<PAGE>
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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

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

                                   FORM 10-Q

(MARK ONE)

<TABLE>
<C>        <S>
   /X/     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
</TABLE>

                 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
                                       OR

<TABLE>
<C>        <S>
   / /     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934
</TABLE>

        FOR THE TRANSITION PERIOD FROM ______________ TO ______________

                        COMMISSION FILE NUMBER 000-27405

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

                                 NETZERO, INC.

             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                            <C>
               DELAWARE                                     95-4644384
    (State or other jurisdiction of            (I.R.S. Employer Identification No.)
    incorporation or organization)

         2555 TOWNSGATE ROAD,                                 91361
     WESTLAKE VILLAGE, CALIFORNIA                           (Zip Code)
(Address of principal executive office)
</TABLE>

                                 (805) 418-2000
              (Registrant's telephone number, including area code)

                                 NOT APPLICABLE
   (Former name, former address and former fiscal year, if changed since last
                                    report)

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

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

    Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

    Number of shares of Common Stock outstanding as of March 31, 2000:
104,840,241 shares.

--------------------------------------------------------------------------------
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<PAGE>
                                     INDEX

<TABLE>
<CAPTION>
                                                                         PAGE
                                                                       --------
<S>      <C>                                                           <C>
PART I FINANCIAL INFORMATION

Item 1.  Consolidated Balance Sheets at March 31, 2000 and June 30,
           1999......................................................      3
         Consolidated Statements of Operations for the three months
           ended March 31, 2000 and 1999 and the nine months ended
           March 31, 2000 and 1999...................................      4
         Consolidated Statements of Cash Flow for the nine months
           ended March 31, 2000
           and 1999..................................................      5
         Notes to Consolidated Financial Statements..................      6
Item 2.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations.................................      9
Item 3.  Quantitative and Qualitative Disclosures About Market
           Risk......................................................     32

PART II OTHER INFORMATION

Item 1.  Legal Proceedings...........................................     33
Item 2.  Changes in Securities and Use of Proceeds...................     33
Item 3.  Defaults Upon Senior Securities.............................     33
Item 4.  Submission of Matters to a Vote of Security Holders.........     33
Item 5.  Other Information...........................................     33
Item 6.  Exhibits and Reports on Form 8-K............................     33
         A. Exhibits
         B. Reports on Form 8-K
Signatures...........................................................     34
</TABLE>

    In this Report, "NetZero," the "Company," "we," "us" and "our" collectively
refers to NetZero, Inc. and its wholly-owned subsidiaries.

                                       2
<PAGE>
PART I. FINANCIAL INFORMATION

                                 NETZERO, INC.

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                               MARCH 31,       JUNE 30,
                                                                  2000           1999
                                                              ------------   ------------
                                                              (UNAUDITED)
<S>                                                           <C>            <C>
                                         ASSETS
Current assets:
  Cash and cash equivalents.................................  $118,552,000   $ 24,035,000
  Short-term investments....................................     7,500,000             --
  Restricted cash...........................................    10,199,000             --
  Accounts receivable, net of allowance for doubtful
    accounts of $625,000 at March 31, 2000 and $160,000 at
    June 30, 1999...........................................    10,287,000      2,253,000
  Other current assets......................................     2,668,000        689,000
                                                              ------------   ------------
    Total current assets....................................   149,206,000     26,977,000
Property and equipment, net.................................    25,439,000     18,116,000
Restricted cash.............................................     2,687,000      1,789,000
Intangible assets...........................................    20,541,000             --
Other assets................................................     1,658,000        619,000
                                                              ------------   ------------
    Total assets............................................  $199,531,000   $ 47,501,000
                                                              ============   ============
                          LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable..........................................    16,218,000      4,879,000
  Accrued liabilities.......................................     2,311,000      1,521,000
  Deferred revenue..........................................     2,426,000      2,739,000
  Current portion of notes payable..........................     1,529,000        560,000
  Current portion of capital leases.........................     3,018,000      1,181,000
                                                              ------------   ------------
Total current liabilities:..................................    25,502,000     10,880,000

Notes payable less current portion..........................     2,809,000      1,210,000
Capital leases less current portion.........................     5,033,000      2,317,000

Redeemable convertible preferred stock, no-par value;
  19,231,000 shares authorized; 19,230,000 issued and
  outstanding at June 30, 1999; liquidation preference and
  redemption value of $2,140,000; no shares issued or
  outstanding at March 31, 2000.............................            --      2,140,000

Stockholders' equity
Convertible preferred stock, $0.001 par value; 55,769,000
  shares authorized; 45,182,000 shares isued and outstanding
  at June 30, 1999; liquidation preference of $44,917,000;
  10,000,000 shares authorized and no shares issued and
  outstanding at March 31, 2000.............................            --     44,720,000
Common stock, $0.001 par value; 500,000,000 and 150,000,000
  shares authorized at March 31, 2000 and June 30, 1999,
  respectively; 104,840,000 and 28,624,000 shares issued and
  outstanding at March 31, 2000 and June 30, 1999,
  respectively..............................................       115,000      1,352,000
Additional paid-in capital..................................   261,228,000      9,019,000
Notes receivable from stockholders..........................    (1,061,000)    (1,029,000)
Deferred stock-based charges................................   (14,407,000)    (7,783,000)
Accumulated deficit.........................................   (79,688,000)   (15,325,000)
                                                              ------------   ------------
    Total stockholders' equity..............................   166,187,000     30,954,000
                                                              ------------   ------------
    Total liabilities and stockholders' equity..............  $199,531,000   $ 47,501,000
                                                              ============   ============
</TABLE>

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

                                       3
<PAGE>
                                 NETZERO, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED           NINE MONTHS ENDED
                                                   MARCH 31,                    MARCH 31,
                                           --------------------------   --------------------------
                                               2000          1999           2000          1999
                                           ------------   -----------   ------------   -----------
<S>                                        <C>            <C>           <C>            <C>
Net revenues.............................  $ 16,858,000   $   781,000   $ 36,820,000   $   903,000

Cost of revenues (excluding stock-based
  charges of $96,000 and $285,000) for
  the quarter and nine months ended March
  31, 2000, respectively)................    18,459,000     3,979,000     45,701,000     5,049,000
                                           ------------   -----------   ------------   -----------

GROSS LOSS...............................    (1,601,000)   (3,198,000)    (8,881,000)   (4,146,000)
                                           ------------   -----------   ------------   -----------

OPERATING EXPENSES

  Sales and marketing (excluding
    stock-based charges of $804,000 and
    $1,328,000 for the quarter and nine
    months ended March 31, 2000,
    respectively)........................    12,923,000       522,000     33,470,000       834,000

  Product development (excluding stock-
    based charges of $81,000 and $240,000
    for the quarter and nine months ended
    March 31, 2000, respectively)........     1,566,000       288,000      3,796,000       483,000

  General and administrative (excluding
    stock-based charges of $980,000 and
    $188,000 for the quarters ended March
    31, 2000 and 1999 and $2,907,000 and
    $344,000 for the nine months ended
    March 31, 2000 and 1999,
    respectively)                             6,073,000       929,000     14,064,000     1,324,000

  Stock-based charges....................     1,961,000       188,000      4,759,000       344,000

  Amortization of intangible assets......     2,500,000            --      3,158,000            --
                                           ------------   -----------   ------------   -----------

    Total operating expenses.............    25,023,000     1,927,000     59,247,000     2,985,000
                                           ------------   -----------   ------------   -----------

      LOSS FROM OPERATIONS...............   (26,624,000)   (5,125,000)   (68,128,000)   (7,131,000)
                                           ------------   -----------   ------------   -----------

Interest income..........................     2,128,000        50,000      4,809,000        50,000

Interest expense.........................      (364,000)      (20,000)    (1,044,000)      (26,000)
                                           ------------   -----------   ------------   -----------

      NET LOSS...........................  $(24,860,000)  $(5,095,000)  $(64,363,000)  $(7,107,000)
                                           ============   ===========   ============   ===========

Basic and diluted net loss per share.....  $      (0.27)  $     (0.50)  $      (0.99)  $     (0.67)
                                           ============   ===========   ============   ===========

Shares used to calculate basic and
  diluted net loss per share.............    91,123,000    10,277,000     64,837,000    10,587,000
                                           ============   ===========   ============   ===========
</TABLE>

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

                                       4
<PAGE>
                                 NETZERO, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOW
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                  NINE MONTHS ENDED
                                                                      MARCH 31,
                                                              --------------------------
                                                                  2000          1999
                                                              ------------   -----------
<S>                                                           <C>            <C>
Cash flows from operating activities:
  Net loss..................................................  $(64,363,000)  $(7,107,000)
  Adjustments to reconcile net loss to net cash used for
    operating activities:
  Depreciation and amortization.............................     9,188,000       148,000
  Allowance for doubtful accounts...........................       465,000        50,000
  Stock-based charges.......................................     4,759,000       344,000
  Accrued interest--notes receivable from stockholders......       (53,000)           --
  Changes in operating assets and liabilities (excluding the
    effects of the acquisition of AimTV):
    Short-term investments..................................    (7,500,000)
    Restricted cash.........................................   (11,021,000)     (794,000)
    Accounts receivable.....................................    (8,499,000)     (547,000)
    Other assets............................................    (2,993,000)     (329,000)
    Accounts payable and accrued expenses...................    11,430,000     2,305,000
    Deferred revenue........................................      (313,000)           --
                                                              ------------   -----------
      Net cash used for operating activities................   (68,900,000)   (5,930,000)
                                                              ------------   -----------
Cash flows from investing activities:
  Purchases of property and equipment.......................   (12,569,000)     (985,000)
                                                              ------------   -----------
Cash flows from financing activities:
  Payments on capital leases................................    (1,763,000)      (32,000)
  Payments on notes payable.................................      (930,000)           --
  Proceeds from equipment refinancing.......................     5,680,000            --
  Proceeds from notes payable...............................     3,498,000            --
  Repayment of note due from stockholders...................        21,000            --
  Proceeds from exercise of stock options...................       180,000       122,000
  Net proceeds from issuance of common stock................   169,300,000         2,000
  Net proceeds from issuance of redeemable convertible
    preferred stock.........................................            --     2,015,000
  Net proceeds from issuance of convertible preferred
    stock...................................................            --    11,522,000
                                                              ------------   -----------
      Net cash provided by financing activities.............   175,986,000    13,629,000
                                                              ------------   -----------
      Change in cash and cash equivalents...................    94,517,000     6,714,000
Cash and cash equivalents, beginning of period..............    24,035,000         1,000
                                                              ------------   -----------
Cash and cash equivalents, end of period....................  $118,552,000   $ 6,715,000
                                                              ============   ===========
Supplemental disclosure of cash flow activities:
  Note receivable from stockholders in connection with the
    exercise of stock options...............................  $         --   $   629,000
                                                              ============   ===========
  Equipment obtained under capital leases...................  $    636,000   $   916,000
                                                              ============   ===========
  Stock issued for acquisition of AimTV.....................  $ 23,249,000   $        --
                                                              ============   ===========
  Issuance of warrant for marketing services................  $  8,600,000   $        --
                                                              ============   ===========
</TABLE>

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

                                       5
<PAGE>
                                 NETZERO, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (UNAUDITED)

1.  ORGANIZATION AND BUSINESS.

    NetZero was incorporated in July 1997 and launched its service in
October 1998. NetZero provides consumers with free access to the Internet while
offering online advertisers an effective way to reach those consumers.

