10-K 1 f70800e10-k.txt FORM 10-K PERIOD END DECEMBER 31, 2000 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Year Ended December 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ______________ Commission File number 000-25835 MYPOINTS.COM, INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 94-3255692 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 100 California Street,12th Flr, San Francisco, CA 94111 (Address of Principal Executive Offices) Registrant's Telephone Number, Including Area Code: (415) 676-3700 Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this form 10-K or any amendment to this Form 10-K. The aggregate market value of voting common stock held by non-affiliates of the registrant (based on the closing price for the Common Stock on the Nasdaq National Market on March 1, 2001) was approximately $37,000,000. As of March 1, 2001, 40,749,044 shares of Common Stock were outstanding. Page 1 2 INDEX TABLE OF CONTENTS

Page 2 3 PART I ITEM 1. BUSINESS All statements in this discussion that are not historical are forward-looking statements within the meaning of Section 21e of the Securities Exchange Act, including statements regarding the Company's "Expectations", "Beliefs", "Hopes", "Intentions", "Strategies", or the like. Such statements are based on management's current expectations and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. MyPoints, Inc. and subsidiaries ("the Company") cautions investors that there can be no assurance that actual results or business conditions will not differ materially from those projected or suggested in such forward-looking statement as a result of various factors, including, but not limited to, the risk factors discussed in this Annual Report on Form 10-K. MyPoints.com expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in MyPoints.com's expectations with regard thereto or any change in events, conditions, or circumstances on which any such statements are based. MyPoints.com, Inc. is a leading provider of Internet direct marketing services. Our database-driven direct marketing services, marketed under the trademarks MyPoints(R) and Cybergold(R), offer direct marketers an approach to internet advertising that integrates targeted email and web-based offers with incentives to respond to those offers. Points earned in the MyPoints program may be redeemed for a wide variety of products and services, such as gift certificates, travel awards and prepaid phone cards. The Cybergold program offers a cash-based reward system. Our approach to direct marketing provides internet consumers with the opportunity to earn rewards by responding to direct offers and by participating in other online and offline activities, and provides businesses with an integrated set of online customer acquisition and retention tools. In addition, we build and manage on a select basis co-branded and private label customer loyalty programs for our loyalty partners. According to Media Metrix, a leading web rating service, the MyPoints.com website, www.mypoints.com, was the internet's second most popular shopping site and the 30th most popular site overall in December 2000. INDUSTRY BACKGROUND Growth of the Internet and Electronic Commerce The internet has emerged as a global medium, enabling millions of people worldwide to share information, communicate and conduct business electronically. Jupiter Communications, a leading technology research organization, estimates that the number of U.S. households online will grow from approximately 45 million, or 45 percent of U.S. households, at the end of 1999 to approximately 80 million, or 74 percent, by the end of 2005. The growing use of the web represents a significant opportunity for businesses to utilize the internet for their marketing activities. According to Jupiter, U.S. Internet advertising expenditures are expected to rise from approximately $5.3 billion, or 5.3 percent of total advertising expenditures, in 2000, to more than $16 billion, or 8 percent of total expenditures, by the end of 2005. The internet allows businesses to develop one-to-one relationships with customers worldwide without making significant investments in traditional infrastructure such as retail outlets, distribution networks and sales personnel. Online Direct Marketing Businesses operating in the electronic commerce marketplace engage in various forms of online direct marketing to generate sales of products or services. Direct marketing is advertising that is intended to generate a specific response or action from a targeted group of consumers. Examples of Page 3 4 traditional forms of direct marketing include catalog mailings, magazine inserts and telesales. Online direct marketing can take the form of email or web-based promotional offers. Online direct marketing is particularly attractive because advertisers can use tools that are not available in traditional media, such as measurement of "click-through" rates and one-click response to email offers. These tools give advertisers rapid feedback on their marketing campaigns. This feedback can be used to tailor new messages and targeted offers. According to Jupiter, online direct marketing programs offer other unique advantages to businesses as well, including: - an interactive advertising format that enables consumers to respond and purchase online, without the need for telephone calls or store visits; - high rates of response to direct marketing offers of between 5% and 15%, compared to the click-through rates of traditional internet advertising consisting of "banners" on web sites -- which have reportedly declined from 2.0% to 0.5%; - low cost per email message of between $0.01 and $0.25, compared to $1.00 and $2.00 per piece of direct marketing material