal  agreement,  which began in
November 2003 and ends in December  2004,  does not contain a  performance-based
incentive fee component.

    The Company's Promotions System enables companies to create, manage, deliver
and track  promotional  vehicles,  such as  print-at-home  online  coupons.  The
system's  printable  coupons can be individually  tailored with relevant content
and different  incentive  values based on the  respective  recipients,  enabling
manufacturers to target coupons much more efficiently and cost-effectively  than
traditional  methods.  In addition,  the system has high tracking  capabilities,
including  individually  coded  offers  that  can  be  cross-referenced  against
specific consumer  profiles.  The technology can also be used to build knowledge
about consumers,  such as their prior product purchases and loyalty data, and to
get  a  more  accurate   measure  of  the  actual  impact  of  online  marketing
expenditures  on sales.  For the years ended  December 31, 2003,  2002 and 2001,
revenues from the  Promotions  System have been  included in revenues  generated
from the  Interactive  Database  Marketing  System and the  revenue  recognition
policies are the same as those for the Interactive Database Marketing System.

    The Company's E-mail Marketing  System,  which  represented 3%, 5% and 2% of
the 2003,  2002 and 2001  revenue,  respectively,  allows  businesses to conduct
e-mail  marketing  without  having  to  acquire  or  develop  their  own  e-mail
infrastructure.  Revenue is generated by charging fees for list  management  and
hosting services, strategy and creative services, e-mail delivery and management
services,  as well as  tracking  and  analytical  services.  Revenue  related to
one-time service fees for setting up the customer is recognized ratably over the
expected  term  of  the  customer  relationship,  while  all  other  revenue  is
recognized when the service is provided.

    ConsumerREVIEW.com,  which  was  acquired  in  December  2002,  manages  web
communities around common product interests. The web properties are dedicated to
meeting the needs of consumers who are researching  products on the web. Revenue
is predominantly  generated through advertising and e-commerce fees. Advertising
revenue  is  derived  from the sale of  advertisements  on  pages  delivered  to
community members of the Company's  websites.  This revenue is recognized in the
period in which the  advertisements  are delivered.  E-commerce fees are derived
from on-line performance-based programs and are earned on either a lead referral
basis  or  on  an   affiliate   commission   basis.   Revenue  is  earned   from
performance-based  programs when a user of the Company's  websites responds to a
commerce link by linking to a customer's  websites.  For lead referral programs,
customers are charged on a  cost-per-click  basis,  and revenue is recognized in
the month the click  occurs.  For  affiliate-commissions  programs,  revenue  is
recognized when the commission is earned,  which is in the month the transaction
occurs. ConsumerREVIEW.com represented 44% and 3% of the company's total revenue
for 2003 and 2002, respectively.

    PromoMail,  the principal offering of the PerformOne Network,  was a service
that consisted of targeted e-mails highlighting  specific e-centives.  Marketers
purchased this service on a fixed fee basis or on a performance  basis.  For the
fixed fee contracts,  participating  marketers were charged a fixed fee for each
member to whom the  e-mail  was sent and  revenue  related  to the  service  was
recognized upon transmission of the e-mail. When marketers purchased the service
on a performance basis, revenue was based solely on the actions of the Company's
members. The Company earned a contractually specified amount based on the number
of members  who  clicked  on the offer or other  specified  link,  the number of
purchases  by the  Company's  members,  or the amount of sales  generated by the
Company's members.  Beginning January 1, 2002,  revenue for performance  related
agreements  was being  recognized  upon cash receipts from the marketers for the
actions  of the  Company's  members  or upon  notification  of the  actions  for
marketers that prepay.  Prior to January 1, 2002,  revenue was  recognized  upon
notification  of the actions of the  Company's  members.  This change in revenue
recognition  policy was due to the  uncertainty  in estimating  the revenue and,
therefore,  the  collectibility  of  the  revenue.  Due to  the  closure  of the
PerformOne Network during 2002,  PromoMail  contributed no revenue for 2003, but
represented 4% and 62% of the Company's revenue for the years ended December 31,
2002 and 2001, respectively.


                                       F-10
<PAGE>

    The Commerce  Engine,  which the Company stopped  offering during the second
quarter of 2002,  provided  Internet portals and other website customers with an
infrastructure  to enable their end users to make  purchase  decisions for goods
and services.  The Commerce Engine provided a complete  commerce  experience for
online  consumers,  enabling them to search for products,  compare  features and
prices  among  products,   and  locate  and  purchase  these  products   through
participating online merchants.  Revenue,  which was recognized ratably over the
expected term of the contract, was primarily generated through license,  support
and maintenance fees.

    The Commerce  Network,  which the Company stopped offering during the second
quarter of 2002,  enabled  merchants to distribute and promote their products to
the end users of the Company's  Commerce Engine customers.  The system collected
product data from merchants,  normalized it into appropriate categories, indexed
it and made it available  for access  through the Commerce  Engine.  Revenue was
primarily  based on the  actions of the end users of the  Commerce  Engine.  The
Company earned a contractually specified amount based on the number of end users
who clicked on the  specified  link or the amount of sales  generated by the end
users. Beginning January 1, 2002, revenue was recognized upon cash receipts from
the  merchants,  and prior to January 1, 2002  revenue  was  recognized  when an
action  occurred by an end user. This change in revenue  recognition  policy was
due  to  the  uncertainty  in  estimating  the  revenue  and,   therefore,   the
collectibility of the revenue.

    Customers may also contract for consulting services, such as assistance with
promotions  planning,  consumer  acquisition  and analytics.  Revenue related to
these services is recognized as the related services are provided.

    Revenue  for  the  first  two  quarters  of  2001  included  barter  revenue
("marketing partner  transactions"),  which represented exchanges of promotional
e-mail deliveries for reciprocal advertising space or traffic on other websites.
There  were no  marketing  partner  transactions  during  the third  and  fourth
quarters of 2001 or during 2002 or 2003.  Revenue and  expenses  from  marketing
partner  transactions were recorded based upon the fair value of the promotional
e-mails  delivered  at a similar  quantity or volume of e-mails  delivered  in a
qualifying past cash  transaction.  Fair value of promotional  e-mails delivered
was based upon the Company's recent  historical  experience of cash received for
similar  e-mail  deliveries.  Such revenue was recognized  when the  promotional
e-mails  were  delivered.   Corresponding   expenses  were  recognized  for  the
advertisements received when the advertisements were displayed on the reciprocal
websites or  properties,  which was  typically in the same period as delivery of
the promotional e-mails and were included in sales and marketing expense.

    For the years ended  December 31, 2003,  2002 and 2001 one of the  Company's
Interactive Database Marketing System customers  contributed $2.7 million,  $4.5
million and $58,000 in revenue, respectively. This customer's original agreement
expired in October 2002;  however,  the customer  subsequently signed two annual
renewal agreements, with the most recent agreement ending in December 2004. This
customer also represented  approximately $874,000 of the $1,583,000 net accounts
receivable balance as of December 31, 2003 and approximately $2.6 million of the
$3.0  million net  accounts  receivable  balance as of December  31,  2002.  The
Company does not believe there is a significant risk of uncollectibility  due to
the customer's payment history and credit-worthiness.

(i) Cost of Revenue

    Cost of revenue  consists  primarily of expenses  related to  providing  the
Company's services,  including related personnel costs associated with providing
its services,  depreciation of servers, network and hosting charges, and revenue
share payments.

(j) Product Development Costs

    Product   development   consists   primarily  of  expenses  related  to  the
development and enhancement of the Company's technology and services,  including
payroll and related expenses for personnel, as well as other associated expenses
for  the  Company's   technology   department.   The  Company  expenses  product
development costs as they are incurred.

    Development  costs related to the software  product  marketed by the Company
are  accounted  for in  accordance  with  FAS 86,  Accounting  for the  Costs of
Computer Software to be Sold, Leased or Otherwise Marketed. Under this 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 insignificant.  Accordingly,  the
Company has not capitalized any software  development  costs and has charged all
such costs to product development expense.


                                       F-11
<PAGE>

(k) Sales and Marketing Costs

    Sales and marketing expenses consist primarily of payroll, sales commissions
and related  expenses for  personnel  engaged in sales,  marketing  and customer
support,  as well as advertising  and promotional  expenditures.  Such costs are
expensed as incurred.

(l) Advertising Costs

    Advertising  costs  are  expensed  as  incurred.   Advertising  expense  was
approximately  $5,000,  $47,000 and  $4,309,000  during  2003,  2002,  and 2001,
respectively.

(m) Stock-Based Compensation

    At December 31, 2003, the Company had one stock-based employee  compensation
plan,  which is described  more fully in Note 14b. As  permitted  under FAS 148,
Accounting  for  Stock-Based   Compensation--Transition  and  Disclosure,  which
amended  FAS 123,  Accounting  for  Stock-Based  Compensation,  the  Company has
elected to continue to follow the intrinsic  value method in accounting  for its
stock-based employee  compensation  arrangement as defined by APB 25, Accounting
for Stock  Issued to  Employees,  and  related  interpretations  including  FASB
Interpretation  No. 44,  Accounting  for Certain  Transactions  involving  Stock
Compensation  an  interpretation  of APB  Opinion  No. 25. The  following  table
illustrates  the effect on net income and  earnings per share if the company had
applied the fair value recognition provisions of FAS 123 to stock-based employee
compensation.
<TABLE>
<CAPTION>

                                                                          Year ended December 31,
                                                                ---------------------------------------------
                                                                    2003           2002           2001
                                                                ---------------------------------------------

<S>                                                             <C>            <C>            <C>
Net loss applicable to common stockholders, as reported          $ (12,342,190) $ (17,144,887) $ (45,003,465)
Add:  Total stock-based employee compensation
      expense included in reported net loss, net of
      related tax effects                                            2,607,576        359,516        863,119
Deduct:  Total stock-based employee compensation
     expense as determined under fair value based
     method for all awards, net of related tax effects              (2,069,647)    (1,301,288)    (2,437,069)
                                                                ---------------------------------------------
Pro forma net income                                             $ (11,804,261) $ (18,086,659) $ (46,577,415)
                                                                =============================================

Basic and diluted net loss per share:
     As reported                                                       $ (0.29)       $ (0.46)       $ (2.68)
     Pro forma                                                           (0.28)         (0.48)         (2.77)

</TABLE>

(n) 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 and operating and tax loss carry forwards.  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. The Company records a valuation allowance to reduce
the  deferred  tax  assets  to the  amount  that is more  likely  than not to be
recognized.

(o) Net Income (Loss) Per Share

    The Company computes net income (loss) applicable to common  stockholders in
accordance  with FAS 128,  Earnings Per Share.  Under the provisions of FAS 128,
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. 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.


                                       F-12
<PAGE>

(p) Fair Value of Financial Instruments

    The  Company  considers  the  carrying  value  of  the  Company's  financial
instruments,   which  include  cash  equivalents,   restricted  cash,   accounts
receivable,  accounts payable, and accrued expenses to approximate fair value at
December  31,  2003 and 2002  because  of the  relatively  short  period of time
between  origination  of the  instruments  and  their  expected  realization  or
settlement.  The  convertible  promissory  notes issued in  connection  with the
Company's  syndication  process were recorded at their  respective faced values,
which is assumed to approximate fair value.

(q) Concentration of Credit Risk

    Financial   instruments,   which   potentially   subject   the   Company  to
concentrations of credit risk, consist of cash and cash equivalents,  restricted
cash  and  accounts  receivable.   The  Company  maintains  its  cash  and  cash
equivalents and restricted  cash 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.  The Company  believes it is not
exposed to  significant  credit risk  related to cash and cash  equivalents  and
short-term investments.

    In the year ended December 31, 2003, the Company incurred charges related to
bad debt of approximately $44,000. While the Company believes that its allowance
for  doubtful  accounts  as of  December  31,  2003 is  adequate  to  cover  any
difficulties with the collection of its accounts receivable  balance,  there can
be no assurance  that the  allowance  will be adequate to cover any  receivables
later deemed to be uncollectible.

    There was one customer that accounted for 55% and 86%, respectively,  of the
Company's accounts receivable at December 31, 2003 and 2002. For the years ended
December  31,  2003  and  2002,   one  customer   accounted  for  45%  and  62%,
respectively,  of  revenue,  while for the year ended  December  31, 2001 no one
customer accounted for more than 10% of revenue.

(r) Retirement Plan

    The Company  sponsors a defined  contribution  retirement  plan  established
under the  provisions of Internal  Revenue Code 401(k).  Eligible  employees may
defer up to 25% of their  pre-tax  earnings,  subject  to the  Internal  Revenue
Service's annual contribution limit. The 401(k) plan permits the Company to make
additional discretionary matching contributions on behalf of all participants in
the  401(k)  plan  in  an  amount  determined  by  the  Company;   however,   no
contributions have been made for the years presented.

(s) Foreign Currency Translation

    The  functional  currency of the  Company's  international  operation is the
local  currency.  Accordingly,  all assets and liabilities of the subsidiary are
translated using exchange rates in effect at the end of the period,  and revenue
and costs are translated  using weighted  average exchange rates for the period.
The  related   translation   adjustments  are  reported  in  accumulated   other

comprehensive income (loss) in stockholders' equity. For the year ended December
31, 2003, the Company recorded no foreign currency translation gain or loss, but
for the years ended December 31, 2002 and 2001,  the Company  recorded a foreign
currency  translation  gain and loss of  approximately  $20,000  and  ($17,000),
respectively.

    Transaction  gains and losses  arising from  transactions  denominated  in a
currency other than the functional  currency of the entity involved are included
in the  consolidated  statement  of  operations.  There  were no gains or losses
resulting  from foreign  currency  transactions  during 2003,  and for the years
ended  December  31,  2002 and 2001,  the  Company  recorded a foreign  currency
transaction loss and gain of approximately ($258,000) and $43,000, respectively.

(t) Comprehensive Income (Loss)

    Effective  January 1, 1998,  the Company  adopted the provisions of FAS 130,
Reporting  Comprehensive  Income.  FAS 130  established  standards for reporting
comprehensive income and its components in financial statements.