2.  BASIS OF PRESENTATION.

    The financial statements are unaudited, other than the balance sheet
information for the Company as of June 30, 1999 and, in the opinion of
management, reflect all adjustments (consisting only of normal recurring
adjustments) that are necessary for a fair presentation of the results for the
periods shown. The results of operations for such periods are not necessarily
indicative of the results expected for the full fiscal year or for any future
period. Certain amounts in the prior year's financial statements have been
reclassified to conform with the presentation of the current period. These
financial statements should be read in conjunction with the financial statements
as of June 30, 1999 and related notes included in the Company's final prospectus
dated September 23, 1999 related to its initial public offering as filed with
the Securities and Exchange Commission (the "SEC").

    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements. Actual
results may differ from those estimates.

3.  NEW PRONOUNCEMENTS.

    In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" (SAB 101), which provides additional
guidance in applying generally accepted accounting principles to revenue
recognition in the financial statements. The Company has evaluated the
provisions of SAB 101 and believes it has no effect on the Company's
consolidated financial position, consolidated results of operations or
liquidity.

4.  ACQUISITION.

    On December 1, 1999, the Company acquired AimTV, Inc. ("AimTV") in a
stock-for-stock transaction. AimTV has developed a patent-pending technology
designed to enable advertisers to run broadcast-quality commercials over
narrowband Internet connections. Pursuant to the terms of the agreement, the
outstanding capital stock and options of AimTV were exchanged for approximately
970,000 shares of Common Stock and options to purchase Common Stock of NetZero.
The transaction has been accounted for under the purchase method.

    The following summarized unaudited pro forma financial information for the
nine months ended March 31, 2000 assumes that the acquisition of AimTV had
occurred at the beginning of the period:

<TABLE>
<S>                                                      <C>
Revenues...............................................  $ 36,820,000
Net loss...............................................  $(69,718,000)
Net loss per share.....................................  $      (1.08)
</TABLE>

                                       6
<PAGE>
                                 NETZERO, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

5.  CONCENTRATION OF CREDIT RISK.

    At March 31, 2000, one customer comprised 11% of the accounts receivable
balance. For the quarter ended March 31, 2000, one customer accounted for 26% of
revenues and for the nine months ended March 31, 2000, two customers accounted
for 31% and 15% of revenues.

6.  EQUITY.

    STOCK SPLIT

    In July 1999, the Company authorized and implemented a three-for-two forward
stock split. The share information in the accompanying financial statements has
been retroactively restated to reflect the effect of the stock split.

    INITIAL PUBLIC OFFERING

    In September 1999, the Company completed an initial public offering in which
the Company sold 11,500,000 shares of its Common Stock, including 1,500,000
shares in connection with the exercise of the underwriters' over-allotment
option, at $16 per share. The proceeds to the Company from the offering, after
deducting offering expenses, including underwriting discounts and commissions,
were $169.3 million. Upon the closing of the offering, all of the Company's then
outstanding Preferred Stock automatically converted into Common Stock on a
one-for-one basis. After the offering, the Company's authorized capital consists
of 510,000,000 shares of capital stock (500,000,000 shares of Common Stock and
10,000,000 shares of Preferred Stock) of which approximately 104,840,000 shares
of Common Stock were outstanding at March 31, 2000. Refer to "Part II--Other
Information--Item 2(d)" for a discussion of use of proceeds from the Company's
initial public offering.

7.  NET LOSS PER SHARE.

    The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings per Share" ("EPS"). SFAS No. 128 requires dual presentation
of basic and diluted EPS. Basic EPS represents the weighted average number of
shares outstanding divided into net income attributable to common stockholders
during a reported period. Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock. However, the Company has not included potential
common stock in the calculation of EPS as such inclusion would have an
anti-dilutive effect.

    The following table sets forth the computation of basic and diluted net loss
per share:

<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED           NINE MONTHS ENDED
                                           --------------------------   --------------------------
                                            MARCH 31,      MARCH 31,     MARCH 31,      MARCH 31,
                                               2000          1999           2000          1999
                                           ------------   -----------   ------------   -----------
<S>                                        <C>            <C>           <C>            <C>
Numerator:
  Net Loss...............................  $(24,860,000)  $(5,095,000)  $(64,363,000)  $(7,107,000)
                                           ------------   -----------   ------------   -----------
Denominator:
  Weighted average common shares.........   104,811,000    19,454,000     80,092,000    16,646,000
  Adjustment for common shares subject to
    repurchase...........................   (13,688,000)   (9,177,000)   (15,255,000)   (6,059,000)
                                           ------------   -----------   ------------   -----------
  Adjusted weighted average common
    shares...............................    91,123,000    10,277,000     64,837,000    10,587,000
                                           ------------   -----------   ------------   -----------
Basic and diluted net loss per share.....  $      (0.27)  $     (0.50)  $      (0.99)  $     (0.67)
                                           ============   ===========   ============   ===========
</TABLE>

                                       7
<PAGE>
                                 NETZERO, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

8.  RELATED PARTY TRANSACTIONS.

    In the three and nine months ended March 31, 2000, idealab! purchased
$1.3 million and $1.7 million, respectively in banner advertisements. idealab!,
including its affiliates, is a major stockholder in the Company and Bill Gross,
a director of NetZero, is also a director and major stockholder of idealab!

9.  COMMITMENTS AND CONTINGENCIES.

    The Company is not currently party to any material legal proceedings.

10.  SUBSEQUENT EVENT.

    In April 2000, QUALCOMM Incorporated invested approximately $144 million in
NetZero for a 9.9% stake in the Company.

                                       8
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

    This report on Form 10-Q contains forward-looking statements based on our
current expectations, estimates and projections about our operations, industry,
financial condition and liquidity. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "may," "will" or similar expressions are
intended to identify forward-looking statements. In addition, any statements
that refer to expectations, projections or other characterizations of future
events or circumstances, including any underlying assumptions, are
forward-looking statements. Such statements are not guarantees of future
performance and are subject to certain risks, uncertainties and assumptions that
are difficult to predict. Therefore, our actual results could differ materially
and adversely from those expressed in any forward-looking statements as a result
of various factors. The section entitled "Risk Factors" set forth in this
Form 10-Q and similar discussions in our registration statement declared
effective by the Securities and Exchange Commission ("SEC") on September 23,
1999, discuss some of the important risk factors that may affect our business,
results of operations and financial condition. We undertake no obligation to
revise or update publicly any forward-looking statements for any reason.

OVERVIEW

    NetZero is a leading provider of advertising and commerce-sponsored Internet
access offering a broad range of interactive marketing, research and measurement
solutions. We offer consumers free access to the Internet, free e-mail and
custom navigation tools that provide "speed dial" to key sites on the Internet.
Through proprietary technologies, we offer advertisers targeting capabilities
through numerous online advertising and sponsorship channels. Our CyberTarget
division offers marketers and advertisers mass-scale, online market research and
measurement services.

    We were incorporated in July 1997 and launched our service in October 1998.
For the period from inception until October 1998, we had no revenues and
operating activities related primarily to the development of our proprietary
zCast software. Since launching our service, we have focused on:

    - developing our service to enhance its features and functionality;

    - implementing the zCast Server network cell infrastructure;

    - hiring personnel;

    - contracting with third-party communications providers;

    - developing the NetZero brand;

    - selling advertising;

    - marketing our service to potential sponsors of placements on The ZeroPort
      and Start Page;

    - marketing our service to consumers;

    - developing long-term strategic alliances to strengthen our financial
      position; and,

    - pursuing distribution arrangements.

We have spent, and will continue to spend, significant resources on these
activities.

    On December 1, 1999, we acquired AimTV, Inc. ("AimTV") in a stock-for-stock
transaction. AimTV has developed a patent-pending technology designed to enable
advertisers to run broadcast-quality commercials over narrowband Internet
connections. Pursuant to the terms of the agreement, the outstanding capital
stock and options of AimTV were exchanged for approximately 970,000 shares of
Common Stock and options to purchase Common Stock of NetZero. The transaction
has been accounted for under the purchase method.

                                       9
<PAGE>
REVENUES.

    We generate revenues generally through banner advertisements, sponsorships
on The ZeroPort, referrals of our users to other Web sites, performance-based
agreements including e-commerce arrangements, advertising messages delivered to
our users via e-mail, and distribution agreements. Banner advertisements are
images displayed in the window of The ZeroPort. A user can click on the image
and be routed to an advertiser's Web site. Advertisers pay us for the number of
advertisements displayed, the number of times users click on advertisements or
based on other defined criteria. Sponsorships on The ZeroPort involve providing
an advertiser the right to be displayed on the face of The ZeroPort or on a drop
down menu for a specified period of time. We may receive fees for these rights
alone, although many sponsorships also involve a commitment by us to deliver
banner advertisements or fulfill defined performance criteria. We also have the
ability to refer users to advertisers' Web sites when they log on to our service
or when they click on buttons or drop down menus on The ZeroPort. Referral
payments are, in general, based upon the number of times users are directed to
advertisers' Web sites. Performance-based arrangements may involve payments
dependent on the success of an advertising campaign, which may be measured by
the number of times users visit a Web site, purchase products or register for
services. Revenues are also generated when users elect to receive messages from
advertisers in their NetZero e-mail accounts and such messages are delivered. In
distribution arrangements, we may be paid by third parties for the right to
distribute the software containing our service together with products of those
third parties.

    We also intend to generate revenues through our CyberTarget division by
offering marketers, advertisers and market research companies mass-scale, online
market research and measurement services using our unique Zcast technology. We
are in the early stages of this business and there is no assurance as to when,
or if, this division will make a significant contribution to our revenue.

    We anticipate that we will receive higher advertising rates for targeted
advertisements and sponsorships than for non-targeted banner advertisements.
However, we have limited experience in selling and managing these types of
arrangements and there can be no assurance that we will successfully sell all of
the various advertising services we intend to offer or that such arrangements
will generate significant revenues or higher advertising rates. To date, we have
sold targeted advertising based upon Web sites visited, key word searches, and
users' demographic and geographic information. In addition, the growth in the
user base has resulted, and may result in the future, in situations where
advertising inventory capacity has increased faster than the ability to sell
such inventory at desired rates. While we rely on agreements with third parties
to sell a significant portion of our banner advertisements, such agreements are
short-term in nature and are subject to termination and pricing pressures. Due
to increased costs associated with more users and greater inventory, the failure
to renew such agreements or the failure of the combination of such agreements
and the efforts of the in-house sales force to sell increased inventory at
reasonable rates may materially and adversely affect operating results. In
addition, success with performance-based fee arrangements may depend on our
ability to effectively target users. We are still in the early stages of that
process and may encounter technical and other limitations on our ability to
successfully target users, including limitations associated with privacy
concerns. In addition, while we believe that the growth in the user base will
enhance the value of our services to our advertising customers, there can be no
assurance that we will adequately perform under these arrangements or that we
will be able to replace such arrangements on comparable terms, if at all. The
failure to generate significant sponsorships on The ZeroPort or the failure to
replace significant contracts when they expire could adversely affect our
revenues and results of operations.