sent via postal mail; and - short campaign life cycles of between 48 and 72 hours, compared to six to eight weeks offline. Because of these advantages, advertisers are committing relatively more dollars to online direct marketing campaigns than to other forms of internet advertising, such as brand marketing using banner advertisements. According to Jupiter, email direct marketing, for example, will account for $3.1 billion, or more than 19 percent, of online advertising expenditures by 2005, up from just $300 million, or 6%, in 2000. Market Opportunity Because of continuing corporate interest in using the internet to acquire customers, and because of the need for online businesses to find effective ways to retain customers once they have attracted them, we believe there is a significant opportunity for a company that can overcome the barriers to direct marketing on the internet, and bring cost-effective, integrated direct marketing solutions to the online market. THE MYPOINTS.COM SOLUTION MyPoints.com is a leading provider of internet direct marketing services. In the internet marketing sector, we believe that we are one of the first to combine targeted email and web-based direct marketing offers with a rewards program, called the MyPoints(R) program. We provide our advertisers with online customer acquisition channels and retention tools. By building our direct marketing service around the MyPoints program, we believe we have overcome key barriers to effective direct marketing on the internet. These barriers include inundation (the amount of email people receive), spam (unsolicited commercial email) and anonymity (the difficulty of matching a user's email address to a demographic profile). Our members opt into the MyPoints program and we award them points for giving us personal information. We inform our members that we will use the information to tailor email offers to their interests and that they can earn additional points by responding to those offers. Consumers benefit from our direct marketing programs through the ability to earn and redeem points by interacting with our advertisers and loyalty partners online. Advertisers benefit from the ability to acquire and retain customers on the internet cost-effectively. Page 4 5 Consumer Benefits We have designed the MyPoints(R) program to offer the following benefits to members: - Relevant Offers. The depth of our member database enables us to accurately target advertisements to our members. This helps us to direct only the most relevant offers to each member and increases the likelihood that the member will view and respond to a given message. - Leading Brands. We increase the attractiveness of our program by providing our members with direct marketing offers from name brands such as BMG Entertainment, Mastercard, Doubleday, Microsoft and Sprint. - Wide Variety of Rewards. We have designed our rewards programs to be broad. Rather than focusing on one particular type of consumer award, such as frequent flyer miles, we provide a range of redemption opportunities, including electronic gift certificates from name-brand retailers, travel awards, prepaid phone cards and credits in other popular rewards programs. - Easily Attainable Rewards. Many of our reward opportunities are at point levels that are low enough to be earned in a matter of weeks by a typical active member. These easily attainable rewards include $10 gift certificates for major retailers such as Barnes & Noble and for restaurant chains such as The Olive Garden. We offer our members a variety of point earning opportunities that do not require a purchase, as well as the ability to earn points for offline activities including credit card and long distance telephone usage. - Engaging Member Experience. We have designed our web site to be highly personalized and easy-to-use, featuring user friendly purchase and redemption capability. We provide personalized web and email interfaces that feature the member's name and current point balance. Our members also have the option to receive our email offers in rich-media format, such as HTML. - Privacy and Control. We assure members that we will not sell personal information to third parties without permission. We also give members a significant amount of control over their experience by allowing them to screen out unwanted advertisement or award categories or opt out of the MyPoints program. Business Benefits MyPoints.com provides our advertising clients, for whom we deliver direct marketing messages, with a competitive advantage in the acquisition of new customers and the retention of existing customers: -Integrated Approach to Online Direct Marketing. We believe we are a leading direct marketing provider that has integrated online direct marketing with an online rewards program. This enables our advertisers to increase consumer response rates by rewarding consumers who take advantage of their targeted offers. - Access to Our Proprietary Member Database. Our members provide us with demographic, behavioral and transactional information. We use these detailed member profiles to target offers, allowing our advertising clients to reach the most relevant audience for their promotions and increase consumer response rates. - Detailed Real Time Reporting. Online direct marketing campaigns generally begin to generate results in two or three days compared to several weeks in offline campaigns. We employ sophisticated marketing analytics and real-time reporting technology to evaluate the initial results of a campaign and use that information to improve the overall results of the current and future campaigns of our advertisers. Page 5 6 - High Return on Advertising Investment. We offer direct marketers the ability to target