    The functional currency of the Company's international operation,  which was
closed  during  2002,  was the  local  currency.  Accordingly,  all  assets  and
liabilities  of its U.K.  subsidiary  were  translated  using  exchange rates in
effect at the end of the period,  and revenue  and costs were  translated  using
weighted  average  exchange  rates  for  the  period.  The  related  translation
adjustments were reported in accumulated  other  comprehensive  income (loss) in
stockholders' equity (deficit).
<TABLE>
<CAPTION>

                                                                 Year Ended December 31,
                                                            2003            2002           2001
                                                      --------------------------------------------------
<S>                                                    <C>            <C>             <C>
Net loss                                               $ (12,342,190) $ (17,144,887)  $ (45,003,465)
Other comprehensive income (loss):
     Foreign currency translation adjustments                 (3,386)        20,383         (16,997)
                                                      --------------------------------------------------
Comprehensive loss                                     $ (12,345,576) $ (17,124,504)  $ (45,020,462)
                                                      ===================================================
</TABLE>

(u) Recent Accounting Pronouncements

    In July 2002, the FASB issued FAS 146,  Accounting for Costs Associated with
Exit  or  Disposal  Activities,  which  nullifies  EITF  Issue  94-3,  Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring). FAS 146 requires
that a liability  for a cost  associated  with an exit or  disposal  activity be
recognized  when the  liability is incurred.  If fair value cannot be reasonably
estimated,  the liability  shall be recognized  initially in the period in which
fair value can be  reasonably  estimated.  Under Issue 94-3, a liability  for an
exit cost was recognized at the date of an entity's  commitment to an exit plan.
The provisions of FAS 146 are effective for exit or disposal activities that are
initiated after December 31, 2002. The Company adopted the provisions of FAS 146
on  January 1,  2003.  The  adoption  did not have a  significant  impact on the
Company's business, financial condition, results of operations or cash flow.


                                       F-13
<PAGE>

    In  November  2002,  the FASB  issued  FIN 45,  Guarantor's  Accounting  and
Disclosure  Requirements  for  Guarantees,   Including  Indirect  Guarantees  of
Indebtedness  to Others.  FIN 45 elaborates on the  disclosures  to be made by a
guarantor in its interim and annual  financial  statements about its obligations
under guarantees  issued.  FIN 45 also clarifies that a guarantor is required to
recognize,  at inception of a guarantee,  a liability  for the fair value of the
obligation undertaken. The initial recognition and measurement provisions of FIN
45 are applicable to guarantees  issued or modified after December 31, 2002. The
disclosure  requirements  are effective for financial  statements of interim and
annual periods ending after December 15, 2002. See Note 11.

    In  November  2002,  the EITF  reached  consensus  on Issue  00-21,  Revenue
Arrangements with Multiple  Deliverables on a model to be used to determine when
a revenue arrangement with multiple deliverables should be divided into separate
units of  accounting  and, if  separation is  appropriate,  how the  arrangement
consideration  should be allocated to the identified  accounting units. The EITF
also reached a consensus that this guidance  should be effective for all revenue
arrangements  entered into during fiscal periods  beginning after June 15, 2003.
The  adoption  did not have a  significant  impact  on the  Company's  business,
financial condition, results of operations or cash flow.

    In  December  2002,  the FASB  issued FAS 148,  Accounting  for  Stock-Based
Compensation - Transition and  Disclosure,  which amended FAS 123 Accounting for
Stock-Based  Compensation.  The new  standard  provides  alternative  methods of
transition  for a voluntary  change to the fair value based method of accounting
for stock-based employee  compensation.  Additionally,  the statement amends the
disclosure  requirements  of FAS 123 to  require  prominent  disclosures  in the
annual and  interim  financial  statements  about the method of  accounting  for
stock-based employee  compensation and the effect of the method used on reported
results.  This statement is effective for financial  statements for fiscal years
ending after December 15, 2002 and the applicable required disclosures have been
made in these  consolidated  financial  statements.  The  Company has elected to
continue to follow the intrinsic  value method in accounting for its stock-based
employee  compensation  arrangement  as defined by APB 25,  Accounting for Stock
Issued to Employee as allowed under FAS 123 (see Note 14b).

    In January 2003, the FASB issued FIN 46,  Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51. In December 2003, FASB revised FIN 46
to reflect  decisions it made regarding a number of implementation  issues.  FIN
46R  requires  that  the  primary  beneficiary  of a  variable  interest  entity
consolidate the entity even if the primary  beneficiary does not have a majority
voting interest. This interpretation applies to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have  sufficient  equity at risk for the entity to finance its activities
without additional  subordinated  financial support.  This  interpretation  also
identifies  those  situations  where a  controlling  financial  interest  may be
achieved  through  arrangements  that  do  not  involve  voting  interests.  The
interpretation  also  establishes  additional  disclosures,  which are  required
regarding an enterprise's involvement with a variable interest entity when it is
not  the  primary  beneficiary.  The  requirements  of this  interpretation  are
required  to be  applied  for all new  variable  interest  entities  created  or
acquired  after  January 31, 2003.  For variable  interest  entities  created or
acquired prior to February 1, 2003, the provisions must be applied for the first
interim or annual  period ending after  December 15, 2003.  The Company does not
have any  controlling  interest,  contractual  relationships  or other  business
relationships with  unconsolidated  variable interest entities and therefore the
adoption  of this  standard  did not have an impact on the  Company's  business,
financial condition, results of operations or cash flow.

    In April  2003,  the FASB  issued FAS 149,  Amendment  of  Statement  133 on
Derivative  Instruments  and Hedging  Activities.  FAS 149 amends and  clarifies
accounting for derivative instruments,  including certain derivative instruments
embedded in other  contracts,  and for  hedging  activities  under FAS 133.  The
statement  requires that contracts with comparable  characteristics be accounted
for  similarly and clarifies  when a derivative  contains a financing  component
that  warrants  special  reporting in the  statement  of cash flows.  FAS 149 is
effective for contracts  entered into or modified after June 30, 2003, except in
certain circumstances,  and for hedging relationships  designated after June 30,
2003.  The adoption of this  standard  did not have any impact on the  Company's
business, financial condition, results of operations or cash flow.

    In May 2003,  the FASB  issued FAS 150,  Accounting  for  Certain  Financial
Instruments  with  Characteristics  of  Both  Liabilities  and  Equity.  FAS 150
establishes  standards for how certain free standing financial  instruments with
characteristics  of both  liabilities  and equity are  classified  and measured.
Financial instruments within the scope of FAS 150 are required to be recorded as
liabilities,   or   assets  in   certain   circumstances,   which  may   require
reclassification  of amounts previously reported in equity. FAS 150 is effective
for  financial  instruments  entered into or modified  after May 31,  2003,  and
otherwise is effective at the  beginning of the first interim  period  beginning
after June 15, 2003. The cumulative  effect of a change in accounting  principle
should be reported for financial instruments created before the issuance of this
Statement  and still  existing at the  beginning of the period of adoption.  The
adoption of this  standard  did not have any impact on the  Company's  business,
financial condition, results of operations or cash flow.

    On December 17, 2003, the Securities  and Exchange  Commission  (SEC) issued
SAB 104,  Revenue  Recognition,  which amends SAB 101,  Revenue  Recognition  in
Financial  Statements.  SAB  104's  primary  purpose  is to  rescind  accounting
guidance contained in SAB 101 related to multiple element revenue  arrangements,
superseded  as a result of the  issuance  of EITF 00-21.  Additionally,  SAB 104
rescinds the SEC's Revenue Recognition in Financial Statements  Frequently Asked
Questions  and Answers  (the FAQ) issued with SAB 101 that had been  codified in
SEC  Topic  13,  Revenue  Recognition.  Selected  portions  of the FAQ have been
incorporated  into SAB 104.  While the wording of SAB 104 has changed to reflect
the issuance of EITF 00-21, the revenue recognition principles of SAB 101 remain
largely  unchanged by the issuance of SAB 104. The adoption of this standard did
not a significant impact on the Company's business, financial condition, results
of operations or cash flow.

                                       F-14
<PAGE>

(3) EQUITY OFFERINGS

(a) 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,  1,700,000  shares  of the  Company's
then-existing  Series A convertible  preferred  stock,  2,500,000  shares of the
Company's  then-existing  Series B convertible  preferred  stock,  and 2,328,434
shares of the Company's  then-existing Series C convertible redeemable preferred
stock were converted to common stock on a one-for-one basis.

(b) Rights Offering

    On October 19, 2001,  the Company  closed a rights  offering of common stock
for approximately  $24.6 million with subscriptions for 20,000,000 shares.  Each
subscriber   in  the  rights   offering   also   received,   for  no  additional
consideration, based upon the number of shares of common stock purchased by such
subscriber in the rights offering, a pro-rata portion of 2,000,000 shares of the
Company's Series A convertible preferred stock,  convertible on a 10-for-1 basis
into  20,000,000  shares of common stock under certain  circumstances  (see Note
14a). After deducting expenses,  underwriting discounts and any foreign currency
loss, the net proceeds from this transaction were  approximately  $22.2 million,
with $12.6  million of the net  proceeds  received by December  31, 2001 and the
remaining net proceeds of $9.6 million, which related to promissory notes issued
to the  Company  as  part of the  consideration  for the  rights  offering,  was
received during the second quarter of 2002.

    During  2003,  all of the  shares  of the  Company's  Series  A  convertible
preferred stock,  that were issued in connection with the rights offering,  were
converted into 20,000,000  shares of the Company's common stock.  Such shares of
common stock have been listed on the SWX Swiss Exchange since February 21, 2002.

(c) Series B Convertible Preferred Stock

    During  December  2002,  the  Company  issued  400,000  shares  of  Series B
convertible   preferred   stock  as  part  of  the  Company's   acquisition   of
substantially all of the assets of Consumer Review, Inc. See Notes 4c and 14a.

(d) Warrants

    In March 2001, as part of the purchase price for the Commerce Division,  the
Company issued to Inktomi  Corporation a warrant to purchase 1,860,577 shares of
the  Company's  common  stock upon the  achievement  of revenue  targets for the
Commerce  Division  at the  end of 12  months  following  the  closing  of  this
acquisition.  Because the revenue  targets were not met,  the warrants  were not
earned. See Note 4a.

    In December  2001, as part of the purchase  price for  substantially  all of
BrightStreet.com's  assets,  the Company issued a guaranteed warrant to purchase
500,000 shares of the Company's common stock and a contingent  performance-based
warrant to purchase up to 250,000  shares of the  Company's  common  stock.  The
guaranteed  warrant is exercisable from June 3, 2002 through December 3, 2005 at
an  exercise  price of $0.5696  per share.  The  performance-based  warrant  was
exercisable,  in whole or in part, beginning June 4, 2003 until December 3, 2005
based upon the achievement of certain  performance  targets at an exercise price
of $2.44 per share.  However,  since the target  revenue  was not  reached,  the
warrants  were not earned and were deemed  expired as of June 3, 2003.  See Note
4b.

    On October 8, 2002, the Company's board of directors authorized the issuance
of  6,000,000  warrants to four  investors  as  consideration  for a $20 million
financing  commitment,  which was  memorialized  in a letter to the Company,  by
Friedli Corporate  Finance,  dated September 12, 2002. In the commitment letter,
Friedli  Corporate  Finance,  agreed to provide the Company with the $20 million
financing  commitment,  for continued  operations and future business  expansion
purposes, in both sales and marketing and merger and acquisition activities. The
warrants were issued to the investors in January 2003 in connection with Friedli
Corporate  Finance  agreeing to provide the financing  commitment.  The warrants
entitle each investor to purchase one share of the Company's common stock, $0.01
per value per share,  for an initial exercise price of CHF 0.19 per share during
the exercise  period.  Pursuant to an amendment  to the  warrants,  the exercise
period  began three  months from  January 6, 2003 and will end on April 7, 2008.
The fair value of these warrants,  using the Black-Scholes  pricing model on the
date they were  granted,  is  estimated  to be  approximately  $720,000  and was
recorded as a deferred  financing  fee.  This  deferred  financing  fee is being
amortized,  to  interest  expense,  over the  three-year  life of the $6 million
convertible  promissory  note, dated March 18, 2003, that was issued in relation
to these warrants.

    In addition, on December 8, 2003, Peter Friedli was issued 345,000 warrants,
with an exercise  price of $0.50 and an expiration  date of December 8, 2007, in
connection  with his continued  support of the business and his assistance  with
fundraising.  The fair value of these warrants,  using the Black-Scholes pricing
model on the date they were granted,  is estimated to be approximately  $155,000
and was  included as a  component  of general  and  administrative  costs in the
accompanying consolidated statement of operations.

                                       F-15
<PAGE>

(4) ACQUISITIONS

(a) Commerce Division

    On March 28, 2001,  the Company  acquired  the Commerce  Division of Inktomi
Corporation  ("Commerce  Division")  in  a  purchase  business  combination  for
approximately  $12.9  million,  consisting of 2,168,945  shares of the Company's
common stock  valued at  approximately  $11.8  million and about $1.1 million in
acquisition costs. A total of 2,551,700 shares of the Company's common stock, or
14.4% of the Company's  outstanding  common  stock,  were issued with 40% placed
into escrow.  Thirty eight percent of the escrow shares, or 382,755,  were to be
released  based  upon the  achievement  of  contractually  defined  revenue  and
performance  targets for the Commerce  Division.  However,  the targets were not
met, so the shares were  released  from escrow and returned to  E-centives.  The
remaining  637,925 of escrow shares were held in  satisfaction  of any potential
indemnity  claims and were  released  to  Inktomi  in June 2002.  As part of the
purchase  price,  the Company  also issued to Inktomi  Corporation  a warrant to
purchase an additional  1,860,577  shares of the Company's common stock upon the
achievement of additional  revenue targets for the Commerce  Division at the end
of 12 months  following  the  closing of this  acquisition.  Because the revenue
targets were not met, the warrants were not earned.

    In  connection  with the  acquisition,  the Company  entered  into a license
agreement and reseller  agreement with Inktomi  Corporation.  Under the terms of
the license  agreement,  Inktomi  Corporation will  perpetually  license certain
software  and  technology  to the Company to be used in the  acquired  business.
Pursuant to the reseller  agreement,  Inktomi  Corporation  will resell  certain
products  of the  acquired  business  for a period  of  twelve  months  from the
closing. During 2002, the reseller agreement was terminated.