    Banner advertising and sponsorship revenues are recognized in the periods in
which the advertisement or sponsorship placement is displayed, based upon the
lesser of impressions delivered over the total number of guaranteed impressions
or ratably over the period in which the advertisement is displayed, provided
that no significant obligations on our part remain and collection of the related
receivable is probable. Our obligations typically include the guarantee of a
minimum number of

                                       10
<PAGE>
impressions or the satisfaction of other performance criteria. The guaranteed
minimum number of impressions are generally required to be delivered over the
term of the commitment. Revenues from performance-based arrangements, including
click-throughs, are recognized as the related performance criteria are met.
Referral revenues are recognized as referrals are made to advertisers' or
sponsors' Web sites, provided that no significant obligations on our part remain
and collection of the related receivable is probable.

    Our advertising revenues are subject to the effects of seasonality.
Advertisers typically purchase impressions on a forward basis. If purchasing
patterns or timing of purchasing by advertisers were to change, operations could
be materially affected.

    Our revenues will be significantly affected by our ability to grow our user
base which is also subject to the effects of seasonality. If we are unable to
grow our user base or our user demographics are not attractive to advertisers,
we may be unable to attract significant commitments from advertisers or satisfy
agreements with our advertisers relating to performance criteria.

    We do not currently anticipate that inflation will have a material impact on
our results of operations.

COST OF REVENUES.

    Cost of revenues consists of telecommunications costs, depreciation of
network equipment, occupancy costs and personnel and related expenses of the
network department. We intend to expend significant funds, which will result in
increased depreciation expense associated with these capital expenditures, and
to make significant commitments to future telecommunications capacity with the
expectation of an increasing subscriber base and anticipated usage patterns.
Telecommunications costs for network access are expensed as incurred. Our
failure to accurately forecast users' needs could result in significant
overcapacity, which would adversely impact our results of operations.
Conversely, under-forecasting usage could adversely impact the ability of users
to receive adequate service and adversely impact our reputation and our ability
to maintain or increase our subscriber base. We have limited history in
forecasting our user requirements, and there can be no assurance that we will be
able to accurately forecast such requirements in the future.

SALES AND MARKETING.

    Sales and marketing expenses include advertising and promotion expenses,
salaries, sales commissions, employee benefits, travel and related expenses for
our direct sales force, fees paid to third-party advertising sales agents and
sales support functions. We have expended, and intend to continue to expend,
significant amounts on sales and marketing including a national branding
campaign comprised of television and radio advertising, sponsorships and a
variety of other promotions. Due to the timing of these promotions, amounts
expended may vary significantly from quarter to quarter. Marketing costs
associated with increasing brand awareness and user base are expensed in the
period incurred.

PRODUCT DEVELOPMENT.

    Product development costs include expenses for the development of new or
improved technologies designed to enhance the performance of our service,
including salaries and related expenses for the software engineering department,
as well as costs for contracted services, facilities and equipment. We believe
that a significant level of product development is necessary for the business
and intend to increase, as necessary, the amount of spending to fund this
activity.

                                       11
<PAGE>
GENERAL AND ADMINISTRATIVE.

    General and administrative expenses include salaries, employee benefits and
expenses for executive, finance, legal, human resources and customer support
personnel. In addition, general and administrative expenses include fees for
professional services, third-party customer support and occupancy costs. We
expect general and administrative expenses to increase as we continue to expand
our administrative infrastructure.

STOCK-BASED CHARGES.

    In connection with the grant of stock options to employees and the
imposition of restrictions on shares of stock held by certain founders, we have
recorded deferred stock-based charges of approximately $11.7 million. This
deferred compensation represents the difference between the deemed fair value of
common stock for accounting purposes and the exercise price of these options or
shares at the date of grant. We are amortizing this amount over the vesting
periods of the applicable options or shares, generally four years.

    In January 2000, we entered into a four-year strategic alliance with General
Motors Corporation ("GM"). As part of the agreement to enter into a strategic
marketing relationship we issued to GM warrants to purchase 575,000 shares of
NetZero's common stock. The warrants were valued at $8.6 million and are being
amortized ratably over the four-year period.

    Deferred stock-based charges are presented as a reduction of stockholders'
equity.

CONSOLIDATED RESULTS OF OPERATIONS.

    The following tables set forth selected consolidated statements of
operations data in dollars and as a percentage of total revenues:

<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED
                                                   ---------------------------------------------------
                                                   MARCH 31, 2000   DECEMBER 31, 1999   MARCH 31, 1999
                                                   --------------   -----------------   --------------
                                                                     (IN THOUSANDS)
<S>                                                <C>              <C>                 <C>
Revenues.........................................     $ 16,858          $ 12,242           $   781
Cost of Revenues.................................       18,459            15,148             3,979
                                                      --------          --------           -------
Gross Loss.......................................       (1,601)           (2,906)           (3,198)
Operating Expenses:
  Sales and marketing............................       12,923            15,582               522
  Product development............................        1,566             1,414               288
  General and administrative.....................        6,073             4,458               929
  Stock-based charges............................        1,961             1,495               188
  Amortization of intangible assets..............        2,500               658                --
                                                      --------          --------           -------
Total operating expenses.........................       25,023            23,607             1,927
                                                      --------          --------           -------
Loss from operations.............................      (26,624)          (26,513)           (5,125)
Interest and other income (expense), net.........        1,764             1,937                30
                                                      --------          --------           -------
Net loss.........................................     $(24,860)         $(24,576)          $(5,095)
                                                      ========          ========           =======
</TABLE>

                                       12
<PAGE>

<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED
                                                   ---------------------------------------------------
                                                   MARCH 31, 2000   DECEMBER 31, 1999   MARCH 31, 1999
                                                   --------------   -----------------   --------------
<S>                                                <C>              <C>                 <C>
As a percentage of revenues:
Revenues.........................................          100 %             100 %             100 %
Cost of Revenues.................................         (109)             (124)             (509)
                                                      --------          --------           -------
Gross Loss.......................................           (9)              (24)             (409)
Operating Expenses:
  Sales and marketing............................          (77)             (127)              (67)
  Product development............................           (9)              (12)              (37)
  General and administrative.....................          (36)              (37)             (119)
  Stock-based charges............................          (12)              (12)              (24)
  Amortization of intangible assets..............          (15)               (5)                0
                                                      --------          --------           -------
Total operating expenses.........................         (148)             (193)             (247)
                                                      --------          --------           -------
Loss from operations.............................         (158)             (217)             (656)
Interest and other income (expense), net.........           11                16                 4
                                                      --------          --------           -------
Net loss.........................................         (147)%            (201)%            (652)%
                                                      ========          ========           =======
</TABLE>

               THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE
                      THREE MONTHS ENDED DECEMBER 31, 1999

REVENUES.

    Revenues for the three months ended March 31, 2000 were $16.9 million, which
represented an increase of $4.7 million, or 38%, from $12.2 million for the
three months ended December 31, 1999. The increase was primarily attributable to
increased revenue from sponsorships on The ZeroPort, advertising associated with
co-branded distribution arrangements and sales of banner advertisements,
primarily through our in-house sales force. Approximately $4.4 million, or 26%,
of our total revenues for the three months ended March 31, 2000, was generated
from our agreement with LookSmart, compared to $4.1 million, or 34%, in the
three months ended December 31, 1999.

COST OF REVENUES.

    Cost of revenues for the three months ended March 31, 2000 was
$18.5 million, which represented an increase of $3.3 million, or 22%, from
$15.1 million for the three months ended December 31, 1999. The increase was
primarily attributable to increased telecommunications expense related to the
growth in our user base from approximately 3 million registered users at
December 31, 1999 to approximately 4 million registered users at March 31, 2000.
In the three months ended March 31, 2000 and December 31, 1999
telecommunications services purchased averaged less than $0.30 per user hour.

SALES AND MARKETING.

    Sales and marketing expenses for the three months ended March 31, 2000 were
$12.9 million, which represented a decrease of $2.7 million, or 17%, from
$15.6 million for the three months ended December 31, 1999. In the quarter ended
December 31, 1999 we continued our first national consumer branding campaign
which began in August 1999 with advertisements running on television, radio and
in print. The cost of the initial campaign and other promotional expenses in the
December quarter exceeded the March quarter advertising and promotion expense
(which included for the first time sponsorship of the half time show of
televised National Basketball Association games on NBC) by approximately
$3.3 million. The decrease in advertising and promotion expense of $3.3 million
was partially offset by increased staffing costs and sales commissions.

                                       13
<PAGE>
PRODUCT DEVELOPMENT.

    Product development expenses for the three months ended March 31, 2000, were
$1.6 million, which represented an increase of $0.2 million, or 11%, from
$1.4 million for the three months ended December 31, 1999. The increase was
primarily due to the hiring of additional software engineers.

GENERAL AND ADMINISTRATIVE.

    General and administrative expenses for the three months ended March 31,
2000 were $6.1 million, which represented an increase of $1.6 million, or 36%,
from $4.5 million for the three months ended December 31, 1999. The increase was
primarily due to increased taxes (not related to income) and licenses, the
hiring of additional administrative personnel and an increase in bad debt
reserve.

STOCK-BASED CHARGES.

    For the three months ended March 31, 2000 and December 31, 1999 amortization
of deferred stock-based charges was $2.0 million and $1.5 million, respectively.
The increase was due to the amortization of the warrant issued to GM.

AMORTIZATION OF INTANGIBLE ASSETS.

    Amortization of intangible assets amounted to $2.5 million for the three
months ended March 31, 2000 compared to $0.7 million for the three months ended
December 31, 1999. We acquired AimTV in December 1999 in a stock-for-stock
transaction and recorded one month of amortization in the December quarter.

INTEREST AND OTHER INCOME (EXPENSE), NET.

    Interest income consists of earnings on our cash and cash equivalents,
short-term investments and restricted cash. Interest expense consists primarily
of interest expense on capital leases and notes payable. Net interest income,
for the three months ended March 31, 2000 was $1.8 million, which represented a
decrease of $0.1 million from net interest income of $1.9 million in the three
months ended December 31, 1999. The decrease was primarily due to reduced
average cash balances in the March quarter.

INCOME TAXES.

    As a result of operating losses and our inability to recognize a benefit
from deferred tax assets, we have not recorded a benefit for income tax for the
three months ended March 31, 2000 or December 31, 1999.

              THREE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THE
                     THREE MONTHS ENDED SEPTEMBER 30, 1999

REVENUES.