and reward consumers with online offers for approximately one-tenth the cost of typical offline direct marketing promotions. As a consequence of improved testing, targeting and rewarding capabilities, we expect online direct marketing response rates to be higher than other online and offline media. This combination of lower delivery costs and higher response rates generates returns on advertising investment that are higher than those achieved by competing direct response media. - Rewards-Based Shopping Channel. We offer web retailers the ability to take advantage of our traffic and our customer loyalty infrastructure by joining MyPoints Shopping!, our reward shopping channel. Through MyPoints Shopping!, retailers can join a select group of web businesses that offer points for every dollar our members spend on their sites. Customized Loyalty Solutions MyPoints.com also offers a variety of cost-effective and customized solutions to select loyalty partners, including co-branded and private label versions of our MyPoints rewards program and offline credit card rewards programs through our MyPoints Offline Services unit. STRATEGY Our objective is to build the leading online consumer membership service and to enable our advertising clients to more easily and effectively acquire and retain customers. Key elements of our strategy to achieve this objective are to: Expand Our Membership and Deepen Our Proprietary Database We seek to continually expand the size of our membership base and deepen our proprietary database to provide a large audience to our advertisers and the ability to more accurately target messages to our members. To increase the size of our membership base, we plan to use a variety of approaches, including online advertising, referrals, and co-branded and private label loyalty partnerships. We increase the depth of our database by rewarding consumers for joining our MyPoints program and for completing detailed surveys from which we collect demographic and behavioral data. We also increase the depth of our database by tracking the transaction activity of our members in the MyPoints program as our members respond to direct offers and make purchases through our rewarded shopping channel, MyPoints Shopping!. We also intend to continue to use third-party data sources to build more detailed profiles of our members. Leverage Our Direct Marketing and Loyalty Program Expertise We will continue to use our expertise in managing direct marketing and loyalty membership programs on behalf of our advertising clients and loyalty partners, to enable them to maximize response rates to their offers and increase customer retention. We use our tools and technology to assist merchants in targeting members for specific marketing promotions based on a variety of targeting criteria, including demographic profile and past-purchase behavior. As we implement campaigns, we expect to continue to accumulate additional data and improve our targeting capabilities and technologies. Additionally, we will continue to provide our advertisers with support services, such as the design and production of rich-media email and web-based offers and the graphical interfaces for our partners' loyalty programs. Increase Awareness of Our Brand We seek to increase awareness of the MyPoints(R) brand through consumer and trade advertising campaigns and through partnerships with high-profile Internet brands. We also extend our brand presence through our association with the strong brands of our rewards providers and advertisers. Page 6 7 Pursue "Clicks and Mortar" Opportunities We define "clicks and mortar" as using online marketing activities to motivate offline purchases. Forrester estimates that 70 million shoppers researched products and services on the web in 1999, leading to more than $100 billion in offline purchases. By 2003, Forrester predicts that online purchases will reach $108 billion, and that online marketing will influence approximately $500 billion in purchases at offline stores. We believe the challenge for many merchants in the years to come will be to effectively establish consumer relationships online and then to attract consumers to an offline store for the final purchase. We are implementing a number of initiatives to build out a "clicks and mortar" business to take advantage of this large market. On behalf of some of our advertisers, we give our members the opportunity to sign up for services online, but to earn points for their offline purchases. For example, through our relationship with Sprint, we reward members to sign up for Sprint long distance through our web site and for every time they use Sprint long distance, an offline activity. Maintain Our Technology Leadership The MyPoints Digital Loyalty Engine, which underlies our rewards program, is a scalable software platform designed to serve the needs of our members and business partners. The system currently supports more than ten million member accounts. We plan to continue developing and improving our technology to meet the needs of a growing online marketplace. We also intend to continue to leverage the technology and experience of Experian, a leading information services and database management company and the parent of our largest stockholder. Pursue Strategic Acquisitions and Alliances We have made several acquisitions, license arrangements and strategic alliances to build our membership base and improve our level of services. In our principal acquisition transaction, we acquired internet and electronic commerce assets and technologies to support web-based rewards programs from Enhanced Response Technologies, Inc. and a company affiliated with Experian. This acquisition enabled us to integrate email and web-based direct