    The  acquisition  was accounted for under the purchase  method of accounting
and,  accordingly,  the purchase price was allocated to the assets  acquired and
liabilities  assumed  based on their  estimated  fair values at the  acquisition
date.  The Company  engaged an  independent  third-party  appraiser to perform a
valuation of the tangible and intangible assets associated with the acquisition.
The Company  amortized the  identifiable  intangible  assets on a  straight-line
basis over 2-3 years.  Based upon the  valuation,  the total  purchase  price of
$12,893,326 was allocated as follows:

              Current assets                            $984,542
              Fixed assets, net                        5,657,205
              Internally developed software            5,549,168
              Intangible assets                        1,626,433
              Deferred revenue                          (924,022)
                                                    ------------
                    Total consideration             $ 12,893,326
                                                    ------------

    Following the acquisition of the Commerce  Division,  the Commerce  Division
business  began to  deteriorate.  Less  money  was  being  spent on this type of
technology  by  businesses,  as the  returns  perhaps  did not appear to justify
investing in the products and services offered through the Commerce Division. As
a result,  several of the Commerce Division clients that were up for renewal did
not renew their  agreements  and a large new  customer  terminated  its contract
early. Additionally,  with many companies having less discretionary funds due to
slow  downs  in the  capital  markets,  new  customers  were not  entering  into
contracts for the Commerce Division offerings.  Therefore, the Commerce Division
experienced  a  significant  increase  in  expenses  without  the  corresponding
increase in  revenues.  Due to the  decline in the  customer  base,  the Company
concluded  that the benefits  derived from the  Commerce  Division  would not be
sufficient  to support the product  offerings and the decision was made to close
the Commerce Division during the second quarter of 2002.

(b) BrightStreet.com

    On December 3, 2001, the Company  entered into an Asset  Purchase  Agreement
(the "Agreement") with BrightStreet.com, Inc. ("BrightStreet.com"),  whereby the
Company acquired  substantially all of BrightStreet.com's  assets and certain of
its liabilities.  The Company acquired  BrightStreet.com  for approximately $2.2
million,  consisting of approximately $1.7 million in cash, a guaranteed warrant
to purchase 500,000 shares of the Company's common stock valued at approximately
$185,000,  a  contingent  performance-based  warrant to  purchase  up to 250,000
shares of the Company's common stock and  approximately  $369,000 in acquisition
costs. The cash payments consisted of approximately $843,000 in cash advances to
fund BrightStreet.com's working capital under the terms of a Management Services
Agreement  and an  $825,000  payment  at  closing.  The  guaranteed  warrant  is
exercisable  from June 3, 2002 through  December 3, 2005 at an exercise price of
$0.5696 per share. The performance-based warrant is exercisable,  in whole or in
part,  beginning June 4, 2003 until December 3, 2005 based upon the  achievement
of certain performance targets at an exercise price of $2.44 per share.  Because
the target revenue was not met, the performance-based warrant was not earned.

    In  conjunction  with  the  Agreement,  the  Company  entered  into a Patent
Assignment Agreement (the "Assignment") with  BrightStreet.com.  Pursuant to the
Assignment,  BrightStreet.com  has agreed to assign to the  Company  all rights,
title and interest in and to all the issued and pending BrightStreet.com patents
(collectively, the "Patents"), subject to certain pre-existing rights granted by
BrightStreet.com to third parties ("Pre-existing Rights"),  provided the Company
makes a certain payment to BrightStreet.com by December 3, 2005 (the "Payment").
If the  Company  makes  such  Payment by that date,  the  Company  shall own all
rights,  title and interest in and to the Patents,  subject to the  Pre-existing
Rights. Until such Payment is made, the Company has, subject to the Pre-existing
Rights,  an exclusive,  worldwide,  irrevocable,  perpetual,  transferable,  and
sub-licensable  right and license  under the  Patents,  including  the rights to
control  prosecution of the Patents and Patent applications and the right to sue
for the infringement of the Patents. Until the Company takes formal title to the
Patents,  it may  not  grant  an  exclusive  sublicense  to the  Patents  to any
unaffiliated  third party. In the event the Company does not make the Payment by
December 3, 2005,  the Company  shall retain a license to the  Patents,  but the
license  shall  convert  to a  non-exclusive  license,  and other  rights to the
Patents  and  Patent  applications  shall  revert  to  BrightStreet.com  or  its
designee.

                                       F-16
<PAGE>

In exchange for the rights  granted  under the  Assignment,  beginning  December
2002, the Company is obligated to pay  BrightStreet.com  ten percent of revenues
received that are directly attributable to (a) the licensing or sale of products
or functionality acquired from  BrightStreet.com,  (b) licensing or royalty fees
received from  enforcement or license of the patents  covered by the Assignment,
and (c) licensing or royalty fees received  under existing  licenses  granted by
BrightStreet.com to certain third parties. If the total transaction compensation
paid, at any time prior to December 3, 2005 exceeds $4,000,000, the Payment will
be deemed to have been made.  Additionally,  the Company  has the right,  at any
time  prior  to  December  3,  2005,   to  satisfy  the  Payment  by  paying  to
BrightStreet.com   the   difference   between  the   $4,000,000  and  the  total
compensation  already  paid.  During 2003,  the Company  recorded  approximately
$411,000 in additional  transaction  compensation,  representing $61,000 royalty
accrual and $350,000 in patent fees.

    The BrightStreet.com acquisition was accounted for under the purchase method
of accounting and,  accordingly,  the purchase price was allocated to the assets
acquired and  liabilities  assumed based on their  estimated  fair values at the
acquisition  date. The Company is amortizing the identifiable  intangible assets
on a straight-line  basis over three years. The original total purchase price of
$2,221,901 was allocated as follows:

              Fixed assets, net                     $    742,301
              Accounts Receivable                        136,827
              Licensed technology                      2,086,305
              Capital lease obligations                 (695,479)
              Other liabilities                          (48,053)
                                                    ------------
                    Total consideration             $  2,221,901
                                                    ------------

    Due to additional transaction compensation incurred during 2003, the Company
subsequently  recorded a patent intangible asset for $411,000,  representing the
$61,000  royalty  accrual (as noted  above) and  $350,000 in patent  fees.  This
intangible  asset has the  potential  to  increase  if the  Company  incurs more
transaction compensation related to the Patent.

(c) ConsumerREVIEW.com

    On December  4, 2002,  the Company  acquired  substantially  all of Consumer
Review Inc.'s assets and certain of its  liabilities  through an Asset  Purchase
Agreement.   The  cost  of  the  acquisition  was  approximately  $2.6  million,
consisting of 400,000 shares of Series B convertible  preferred  stock valued at
approximately  $2.1 million,  $290,000 in cash and about $216,000 in acquisition
costs.  At closing,  the Series B  convertible  preferred  stock was placed into
escrow.  Upon the one year  anniversary of the closing date, the conversion rate
for each share of the Series B convertible  preferred stock was determined based
upon the  achievement of  contractually  defined  revenue during the calculation
period and was adjusted pursuant to a defined  schedule.  Based upon the revenue
generated by the ConsumerREVIEW.com  division during the calculation period, the
conversion rate for each share of the Series B convertible  preferred stock will
be  adjusted  to 8 to 1. The  stock  consideration  will  then be  disbursed  in
accordance with the terms of the Escrow Agreement.

    The  acquisition  was accounted for under the purchase  method of accounting
and,  accordingly,  the purchase price was allocated to the assets  acquired and
liabilities  assumed  based on their  estimated  fair values at the  acquisition
date. The Company engaged a third-party  appraiser to perform a valuation of the
Series B convertible  preferred stock and the intangible  assets. The Company is
amortizing the  identifiable  intangible  assets on a  straight-line  basis over
three years. The total purchase price of $2,573,471 was allocated as follows:

                   Cash                           $  352,097
                   Fixed Assets                      231,834
                   Accounts Receivable             1,688,380
                   Technology                        112,408
                   Tradenames                        (95,330)
                   Other liabilities              -----------
                                                  $2,573,471
                   Total consideration            ===========


(5) LETTERS OF CREDIT

    The Company's restricted cash relates to three letters of credits associated
with their  Bethesda,  Maryland  office,  their Foster City Office and their D&O
Insurance  policy.  The following table shows the balances of restricted cash as
of December 31, 2003:
<TABLE>
<CAPTION>

                                                              Bethesda,    Foster City,        D&O
                                                              Maryland     California       Insurance   Total
                                                           -----------------------------------------------------
<S>                                                          <C>          <C>           <C>          <C>
 Current Restricted Cash Balance at January 31, 2003           $ 379,579    $ -           $ 255,470    $ 635,049
 Non- Current Restricted Cash Balance at January 31, 2003         70,000       40,000             -      110,000
                                                           -----------------------------------------------------
     Total Restricted Cash Balance at January 31, 2003           449,579       40,000       255,470      745,049
                                                           -----------------------------------------------------

Activity
  Interest                                                             -          849        18,988       19,837
  Lease termination fee                                         (309,579)           -             -     (309,579)
  Reduction in security deposit                                  (70,000)                               (70,000)
  Transfers to operating account                                       -            -      (258,239)           -
                                                           -----------------------------------------------------
     Total activity                                             (379,579)         849      (239,250)    (359,742)
                                                           -----------------------------------------------------

 Current Restricted Cash Balance at December 31, 2003                  -       40,849        16,220       57,069
 Non- Current Restricted Cash Balance at December 31, 2003        70,000            -             -       70,000
                                                           -----------------------------------------------------
     Total Restricted Cash Balance at December 31, 2003         $ 70,000     $ 40,849      $ 16,220    $ 127,069
                                                           =====================================================
</TABLE>


                                       F-17
<PAGE>

(a) Bethesda, Maryland Office

    As part of the amended and modified lease  agreement dated June 29, 2000 for
the Company's headquarters office space lease in Bethesda, Maryland, the Company
was  required  to have an  irrevocable  letter of credit as a  security  deposit
throughout the lease term of five years.  In the event that the letter of credit
was drawn  upon,  the  Company  established  a  certificate  of  deposit  for an
equivalent  amount,  which served as  collateral  for the letter of credit.  The
$449,579  letter of  credit,  which was  reduced  from the first  year  value of
$542,984  on June 29,  2001,  was to be  reduced by 20% on the first day of each
subsequent lease year.  However, in accordance with a September 25, 2002 partial
lease termination agreement, which provided for early termination of half of the
office  space,  a new letter of credit was  established  with a  provision  that
permitted a partial draw by the  landlord of $309,579 any time after  January 1,
2003 as partial consideration for the new agreement.  Per the new agreement,  in
April 2003 the  required  security  deposit for the  remaining  office space was
reduced  to  $70,000;  therefore,  the  letter  of  credit  and  the  associated
certificate of deposit was also reduced to that amount. As of December 31, 2003,
the balance was $70,000 and it will remain at that value until the expiration of
the lease.

(b) Foster City, California Office

    In November 2002, the Company  entered into a sublease  agreement for office
space in Foster City, California. As part of the sublease agreement, the Company
is required to have an irrevocable  letter of credit in the amount of $40,000 as
a security  deposit  throughout  the lease term and has therefore  established a
certificate of deposit for this amount.  The lease for this office space ends in
November 2004.

(c) D&O Insurance

    In October 2002, the Company established an approximate $280,000 certificate
of deposit to serve as collateral for a letter of credit  commitment  related to
its D&O  insurance  policy.  As the  Company  made its  monthly  payments on the
policy,  the certificate of deposit was reduced by the corresponding  amount and
the money was transferred to its operating  account.  Due to a renegotiation  of
the D&O policy,  the  Company's  rates were reduced and the  required  letter of
credit  was  reduced.  As a result,  in June 2003,  an  additional  $39,000  was
transferred  out of the certificate of deposit that serves as collateral for the
letter of credit commitment.  At December 31, 2003, the remaining balance of the
letter of credit was approximately $16,000, and subsequent to December 31, 2003,
the amount was  transferred  to the Company's  operating  account.  No letter of
credit is required for the current renewal of the D&O policy.

(6) PROPERTY AND EQUIPMENT

    Property and equipment consists of the following:
<TABLE>
<CAPTION>

                                             December 31,
                                          --------------------
                                useful life        2003          2002
                                -------------------------------------------
<S>                              <C>           <C>           <C>
Computer equipment                3 years      $ 7,315,814   $ 7,169,246
Furniture and equipment          5-7 years         195,562       195,562
Leasehold improvements            5 years           23,072        23,072
                                                ---------------------------
                                                 7,534,448     7,387,880
Less: accumulated depreciation                  (6,685,041)   (5,106,725)
                                                ---------------------------
                                               $   849,407   $ 2,281,155
                                               ============================
</TABLE>

(7) INTANGIBLE ASSETS AND GOODWILL

    In  conjunction  with the  acquisition  of  substantially  all the assets of
Consumer  Review,  Inc. in December  2002,  the Company  recorded  approximately
$1,688,000  and  $112,000  for  technology  and  tradenames,  respectively.  The
intangible  assets  were  recorded at their  estimated  fair value and are being
amortized on a straight-line basis over three years.

    In   association   with   the   acquisition   of   substantially    all   of
BrightStreet.com's  assets in  December  2001,  the  Company  acquired  licensed
technology and a patent.  The intangible assets were recorded at their estimated
fair value and are being  amortized on a  straight-line  basis over three years.
The licensed technology and related patent,  which had a total net book value of
approximately  $950,000 at December 31, 2003, was reviewed for impairment  under
FAS 144 and the fair value, as determined by an independent appraiser, supported
the recoverability at the book value.

    Intangible assets consisting of an assembled work force and a customer list,
were acquired in connection with the purchase of the Commerce  Division in March
2001. The intangible  assets were recorded at their  estimated fair value on the
date of the acquisition  and were being amortized on a straight-line  basis over
three and two years, respectively. The Company adopted the provisions of FAS 142
as of  January  1,  2002 and as a result,  during  the  first  quarter  of 2002,
reclassified  approximately  $1,000,000  of  intangible  assets,   approximately
$657,000 net of accumulated  amortization,  associated  with employee  workforce
from  intangible  assets to  goodwill  and  therefore  no longer  amortized  the
assembled  workforce.  During the second  quarter of 2002, due to the closure of
the Commerce  Division,  the associated values of the goodwill for the assembled
workforce and the customer list  intangible  asset were deemed  impaired and the
net values of  approximately  $657,000 and $37,000,  respectively,  were written
off.