    Revenues for the three months ended December 31, 1999 were $12.2 million,
which represented an increase of $4.5 million, or 59%, from $7.7 million for the
three months ended September 30, 1999. The increase was primarily attributable
to revenues generated from our start page agreement with LookSmart, sponsorships
on The ZeroPort and increased sales of banner advertisements, primarily through
our in-house sales force. Specifically, we generated approximately
$4.1 million, or 34% of our total revenues for the three months ended
December 31, 1999, from our agreement with LookSmart, which we entered into in
April 1999. This amount represented an increase of approximately $1.1 million
from the $3.0 million of revenues generated from LookSmart for the three months
ended

                                       14
<PAGE>
September 30, 1999, which represented approximately 39% of our total revenues
for that period. We also generated approximately $2.4 million, or 19% of our
total revenues for the three months ended December 31, 1999, from banner
advertisements sold through Adsmart. This amount represented an increase of
approximately $0.1 million from the $2.3 million of revenues generated from
Adsmart for the three months ended September 30, 1999, which represented
approximately 29% of our total revenues for that period.

COST OF REVENUES.

    Cost of revenues for the three months ended December 31, 1999 was
$15.1 million, which represented an increase of $3.0 million, or 25%, from
$12.1 million for the three months ended September 30, 1999. The increase was
primarily attributable to increased telecommunications expense related to the
growth in our user base and increased depreciation related to our internal
network costs. During the December quarter, the Company's cost of
telecommunications services purchased averaged less than $0.30 per user hour.

SALES AND MARKETING.

    Sales and marketing expenses for the three months ended December 31, 1999
were $15.6 million, which represented an increase of $10.6 million, or 213%,
from $5.0 million for the three months ended September 30, 1999. The increase
was primarily due to increased levels of advertising and other marketing
expenses associated with the Company's initial major nationwide consumer
branding campaign, distribution of CDs containing our software, the start of our
exclusive sponsorship of the half time show of televised National Basketball
Association games on NBC, and the hiring of additional direct sales force
personnel.

PRODUCT DEVELOPMENT.

    Product development expenses for the three months ended December 31, 1999
were $1.4 million, which represented an increase of $0.6 million, or 73%, from
$0.8 million for the three months ended September 30, 1999. The increase was
primarily due to the hiring of additional software engineers and professional
expenses.

GENERAL AND ADMINISTRATIVE.

    General and administrative expenses for the three months ended December 31,
1999 were $4.5 million, which represented an increase of $1.0 million, or 27%,
from $3.5 million for the three months ended September 30, 1999. The increase
was primarily due to the hiring of additional administrative personnel and
increased professional and consulting expenses.

STOCK-BASED CHARGES.

    For the three months ended December 31, 1999 and September 30, 1999,
amortization of deferred stock-based charges was $1.5 million and $1.3 million,
respectively in connection with stock option grants and restricted founders'
shares.

AMORTIZATION OF INTANGIBLE ASSETS.

    Amortization of intangible assets for the three months ended December 31,
1999 was $0.7 million as a result of our acquisition of AimTV in December 1999.

                                       15
<PAGE>
INTEREST AND OTHER INCOME (EXPENSE), NET.

    Interest income consists of earnings on our cash and cash equivalents.
Interest expense consists primarily of interest expense on capital leases and
notes payable. Interest income, net, for the three months ended December 31,
1999 was $1.9 million, which represented an increase of $1.8 million from net
interest income of $0.1 million in the three months ended September 30, 1999.
The increase was primarily due to income earned on cash balances from the
proceeds of our initial public offering.

INCOME TAXES.

    As a result of operating losses and our inability to recognize a benefit
from our deferred tax assets, we have not recorded a benefit for income tax for
the three months ended December 31, 1999 or September 30, 1999.

             THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE
                        THREE MONTHS ENDED JUNE 30, 1999

REVENUES.

    Revenues for the three months ended September 30, 1999 were $7.7 million,
which represented an increase of $4.0 million, or 107%, from $3.7 million for
the three months ended June 30, 1999. The increase was primarily attributable to
revenues generated from our start page agreement with LookSmart, as well as
increased sales of banner advertisements, primarily through our third-party
sales force. In particular, we generated approximately $3.0 million, or 39% of
our total revenues for the three months ended September 30, 1999, from our
agreement with LookSmart, which we entered into in April 1999. This amount
represented an increase of approximately $1.7 million from the $1.3 million of
revenues generated from LookSmart for the three months ended June 30, 1999,
which represented approximately 34% of our total revenues for that period. We
also generated approximately $2.3 million, or 29% of our total revenues for the
three months ended September 30, 1999, from banner advertisements sold through
Adsmart. This amount represented an increase of approximately $1.3 million from
the $1.0 million of revenues generated from Adsmart for the three months ended
June 30, 1999, which represented approximately 28% of our total revenues for
that period.

COST OF REVENUES.

    Cost of revenues for the three months ended September 30, 1999 was
$12.1 million, which represented an increase of $4.7 million, or 64%, from
$7.4 million for the three months ended June 30, 1999. The increase was
primarily attributable to increased telecommunications expense related to the
growth in our user base and increased depreciation related to our internal
network costs. During the September quarter, the Company's cost of
telecommunications services purchased averaged less than $0.30 per hour.

SALES AND MARKETING.

    Sales and marketing expenses for the three months ended September 30, 1999
were $5.0 million, which represented an increase of $4.1 million, or 485%, from
$0.9 million for the three months ended June 30, 1999. The increase was
primarily due to increased levels of advertising and other marketing expenses
associated with the Company's nationwide consumer and advertiser branding
campaign. The increase was also attributable to the hiring of additional direct
sales force personnel.

PRODUCT DEVELOPMENT.

    Product development expenses for the three months ended September 30, 1999
were $0.8 million, which represented an increase of $0.3 million, or 64%, from
$0.5 million for the three months ended

                                       16
<PAGE>
June 30, 1999. The increase was primarily due to the hiring of additional
software engineers and professional expenses.

GENERAL AND ADMINISTRATIVE.

    General and administrative expenses for the three months ended
September 30, 1999 were $3.5 million, which represented an increase of
$1.1 million, or 47%, from $2.4 million for the three months ended June 30,
1999. The increase was primarily due to the hiring of additional administrative
personnel and increased professional and consulting expenses.

STOCK-BASED CHARGES.

    For the three months ended September 30, 1999 and June 30, 1999,
amortization of deferred stock-based charges was $1.3 million and $0.9 million,
respectively, in connection with stock option grants and restricted founders'
shares.

INTEREST AND OTHER INCOME (EXPENSE), NET.

    Interest income consists of earnings on our cash and cash equivalents.
Interest expense consists primarily of interest expense on capital equipment
leases. Interest income, net, for the three months ended September 30, 1999 was
$64,000, which represented a decrease of $27,000 from net interest income of
$91,000 in the three months ended June 30, 1999.

INCOME TAXES.

    As a result of operating losses and our inability to recognize a benefit
from our deferred tax assets, we have not recorded a benefit for income tax for
the three months ended September 30, 1999.

       THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE
               THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1999

    We began business operations in October 1998, and, as a result, our
operating results for the period from July 1, 1998 through March 31, 1999
included only $0.9 million in revenues, $5.0 million in cost of revenues, and
$3.0 million in operating expenses. Accordingly, our results for the first three
quarters of fiscal 1999 are not meaningful or material in comparison to the
operating results for the first three quarters of fiscal 2000.

LIQUIDITY AND CAPITAL RESOURCES

    From inception of the business to September 1999 our operations were
financed primarily through the private placement of approximately $47 million in
equity securities. In September 1999, we completed an initial public offering of
11.5 million shares (including 1.5 million shares pursuant to the underwriters'
over-allotment option) of common stock at a price of $16 per share, resulting in
net proceeds of $169.3 million after deducting offering expenses, including
underwriting discounts and commissions. At March 31, 2000 we had $126.1 million
in cash, cash equivalents and short-term investments.

                                       17
<PAGE>
    Net cash used for operating activities was $68.9 million for the nine months
ended March 31, 2000 and was due primarily to operating losses, deposits to
guarantee future obligations and increases in accounts receivable, short-term
investments and other assets, partially offset by increases in accounts payable
and accrued expenses, depreciation and stock-based charges.

    Net cash used for investing activities was $12.6 million for the nine months
ended March 31, 2000 and involved primarily investments in server network
equipment, purchased software, office equipment and leasehold improvements.

    Net cash provided by financing activities was $176.0 million for the nine
months ended March 31, 2000 and was principally attributable to the proceeds
from the initial public offering.

    In April 2000, QUALCOMM Incorporated invested approximately $144 million in
NetZero for a 9.9% interest in the Company.

    We expect to continue to incur significant capital expenditures in the
future, including additions and enhancements to our servers and network
infrastructure, software licenses and furniture, fixtures and equipment. The
actual amount of capital expenditures will depend on the rate of growth in our
user base, which is difficult to predict and which could change dramatically
over time. Technological advances may also require us to make capital
expenditures to develop or acquire new equipment or technology. We intend to use
a combination of cash and capital lease financing to fund capital expenditures
in a manner, which minimizes our cost of capital. However, there is no assurance
that lease financing will be available on favorable terms, if at all in which
case we would be required to use a greater portion of cash to fund capital
expenditures.

    We currently anticipate that our existing cash, cash equivalents and
short-term investments will be sufficient to fund our operating activities,
capital expenditures and other obligations for at least the next 12 months.
However, we may need additional capital in order to fund more rapid growth,
expand our marketing activities, develop new or enhance existing services or
products, to respond to competitive pressures or to acquire complementary
services, businesses or technologies. If we are not successful in generating
sufficient cash flow from operations, we may need to raise additional capital
through public or private financings, strategic relationships or other
arrangements. This additional funding, if needed, might not be available to us
on acceptable terms, or at all. Our failure to raise sufficient capital when
needed could have a material adverse effect on our business, results of
operations and financial condition. If additional funds were raised through the
issuance of equity securities, the percentage of stock owned by the then-current
stockholders would be reduced. Furthermore, such equity securities might have
rights, preferences or privileges senior to holders of our common stock.

NEW PRONOUNCEMENTS

    In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101), which provides additional guidance in applying generally accepted
accounting principles to revenue recognition in the financial statements. The
Company has evaluated the provisions of SAB 101 and believes it has no effect on
the Company's consolidated financial position, consolidated results of
operations or liquidity.

FUTURE RESULTS OF OPERATIONS MAY VARY DUE TO CERTAIN FACTORS

    Our operating results may fluctuate substantially in the future as a result
of a variety of factors, many of which are outside of our control, including
those discussed elsewhere in this Form 10-Q. We may significantly increase our
operating expenses and capital expenditures for a variety of reasons including,
without limitation, the expansion of our sales and marketing efforts, our
promotion of the NetZero brand, enhancement of the features and functionality of
The ZeroPort, upgrading of our

                                       18
<PAGE>
internal network infrastructure, pursuit of new distribution channels and the
hiring of new personnel across all levels of the organization. Expenditures in
each of these categories may vary significantly from quarter-to-quarter. While
some expenses are fixed in the short-term, our total operating expenses are
principally determined on the basis of anticipated growth in revenues. There are
risks associated with the timing and achievement of revenue targets due to a
variety of factors, and there can be no assurance that revenues will increase
commensurately with expenses. We believe that expenses will significantly exceed
revenues for the foreseeable future. As a result of these and other factors, our
operating results may vary substantially from quarter-to-quarter.