marketing and loyalty programs under the MyPoints(R) name. Through this acquisition, we believe we have become a key element of Experian's long-term internet investment strategy. We intend to pursue additional strategic alliances and acquisitions aggressively to increase membership, offer new products and services, access new geographic markets and obtain proprietary technologies. In addition, in August 2000, we acquired Cybergold, Inc., a company offering a rewards program similar to the MyPoints program that uses cash as an incentive to encourage consumers to respond to offers and shop online. After detailed analysis of the relationship between the Cybergold and MyPoints programs, we determined in December 2000 to maintain Cybergold(R) as a separate marketing product line focused on cash as an incentive. In January 2000, we acquired Alliance Development Group, Inc., a company that operates offline customer rewards programs. In June 2000, we renamed this company MyPoints Offline Services and continue to focus on serving the needs of its offline customer base. International Ventures Currently, we have signed agreements with three international partners: Sweden Post, the Swedish postal service, The Great Universal Stores P.L.C ("GUS"), and Dai Nippon Printing ("DNP"), a direct marketing service company and a leading printing company. Our program with Sweden Post to license a localized version of our BonusMail(R) program for the Swedish market has been operational since May 1999. Sweden Post operates one of Europe's leading electronic commerce web sites. We also have entered into international joint venture agreements with GUS and DNP. MyPoints.com owns less than 20% of both of those ventures and is primarily responsible for providing the technology for those ventures to operate in their respective markets. We are currently being compensated under hosting agreements with our joint venture partners. The hosting agreements currently in place cover operation of the programs on the Company's servers located in the United States. Page 7 8 Our agreement with GUS to operate a version of the MyPoints program to serve the European markets (MyPoints Europe) has been operational since September 2000. Our program with DNP, to operate a version of the MyPoints program to serve the Japanese market (MyPoint Japan) has been operational since December 2000. We do not anticipate undertaking any new international initiatives in 2001. MYPOINTS.COM PRODUCTS AND SERVICES The following table summarizes our products and services:

The MyPoints and CyberGold programs serve two primary constituencies, our members and our advertising clients. Members enroll to earn rewards by responding to targeted offers on the web at the MyPoints and Cybergold web sites and to targeted offers by email. Advertising clients use MyPoints and Cybergold programs to reach a selected group of members with targeted offers and incentives. The MyPoints program begins with enrollment, where consumers receive rewards points for providing key demographic and behavioral information. This enrollment information is supplemented with transactional data gathered as our members interact with our services. Once enrolled, MyPoints program members receive points for responding to targeted, personalized offers. Members may also earn points by filling out additional online surveys. After earning a sufficient number of points, MyPoints' program members may redeem their points online for products and services from our rewards partners, including electronic gift certificates, travel awards, prepaid phone cards and points in other loyalty programs. Members may also spend their points at participating catalog sites where merchandise prices are denominated in points for MyPoints program members. Our rewards providers benefit from the MyPoints program through increased revenue and additional customers. The list of web-based point-earning opportunities presented to the member on the MyPoints program web site "earn page" depends on the profile of the visiting member. Some of the information that determines the point-earning opportunities Page 8 9 directed to a member include geographic location, leisure time interests, financial information and investment interests. The MyPoints program features a sophisticated online account maintenance area, where members may change their preferences and other personal information, access their earning history and account balance, contact a member care representative, and redeem points. We also place a high degree of importance on our commitment to maintaining the security of member information. We are members of both TRUSTe and the Online Better Business Bureau, and we adhere to the principles of these organizations. The CyberGold program operates in a similar fashion, enabling consumers to enroll, share personal information, and then take advantage of web- and email-based offers to earn rewards in the form of cash. MyPoints(R)Shopping! In July 1999, we launched MyPoints Shopping!, a shopping service that enables our MyPoints members to earn points by shopping online at a network of internet merchants. We work with our retail partners to increase site traffic and sales through our rewarded shopping channel, MyPoints Shopping!. The following merchants are among those participating in the program: Avon, Hickory Farms, JC Penney, Lands End and Orvis. Customized Loyalty Programs We also build and operate fully customized, private label point programs based on the MyPoints program technology or the technology of our MyPoints Offline Services group. We currently operate private label programs and/or credit card rewards programs on behalf of Albertsons, The Kroger Co., NextCard, Providian Financial, and Staples. SALES