                                       F-18
<PAGE>

    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 amortized on a straight-line basis over three years and was fully
amortized  by the end of the first  quarter  of 2002.  In  conjunction  with the
Company's decision to scale back the PerformOne Network, during 2002 the patent,
which had a net value of $0, was written off.

    As of  December  31,  2003 and  2002,  intangible  assets  consisted  of the
following:
<TABLE>
<CAPTION>

                                                      Gross Carrying     Accumulated        Net
                                                          Amount         Amortization      Value
                                                      ---------------------------------------------
Amortizable intangible assets:
<S>                                                       <C>           <C>             <C>
         Patents                                            $ 411,299     $ (102,418)     $ 308,881
         Technology                                         3,774,685     (2,091,875)     1,682,810
         Tradenames                                           112,408        (40,592)        71,816
                                                      ---------------------------------------------
            Total amortizable intangible assets           $ 4,298,392    $(2,234,885)   $ 2,063,507
                                                      ---------------------------------------------

Aggregate Amortizaton Expense:
         For the year ended December 31, 2003                            $ 1,428,574

Estimated Amortizaton Expense:
         For the year ended December 31, 2004                            $ 1,529,221
         For the year ended December 31, 2005                              $ 534,286
         For the year ended December 31, 2006                                    $ -

</TABLE>

(8) RESTRUCTURING AND IMPAIRMENT CHARGES

    During  the third  quarter  of 2002,  the  Company  signed a  partial  lease
termination  agreement,  approved a plan to reduce the workforce associated with
closing  down of its  PerformOne  Network and  evaluated  its  existing  reserve
established    for   the   closure   of   the   Commerce    Division.    A   net
restructuring/impairment  charge of  approximately  $1.2 million was recorded to
reflect these actions. The charge included the costs associated with terminating
half of the office space lease for the Bethesda, Maryland facility, the costs of
severance  and  other  employee  benefits  related  to  the  termination  of  19
employees, as well as an increase in the reserve associated with terminating the
office lease in the UK. The Company expected the cost to terminate the UK office
lease to consist of monthly rental through  September 30, 2002 and forfeiture of
the Company's security deposit of approximately  $102,000.  This is based on the
Company's best estimate, however, the landlord of the UK office facility has not
responded to requests to enter into a  termination  agreement.  The Company does
not believe that there is any additional  exposure;  however, if the landlord of
the UK office  facility does not agree to a termination  agreement,  the Company
could face a potential additional liability of approximately $364,000 for rental
payments through  September 2004. As noted below, in the fourth quarter of 2001,
the Company  recorded a  restructuring  charge that  included  consolidation  of
excess space  associated  with the Bethesda  facility.  Due to the partial lease
termination  agreement  for  this  facility,   the  approximately  $1.4  million
remaining balance of the associated 2001 reserve was reversed.

    During the second quarter of 2002, the Company's  management  approved plans
to terminate the lease for the Redwood Shores,  California facility and to close
the Commerce Division.  The $7.8 million  restructuring/  impairment charge that
reflected these actions  consisted of the costs  associated with terminating the
Redwood Shores lease, the costs of severance and other employee benefits related
to the  reduction  in  workforce  of 18  employees,  the  costs  connected  with
terminating  the UK office lease,  as well as the costs  associated with closing
down the Commerce  Division and the disposal and write-down of related  tangible
and intangible  assets.  As discussed  below, in the fourth quarter of 2001, the
Company  recorded a restructuring  charge for the  consolidation of excess space
related to the Redwood Shores facility.  As a result of the early termination of
the lease for this facility, the approximately $6.5 million remaining balance of
the related 2001 reserve was reversed.

    The reversals of the remaining balances of the 2001 reserves established for
the Bethesda and Redwood Shores  offices,  combined with the new charges for the
second and third  quarters of 2002,  resulted in a net  restructuring/impairment
charge of approximately $1.1 million for the year ended December 31, 2002.

    The  following  table shows the balance,  as of December  31,  2003,  of the
accrued restructuring/impairment charges recorded in 2002.
<TABLE>
<CAPTION>

                                                                        Employee
                                                     Termination      severance and     Revaluation of  Disposal of
                                                     of facility      other benefit      intangible      intangible
                                      Total            leases         related costs       assets          assets       Other
                                 -----------------------------------------------------------------------------------------------
  Balance at January 1, 2002          $        -      $        -     $        -          $       -    $         -   $       -
<S>                                   <C>             <C>              <C>                <C>          <C>           <C>
  Restructuring charges, net           8,969,582       2,614,213        211,223            694,174      5,054,306     395,666
  Cash (payments)/receipts            (2,508,303)     (2,158,695)      (200,115)                 -        180,408    (329,901)
  Non-cash charges                    (5,744,200)        295,045              -           (694,174)    (5,279,306)    (65,765)
                                 ------------------------------------------------------------------------------------------------
  Balance at December 31, 2002           717,079         750,563         11,108                  -        (44,592)          -
  Cash (payments)/receipts              (639,803)       (685,298)        (3,115)                 -         48,610           -
                                 ------------------------------------------------------------------------------------------------
  Balance at December 31, 2003        $   77,276      $   65,265     $    7,993         $        -     $    4,018  $        -
                                 ================================================================================================
</TABLE>


                                       F-19
<PAGE>

<TABLE>
<CAPTION>
                                                      Termination
                                                      of facility
                                      Total             leases           Other
                                 -----------------------------------------------
<S>                                    <C>             <C>             <C>
  Balance at December 31, 2002           717,079         750,563        (33,484)
  Cash (payments)/receipts              (639,803)       (685,298)        45,495
                                 -----------------------------------------------
  Balance at December 31, 2003         $  77,276       $  65,265       $ 12,011
                                 ===============================================
</TABLE>


    In 2001, the Company's management approved  restructuring actions to respond
to the global  economic  downturn and to improve the Company's cost structure by
streamlining  operations and prioritizing resources in strategic growth areas of
the Company's business. The Company recorded a  restructuring/impairment  charge
of  approximately  $9.9  million  related  to these  actions.  This  charge  was
comprised  of the costs  related  to the  consolidation  of  excess  facilities,
severance and other  employee  benefit costs  related to the  termination  of 63
employees, as well as a revaluation of the intangible assets associated with the
Commerce  Division.  During 2002,  as a result of the early  termination  of the
Redwood Shores office lease and the partial  termination of the Bethesda  office
lease, the remaining balances of the reserves  associated with these offices, of
approximately $6.5 million and $1.4 million, respectively, were reversed and new
reserves were established.

(9) INCOME TAXES

    The  Company has  incurred  operating  losses  since its  inception  and has
recognized  no US current or  deferred  income tax  provision  or  benefit.  The
components of income tax expense  (benefit)  attributable  to operations  are as
follows:

                      Year ended December 31,
                  ---------------------------------
                     2003        2002        2001
                  ---------------------------------
Current
  Federal          $   -      $     -      $     -
  State                -            -            -
  Foreign              -      (19,476)      19,476
                   --------------------------------
   Total current       -      (19,476)      19,476
                   --------------------------------

Deferred
  Federal              -            -            -
  State                -            -            -
  Foreign              -            -            -
                   --------------------------------
   Total deferred      -            -            -
                   --------------------------------
Total tax expense   $  -      $ (19,476)   $ 19,476
                   ================================


    The  provision  for  income  taxes is  different  from that  which  would be
obtained by applying  the  statutory  US federal  income tax rate to pretax loss
before income taxes. The items causing this difference are as follows:
<TABLE>
<CAPTION>

                                                                  Year ended December 31,

                                                                  2003          2002           2001
                                                            -----------------------------------------
<S>                                                       <C>            <C>            <C>
Expected tax benefit (expense) at statutory rate            $ 4,211,501   $  5,835,883   $ 15,294,556
State tax, net of federal                                       476,526        642,643      1,136,850
Stock-based compensation, not deductible                        (54,251)      (122,235)      (259,800)
Foreign tax rate differential                                         -        (43,238)        16,102
Other, net                                                       (2,922)        13,368       (203,151)
Increase in valuation allowance                              (4,630,853)    (6,306,945)   (15,977,033)
                                                            -----------------------------------------
Tax (expense) benefit                                                -          19,476        (19,476)
                                                            =========================================
</TABLE>

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

<TABLE>
<CAPTION>

                                                                              Year ended December 31,
                                                                     -----------------------------------
                                                                               2003               2002
                                                                     -----------------------------------
Deferred tax assets:
<S>                                                                   <C>                 <C>
Net operating loss and general bussiness credits carryforwards        $  42,873,853       $ 38,472,698
Restructuring reserve                                                             -            276,536
Start-up costs and organized costs                                          362,484          1,087,450
Intangible assets                                                         1,897,497            860,749
accrued expenses                                                             94,750            166,381
Deferred compensation                                                     1,133,564            139,700
Allowance for doubtful accounts receivable                                   23,909             28,466
Property and equipment                                                      536,933            540,488
                                                                     -----------------------------------
Total gross deferred tax assets                                          46,922,990         41,572,468
Valuation allowance                                                     (46,922,990)       (41,572,468)
                                                                     -----------------------------------
                                                                       $          -       $          -
                                                                     ===================================
</TABLE>


                                       F-20
<PAGE>

    In assessing the realizability of deferred tax assets,  management considers
whether it is more  likely  than not that some  portion or the entire  amount of
deferred  tax assets  will not be  realized.  The  ultimate  realization  of the
deferred tax asset is dependent  upon the  generation of future  taxable  income
during the periods in which temporary  differences  become deductible and credit
carry  forwards  are  available.  Management  considers  scheduled  reversal  of
deferred tax  liabilities,  projected  future taxable  income,  and tax planning
strategies  which can be implemented  by the Company in making this  assessment.
Based upon the lack of historical taxable income, scheduled reversal of deferred
tax liabilities, projections for future taxable income and uncertainty regarding
ultimate  realization of the tax benefits regarding the deferred tax assets, the
Company has established a valuation  allowance of $46,922,000 and $41,572,000 as
of December  31, 2003 and 2002,  respectively.  The net change in the  valuation
allowance  for the years  ended  December  31,  2003 and 2002 was an increase of
$5,351,000  and  $5,538,000,  respectively.  The federal net  operating  loss is
$112,113,000  as of December  31,  2003.  The Federal net  operating  loss carry
forward period expires commencing in 2011 through the year 2022.  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 may occur.  As a
result,  the net operating loss carry forward may not be fully  utilized  before
expiration.

(10) LONG-TERM DEBT

    The Company's  long-term debt of $3,450,000 and other long-term  liabilities
of $124,465 at December 31, 2003,  consists of the  principal  balance and final
payment charges, respectively, associated with nine convertible promissory notes
issued from May 2003  through  December  2003.  The terms of the notes  include,
among other things:

    o    an 8% interest rate;
    o    a maturity date three years from the date of issuance;
    o    a conversion feature,  which provides that under certain  circumstances
         that the note will automatically convert to our common stock;
    o    a one-time  final payment  charge of 10% of the principal for each year
         that the principal is not paid on or before each annual  anniversary of
         the date the note was issued (with a maximum of 30%); and
    o    a security interest in substantially all of our assets.

    The  $3,450,000 of long-term debt matures in 2006. If the Company holds this
long-term  debt to maturity,  as currently  intended,  a final payment charge of
$1,035,000 will be due in 2006.

(11) GUARANTEES AND INDEMNIFICATIONS

    The  Company  adopted  FIN 45  effective  December  31,  2002.  The  initial
recognition and measurement provisions of FIN 45 apply on a prospective basis to
certain  guarantees and  indemnifications  issued or modified after December 31,
2002.  Accordingly,  any contractual  guarantees or indemnifications the Company
issues or modifies  subsequent  to December 31, 2002 will be  evaluated  and, if
required,  a liability for the fair value of the obligation  undertaken  will be
recognized.  The  adoption  of FIN 45 did  not  have a  material  effect  on the
Company's financial position or results of operations.

    The Company  guarantees  the payment of sublease  rentals to its Landlord on
the property that it sublets.  As of December 31, 2003, the maximum guarantee on
this property is  approximately  $498,000.  This sub-lease  expires in September
2005.

    The Company sometimes  indemnifies certain of its customers against damages,
if any, they might incur as a result of a claim brought  against them related to
patent  infringement  from the use of the  Company's  products.  The  Company is
unable to estimate  the maximum  exposure  of such  indemnifications  due to the
inherent uncertainty and the varying nature of the contractual terms.

(12) COMMITMENTS AND CONTINGENCIES

(a) Leases

    In association with the acquisition of BrightStreet.com's  assets, effective
November 1, 2001,  the  Company  entered  into a  Modification,  Assignment  and
Assumption  Agreement with Pentech  Financial  Services,  Inc.  ("Pentech")  and
BrightStreet.com   regarding  the  Master   Equipment   Lease   ("Lease")   that
BrightStreet.com  had  entered  into  with  Pentech  in May  2000  for  computer
equipment.  Per the  agreement,  with the consent of  Pentech,  BrightStreet.com
assigned the Lease to the Company with  certain  modifications  to the terms and
conditions of the Lease. In addition,  the Company agreed to defend,  indemnify,
save and hold  harmless  BrightStreet.com  from and  against any and all claims,
demands,  costs, and any other damages which  BrightStreet.com  may sustain as a
result  of any  failure  or delay  by the  Company  in  performing  the  assumed
obligations.  This is a guarantee  under FIN 45;  however,  the  Company  cannot
estimate the maximum exposure.

    The Company is obligated under  non-cancelable  capital leases,  for certain
computer  and office  equipment,  that expire by early 2006.  In  addition,  the
Company is obligated under non-cancelable operating leases, primarily for office
space, which expire on various dates through 2005.


                                       F-21
<PAGE>

    Amounts related to assets under non-cancelable capital leases that have been
capitalized  as property  and  equipment as of December 31, 2003 and 2002 are as
follows:

                                                     December 31,
                                           --------------------------------
                                                2003              2002
                                           --------------------------------
Computer equipment                           $ 527,282          $ 407,412
Office equipment                                23,789                  -
Less: accumulated depreciation                (315,433)          (147,121)
                                           --------------------------------
                                             $ 235,638          $ 260,291
                                           ================================


    Rent expense under operating leases was approximately  $829,000,  $1,549,000
and  $3,541,000  for  the  years  ended  December  31,  2003,   2002  and  2001,
respectively.  In February  2002,  the Company  signed a Sublease  Agreement  to
sublease a portion of the sixth floor at the  Bethesda,  Maryland  facility that
commenced on March 1, 2002 and expires on September 30, 2005.