    In addition, seasonal trends could affect our revenues generated. To the
extent that our revenues depend on the amount of usage by our users, any
seasonal fluctuations in Internet usage could affect our revenues during such
periods of fluctuation. We anticipate that the summer and year-end vacation and
holiday periods will impact user traffic levels. Moreover, the rate at which new
users sign up for our service may be related to gifts or purchases of personal
computers, which typically increase during the fourth calendar quarter because
of the holiday season and may decline during other periods. As a result, new
user registration may be subject to seasonality. However, because our operating
history is limited, it is difficult for us to accurately predict these trends
and plan accordingly. Since our operating expenses are based on expectations of
future revenues, it is possible that seasonal fluctuations could materially and
adversely affect our business, results of operations and financial condition.

    A small number of customers have accounted for, and may in the future
account for, a significant portion of our revenues. For example, approximately
26% of revenues for the three months ended March 31, 2000 were derived from our
agreement with LookSmart. Our agreement with LookSmart was renewed in
February 2000 and will extend through February 15, 2001. In February 2000, we
entered into a strategic alliance with 24/7 Media. Pursuant to this alliance,
24/7 Media will sell e-mail and banner advertising on behalf of NetZero but
there can be no assurance that such agreement will result in material revenues.
In February 2000, we also entered into an agreement with idealab! pursuant to
which idealab! will purchase $3.0 million of banner advertisements and data from
us over an approximately five-month period. idealab!, including its affiliates,
is a major stockholder of NetZero and Bill Gross, a director of NetZero, is also
a director and major stockholder of idealab! The termination of material
agreements, as well as the timing of orders under material agreements, may cause
significant fluctuations in our quarterly results. Our business, results of
operations and financial condition will be materially and adversely affected if
we are unable either to renew material agreements or to replace such agreements
with similar agreements with new customers.

    Due to the foregoing factors, we believe that quarter-to-quarter comparisons
of operating results may not necessarily be a good indication of future
performance.

YEAR 2000 COMPLIANCE.

    Many existing computer systems and software are coded to accept only two
digit entries in the date code field and cannot distinguish 21st century dates
from 20th century dates. If not corrected, various problems may arise from the
improper processing of dates and date-sensitive calculations by computers and
other machinery in Year 2000. These problems include system failures or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar business activities. As a result, many companies' software and
computer systems may need to be upgraded or replaced to comply with these "Year
2000" requirements.

    To date the Company has not experienced any material issues associated with
the Year 2000 problem. Formal assessment of the impact that the Year 2000
problem may have on existing operations has been completed.

                                       19
<PAGE>
    There have been no significant expenses either prior to, or subsequent to,
December 31, 1999 relating to this matter and to date there has been no impact
on results of operations or third party relationships.

                                  RISK FACTORS

    Before deciding to invest in our Company or to maintain or increase your
investment, you should carefully consider the risks described below, in addition
to the other information in this report and our other filings with the SEC. The
risks and uncertainties described below are not the only ones facing our
Company. Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also affect our business operations. If any of
these risks actually occur, our business, financial condition or results of
operations could be seriously harmed. In that event, the market price of our
common stock could decline and you may lose all or part of your investment.

                  WE FACE RISKS ASSOCIATED WITH OUR OPERATIONS

WE CANNOT PREDICT OUR SUCCESS BECAUSE OUR FREE INTERNET SERVICE PROVIDER
  BUSINESS MODEL IS UNPROVEN, AND WE HAVE OPERATED OUR BUSINESS FOR ONLY A SHORT
  PERIOD OF TIME.

    Our business model is unproven and a number of other businesses offering
free Internet access have failed. Since we only began offering Internet access
in October 1998, we have a limited operating history, which makes it difficult
to evaluate our performance. Our business model, unlike traditional Internet
service providers, does not have a measurable and predictable revenue stream
from user access fees. If we are not able to successfully address these risks,
we will not be able to grow our business, compete effectively or achieve
profitability.

OUR MARKET SHARE AND REVENUES WOULD SUFFER IF WE ARE NOT ABLE TO COMPETE
  EFFECTIVELY FOR USERS WITH ESTABLISHED, AND NEW PROVIDERS OF, INTERNET ACCESS
  SERVICES.

    Competitors

    Competitors for users is increasing. We currently compete or expect to
compete for users with the following types of companies that provide access
services:

    - companies that provide free Internet access under their own brands, such
      as Freei Networks, Inc. and Juno Online Services, Inc., as well as
      companies such as 1stUp.com that provide free Internet access co-branded
      with, or under the brands of, third parties.

    - established online service and content providers, such as America Online
      and The Microsoft Network;

    - independent national Internet service providers, such as EarthLink, which
      has recently merged with MindSpring, and Prodigy;

    - national long-distance carriers, such as AT&T, GTE and MCI WorldCom;

    - local telephone companies and regional Bell operating companies, such as
      Pacific Bell;

    - numerous regional and local commercial Internet service providers;

    - computer hardware and software and other technology companies, such as IBM
      and Microsoft;

    - cable operators and online cable services, such as Excite@Home;

    - Internet portals and search engines such as Yahoo! and Alta Vista;

    - retail companies such as K-Mart; and

    - nonprofit or educational Internet service providers.

                                       20
<PAGE>
    We expect that competition for users will continue to intensify for the
foreseeable future. We believe that additional competitors for Internet users,
including major computer manufacturers, retail companies, and software, media
and telecommunications companies, will continue to enter the Internet access
market. Existing competitors may take steps such as reducing their subscriber
fees, offering promotions for access services, or bundling free access services
with other product offerings. For example, Alta Vista and Excite, leading
portals and search engines now offer free Internet access solutions in
conjunction with 1stUp.com; K-Mart, SOFTBANK, Spinway and Yahoo, have invested
in, or entered into relationships with Bluelight.com to form a new free Internet
access provider; and both Microsoft and CompuServe have partnered with personal
computer makers and consumer electronics retailers to offer consumers rebates on
computer equipment when the consumer signs up for their Internet access
services. New entrants have announced Internet access models similar to ours,
and the implementation of similar models by new entrants or existing competitors
could limit the value of our consumer proposition. As awareness of the Internet
grows, existing competitors are likely to further increase their emphasis on
their Internet access services, resulting in even greater competition for us.

    Increased competition could limit our growth, resulting in additional sales
and marketing expenses that add user acquisition cost, and result in increased
user turnover. Increased competition could also result in decreased advertising
revenue. Since we do not charge our users membership fees, we may not be able to
offset the effect of these increased costs, and we may not have the resources to
continue to compete successfully. The ability of our competitors to acquire
other Internet providers or to enter into strategic alliances or joint ventures
could also put us at a significant competitive disadvantage.

    Telecommunications services.

    In addition, telecommunications companies with far greater resources,
distribution channels and brand awareness offer, or have announced that they
will offer, their own Internet access services to users. Since these companies
have their own telecommunications network infrastructure, they have lower
communications costs than we do. These advantages reduce the overall cost of
Internet access for such companies and may significantly increase competitive
pressures on us. In addition, each of our telecommunications providers supplies
network access to some of our competitors, and could choose to grant those
competitors preferential network access, potentially limiting our users' ability
to access the Internet. If our telecommunications service providers were to
decrease the levels of service or access provided to us, or if they were to
terminate their relationships with us for competitive or other reasons, and we
were not able to develop alternate sources of supply, we would not be able to
provide Internet access to our customers, which could ultimately result in a
significant loss of users and revenues.

    Broadband providers.

    We also face competition from companies that provide broadband Internet
access, including local and long-distance telephone companies, cable television
companies, electric utility companies, wireless communications companies and
other Internet service providers. Most of our service is offered via dial-up
modems, which are generally limited to access speeds of up to 56 kbps. Broadband
technologies enable users to transmit and receive print, video, voice and data
in digital form at significantly faster access speeds. We may have to develop
new technologies or add broadband access services to remain competitive which
could require substantial time and expense. We cannot be certain that we will
succeed in adapting our Internet access service business to compete effectively
with these technologies.

    The telephone, cable and other companies that own broadband networks may
prevent us from offering broadband Internet access through the wire and cable
networks that they own. Our ability to compete with telephone and cable
television companies that are able to support broadband transmission may depend
on future regulation to guarantee open access to their broadband networks.
However, in January 1999, the Federal Communications Commission declined to take
any action to mandate or otherwise regulate access by Internet service providers
to broadband cable facilities at this time. We do not know whether local, state
or federal regulatory agencies will take any initiatives to

                                       21
<PAGE>
implement this type of regulation, and whether they will be successful in
establishing their authority to do so.

    In addition to competing directly in the Internet access market, both cable
and telephone companies are also aligning themselves with Internet service
providers who would receive preferential or exclusive use of broadband local
connections to users. If broadband Internet access becomes the preferred mode by
which users access the Internet and we are unable to gain access to broadband
networks on reasonable terms, our ability to compete could be materially and
adversely affected.

IF WE FAIL TO GROW OUR USER BASE, WE MAY NOT BE ABLE TO GENERATE REVENUES,
  DECREASE PER-USER TELECOMMUNICATIONS COSTS OR IMPLEMENT OUR STRATEGY.

    If we are unable to grow our user base, we may not be able to generate
revenues, decrease per-user telecommunications costs or implement our strategy.
We intend to generate new users through other distribution channels, such as
television, radio and print media advertising, direct marketing campaigns, and
bundling, co-branding and retail distribution arrangements. However, we have
limited experience with marketing our service through these channels. If these
distribution channels prove more costly or less effective than anticipated, it
could adversely impact our ability to grow. We would also be unable to grow our
user base if a significant number of our current registered users stopped using
our service. There are a variety of reasons why users would discontinue using
our service, including:

    - users may decide they do not like the always-present nature of The
      ZeroPort;

    - users may not like having their online activities tracked;

    - reliability issues, which we have experienced in the past and may
      experience in the future, may cause user dissatisfaction; and

    - our limited user support may frustrate users who have difficulty using our
      service.

    There is no assurance that we will be able to successfully address these
issues and retain our existing user base.

OUR ADVERTISING REVENUES WILL SUFFER IF WE ARE UNABLE TO DEMONSTRATE THAT OUR
  REGISTERED USERS ARE ACTIVELY USING OUR SERVICE.

    If we are not able to demonstrate to our advertisers that our registered
users are actively using our service, advertisers may choose not to advertise
with us and our advertising revenues could be materially and adversely affected.
While approximately 4 million users had registered for our service as of
March 31, 2000, approximately 1.8 million had used our service during the month
of March. We believe that a number of our users have Internet access accounts
with our competitors. As a result, these users may not use NetZero as their
primary Internet service provider. Also, some new users use the Internet only as
a novelty and do not become consistent users of Internet services and,
therefore, may be less likely to continue using our service.

IF WE FAIL TO GENERATE SUFFICIENT ADVERTISING REVENUES, WE MAY NOT BE ABLE TO
  SUPPORT OUR OPERATIONS.