AND MARKETING At December 31, 2000, our advertising sales organization consisted of 53 employees located primarily in San Francisco, New York, Los Angeles and Chicago. This organization is dedicated to developing and maintaining relationships with leading advertisers and advertising agencies nationwide. We also seek to enter into relationships with third-party advertising sales representatives to augment the efforts of our direct sales personnel. At December 31, 2000, our consumer marketing organization consisted of 36 employees in San Francisco and Chicago. This organization is dedicated to acquiring members for our online direct marketing program and developing new products, such as new membership clubs and other benefits, to market to our members. The MyPoints.com consumer marketing group uses a variety of member acquisition strategies, including referrals by current members, banner bars and other online media placements, and affiliate programs. Affiliate programs include relationships in which partners bring new members to MyPoints.com by introducing the service to their own user bases in exchange for exposure of their own services to the MyPoints program membership or a cash payment per member. ADVERTISING CUSTOMERS AND REWARDS PROVIDERS Our ten largest advertising customers accounted for 25% of our revenues in 1999 and 25% of our revenues in 2000. No single advertising customer accounted for more than 10% of revenues in 1999 or 2000. Included in our ten largest rewards providers, based upon points redeemed during 2000 were Target, Home Depot, Toys R Us, and Brinker International. Page 9 10 MEMBER CARE We have established a member care process that is designed to provide superior service to all program participants. Automated Inquiry System We have developed automated online support services for our members, such as online access to account information and transaction histories. Our new member inquiry interface is designed to answer member questions automatically. Through this member inquiry system, a natural language query engine parses the inquiry and provides the member with links to relevant information on the web site to address their concern. 24-hour/7-day Support We employ an internal staff dedicated to member care and a specialized customer support vendor, the Global Email Company, to maximize coverage and minimize cost and turnaround time. Through this combination, we are able to provide 24-hour, 7-day coverage with immediate automated responses for all online inquiries and a turnaround time for inquiries targeted to maintaining a high level of member satisfaction. TECHNOLOGY AND INFRASTRUCTURE We have developed an expandable, secure and reliable technology infrastructure to support our online direct marketing and loyalty rewards programs. The principal element of our proprietary technology is our Digital Loyalty Engine. The Digital Loyalty Engine is an Internet based software application that enables our advertisers and loyalty partners to set the parameters of point-earning transactions without our direct involvement. Customizable elements include the number of times in a given period an award may be earned, the number of points per transaction, the maximum number of transactions per member and the maximum aggregate numbers of points that can be awarded in a given campaign. Advertisers and loyalty partners can use the Digital Loyalty Engine to take advantage of market opportunities on a real-time basis by establishing new point-earning opportunities or altering the parameters of existing opportunities. Expandability To date, we have demonstrated that our architecture is capable of rapid expansion. Membership in our direct marketing and loyalty programs has grown from fewer than two million members in January 1999 to more than 15.8 million members in December 2000. Our systems are also designed to capture a large amount of data from our members, which is critical to the creation of a successful online loyalty rewards program. In addition, our systems are designed to be integrated with our partners' own databases, thereby enhancing data exchange and data mining for marketing purposes. Security We incorporate a variety of encryption techniques meant to protect the privacy of consumer information and the integrity of client transactions. We also employ a variety of automated fraud detection procedures to identify patterns of abuse and potential fraudulent use of the system. Our fraud detection systems can automatically disable accounts in which fraud is suspected. The data center where our system is located provides 24-hour/7-day security management. Reliability Our software system architecture uses industry standard technologies to maximize reliability. We use Secure Socket Layer for secure transactions, Oracle and Sybase databases, the UNIX operating system and the Netscape web server within our infrastructure. All of these platforms have demonstrated a high degree of reliability. Our databases are also distributed among clients and among functions. In particular, each Digital Loyalty Engine, where transactions are recorded, is separate from the main database of account records. As a result, a database failure Page 10 11 would typically affect only a particular client or function and would not adversely impact our entire system. We back up our Oracle databases to long-term tape storage on a daily basis. Our network servers are housed separately at Exodus Communications' data centers in Jersey City, New Jersey and Oak Brook, Illinois. The Exodus data centers provide redundant network connections, redundant connections to power grids, diesel generators for emergency power, air conditioning and 24-hour/7-day engineering support. Our infrastructure