    As of December 31, 2003,  future minimum lease payments and future  sublease
rental income under non-cancelable leases are as follows:

<TABLE>
<CAPTION>

Year Ending December 31,                Capital Leases   Operating Leases   Rental Income
-----------------------------------------------------------------------------------------
<S>                                          <C>              <C>               <C>
2004                                         $ 304,992        $ 1,096,895       $ 308,228
2005                                            32,744            613,521         241,835
2006                                                 -                  -               -
-----------------------------------------------------------------------------------------
   Total                                       337,736        $ 1,710,416       $ 550,063
                                                              ===========================
Less: amount representing interest
(rates approximating 8.3%)                      (8,691)
                                              ---------------
Present value of net minimum lease payments    329,045
Less: current installments                    (297,327)
                                              ---------------
Obligation under capital leases,
excluding current portion                     $ 31,718
                                              ===============
</TABLE>

(b) Patent Assignment

    On December 3, 2001, in conjunction  with the  acquisition of  substantially
all the assets of BrightStreet.com, the Company entered into a Patent Assignment
Agreement (the "Assignment") with BrightStreet.com.  Pursuant to the Assignment,
BrightStreet.com  has  agreed to assign to the  Company  all  rights,  title and
interest  in  and  to  all  the  issued  and  pending  BrightStreet.com  patents
(collectively, the "Patents"), subject to certain pre-existing rights granted by
BrightStreet.com to third parties,  provided the Company makes a certain payment
to BrightStreet.com by December 3, 2005 (the "Payment").

     In exchange for the rights granted under the Assignment, beginning December
2002, the Company is obligated to pay  BrightStreet.com 10% of revenues received
that are  directly  attributable  to (a) the  licensing  or sale of  products or
functionality  acquired  from  BrightStreet.com,  (b)  licensing or royalty fees
received from  enforcement or license of the patents  covered by the Assignment,
and (c) licensing or royalty fees received  under existing  licenses  granted by
BrightStreet.com to certain third parties. If the total transaction compensation
paid, at any time prior to December 3, 2005 exceeds $4,000,000, the Payment will
be deemed to have been made.  Additionally,  the Company  has the right,  at any
time  prior  to  December  3,  2005,   to  satisfy  the  Payment  by  paying  to
BrightStreet.com   the   difference   between  the   $4,000,000  and  the  total
compensation  already  paid.

(c) Litigation

    The Company is subject to legal  proceedings and claims,  which arise in the
ordinary  course of  business.  Other than the matters  described  below,  as of
December 31, 2003, management is not aware of any asserted or pending litigation
or claims  against the Company that would have a material  adverse effect on the
Company's financial condition, results of operations or liquidity.

     On or about  September  24, 2003,  Trifocal,  LLC  ("Trifocal")  filed suit
against  the  Company  in  California  Superior  Court,  County of Santa  Clara,
alleging   (inter  alia)  breach  of  contract  and  intentional  and  negligent
misrepresentation.   Trifocal  initially  claimed   approximately   $126,819  in
specified  money  damages,  as well as  additional  unspecified  money  damages,
interest,  punitive damages and attorneys' fees and costs.  Trifocal  explicitly
stated that it  intended  to amend its  complaint  with  respect to damages.  In
December 2003, the Company  removed the case to the United States District Court
for the  Northern  District  of  California  (San  Jose  Division),  denied  any
liability,  and filed  counterclaims  seeking  money  damages  in excess of $1.8
million for  Trifocal's  breach of contract,  breach of the implied  covenant of
good faith and fair dealing,  intentional interference with contract,  negligent
interference  with  contract,  and breach of fiduciary  duty.  Pursuant to local
court  rules  regarding   alternative  dispute   resolution,   the  parties  are
participating in mediation. The initial mediation was held on June 28, 2004.

                                       F-22
<PAGE>

     On  or  about   November  14,  2002,  the  Company  filed  a  joint  patent
infringement action with Black Diamond CCT Holding, LLC against Coupons, Inc. in
the Federal  District  Court of  Maryland.  In this suit,  the  Company  alleges
infringement of two U.S. patents relating to online coupons, rights of which the
Company acquired from BrightStreet.com. Coupons, Inc. has answered the Company's
complaint by denying  infringement and has raised affirmative defenses including
non-infringement,   invalidity,   unenforceability,   laches  and/or  estoppels,
defenses under 35 U.S.C. section 273 and other defenses.  No counter claims were
filed against the Company by Coupons,  Inc. The case has been proceeding through
discovery,  although  no trial  date has yet been  set.  The  Company  and Black
Diamond  have  filed a motion to add  Consumer  Networks,  LLC and News  America
Incorporated  as  defendants  based on their  partnerships  with  Coupons,  Inc.
Additionally,  the  Company has filed a motion to add another one of its patents
that relates to  infringement by Coupons,  Inc.'s email services.  The court has
not yet ruled on these motions.

     On January 21, 2004,  E-centives,  Inc. and Black Diamond CCT Holding,  LLC
had  filed  (but not  served)  a patent  infringement  action  against  Consumer
Networks,  LLC in California.  In this suit, the Company alleged infringement of
two U.S.  patents  relating  to online  coupons,  rights  of which  the  Company
acquired from BrightStreet.com,  Inc. If the Maryland court grants the motion to
add Consumer  Networks,  LLC to that  action,  the  California  suit will not be
separately pursued. To date, no answer has been filed by Consumer Networks, LLC.

     On or about  October 10, 2002,  the Company  received a demand  letter from
Orrick, Herrington & Sutcliffe, LLP, ("Orrick") a law firm representing Bowne of
New York City  ("Bowne")  demanding  payment of $91,527 for  financial  printing
services  allegedly  rendered by Bowne.  The letter also  indicated  that if the
matter was not amicably  resolved,  then Bowne would commence legal proceedings.
The parties have now settled  this dispute and entered into a formal  settlement
agreement  whereby the  Company has agreed to pay $71,734 in equal  installments
over six months  commencing on or about February 4, 2003. The Company's  records
reflect two payments  remain  outstanding.  Orrick has  indicated to the Company
that it believes that the Company is in default of the settlement agreement.

    There  were no other  material  additions  to, or  changes in status of, any
ongoing,  threatened or pending legal proceedings during the year ended December
31,  2003,   including  no  changes  in  the  status  of  the  settlement   with
coolsavings.com,   Inc.  ("coolsavings").  The  terms  of  the  settlement  with
coolsavings provide for a cross-license  between the Company 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,
the Company may have to make payments of up to $1.35 million to  coolsavings  as
follows:

    o    $650,000,  which was paid to coolsavings on September 29, 2000, was due
         at the signing of the settlement documents.

    o    $250,000,  which was accrued for during  2001,  was due if,  within one
         year from the date of entry of the Stipulated  Order of Dismissal filed
         on or about March 3, 2000, Catalina Marketing  Corporation prevailed in
         a motion for summary judgment in a separate  litigation  between it and
         coolsavings,  involving the  coolsavings'  patent currently in dispute.
         However,  a dispute has arisen  between the parties  regarding  whether
         this  portion of the  license  fee is actually  due,  despite  Catalina
         Marketing  Corporation  not  prevailing in its motion.  This dispute is
         based in part on the fact that the Company may be entitled to a license
         under the  coolsavings'  patent at issue as a result of its acquisition
         of the  assets of  BrightStreet.com,  which  acquisition  included  the
         settlement  of   infringement   litigation   between   coolsavings  and
         BrightStreet.com  regarding the same coolsavings patent at issue in the
         Company's settled litigation. Coolsavings previously filed a lawsuit to
         collect such  $250,000  amount,  but later  voluntarily  dismissed  the
         lawsuit without prejudice.


                                       F-23
<PAGE>

    o    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.  This
         component  of the  settlement  arrangement  has not  been  accrued  for
         because the  possibility  of the Company's  having to make this payment
         continues to remain remote.

(d) 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.

(13) SEGMENT INFORMATION

(a) Operating Segments

    Starting in 2002, with the acquisition of substantially all of the assets of
Consumer  Review,  Inc.,  the Company  had two  reportable  operating  segments:
E-centives and ConsumerREVIEW.com. For 2003, E-centives included the services of
the Interactive  Database Marketing System, the Promotions System and the E-mail
Marketing  System.  For 2002,  E-centives  also  included  the  services  of the
PerformOne Network, the Commerce Engine and the Commerce Network,  which were no
longer  offered  by the  fourth  quarter  of 2002.  ConsumerREVIEW.com  includes
advertising and e-commerce services that are provided through its network of web
communities.

    Information as to the operations of the segments of the Company for 2003 and
2002 is set  forth  below  based on the  nature  of the  products  and  services
offered.  The Company's  chief operating  decision maker  evaluates  performance
based  primarily on operating  profit and cash  generated from  operations.  The
accounting policies of the operating segments are the same as those described in
the summary of significant accounting.

    The asset,  other  unallocated  amounts,  represents  corporate  assets that
consist of cash and equivalents, as well as restricted cash.

As of and for the years ended December 31, 2002 and 2003
<TABLE>
<CAPTION>

                                                                            Segment    Unallocated   Consolidated
             2003               E-centives         ConsumerReview.com        Totals       Amounts         Total
------------------------------------------------------------------------------------------------------------------
<S>                            <C>                      <C>            <C>             <C>         <C>
Operating revenue                 $3,386,115               $ 2,673,008    $6,059,123          $ -     $ 6,059,123
Operating loss                   (11,311,587)                 (565,780)  (11,877,367)           -     (11,877,367)
Depreciation and amortization      2,214,465                   792,425     3,006,890            -       3,006,890
Assets                             3,673,420                 1,747,464     5,420,884      412,145       5,833,029
Capital expenditures                  47,034                     4,497        51,531            -          51,531

                                                                            Segment    Unallocated   Consolidated
             2002               E-centives         ConsumerReview.com        Totals       Amounts         Total
------------------------------------------------------------------------------------------------------------------
Operating revenue                 $7,006,835                 $ 213,963    $7,220,798          $ -     $ 7,220,798
Operating loss                   (17,367,368)                  (35,374)  (17,402,742)           -     (17,402,742)
Depreciation and amortization      5,205,381                    68,689     5,274,070            -       5,274,070
Assets                             7,134,390                 2,494,157     9,628,547    3,062,403      12,690,950
Capital expenditures                 410,934                    17,320       428,254            -         428,254
</TABLE>

(b) Customers

    For the  years  ended  December  31,  2003 and  2002,  one of the  Company's
Interactive   Database  Marketing  System  customers,   Reckitt  Benckiser  PLC,
contributed $2.7 million and $4.5 million,  respectively, in revenue, or 45% and
62%, respectively,  of the Company's revenue. This customer's original agreement
expired in October 2002, and the customer  subsequently entered into two renewal
agreements,  with the most  recent one  expiring  on  December  31,  2004.  This
customer also represented  approximately $874,000 of the $1,583,000 net accounts
receivable  balance as of December 31, 2003.  The Company does not believe there
is a significant risk of uncollectibility  due to the customer's payment history
and credit-worthiness.

    No other customer  represented 10% or more of the Company's  revenue for the
years ended December 31, 2003, 2002 and 2001.


                                       F-24
<PAGE>

(14) STOCKHOLDERS' EQUITY

(a) Preferred Stock

    On  November  30,  2001,  the  Company's  proposal  to amend and restate its
Articles of Incorporation to authorize  10,000,000 shares of preferred stock was
approved by a majority of the stockholders.

    As part of the Company's  October 2001 rights offering of 20,000,000  shares
of common stock,  additional  securities were issued to each of the stockholders
who purchased  shares, in an amount  proportional to their  participation in the
rights offering.  These additional  securities  consisted of 2,000,000 shares of
Series A convertible  preferred  stock,  convertible  into 20,000,000  shares of
common  stock upon  certain  circumstances.  The  Company  did not  receive  any
additional  consideration  for such Series A convertible  preferred stock beyond
such  consideration  received  for the shares of common  stock  purchased in the
rights  offering.  During  2003,  all of the  shares  of  Series  A  convertible
preferred  stock that were issued in conjunction  with the rights  offering were
converted into common stock;  therefore,  as of December 31, 2003, there were no
shares of Series A  convertible  preferred  stock  outstanding.  Such  shares of
common stock have been listed on the SWX Swiss Exchange since February 21, 2002.

    VOTING: The holders of Series A convertible  preferred stock shall vote with
    the holders of common stock on all matters  submitted  to the  stockholders.
    Each share of Series A convertible  preferred stock shall entitle the holder
    thereof to a number of votes  equal to the number of shares of common  stock
    into which it is then convertible.

    DIVIDENDS:  No dividends will be paid on the Series A convertible  preferred
    stock.

    VOLUNTARY  CONVERSION:  Each share of Series A convertible  preferred  stock
    will be  convertible  into the Company's  common  stock,  beginning one year
    after issuance, at the option of the holder. The number of shares calculated
    will be ten  common  shares  for one  preferred  share  held at the  time of
    conversion.

    MANDATORY  CONVERSION:  The  Series  A  convertible  preferred  stock  shall
    automatically  convert into shares of the  Company's  common stock (at a ten
    for one basis) at the  conversion  price then in effect  upon the earlier to
    occur  of:  (1) the date when the  average  trading  price of the  Company's
    common stock for 15 consecutive trading days is equal to or greater than CHF
    6.00;  (2) the  consummation  by the Company of a public  offering of equity
    securities  with  proceeds in excess of CHF 40 million or equivalent in USD;
    (3) change of control;  or (4) two years from the date of  issuance.  Due to
    the fact that the first three situations did not occur prior to the two year
    anniversary of the issuance date, all  unconverted  shares were converted to
    common stock on the two year  anniversary  date. Such shares of common stock
    have been listed on the SWX Swiss Exchange since February 21, 2002.