    Since we do not charge our users any fees for our Internet access and e-mail
services, we depend primarily on our ability to generate advertising revenues.
Accordingly, if we fail to generate sufficient advertising revenues, we may not
be able to support our operations. We generate revenues from a variety of
different arrangements including sales of targeted and untargeted banner
advertising, sponsorships, performance-based arrangements and referrals to third
party Web sites. We have limited experience marketing and pricing these types of
arrangements, and have limited actual experience with respect to the performance
of such arrangements. As such, we do not know if we are appropriately

                                       22
<PAGE>
pricing, marketing or structuring these arrangements, or whether we will perform
under these arrangements to the satisfaction of the other parties. Our failure
to appropriately price, market or structure these arrangements could impact our
ability to enter into and perform under these arrangements, or to renew these
arrangements on similar or acceptable terms. In addition, the success of some of
these arrangements will depend on our ability to effectively target users based
on demographic and other information. We may encounter technical and other
limitations on this ability, including problems associated with the accuracy of
the information provided by our users, which we do not corroborate. In light of
these factors, there can be no assurance that we will be able to attract
sufficient advertising revenues to support our operations.

    In addition, competition for Internet-based advertising revenues is intense
and the amount of available standard banner advertising space on the Internet is
increasing at a significant rate. These factors are causing Internet advertising
rates to decline, and it is possible that rates will continue to decline in the
future. Also, our growth in users has resulted in, and in the future may result
in, our advertising inventory growing faster than our ability to sell the
inventory at reasonable rates.

    Many of our advertising competitors have longer operating histories, greater
name recognition, larger user bases, significantly greater financial, technical,
sales and marketing resources and more established relationships with
advertisers than we do. These advantages may allow such competitors to respond
more quickly than we can to new or emerging technologies and changes in
advertiser requirements. They may also be able to devote greater resources than
we can to develop, promote and sell their products and services. Such
competitors may also engage in more extensive research and development,
undertake more far-reaching marketing campaigns, adopt more aggressive pricing
policies and make more attractive offers to existing and potential employees,
strategic partners, advertisers and Web publishers. In addition, current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products or services to address the needs of our prospective customers. We
must also compete with television, radio, cable and print media for a share of
advertisers' total advertising budgets. Advertisers may be reluctant to devote a
significant portion of their advertising budget to Internet advertising if they
perceive the Internet to be a limited or ineffective advertising medium.

WE MAY NOT BE ABLE TO PROVIDE INTERNET ACCESS FOR OUR USERS IF OUR
  TELECOMMUNICATIONS CARRIERS RAISE THEIR RATES OR IF THEY DISCONTINUE DOING
  BUSINESS WITH US.

    Our business substantially depends on the capacity, affordability,
reliability and security of our telecommunications networks. Only a small number
of telecommunications providers offer the network services we require. There has
been significant consolidation in the telecommunications industry, and there is
a significant risk that further consolidation could make us reliant on an even
smaller number of providers. Certain of our telecommunications services are
provided pursuant to short-term agreements that the providers can terminate or
elect not to renew. As a result, any or all of our current telecommunications
service providers could decide not to provide us with service at rates
acceptable to us, or at all, in which event, we may not be able to provide
Internet access to our users.

WE MAY LOSE OUR USERS IF OUR TELECOMMUNICATIONS PROVIDERS DELIVER UNACCEPTABLE
  SERVICE QUALITY.

    If our third-party telecommunications service providers deliver unacceptable
service, the quality of our Internet access service would suffer. In this event,
we would likely lose users who are dissatisfied with our service. Since we do
not have direct control over our telecommunications carriers' network
reliability and the quality of their service, there can be no assurance that we
will be able to provide consistently reliable Internet access for our users.

                                       23
<PAGE>
IF TELECOMMUNICATIONS PRICES INCREASE, OUR MARGINS WOULD BE ADVERSELY IMPACTED.

    Our margins are highly sensitive to variations in prices for the
telecommunications services we purchase. Our business could be harmed if minimum
connection charges increase or become more prevalent. In addition, the
availability and pricing of telecommunications services varies geographically,
and we may not be able to obtain new or substitute telecommunications services
in certain geographic areas on commercially reasonable terms, if at all. There
can be no assurance that our telecommunications providers will continue to
provide their services on commercially acceptable price terms, or that
alternative services will be available on similar terms.

OUR ABILITY TO SERVE ADVERTISEMENTS ON THE ZEROPORT COULD BE SEVERELY LIMITED IF
  THE SOFTWARE WE LICENSE FROM NETGRAVITY FAILS TO PERFORM OR IF WE ARE NOT ABLE
  TO RENEW OUR LICENSE.

    All of our advertisements are served using software licensed from
NetGravity. While there is other software available, it would substantially
disrupt our business to switch to another provider. As such, we are reliant on
NetGravity and its software. Our agreement with NetGravity expires in
June 2001; however we have an option to renew the agreement for an additional
two-year term upon initial expiration. If NetGravity's software fails to perform
as expected, or if we are not able to renew such agreement or license or
internally develop similar software in the future, we may not be able to
effectively display advertisements to our users. In this event, our ability to
generate advertising revenues would be severely limited. In October 1999,
NetGravity was acquired by Double Click, an Internet advertising provider. Since
our agreement with NetGravity does not expire until June 2001 and we have an
option to renew for an additional two-year term upon initial expiration, we do
not believe the acquisition will have a material effect on our contractual
rights with NetGravity.

OUR STOCK PRICE COULD FALL AS A RESULT OF FUTURE LOSSES AND NEGATIVE CASH FLOW.

    We have a significant accumulated deficit. We expect that our losses and
negative cash flow will increase for the foreseeable future as we continue to
expand our operations. Our ability to achieve profitability or positive cash
flow depends upon a number of factors, including our ability to increase revenue
and reduce per-user costs. Although our revenues have grown in the most recent
three months, we cannot be certain that we will be able to sustain these growth
rates or that we will obtain sufficient revenues to achieve profitability or
positive cash flow. If we do achieve profitability, we cannot be certain that we
can sustain or increase profitability on a quarterly or annual basis in the
future. If we fail to do so, the market price for our common stock could suffer.

OUR REVENUES WOULD SIGNIFICANTLY DECREASE IF WE LOSE KEY CUSTOMERS.

    A small number of customers have accounted for, and may in the future
account for, a significant portion of our revenues. For example, we derived
approximately 26% of our revenues for the three months ended March 31, 2000 from
an agreement with LookSmart. Our agreement with LookSmart was renewed in
February 2000 and will expire on February 15, 2001. In February 2000, we entered
into a strategic alliance with 24/7 Media. Pursuant to this alliance, 24/7 Media
will sell e-mail and banner advertising on behalf of NetZero. There can be no
assurance that such agreement will result in material revenues to us. The
termination of material agreements, as well as the timing of orders under
material agreements, may cause significant fluctuations in our quarterly
results. Our business, results of operations and financial condition will be
materially and adversely affected if we are unable either to renew our material
agreements or to replace such agreements with similar agreements with new
customers.

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<PAGE>
OUR REPUTATION AND ABILITY TO GENERATE REVENUES WILL BE HARMED IF USER DEMAND
  FOR OUR SERVICE EXCEEDS OUR TELECOMMUNICATIONS AND SERVER CAPACITY.

    We may from time to time experience increases in our telecommunications
usage which exceed our then-available telecommunications capacity and the
capacity of our internal servers. As a result, users may be unable to register
or log on to our service, may experience a general slow-down in their Internet
access or may be disconnected from their sessions. Excessive user demand could
also result in system failures of our internal server networks, which would
prevent us from generating advertising revenues. Inaccessibility, interruptions
or other limitations on the ability to access our service due to excessive user
demand, or any failure of our servers to handle user traffic, would have a
material adverse effect on our reputation and our revenues.

WE WILL NOT BE ABLE TO SUPPORT INCREASED NUMBERS OF USERS IF WE ARE UNABLE TO
  ENHANCE OUR INTERNAL NETWORK INFRASTRUCTURE.

    Our internal network infrastructure is composed of a complex system of
application, database, advertisement and e-mail servers. Service interruptions
originating within our internal network have occurred in the past and may occur
in the future, especially when usage exceeds capacity. We will need to invest in
substantial financial, operational, and management resources to enhance our
systems, particularly our database servers and storage capabilities, to handle a
large number of users. We cannot be certain that we will be able to accomplish
this on a timely basis and at a commercially reasonable cost, or at all. If we
fail to do so, we will be unable to grow our business.

IF WE FAIL TO MANAGE OUR TELECOMMUNICATIONS CAPACITY, OUR SERVICE LEVELS MAY
  SUFFER OR WE MAY EXPERIENCE INCREASED PER-USER COSTS.

    We will have to accurately anticipate our future telecommunications capacity
needs within lead-time requirements. If we fail to procure sufficient quantities
of telecommunications products and services, we may be unable to provide our
current and future users with acceptable service levels. We also run the risk of
purchasing excessive amounts of telecommunications products and services based
on incorrect projections regarding increased usage. In that event, we would be
required to bear the costs of excess telecommunications capacity without
commensurate increases in revenues. There can be no assurance that we will be
able to effectively manage these and other aspects of our business. Our failure
to do so would likely have a material adverse effect on our business, results of
operations and financial condition.

WE MAY NOT BE ABLE TO GROW OUR USER BASE IF WE ARE UNSUCCESSFUL IN ESTABLISHING
  AND MAINTAINING THE NETZERO BRAND.

    If we are unsuccessful in establishing or maintaining the NetZero brand, we
may not be able to grow our user base. We believe that establishing and
maintaining the NetZero brand is critical to retain and expand our user base.
Promotion of the NetZero brand will depend on our success in providing
high-quality Internet products and services. However, such success will depend,
in part, on the services, products and efforts of third parties, over which we
have little or no control. For instance, if our third party telecommunications
service providers fail to provide quality service, our users' ability to access
the Internet may be interrupted, which may adversely affect the NetZero brand.
If our users and advertisers do not perceive our existing products and services
as high quality, or if we introduce new products or services or enter into new
business ventures that are not favorably received by our users and advertisers,
then we may be unsuccessful in building brand recognition and brand loyalty in
the marketplace. In addition, we may also need to devote substantial resources
to create and maintain a distinct brand loyalty among our users and to promote
and maintain the NetZero brand in a very competitive market. If we incur
excessive expenses in promoting and maintaining our brand, our financial results
could be seriously harmed.

                                       25
<PAGE>
WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY IF WE ARE NOT ABLE TO RESPOND TO
  CHANGING INDUSTRY STANDARDS.

    We may not be able to compete effectively if we are not able to adapt to
changes in technology and industry standards, and to develop and introduce new
and enhanced products and service offerings. We believe that our ability to
compete successfully will also depend upon the continued compatibility of our
services with products offered by various vendors. Although we intend to support
emerging standards in the market for Internet access, we may not be able to
conform our technology and equipment to support these new standards in a timely
fashion. For instance, we have been notified that Sun Microsystems is upgrading
its JAVA language and that the new version will require more memory to
implement. Our software uses the JAVA language extensively and we will have to
modify our resources accordingly to accommodate the new version. There can be no
assurance that we will be able to make such modifications, or any other
modifications which may be required to adapt to new or changing standards, in a
cost-effective and timely manner, or at all.

WE MAY NOT BE ABLE TO DEVELOP NEW PRODUCT OR SERVICE OFFERINGS IF WE ARE UNABLE
  TO OBTAIN NEEDED TECHNOLOGY.

    We rely upon third parties to help us develop technologies that enhance our
current product and service offerings. If our relationships with these third
parties are impaired or terminated, then we would have to find other developers
on a timely basis or develop technology completely on our own. We cannot predict
whether we will be able to obtain the third-party technology necessary for
continued development and introduction of new and enhanced products and
services.

CONSUMERS MAY DECIDE NOT TO USE OUR SERVICE IF OUR TECHNOLOGY AND SERVICES
  BECOME OBSOLETE.

    Others may develop services or technologies that render our services or
technology noncompetitive or obsolete. For instance, a number of companies are
offering broadband and other high speed Internet access services, which allow
users to access the Internet at much faster speeds than the access services we
currently provide. Our ability to remain technologically competitive may require
substantial expenditures and lead time.

WE MAY NOT SUCCESSFULLY DEVELOP AND MARKET NEW PRODUCTS IN A TIMELY MANNER.

    We may expend significant resources developing and implementing new
products. Product development involves a number of uncertainties, including
unanticipated delays and expenses. New products may have technological problems
or may not be accepted by our users or advertisers. There is no assurance that
new products will be introduced in a timely manner or result in user
satisfaction or increased revenues. If we are unable to respond in a timely
manner to technological advances, we may not be able to compete effectively for
users, which could cause our revenues to decrease.

IF OUR SOFTWARE OR HARDWARE CONTAIN ERRORS, OUR BUSINESS COULD BE SERIOUSLY
  HARMED.

    The software and hardware used to operate and provide our services is
complex and, accordingly, may contain undetected errors or failures. We have in
the past, and may in the future, encounter errors in the software or hardware
used to operate and provide our services. This has resulted in, and may in the
future result in, a number of adverse consequences, including:

    - users being disconnected from our service or being unable to access our
      service;

    - loss of data or revenue;

    - injury to reputation; and

    - diversion of development resources.

                                       26
<PAGE>
    We have experienced some technical and customer support issues associated
with our products and software releases and we cannot assure you that we will
not experience additional problems in the future.

WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY IF WE ARE NOT ABLE TO PROTECT OUR
  PROPRIETARY RIGHTS.

    If we are not able to protect our proprietary rights, we may not be able to
compete effectively. We principally rely upon copyright, trade secret, and
contract laws to protect our proprietary technology. We cannot be certain that
we have taken adequate steps to prevent misappropriation of our technology or
that our competitors will not independently develop technologies that are
substantially equivalent or superior to our technology. In addition, since we
provide our Internet access software for free, we are extremely susceptible to
various forms of unauthorized use of our software. For instance, we have
experienced, and expect to continue to experience, numerous instances of third
parties selling unauthorized copies of our software. Others have attempted to
charge fees for installing our software without our permission. These actions
could adversely affect our brand name.

WE MAY INCUR SUBSTANTIAL COSTS AND DIVERSION OF MANAGEMENT RESOURCES IF WE
  INFRINGE UPON THE PROPRIETARY RIGHTS OF OTHERS.

    We have permission and, in some cases, licenses from each developer of the
software that we use in our software. Although we do not believe that the
software or the trademarks we use or any of the other elements of our business
infringe on the proprietary rights of any third parties, third parties may
assert claims against us for infringement of their proprietary rights and these
claims may be successful. In addition, a number of third-party owners of patents
have claimed to hold patents that cover various forms of online transactions or
online technology. As with other online service providers, patent claims could
be asserted against us based upon our services or technologies.

    We could incur substantial costs and diversion of management resources in
the defense of any claims relating to proprietary rights. Parties making these
claims could secure a judgment awarding substantial damages as well as
injunctive or other equitable relief that could effectively block our ability to
license our products in the United States or abroad. If a third party asserts a
claim relating to proprietary technology or information against us, we may seek
licenses to the intellectual property from the third party. We cannot be
certain, however, that third parties will extend licenses to us on commercially
reasonable terms, or at all. If we fail to obtain the necessary licenses or
other rights, it could materially and adversely affect our ability to operate
our business.

OUR SERVICE COULD BE DISRUPTED BY A SECURITY BREACH, VIRUS OR INAPPROPRIATE USE
  BY INTERNET USERS.

    The future success of our business will depend on the security of our
network and, in part, on the security of the network infrastructures of our
third-party telecommunications service providers, over which we have no control.
Computer viruses or problems caused by our users or other third parties, such as
the sending of excessive volumes of unsolicited bulk e-mail or "spam", could
lead to interruptions, delays, or cessation in service to our users. In
addition, the sending of "spam" through our network could result in third
parties asserting claims against us. There can be no assurance that we would
prevail in such claims and our failure to do so could result in large judgments
against us. Users or other third parties could also potentially jeopardize the
security of confidential information stored in our computer systems or our
users' computer systems by their inappropriate use of the Internet, including
breaking into our computer network, which could cause losses to us or our users.
Users or third parties may also potentially expose us to liability by "identity
theft", or posing as another NetZero user. Unauthorized access by current and
former employees or others could also potentially jeopardize the security of
confidential information stored in our computer systems and those of our users.
We expect that our users will increasingly use the Internet for commercial
transactions in the future. Any network malfunction or security breach could
cause these transactions to be delayed, not completed at

                                       27
<PAGE>
all, or completed with compromised security. Users or others may assert claims
of liability against us as a result of any failure by us to prevent these
network malfunctions and security breaches, and may deter others from using our
services, which could cause our business prospects to suffer. Although we intend
to continue using industry-standard security measures, such measures have been
circumvented in the past, and we cannot assure you that these measures will not
be circumvented in the future. We also cannot assure you that the security
measures of our third-party network providers will be adequate. In addition, to
alleviate problems caused by computer viruses or other inappropriate uses or
security breaches, we may have to interrupt, delay, or temporarily cease service
to our users, which could have a material adverse effect on our revenues and
could also result in increased user turnover.

OUR REVENUES COULD BE ADVERSELY AFFECTED IF PROGRAMS TO DISABLE THE ZEROPORT
  BECOME PREVALENT.

    Various software programs have been developed that specifically target The
ZeroPort to disable our ability to deliver advertisements to a user. These
programs attempt to blank out, or block, banner advertisements on The ZeroPort
or completely delete The ZeroPort from users' computer screens. To date, such
programs have not interrupted our operations or caused us to fail to meet the
terms of our advertising agreements. While we believe we have been able to limit
the effectiveness of such attempts, there can be no assurance that we will be
able to continue to do so in the future. Widespread adoption of this type of
software would seriously damage our ability to operate our business and generate
revenues.

WE MAY NOT BE ABLE TO EXPAND OUR OPERATIONS IF WE ARE NOT ABLE TO OBTAIN
  ADDITIONAL EQUIPMENT FROM THIRD-PARTY HARDWARE SUPPLIERS.

    The expansion of our network infrastructure and Internet services in general
is placing, and will continue to place, a significant demand on our suppliers.
From time to time, we have experienced delayed delivery from suppliers of
modems, servers, and other equipment. We may be unable to implement our planned
expansion and our users may be unable to connect to our network if we are not
able to obtain additional equipment in a timely manner and on commercially
acceptable terms. In particular, our servers are a critical part of our
infrastructure and we will need additional servers to expand our operations. We
currently purchase, and expect to continue to purchase, all of our servers from
Sun Microsystems. Since we do not have an agreement with Sun Microsystems
regarding future server purchases, we have no assurance that Sun Microsystems
will continue to supply servers to us on commercially acceptable terms, if at
all.

WE MAY EXPERIENCE LOSS OF DATA, DISRUPTION OF OPERATIONS, OR ERRONEOUS
  OVERCHARGES OR UNDERCHARGES TO ADVERTISING CUSTOMERS IF THE ORACLE SOFTWARE WE
  USE TO RUN OUR OPERATIONS FAILS TO OPERATE CORRECTLY.

    Virtually every aspect of our operations, including finance, billing,
accounting, storage and retrieval of user data, and advertisement tracking, uses
or interfaces with a centralized software system provided by Oracle. We have
only limited experience with the operation of this system. Difficulty with the
operation of, or errors, defects or malfunctions in the operation of, this
system, could result in loss of data, erroneous overcharges or undercharges to
advertising customers or disruption of operations.

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<PAGE>
OUR ABILITY TO OPERATE OUR BUSINESS COULD BE SERIOUSLY HARMED IF WE LOSE, OR
  FAIL TO ASSIMILATE, MEMBERS OF OUR SENIOR MANAGEMENT TEAM AND OTHER KEY
  EMPLOYEES.

    Most of our senior management team has only recently joined us. For example,
Mark Goldston, our Chief Executive Officer, joined us in March 1999, Charles
Hilliard, our Chief Financial Officer, joined us in April 1999, and Perri
Procida, our Senior Vice President, Sales, joined us in May 1999. There can be
no assurance that we will successfully assimilate our recently hired officers or
that we can successfully locate, hire, assimilate and retain qualified key
management personnel. Our business is largely dependent on the personal efforts
and abilities of our senior management and other key personnel. Any of our
officers or employees can terminate his or her employment relationship at any
time. The loss of these key employees or our inability to attract or retain
other qualified employees could seriously harm our business and prospects. We do
not carry key man life insurance on any of our employees.

WE WILL NOT BE ABLE TO GROW OUR BUSINESS IF WE ARE NOT ABLE TO HIRE ADDITIONAL
  PERSONNEL.

    Our future success also depends on our ability to attract, retain and
motivate highly skilled technical, managerial, editorial, merchandising, sales,
marketing and user service personnel. We plan to hire additional personnel in
all areas of our business. Competition for such personnel is intense,
particularly in the Internet and high technology industry. As a result, we may
be unable to successfully attract, assimilate or retain qualified personnel. We
may also be unable to retain the employees we currently employ or attract
additional technical personnel. If we fail to retain and attract the necessary
personnel, we may not be able to operate and grow our business.

OUR BUSINESS COULD BE SHUT DOWN OR SEVERELY IMPACTED IF A NATURAL DISASTER
  OCCURS.

    Our operations and services depend on the extent to which our computer
equipment and the telecommunications infrastructure of our third-party network
providers is protected against damage from fire, earthquakes, power loss,
telecommunications failures, and similar events. A significant portion of our
computer equipment, including critical equipment dedicated to our Internet
access services, is located at our headquarters and at facilities in Los Angeles
and San Jose, California. Despite precautions taken by us and our third-party
network providers, over which we have no control, a natural disaster or other
unanticipated problems at our headquarters or at a network hub, or within a
third-party network provider's network, could cause interruptions in the
services that we provide. For example, if an earthquake damages equipment at our
network operations center, we may have no means of replacing this equipment on a
timely basis or at all and our service would be shut down. We do not currently
maintain fully redundant or back-up Internet services, backbone facilities or
other fully redundant computing and telecommunications facilities. Furthermore,
we do not currently have any business disruption insurance. Any prolonged
disruption of our services due to system failure could result in user turnover
and decreased revenues.

IF WE ARE UNABLE TO SUCCESSFULLY INTEGRATE FUTURE ACQUISITIONS INTO OUR
  OPERATIONS, THEN OUR RESULTS AND FINANCIAL CONDITION MAY BE ADVERSELY
  AFFECTED.