    LIQUIDATION: Upon any liquidation, dissolution or winding up of the Company,
    each  holder of Series A  convertible  preferred  stock will be  entitled to
    receive,  prior to any  distribution  with respect to the  Company's  common
    stock and Series B convertible preferred stock, an amount equal to: all cash
    available for distribution to all classes of stockholders,  calculated as if
    the Series A  convertible  preferred  stock had been  converted  into common
    stock  immediately  prior to the  liquidation,  up to but not to exceed  CHF
    25.00 per share of such common  stock.  Seven percent of the total amount of
    cash  available  for  distribution  to all  classes of  stockholders  shall,
    however, be distributed to the Company's  management  (pursuant to a formula
    to be determined by the board of the Company)  prior to the  calculation  of
    the  liquidation  preference in favor of the Series  convertible A preferred
    stockholders.

    As part of the Company's  acquisition of substantially  all of the assets of
Consumer Review,  Inc. in December 2002,  400,000 shares of Series B convertible
preferred stock were issued.  As of December 31, 2003, there were 400,000 shares
of Series B convertible preferred stock authorized, issued and outstanding.

    VOTING: The holders of Series B convertible  preferred stock shall vote with
    the holders of common stock on all matters  submitted  to the  stockholders.
    Within the first twelve months of issuance,  each holder of shares of Series
    B convertible preferred stock will be entitled to one vote for each share of
    Series B convertible  preferred  stock held  immediately  after the close of
    business on the record date fixed for such meeting or the effective  date of
    such written  consent.  After the first twelve  months from  issuance,  each
    holder of shares of Series B convertible preferred stock will be entitled to
    such  number  of votes as will be equal to the  whole  number  of  shares of
    common stock into which such holder's aggregate number of shares of Series B
    convertible  preferred  stock are  convertible  (pursuant to the  conversion
    table  below)  immediately  after the close of  business  on the record date
    fixed for such meeting or the effective date of such written consent.

    DIVIDENDS:  No dividends will be paid on the Series B convertible  preferred
    stock.


                                       F-25
<PAGE>

    VOLUNTARY CONVERSION:  Each share of Series B convertible preferred stock is
    convertible  into the Company's  common stock,  beginning one year after the
    closing  date of the  Consumer  Review,  Inc.  acquisition,  based  upon the
    achievement of contractually  defined revenue during the calculation period.
    Based upon the revenue generated by the  ConsumerREVIEW.com  division during
    the calculation  period,  the conversion rate for each share of the Series B
    convertible preferred stock will be adjusted to 8 to 1.

    MANDATORY  CONVERSION:  Each share of Series B convertible  preferred  stock
    shall  automatically  be  converted  into  shares  of  common  stock  at the
    conversion  rate (as  defined  above)  upon the earlier to occur of: (i) the
    consummation by the Company of a public  offering of equity  securities with
    proceeds in excess of CHF 20,000,000 or equivalent in United States Dollars,
    (ii) an Acquisition,  Asset Transfer or other Liquidation (as defined below)
    or (iii)  thirty  months from the date of  issuance,  provided  the Series B
    preferred  convertible stock shall automatically  convert into shares of the
    Company's common stock (at a ten for one basis) at the conversion price then
    in effect if the Company experienced a change in control before the one year
    anniversary of the closing date of the ConsumerREVIEW.com acquisition.

    LIQUIDATION:  Upon any voluntary or involuntary liquidation,  dissolution or
    winding  up of the  Company  ("Liquidation"),  before  any  distribution  or
    payment is made to the  holders of the common  stock and any other  stock of
    the Company that is not by its terms expressly senior in right of payment to
    the Series B convertible  preferred stock, but following any distribution or
    payment to the holders of the Series A convertible preferred stock (which is
    expressly senior to the Series B convertible  preferred stock),  the holders
    of Series B convertible  preferred  stock will be entitled to be paid out of
    the assets of the Company with respect to each share of Series B convertible
    preferred  stock  held,  an amount  equal to the  product  of (i) (a) if the
    Liquidation  is not a sale,  conversion  or other  transfer of the Company's
    stock,  the  average  of the high and low  closing  prices of the  Company's
    common  stock  on the day  prior to the  date of such  Liquidation,  as such
    prices are reported by the SWX Swiss  Exchange,  after  applying the CHF-USD
    exchange  rates,  as  determined  by 5 p.m.,  Swiss  time on such  date,  by
    swissfirst Bank AG or (b) if the Liquidation is a sale,  conversion or other
    transfer of the Company's  stock,  the purchase price or other  valuation of
    the Company's common stock pursuant to such Liquidation, and (ii) the number
    of  shares  of  common  stock  into  which a share of  Series B  convertible
    preferred stock would be convertible  pursuant to the conversion table above
    if the conversion had occurred  immediately  prior to such  Liquidation,  as
    appropriately  adjusted for any future stock splits, stock combinations,  or
    similar transactions affecting the Series B convertible preferred stock. If,
    upon any  Liquidation,  the assets of the Company are  insufficient  to make
    payment in full to all holders of Series B convertible preferred stock, then
    such assets will be  distributed  among the holders of Series B  convertible
    preferred stock at the time  outstanding,  ratably in proportion to the full
    amounts  to which they  would  otherwise  be  respectively  entitled.  After
    payment in full to the holders of Series B  convertible  preferred  stock of
    the aggregate liquidation preference as aforesaid, the holders of the Series
    B convertible  preferred stock shall, as such, have no right or claim to any
    of the  remaining  assets  of the  Company.  The  following  events  will be
    considered a Liquidation: any merger,  consolidation,  business combination,
    reorganization, reclassification or recapitalization of the Company in which
    the Company is not the surviving  entity or in which the stockholders of all
    classes  and  series  of  stock  of the  Company  immediately  prior to such
    transaction  own capital stock  representing  less than 50% of the Company's
    voting  power of all  classes  and  series of stock  immediately  after such
    transaction (an "Acquisition"); or a sale, lease or other disposition of all
    or substantially all of the assets of the Company (an "Asset Transfer").

(b) Stock Incentive and Option Plan

    The Company's  Amended and Restated Stock Incentive and Option Plan provides
for the grant of options, restricted stock and other stock-based compensation to
its employees,  consultants  and advisors.  As of December 31, 2003,  there were
21,000,000 shares of common stock reserved for issuance and there were 9,798,222
options to purchase  shares of common stock  outstanding  at a weighted  average
exercise price of $1.10 per share. Options granted under the plan typically vest
over time,  usually  ratably  over four years from the date of grant,  with some
subject  to  acceleration  in the event of a change of  control  of  E-centives.
Typically,  an option  granted  under  the plan  expires  ten years  after it is
granted. In addition, the plan allows for grants of options the vesting of which
is tied to the employee's performance.  As of the December 31, 2003 the board of
directors has issued only stock  options  under the plan.  The plan provides 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.


                                       F-26
<PAGE>

    From 1997 through 2003, the following  performance-based  option grants were
issued:


                    Year          Options      Price
                --------------------------------------
                    1997           65,618      $ 2.50
                    1998           34,400      $ 2.50
                    1999           50,000      $ 2.50
                    1999          110,400      $ 3.50
                    2001           25,000      $ 3.40
                    2002          200,000      $ 0.50
                    2003           10,000      $ 0.55
                    2003          216,810      $ 0.14
                    2003           16,500      $ 0.41
                    2003        1,564,122      $ 0.13

    Compensation expense related to performance-based option grants of $ 84,556,
$0 and  ($302,304)  was  recorded  in 2003,  2002 and 2001.  The credit for 2001
reflects the reversal of historical stock-based compensation expense, related to
terminated  employees,  that was recorded in excess of the expense pertaining to
their options  vested through  termination.  There was no  compensation  expense
related to performance-based  options during 2002, as all options issued in 2002
had an exercise  price in excess of the stock price at December 31, 2002 and all
options issued prior to 2002 were fully vested.

    As allowed by FAS 123, the Company applies the intrinsic  value-based method
of accounting prescribed by APB 25 and related interpretations in accounting for
its employee stock options,  rather than the alternative  fair value  accounting
method. Under this method, compensation expense is recorded on the date of grant
only if the current market price of the  underlying  stock exceeded the exercise
price. In 2003, 2002 and 2001, the Company  recorded  equity-based  compensation
expense,  exclusive of performance based stock option compensation expense, of $
2,542,327, $359,516 and $1,165,423,  respectively.  These expenses relate to the
difference  between the fair value of the  Company's  common  stock on the grant
date and the exercise  price of  8,297,087  options  granted in 2003,  1,517,564
options granted in 2000 and 960,800 options granted in 1999.  Additionally,  the
Company  expects  to  incur  approximately  $574,000,   $320,000  and  $243,000,
respectively,  of stock-based  compensation  expense during 2004, 2005 and 2006.
Had  compensation  expense for the Company's  stock option plan been  determined
based  upon the fair  value  methodology  under FAS 123 the  Company's  net loss
applicable  to common  stockholders  would have been  adjusted  to the pro forma
amounts presented below:

<TABLE>
<CAPTION>
                                                                          Year ended December 31,
                                                                ---------------------------------------------
                                                                    2003           2002           2001
                                                                ---------------------------------------------

<S>                                                             <C>            <C>            <C>
Net loss applicable to common stockholders, as reported          $ (12,342,190) $ (17,144,887) $ (45,003,465)
Add:  Total stock-based employee compensation
      expense included in reported net loss, net of
      related tax effects                                            2,607,576        359,516        863,119
Deduct:  Total stock-based employee compensation
     expense as determined under fair value based
     method for all awards, net of related tax effects              (2,069,647)    (1,301,288)    (2,437,069)
                                                                ---------------------------------------------
Pro forma net income                                             $ (11,804,261) $ (18,086,659) $ (46,577,415)
                                                                =============================================

Basic and diluted net loss per share:
     As reported                                                       $ (0.29)       $ (0.46)       $ (2.68)
     Pro forma                                                           (0.28)         (0.48)         (2.77)

</TABLE>

    The fair value of each  option is  estimated  on the date of grant using the
Black-Scholes  option-pricing  model  with the  following  assumptions  used for
options issued during 2003, 2002 and 2001,  respectively:  volatility factors of
120%, 147% and 100%, risk-free interest rates of 3%, 3% and 5%, weighted-average
expected life of 5 years, and no dividend yields.

    The  weighted-average  fair value of stock options granted during 2003, 2002
and 2001 was $0.53, $0.44 and $3.02, respectively.


                                       F-27
<PAGE>

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

                             Number of shares      Weighted average
                                                    exercise price
                            ------------------------------------------
Balance, January 1, 2001           2,814,850            $ 5.82
Granted                            1,596,250              3.93
Exercised                            (11,875)             2.37
Canceled                          (1,236,895)             4.66
                                -------------
Balance, December 31, 2001         3,162,330              5.34
Granted                              445,000              0.49
Exercised                                (30)             3.50
Canceled                          (1,400,500)             4.05
                                -------------
Balance, December 31, 2002         2,206,800              5.18
Granted                            8,594,897              0.13
Exercised                           (314,325)             0.13
Canceled                            (689,150)             2.61
                                -------------
Balance, December 31, 2003         9,798,222             $ 1.10
                                =============


    The following table summarizes  information concerning currently outstanding
and exercisable options at December 31, 2003:

                                        Options outstanding
                              ------------------------------------------
                                              Weighted-
                                Number         average         Options
                             outstanding      remaining      exercisable
                                  at         contractual          at
  Range of exercise prices    12/31/2003        life          12/31/2003
------------------------------------------------------------------------
        $0.13 -       $0.50    8,433,222      9.8 years       4,583,076
        $0.54 -       $0.84      132,500      8.3 years          49,250
                      $1.50        8,000      7.6 years           4,000
                      $2.50      372,000      5.2 years         372,000
        $3.40 -       $3.86      188,000      6.7 years         147,000
        $5.15 -       $5.53       58,000      7.2 years          29,000
                      $6.50       36,000      6.5 years          27,000
        $8.02 -       $8.17        5,500      7.0 years           3,250
                      $9.37       12,000      7.0 years           9,000
                     $11.21        3,000      6.8 years           2,250
                     $13.00      550,000      6.5 years         550,000
                               9,798,222      9.4 years       5,775,826
                            =============                  =============


(c) Warrants

    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 convertible  preferred stock, the 1999 grant was in connection with the
issuance  of Series B  convertible  preferred  stock,  and the 2000 grant was in
connection with the issuance of Series C convertible redeemable preferred stock.
The warrants  granted in 2001 were in  conjunction  with the  acquisition of the
Commerce Division and BrightStreet.com, with rights to purchase common shares of
1,860,577 and 750,000,  respectively. The warrants issued in 2002 were issued in
consideration  of a financing  commitment  (see Note 3d).  The  warrants  issued
during 2003 were issued in connection with Peter Friedli's  continued support of
the business and his assistance with fundraising.


                                       F-28
<PAGE>

    The warrant issued to Inktomi Corporation,  in 2001, as part of the Commerce
Division acquisition was a contingent performance-based warrant that Inktomi was
eligible  to  exercise  based upon the  achievement  of revenue  targets for the
Commerce  Division  at  the  end  of 12  months  following  the  closing  of the
acquisition.  Since  revenue  did not meet  the  contractually  defined  revenue
target, the right to exercise the earn-out warrant expired during 2002.

    The warrants  issued in conjunction  with the  BrightStreet.com  acquisition
consist of a  guaranteed  warrant to purchase  500,000  shares of the  Company's
common  stock and a  contingent  performance-based  warrant  to  purchase  up to
250,000 shares of the Company's common stock. The  performance-based  warrant is
based  upon  the   achievement   of  a  revenue   target  of  $7   million   for
BrightStreet.com  during the 18 months following the closing of the acquisition.
Since revenue did not meet the contractually  defined revenue target,  the right
to exercise the performance-based warrant expired during 2003.

    The following table sets forth the warrants  outstanding,  their  underlying
common shares and their weighted average exercise price per share:

                                             Weighted Average
                                Share         Exercise Price
                              ------------------------------------
Balance, January 01, 2001         607,485       $ 5.82
Granted                         2,610,577         4.27
                              -----------
Balance, December 31, 2001      3,218,062         4.56
Granted                         6,000,000         0.13
Expired                        (1,860,577)        5.51
                              -----------
Balance, December 31, 2002      7,357,485         0.71
Granted                           345,000         0.50
Expired                          (628,000)        0.14
                              -----------
Balance, December 31, 2003      7,074,485       $ 0.75
                              ===========

    Of the 229,485  outstanding balance of warrants granted through December 31,
2000,  119,485  expire on February  18, 2005 and 110,000  expire on December 31,
2008. The 1,860,577 warrants granted to Inktomi during 2001 expired on March 28,
2002  and  the  250,000   performance-based   warrants   that  were  granted  to
BrightStreet.com  during 2001 expired on June 03, 2003.  The  remaining  500,000
warrants  issued to  BrightStreet.com  expire on December 3, 2005. The 6,000,000
warrants  issued  during 2002  expire on April 7, 2008 and the 345,000  warrants
issued in 2003 expire on December 8, 2007.

(d) Authorized Capital

    On November 7, 2001, the Company's board of directors  unanimously approved,
subject to  stockholder  approval,  (i) an amendment of the  Company's  Restated
Certificate   of   Incorporation,   as   amended   ("Restated   Certificate   of
Incorporation"),  to increase the total authorized capital stock from 50,000,000
shares to  130,000,000  shares in connection  with an increase in the authorized
common stock from 40,000,000  shares to 120,000,000  shares (this amendment will
not effect a change to the 10,000,000 shares of authorized preferred stock); and
(ii) an  amendment  to the  Company's  Amended  and  Restated  Stock  Option and
Incentive  Plan, as amended (the "Stock Option  Plan"),  to increase the maximum
number of shares  available  for  issuance  from  5,000,000  to  21,000,000.  On
November  30,  2001,  holders of a  majority  of the  outstanding  shares of the
Company's  common stock  executed a written  stockholder  consent  approving the
amendment  of the  Company's  Restated  Certificate  of  Incorporation  and  the
amendment  to  the  Company's  Stock  Option  Plan.  Under  applicable   federal
securities  laws, the  amendments is not effective  until at least 20 days after
this information statement is sent or given to the Company's stockholders.

(15) RELATED PARTY TRANSACTION

    Peter  Friedli,  one of  the  Company's  directors  and  stockholders  (that
directly or indirectly  owns  approximately  47.5% of the Company's  outstanding
common stock), serves as the investment advisor to both Venturetec and Pine, and
also  serves  as  President  of  Venturetec  and  its  parent  corporation,  New
Venturetec AG. Mr. Friedli also has relationships  with several of the Company's
other  stockholders;  he serves as the  investment  advisor to InVenture,  Inc.,
Joyce,  Ltd.,  Savetech,  Inc., Spring Technology Corp. and USVentech,  Inc. Mr.
Friedli  also serves as the  President  of Friedli  Corporate  Finance,  Inc., a
consulting company that is utilized by the Company.


                                       F-29
<PAGE>

    On October 8, 2002, the Company's  board of directors  approved the issuance
of  6,000,000  warrants to four  investors  as  consideration  for a $20 million
financing  commitment  which was  memorialized  in a letter to the  Company,  by
Friedli Corporate  Finance,  dated September 12, 2002. The warrants entitle each
investor to purchase one share of the Company's  common  stock,  $0.01 per value
per  share,  for an  initial  exercise  price of CHF 0.19 per share  during  the
exercise period.  Pursuant to an amendment to the warrants,  the exercise period
began  three  months  from  January 6, 2003 and ends on April 7, 2008.  The fair
value of these warrants,  using the Black-Scholes pricing model on the date they
were granted, was estimated to be approximately  $720,000. Two of the investors,
Peter Friedli and  Venturetec,  are  stockholders of the Company and pursuant to
the terms of the private placement each received 1,000,000 warrants.  As part of
this financing, in March 2003, the Company executed convertible promissory notes
in favor of Friedli  Corporate  Finance and InVenture,  Inc. The notes allow the
Company to draw down against the available  principal of up to $6 million at any
time and in any amount  during the first two years of the notes.  All  principal
drawn  upon  will be  secured  by  substantially  all of the  Company's  assets.
Subsequent  to the issuance of these  promissory  notes,  the  Company,  Friedli
Corporate  Finance and InVenture,  Inc.  agreed to assemble a syndicate of third
parties to whom the Company would issue  convertible  promissory  notes on terms
similar to the March 2003 $6 million convertible promissory notes. The aggregate
dollar amount of the  convertible  promissory  notes that the Company  issues to
third parties through syndication will reduce, on a dollar-for-dollar basis, the
$6  million  convertible  promissory  notes of  Friedli  Corporate  Finance  and
InVenture,  Inc. and the balance,  if any,  will continue to be available to the
Company  under the  initial $6 million  commitment.  As part of the  syndication
process,  during 2003,  the Company  issued nine  convertible  promissory  notes
totaling  $3,450,000.  During March 2004, the credit  facility  available to the
Company  under  Friedli  Corporate  Finance's  and  InVenture,   Inc.'s  initial
commitment was increased from $6 million to $12 million.

    Venturetec  and  Pine  were   debentureholders   in  Consumer  Review,  Inc.
Therefore,  as a result of the Company's acquisition of substantially all of the
assets of Consumer Review,  Inc. in December 2002,  Venturetec and Pine received
240,315  shares  and  4,500  shares,  respectively,  of the  Company's  Series B
convertible preferred stock.

    As part of its October 2001 rights offering,  the Company sold shares of its
common  stock to  Venturetec  and Pine.  Venturetec  and Pine each  delivered  a
promissory note as consideration  for the  subscription  price for the shares of
common stock for which each  company  subscribed.  Venturetec's  note (which was
partial  consideration for the purchase of the shares; the remainder was paid in
cash) was in the principal amount of CHF 8,500,000  (approximately $5.2 million)
and Pine's note was in the principal amount of CHF 8,687,530 (approximately $5.3
million).  However,  on January 22, 2002,  Pine,  Venturetec and InVenture,  all
companies under common control, reallocated their share purchases and/or related
promissory  notes.  The  CHF  2,500,000  (approximately  $1.5  million)  in cash
originally indicated as originating from Venturetec was reallocated as follows:

         o    In a private sale,  InVenture purchased from Pine 1,041,667 shares
              of common  stock,  originally  purchased  by Pine  pursuant to the
              rights offering,  for CHF 2,083,334.  As part of this transaction,
              Pine was credited  with paying CHF 2,083,334  (approximately  $1.3
              million) and delivered an amended and restated secured  promissory
              note, in the principal amount of CHF 6,604,196 (approximately $4.1
              million),  with 2% interest. The Company  simultaneously  returned
              Pine's  original  CHF  8,687,530   promissory  note.  All  of  the
              outstanding  principal and interest under the promissory notes was
              fully received by April 2002.

         o    Venturetec  paid  us  CHF  416,666  (approximately  $256,000)  and
              delivered an amended and restated secured  promissory note, in the
              principal amount of CHF 10,583,334  (approximately  $6.5 million),
              with 2%  interest.  This CHF  10,583,334  reflects  an increase in
              Venturetec's   secured   promissory   note   to   CHF   11,000,000
              (approximately  $6.8 million),  reflecting  Venturetec's  original
              subscription  price for the  shares  of common  stock for which it
              subscribed  under  the  rights  offering,  minus  the CHF  416,666
              payment. The Company simultaneously returned Venturetec's original
              CHF 8,500,000  promissory  note. All of the outstanding  principal
              and  interest  under the  promissory  notes was fully  received by
              April 2002.

    In July 1996, the Company  entered into a consulting  agreement with Friedli
Corporate  Finance,  which was  subsequently  renewed in 2001 and again in 2003.
Under the agreement,  Friedli Corporate Finance 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 Friedli  Corporate Finance
clients/investors and the Company by disseminating information to such investors
on behalf of the Company. Consulting expense under the Friedli Corporate Finance
agreement  was  approximately  $63,000 for each of the years ended  December 31,
2003,  2002 and 2001. In connection  with his continued  support of the business
and his  assistance  with  fundraising,  on December 8, 2003,  Peter Friedli was
issued 345,000  warrants with an exercise price of $0.50 and an expiration  date
of December  8, 2007.  As a result of the help  provided  in securing  the funds
associated with the convertible promissory notes, Peter Friedli was paid fees of
$360,000  during 2003. In  conjunction  with the $3.3 million of funds  received
during the first and second  quarters of 2004,  Peter  Friedli is to be provided
with an  additional  $330,000 in fees,  which Mr.  Friedli has  indicated to the
Company will be distributed to a number of third party banks and individuals who
assisted in the  financing  effort.  In addition,  the Company  engaged  Friedli
Corporate  Finance to support the Company in  connection  with the October  2001
rights offering and paid $100,000 in expenses for such rights offering support.


                                       F-30
<PAGE>

    During 1999, the Company issued a convertible  long-term debt instrument for
$1,000,000 to an investment group controlled by Friedli Corporate Finance.  This
instrument  was  converted  into common  stock upon  consummation  of the IPO in
October 2000.

    As a member of the Company's board of directors,  through December 31, 2003,
Peter Friedli has received 90,000 options as Director  Compensation (see Item 10
- "Directors And Executive Officers Of The Registrant" for further details).

(16) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

    The following tables contain unaudited  Statement of Operations  information
for each quarter of 2003, 2002 and 2001. The Company believes that the following
information  reflects  all normal  recurring  adjustments  necessary  for a fair
presentation of the information for the periods presented. The operating results
for any quarter are not necessarily indicative of results for any future period.

<TABLE>
<CAPTION>
                                                                             2003
                                              -----------------------------------------------------------------
                                                1st Quarter       2nd Quarter        3rd Quarter    4th Quarter
                                              -----------------------------------------------------------------
<S>                                           <C>                <C>               <C>            <C>
Revenues                                       $ 1,621,735        $ 1,380,657       $ 1,457,411    $ 1,599,320
Operating loss                                  (2,859,221)        (2,393,645)       (1,998,054)    (4,626,447)
Loss before income tax                          (2,861,751)        (2,474,838)       (2,151,324)    (4,854,277)
Net loss applicable to common stockholders      (2,861,751)        (2,474,838)       (2,151,324)    (4,854,277)
Basic and diluted net loss per common share        $ (0.08)           $ (0.06)          $ (0.05)       $ (0.09)


                                                                              2002
                                              -----------------------------------------------------------------
                                                1st Quarter       2nd Quarter        3rd Quarter    4th Quarter
                                              -----------------------------------------------------------------
Revenues                                       $ 1,343,138        $ 1,919,718       $ 2,645,321    $ 1,312,621
Operating loss                                  (6,639,926)        (7,260,093)         (616,878)    (2,885,845)
Loss before income tax                          (6,520,556)        (7,152,186)         (593,825)    (2,897,796)
Net loss applicable to common stockholders      (6,529,413)        (7,162,389)         (608,352)    (2,844,733)
Basic and diluted net loss per common share        $ (0.17)           $ (0.19)          $ (0.02)       $ (0.08)


                                                                              2001
                                              -----------------------------------------------------------------
                                                1st Quarter       2nd Quarter        3rd Quarter    4th Quarter
                                              -----------------------------------------------------------------
Revenues                                       $ 1,802,575        $ 1,403,293         $ 735,086    $ 1,112,670
Operating loss                                  (7,786,645)       (11,158,778)       (8,065,224)   (18,577,669)
Loss before income tax                          (7,456,198)       (10,997,034)       (8,004,793)   (18,525,964)
Net loss applicable to common stockholders      (7,456,198)       (10,997,034)       (8,004,793)   (18,545,440)
Basic and diluted net loss per common share        $ (0.49)           $ (0.63)          $ (0.46)       $ (1.07)
</TABLE>


(17) SUBSEQUENT EVENTS

(a) Credit Facility

    During  March 2004,  the credit  facility  available  to the  Company  under
Friedli  Corporate  Finance's  and  InVenture,  Inc.'s  initial  commitment  was
increased from $6 million to $12 million.

(b) Convertible Promissory Notes

     As part of the Company's syndication process, as discussed in Note 15, from
January 2004 through June 2004, the Company issued six convertible promissory
notes with principal amounts of $100,000, $400,000, $200,000, $600,000,
$1,000,000 and $1,000,000. The terms of the notes include, among other things:

    o    an 8% interest rate;
    o    a maturity date three years from the date of issuance;
    o    a conversion feature,  which provides that under certain  circumstances
         the note will automatically convert to common stock of the Company;
    o    a one-time  final payment  charge of 10% of the principal for each year
         that the principal is not paid on or before each annual  anniversary of
         the date the note was issued (with a maximum of 30%); and
    o    a security interest in substantially all of the Company's assets.


                                       F-31
<PAGE>

(c) Options

    From January 2004 through  June 2004,  99,250  options that were  previously
granted to employees were exercised.

(d) ACQUISITION

    Pursuant  to an Asset  Purchase  Agreement  dated as of June 25,  2004,  the
Company acquired  substantially all of the assets and certain of the liabilities
of  Collabrys,  Inc.  ("Collabrys").  Collabrys  is a  provider  of  interactive
marketing   technologies  and  services  to  enable  customer   acquisition  and
retention.  Consideration  consists of a $15,000  cash  payment and a 7% royalty
payment on revenue, as defined in the purchase agreement.


                                       F-32
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors:
E-centives, Inc.:

    Under date of June 29, 2004, we reported on the consolidated  balance sheets
of  E-centives,  Inc.  and  subsidiary  as of December 31, 2003 and 2002 and the
related  consolidated  statements of operations,  stockholders' equity (deficit)
and  comprehensive  loss and cash flows for each of the years in the  three-year
period ended  December 31, 2003 which are included in this Annual Report on Form
10-K. In connection with our audits of the aforementioned consolidated financial
statements,  we  also  audited  the  related  consolidated  financial  statement
schedule.  This consolidated  financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
consolidated financial statement schedule based on our audits.

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

    As  discussed  in Notes 2 and 7 to the  consolidated  financial  statements,
effective  January 1, 2002,  the Company  adopted the provisions of Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets".


/s/ KPMG LLP
McLean, Virginia
June 29, 2004


                                       F-33
<PAGE>

                                   SCHEDULE II

                                E-CENTIVES, INC.