    We have made, and may continue to make acquisitions or undertake other
business combinations that can complement our current or planned business
activities. Such acquisitions may not be available at the times or on terms
acceptable to us, or at all. In addition, acquiring a business involves many
risks, including:

    - disruption of our ongoing business and diversion of resources and
      management time;

    - unforeseen obligations or liabilities;

    - difficulty assimilating the acquired operations and personnel;

                                       29
<PAGE>
    - risks of entering markets in which we have little or no direct prior
      experience;

    - potential impairment of relationships with employees or users as a result
      of changes in management; and

    - potential dilutive issuances of equity, large and immediate write-offs,
      the incurrence of debt, and amortization of goodwill or other intangible
      assets.

    There can be no assurance that we will make any further acquisitions or that
we will be able to obtain additional financing for such acquisitions, if
necessary. If any acquisitions are made, there can be no assurance that we will
be able to successfully integrate the acquired business into our operations or
that the acquired business will perform as expected.

                 WE FACE RISKS RELATED TO THE INTERNET INDUSTRY

WE COULD BE EXPOSED TO SIGNIFICANT LEGAL LIABILITY IF NEW CASE LAW IS DECIDED,
  OR NEW GOVERNMENT REGULATION IS ENACTED, REGARDING THE INTERNET AND INTERNET
  SERVICE PROVIDERS.

    The law relating to our business and operations is evolving and no clear
legal precedents have been established. The adoption of new laws or the
application of existing laws may decrease the growth in the use of the Internet,
affect telecommunications costs or increase the likelihood or scope of
competition from regional telephone companies. These results could decrease the
demand for our services or increase our cost of doing business, each of which
would cause our gross margins and revenues to fall. In particular, the following
risks could occur:

REGULATION OF CONTENT AND ACCESS COULD LIMIT OUR ABILITY TO GENERATE REVENUES
  AND EXPOSE US TO LIABILITY.

    Prohibition and restriction of Internet content and access could dampen the
growth of Internet use, decrease the acceptance of the Internet as a
communications and commercial medium and expose us to liability. A variety of
restrictions on content and access, primarily as they relate to children, have
been enacted or proposed, including laws which would require Internet service
providers to supply, at cost, filtering technologies to limit or block the
ability of minors to access unsuitable materials on the Internet. Because of
these content restrictions and potential liability to us for materials carried
on or disseminated through our systems, we may be required to implement measures
to reduce our exposure to liability. These measures may require the expenditure
of substantial resources or the discontinuation of our product or service
offerings that subject us to this liability. Further, we could incur substantial
costs in defending against any of these claims and we may be required to pay
large judgments or settlements or alter our business practices. In addition, our
liability insurance may not cover potential claims relating to the Internet
services we provide or may not be adequate to indemnify us for all liabilities
that may be imposed on us.

WE COULD BE EXPOSED TO LIABILITY FOR DEFAMATION, NEGLIGENCE AND INFRINGEMENT.

    Because users download and redistribute materials that are cached or
replicated by us in connection with our Internet services, claims could be made
against us for defamation, negligence, copyright or trademark infringement, or
other theories based on the nature and content of such materials. While we have
attempted to obtain safe harbor protection against claims of copyright
infringement under the Digital Millennium Copyright Act of 1998, there can be no
guarantee that we will prevail in any such claims. We also could be exposed to
liability because of third-party content that may be accessible through our
services, including links to Web sites maintained by our users or other third
parties, or posted directly to our Web site, and subsequently retrieved by a
third party through our services. It is also possible that if any third-party
content provided through our services contains errors, third parties who access
such material could make claims against us for losses incurred in reliance on
such information. These types of claims have been successfully brought against
other online

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service providers. In particular, copyright and trademark laws are evolving and
it is uncertain how broadly the rights provided under these laws will be applied
to online environments. It is impossible for us to determine who the potential
rights holders may be with respect to all materials available through our
services.

OUR ABILITY TO SELL TARGETED ADVERTISING MAY BE LIMITED IF NEW LAWS RELATING TO
  USER PRIVACY ARE ENACTED.

    Our ability to sell targeted advertising partly depends on our ability to
use personal information collected from our users. We cannot assure you that our
current information collection procedures and disclosure policies will be found
to be in compliance with existing or future laws or regulations. Our failure to
comply with existing laws, or the adoption of new laws or regulations that
require us to change the way we conduct our business, could make it
cost-prohibitive to operate our business, and prevent us from pursuing our
business strategies including the sale of targeted advertising.

OUR MARGINS AND COSTS WOULD BE ADVERSELY AFFECTED IF OUR BUSINESS BECOMES
  SUBJECT TO TAXATION.

    The tax treatment of activities on or relating to the Internet is currently
unsettled. A number of proposals have been made at the federal, state and local
levels and by foreign governments that could impose taxes on the online sale of
goods and services and other Internet activities. Recently, the Internet Tax
Freedom Act was signed into law, placing a three-year moratorium on new state
and local taxes on Internet commerce. However, there can be no assurance that
future laws imposing taxes or other regulations on commerce over the Internet
would not substantially impair the growth of Internet commerce and, as a result,
negatively impact our margins or make it cost-prohibitive to operate our
business.

TELECOMMUNICATIONS REGULATION COULD MAKE IT MORE EXPENSIVE FOR US TO DO
  BUSINESS.

    As an Internet service provider, we are not currently directly regulated by
the Federal Communications Commission or any other agency, other than
regulations applicable to businesses generally. Nevertheless, Internet-related
regulatory policies are continuing to develop, and it is possible that we could
be exposed to regulation in the future. We could be adversely affected if any
regulatory change results in the application of access charges to Internet
service providers because this would substantially increase the cost of using
the Internet. Since one of the largest components of our operating costs is
telecommunications expense, any increase in such costs would have a material
adverse effect on our cost of revenues and gross margins. We could also be
affected by any change in the ability of our users to reach our network through
a dial-up telephone call without any additional charges.

SEASONAL TRENDS IN INTERNET USAGE AND ADVERTISING SALES MAY NEGATIVELY AFFECT
  OUR BUSINESS.

    Seasonal trends could affect the advertising revenues we generate from
operating our Internet services. To the extent that our advertising revenues
depend on the amount of usage by our users, seasonal fluctuations in Internet
usage could affect our advertising revenues during these periods of fluctuation.
In addition, the rate at which new users sign up for our services may be lower
during certain seasons and holiday periods. Because our operating history is so
limited, it is difficult for us to accurately predict these trends and plan
accordingly. Since our operating expenses are based on our expectations of
future revenues, it is possible that seasonal fluctuations could materially and
adversely affect our revenues and our operating results.

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IF INTERNET USAGE DOES NOT CONTINUE TO GROW, WE MAY NOT BE ABLE TO GROW OUR
  BUSINESS AND INCREASE OUR REVENUES.

    If our assumption that use of the Internet will continue to grow turns out
to be incorrect, we will not be able to grow our business and increase our
revenues. Substantially all of our revenues are dependent on the continued use
and expansion of the Internet. Use of the Internet has grown dramatically, but
we cannot assure you that usage of the Internet will continue to expand. A
decrease in the demand for Internet services or a reduction in the currently
anticipated growth for such services could cause our user base and our
advertising revenues to decrease.

OUR BRAND AND BUSINESS COULD BE ADVERSELY AFFECTED IF WE ARE NOT ABLE TO PROTECT
  OUR DOMAIN NAMES OR ACQUIRE OTHER RELEVANT DOMAIN NAMES.

    We currently hold the Web domain name relating to our brand, NetZero.com, as
well as numerous other related Web domain names. The acquisition and maintenance
of domain names generally is regulated by governmental agencies and their
designees. The regulation of domain names in the United States and in foreign
countries is subject to change in the near future. As a result, we may be unable
to acquire or maintain relevant domain names in the countries in which we
conduct, or plan to conduct, business. Furthermore, the relationship between
regulations governing domain names and laws protecting trademarks and similar
proprietary rights is unclear. Therefore, we may be unable to prevent third
parties from acquiring domain names that are similar to, infringe upon, dilute
or otherwise decrease the value of our trademarks and other proprietary rights.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    NetZero currently does not hold any derivative instruments and does not
engage in hedging activities. Also, NetZero is not currently party to any
transactions denominated in a foreign currency. Thus, NetZero's exposure to
interest rate and foreign exchange fluctuations is minimal.

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PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

    We are not a party to any material legal proceedings.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

    (D) USE OF PROCEEDS FROM SALES OF REGISTERED SECURITIES. On September 29,
1999, NetZero completed an initial public offering of its common stock, $.001
par value. The shares of common stock sold in this offering were registered
under the Securities Act of 1933, as amended, on a Registration Statement on
Form S-1 (Reg. No. 333-82827) that was declared effective by the SEC on
September 23, 1999. The offering commenced on September 24, 1999. All
11.5 million shares of common stock registered under the Registration Statement
(including 1.5 million shares sold pursuant to the exercise of the underwriters'
over-allotment option) were sold at a price of $16 per share. The aggregate
price of the offering amount registered was $184 million.

    In connection with the initial public offering, NetZero paid an aggregate of
$12.9 million in underwriting discounts and commissions to the underwriters and
paid other expenses in the amount of approximately $1.8 million. After deducting
the underwriting discounts and commissions and the estimated offering expenses,
NetZero received net proceeds from the offering of approximately
$169.3 million. As of March 31, 2000, NetZero had used approximately
$51 million of the net proceeds from the offering to fund its operating losses,
its working capital requirements and capital expenditures. The balance of the
proceeds will be used for general corporate purposes including additions and
enhancements to the Company's server and network infrastructure, working
capital, expansion of its sales and marketing capabilities and brand-name
promotions. NetZero may also use a portion of its proceeds for acquisitions of
complementary businesses, services or technology. Pending these uses, the net
proceeds of the offering will be invested in short-term, interest-bearing,
investment-grade instruments. None of the net proceeds from the offering were
paid directly or indirectly to any director, officer, general partner of NetZero
or their associates, persons owning 10% or more of any class of equity
securities of NetZero, or an affiliate of NetZero.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

    None.

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

    None.

ITEM 5. OTHER INFORMATION

    None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

10.1 Amended and Restated Start Page Agreement dated as of February 1, 2000 by
    and between NetZero and LookSmart, Ltd.

10.2 The ZeroPort Advertising Agreement dated as of February 5, 2000 by and
    between NetZero and idealab!, Inc.

10.3 Employment Agreement dated as of December 1, 1999, by and between NetZero
    and Brian Woods.

27.1 Financial Data Schedule

(b) Reports on Form 8-K

    On February 14, 2000, NetZero filed a report on Form 8-K/A to report the
financial statements of AimTV, Inc. and selected pro forma financial information
in connection with NetZero's acquisition of AimTV, Inc.

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                                   SIGNATURES

    Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                        NETZERO, INC.
                                        (REGISTRANT)

                                        By:  /s/ CHARLES S. HILLIARD
            --------------------------------------------------------------------
                                            Charles S. Hilliard
                                            SENIOR VICE PRESIDENT, FINANCE
                                            AND CHIEF FINANCIAL OFFICER

Dated: May 15, 2000

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