                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

                  YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

<TABLE>
<CAPTION>

Column A                                        Column B           Column C                                      Column D
------------------------------------------     ------------       -------------------------------------------   ----------------
                                               Balance at         Charged to                     Charged
                                                Beginning         Costs and          Net        to Other
Description                                     of Period          Expenses       Cash Paid     Accounts        Deductions
------------------------------------------     ------------       -------------------------------------------   ----------------
Year ended December 31, 2003:
<S>                                            <C>                <C>                <C>           <C>       <C>        <C>
   Allowance for doubtful accounts                  $ 75,108           $ 44,097           $ -           $ -       $ (56,119) (4)
                                               =============     ============================================  ================
   Valuation allowance on deferred tax asset    $ 41,572,468        $ 5,350,522           $ -           $ -             $ -
                                               =============     ============================================  ================
   Accrued restructuring charge                    $ 717,079                $ -    $ (639,803)          $ -             $ -
                                               =============     ============================================  ================
Year ended December 31, 2002:
   Allowance for doubtful accounts                 $ 148,127           $ 35,263           $ -      $ 35,314  (1) $ (143,596) (4)
                                                 =============     ============================================  ================
   Valuation allowance on deferred tax asset    $ 36,034,723        $ 5,537,745           $ -           $ -             $ -
                                                 =============     ============================================  ================
   Accrued restructuring charge                  $ 9,062,950        $ 1,128,400  $ (3,730,071) $ (5,744,200) (2)        $ -
                                               =============     ============================================  ================

Year ended December 31, 2001:
   Allowance for doubtful accounts                 $ 252,016          $ 493,168           $ -    $ (210,000) (3) $ (387,057) (4)
                                               =============     ============================================  ================
   Valuation allowance on deferred tax asset    $ 20,057,690       $ 15,977,033           $ -           $ -             $ -
                                               =============     ============================================  ================
   Accrued restructuring charge                          $ -        $ 9,406,726    $ (343,776)          $ -             $ -
                                               =============     ============================================  ================

</TABLE>


Column A                                          Column E
------------------------------------------       ---------------
                                                   Balance
                                                  at End of
Description                                        Period
------------------------------------------       ---------------
Year ended December 31, 2003:
   Allowance for doubtful accounts                    $ 63,086
                                                ===============
   Valuation allowance on deferred tax asset      $ 46,922,990
                                                ===============
   Accrued restructuring charge                       $ 77,276
                                                ===============
Year ended December 31, 2002:
   Allowance for doubtful accounts                    $ 75,108
                                                ===============
   Valuation allowance on deferred tax asset      $ 41,572,468
                                                ===============
   Accrued restructuring charge                      $ 717,079
                                                ===============

Year ended December 31, 2001:
   Allowance for doubtful accounts                   $ 148,127
                                                ===============
   Valuation allowance on deferred tax asset      $ 36,034,723
                                                ===============
   Accrued restructuring charge                    $ 9,062,950
                                                ===============


----------

(1)  allowance for doubtful accounts recorded in connection with the acquisition
     of substantially all the assets of Consumer Review, Inc.
(2)  fixed assets,  intangible assets, deferred rent, prepaid expenses and other
     assets
(3)  deferred revenue
(4)  accounts receivable


<PAGE>

                                INDEX TO EXHIBITS


                        Exhibit
                        Number                    Description
                        -------   ----------------------------------------------
                        2.1       Asset  Purchase  Agreement,  dated January 18,
                                  2001,  by and  between  E-centives,  Inc.  and
                                  Inktomi  Corporation  (incorporated  herein by
                                  reference to Exhibit 2.1 to the Current Report
                                  on Form 8-K filed by  E-centives  on April 11,
                                  2001).

                        2.2       Asset  Purchase  Agreement,  dated December 3,
                                  2001,  by and  between  E-centives,  Inc.  and
                                  BrightStreet.com, Inc. (incorporated herein by
                                  reference to Exhibit 2.1 to the Current Report
                                  on Form 8-K filed by  E-centives  on  December
                                  18, 2001).

                        2.3       Amended and Restated Asset Purchase Agreement,
                                  dated   December  26,  2001,  by  and  between
                                  E-centives,  Inc. and  BrightStreet.com,  Inc.
                                  (incorporated  herein by  reference to Exhibit
                                  2.1 to the  Amended  Current  Report  on  Form
                                  8-K/A filed by E-centives on January 3, 2002).

                        2.4       Asset Purchase  Agreement,  dated November 08,
                                  2002,  by and  between  E-centives,  Inc.  and
                                  Consumer Review, Inc.  (incorporated herein by
                                  reference   to  Exhibit  2.1  to  the  Amended
                                  Current Report on Form 8-K filed by E-centives
                                  on December 13, 2002).

                        3.1(1)    Restated   Certificate  of   Incorporation  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.

                        4.3(1)    Common  Stock  Purchase  Warrant,  dated as of
                                  March 28, 2001, between  E-centives,  Inc. and
                                  Inktomi Corporation.

                        4.4(1)    Warrant to Purchase Common Stock,  dated as of
                                  December 3, 2001, between E-centives, Inc. and
                                  BrightStreet.com, Inc.

                        4.5(1)    Warrant to Purchase  500,000  shares of Common
                                  Stock,  dated as of December 3, 2001,  between
                                  E-centives, Inc. and BrightStreet.com, Inc.

                        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      Amended   and   Restated   Stock   Option  and
                                  Incentive   Plan   (incorporated   herein   by
                                  reference to Exhibit  99.2 to the  E-centives'
                                  Registration    Statement    on    Form    S-8
                                  (Registration No. 333-58244))

                        10.12     Modification,    Assignment   and   Assumption
                                  Agreement,  dated  November  1,  2001,  by and
                                  among E-centives, Inc., BrightStreet.com, Inc.
                                  and   Pentech   Financial    Services,    Inc.
                                  (incorporated  herein by  reference to Exhibit
                                  10.12 to the Annual  Report Form 10-K filed by
                                  E-centives on March 31, 2003).

                        23.1*     Consent of KPMG LLP.

                        31.1*     Certification   of  Chief  Executive   Officer
                                  pursuant to Section 302 of the  Sarbanes-Oxley
                                  Act of 2002.

                        31.2*     Certification   of  Chief  Financial   Officer
                                  pursuant to Section 302 of the  Sarbanes-Oxley
                                  Act of 2002.

                        32.1*     Certification  of the Chief Executive  Officer
                                  Pursuant to Section 906 of the  Sarbanes-Oxley
                                  Act of 2002,  furnished  under  Exhibit  32 of
                                  Item   601   of    Regulation    S-K.    32.2*
                                  Certification  of the Chief Financial  Officer
                                  Pursuant to Section 906 of the  Sarbanes-Oxley
                                  Act of 2002,  furnished  under  Exhibit  32 of
                                  Item 601 of Regulation S-K.

----------

(1)  Incorporated  by reference to the  Registrant's  Registration  Statement on
     Form S-1 (Registration No. 333-42574).

*    Filed or furnished with this report.


<PAGE>

                                                                    EXHIBIT 23.1


            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and stockholders:
E-centives, Inc.:

We consent to the incorporation by reference in the registration statements (No.
333-69276 and No.  333-58244) on Form S-8 and the  registration  statement  (No.
333-73900) on Form S-3 of  E-centives,  Inc. of our reports dated June 29, 2004,
with  respect  to the  consolidated  balance  sheets  of  E-centives,  Inc.  and
subsidiary  as of  December  31,  2003 and 2002,  and the  related  consolidated
statements of operations, stockholders' equity (deficit) and comprehensive loss,
and cash flows for each of the years in the three year period ended December 31,
2003, and the related financial statement schedule,  which reports appear in the
December 31, 2003 annual report on Form 10-K of E-centives, Inc.

Our reports dated June 29, 2004,  contain an  explanatory  paragraph that states
that effective  January 1, 2002, the Company adopted the provisions of Statement
of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets.


/s/ KPMG LLP
McLean, Virginia
June 29, 2004


<PAGE>

                                                                    EXHIBIT 31.1

     CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Mehrdad Akhavan, certify that:

    1)   I have reviewed this annual report on Form 10-K of E-centives, Inc.;

    2)   Based  on my  knowledge,  this  report  does  not  contain  any  untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances  under which
         such  statements  were made, not misleading  with respect to the period
         covered by this report;

    3)   Based on my knowledge,  the financial  statements,  and other financial
         information  included in this  report,  fairly  present in all material
         respects the financial condition,  results of operations and cash flows
         of the registrant as of, and for, the periods presented in this report;

    4)   The registrant's  other  certifying  officers and I are responsible for
         establishing  and  maintaining  disclosure  controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

         a)   Designed such disclosure  controls and procedures,  or caused such
              disclosure  controls  and  procedures  to be  designed  under  our
              supervision,  to ensure that material  information relating to the
              registrant, including its consolidated subsidiaries, is made known
              to us by others  within those  entities,  particularly  during the
              period in which this report is being prepared;

         b)   Evaluated  the   effectiveness  of  the  registrant's   disclosure
              controls  and   procedures   and  presented  in  this  report  our
              conclusions about the effectiveness of the disclosure controls and
              procedures,  as of the end of the period  covered  by this  report
              based on such evaluation; and

         c)   Disclosed in this report any change in the  registrant's  internal
              control  over  financial   reporting  that  occurred   during  the
              registrant's most recent fiscal quarter (the  registrant's  fourth
              fiscal  quarter  in  the  case  of  an  annual  report)  that  has
              materially affected, or is reasonably likely to materially affect,
              the registrant's internal control over financial reporting; and

    5)   The registrant's other certifying officers and I have disclosed,  based
         on our most  recent  evaluation  of  internal  control  over  financial
         reporting,  to the  registrant's  auditors  and the audit  committee of
         registrant's  board of directors (or persons  performing the equivalent
         function):

         a)   All significant deficiencies and material weaknesses in the design
              or operation of internal  control over financial  reporting  which
              are reasonably likely to adversely affect the registrant's ability
              to record,  process,  summarize and report financial  information;
              and

         b)   Any fraud,  whether or not material,  that involves  management or
              other  employees who have a significant  role in the  registrant's
              internal control over financial reporting.



Date:  June 30, 2004
                                    By:     /s/ Mehrdad Akhavan
                                       -----------------------------------------
                                            Mehrdad Akhavan
                                            Chief Executive Officer


<PAGE>

                                                                    EXHIBIT 31.2

     CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Tracy L. Slavin, certify that:

    1)   I have reviewed this annual report on Form 10-K of E-centives, Inc.;

    2)   Based  on my  knowledge,  this  report  does  not  contain  any  untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances  under which
         such  statements  were made, not misleading  with respect to the period
         covered by this report;

    3)   Based on my knowledge,  the financial  statements,  and other financial
         information  included in this  report,  fairly  present in all material
         respects the financial condition,  results of operations and cash flows
         of the registrant as of, and for, the periods presented in this report;

    4)   The registrant's  other  certifying  officers and I are responsible for
         establishing  and  maintaining  disclosure  controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

         a)   Designed such disclosure  controls and procedures,  or caused such
              disclosure  controls  and  procedures  to be  designed  under  our
              supervision,  to ensure that material  information relating to the
              registrant, including its consolidated subsidiaries, is made known
              to us by others  within those  entities,  particularly  during the
              period in which this report is being prepared;

         b)   Evaluated  the   effectiveness  of  the  registrant's   disclosure
              controls  and   procedures   and  presented  in  this  report  our
              conclusions about the effectiveness of the disclosure controls and
              procedures,  as of the end of the period  covered  by this  report
              based on such evaluation; and

         c)   Disclosed in this report any change in the  registrant's  internal
              control  over  financial   reporting  that  occurred   during  the
              registrant's most recent fiscal quarter (the  registrant's  fourth
              fiscal  quarter  in  the  case  of  an  annual  report)  that  has
              materially affected, or is reasonably likely to materially affect,
              the registrant's internal control over financial reporting; and

    5)   The registrant's other certifying officers and I have disclosed,  based
         on our most  recent  evaluation  of  internal  control  over  financial
         reporting,  to the  registrant's  auditors  and the audit  committee of
         registrant's  board of directors (or persons  performing the equivalent
         function):

         a)   All significant deficiencies and material weaknesses in the design
              or operation of internal  control over financial  reporting  which
              are reasonably likely to adversely affect the registrant's ability
              to record,  process,  summarize and report financial  information;
              and

         b)   Any fraud,  whether or not material,  that involves  management or
              other  employees who have a significant  role in the  registrant's
              internal control over financial reporting.





Date:  June 29, 2004
                                    By:     /s/Tracy L. Slavin
                                       -----------------------------------------
                                            Tracy L. Slavin
                                            Chief Financial Officer



<PAGE>


                                                                    Exhibit 32.1

                                  CERTIFICATION
                       PURSUANT TO 18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


    In connection with the Annual Report of E-centives,  Inc. (the "Company") on
Form 10-K for the  fiscal  year  ended  December  31,  2003,  as filed  with the
Securities  and  Exchange  Commission  on the date  hereof (the  "Report"),  the
undersigned  hereby  certifies,  pursuant to 18 U.S.C.  Section 1350, as adopted
pursuant  to  Section  906  of  the  Sarbanes-Oxley  Act of  2002,  that  to the
undersigned's knowledge:

         (a) the Report fully complies with the requirements of Section 13(a) or
         15(d) of the Securities Exchange Act of 1934;

         and

         (b) the  information  contained in the Report fairly  presents,  in all
         material respects, the financial condition and results of operations of
         the Company.

Dated this 30th day of June, 2004


                                   By:      /s/ Mehrdad Akhavan
                                      ------------------------------------------
                                            Mehrdad Akhavan
                                            Chief Executive Officer



<PAGE>


                                                                    EXHIBIT 32.2

                                  CERTIFICATION
                       PURSUANT TO 18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


    In connection with the Annual Report of E-centives,  Inc. (the "Company") on
Form 10-K for the  fiscal  year  ended  December  31,  2003,  as filed  with the
Securities  and  Exchange  Commission  on the date  hereof (the  "Report"),  the
undersigned  hereby  certifies,  pursuant to 18 U.S.C.  Section 1350, as adopted
pursuant  to  Section  906  of  the  Sarbanes-Oxley  Act of  2002,  that  to the
undersigned's knowledge:

         (a) the Report fully complies with the requirements of Section 13(a) or
         15(d) of the Securities Exchange Act of 1934;

         and

         (b) the  information  contained in the Report fairly  presents,  in all
         material respects, the financial condition and results of operations of
         the Company.

Dated this 29th day of June, 2004


                                    By:     /s/Tracy L. Slavin
                                       -----------------------------------------
                                            Tracy L. Slavin
                                            Chief Financial Officer