is built to maximize reliability through the use of multiple central processor units and redundant power supplies, networking and input/output controllers. COMPETITION We face intense competition from both traditional and online advertising and direct marketing businesses. We expect competition to increase due to the lack of significant barriers to entry in the online advertising market. In the future, we may compete with a greater number of media companies across a wide range of advertising and direct marketing services. Online direct marketing service companies that we currently compete with or may in the future compete with include 24/7 Media, DoubleClick, Engage, Lifeminders, MatchLogic, Netcreations and yesmail.com. In addition, several other companies offer competitive online products, services and rewards programs, including CoolSavings and Netcentives. We also face competition from established online portals and community web sites that engage in direct marketing, as well as from traditional advertising agencies and direct marketing companies and others that may seek to offer online products or services. Therefore, although we believe we were one of the first companies to integrate online direct marketing with an online rewards program, we may face additional competition from companies engaged in online direct marketing that introduce rewards programs and from online rewards program providers that begin offering direct marketing services. Our ability to compete depends upon many factors, including: - the timing and market acceptance of new products and services developed either by us or our competitors; - our ability to demonstrate the effectiveness of our service to advertisers; - our ability to increase the number of members who participate in our online programs; - our ability to increase the depth of information in our database regarding our members by capturing demographic, behavioral and transactional data; - our ability to increase awareness of our brand; - the capacity of our technology infrastructure to meet the needs of our members, advertisers and loyalty partners; - our size and reach in comparison to that of our principal competitors, - sales and marketing efforts by us or our competitors; and - the availability of capital to ourselves and our competitors. INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS Our success and ability to compete are substantially dependent on our internally developed and acquired technologies and trademarks, which we seek to protect through a combination of patent, copyright, trade secret and trademark laws. We have filed three patent applications in the United States. For some of these applications, we also plan to file corresponding international patent applications. We have entered into confidentiality or license agreements with our employees and consultants, and corporate and strategic partners and generally seek to control access to and distribution of our documentation and other proprietary information. Despite these precautions, it may be possible for third parties to copy Page 11 12 or otherwise obtain and use our proprietary information without authorization or to develop similar technology independently. We pursue the registration of our trade and service marks in the United States and internationally. We have registered trademarks for "MyPoints(R)," "BonusMail(R)" and "Cybergold(R)" in the United States. Effective trademark, service mark, copyright and trade secret protection may not be available in every country in which our services are distributed or made available through the internet, and policing unauthorized use of our proprietary information is difficult. Legal standards relating to the validity, enforceability and scope of protection of proprietary rights in internet-related businesses are uncertain and still evolving. We cannot give any assurance as to the future viability or value, if any, of our proprietary rights. In addition, we cannot give any assurance that the steps taken by us will prevent misappropriation or infringement of our proprietary information. Any infringement or misappropriation, should it occur, could have a material adverse effect on our business, results of operations and financial condition. Our business activities may infringe upon the proprietary rights of others, and other parties may assert infringement claims against us. We have received one claim of alleged infringement, which has been resolved through a license agreement. Litigation may also be necessary to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. An adverse determination in any litigation of this type could require us to make significant changes to the structure and operation of our online rewards program, attempt to design around a third party's patent, or license alternative technology from another party. Implementation of any of these alternatives could be costly and time consuming, and might not be possible. Accordingly, an adverse determination in any litigation that might ensue between a third party and us could have a material adverse effect on our business, results of operations and financial condition. In addition, any intellectual property litigation, even if successfully defended, would result in substantial costs and diversion of resources and management attention and could therefore have a material adverse effect on our business, results of operations and financial condition. We have licensed, and may license in the future, elements of our trademarks and similar proprietary rights to third parties. While we attempt to ensure that the quality of our brand is maintained by these business partners, they may take actions that could materially and adversely affect the value of our proprietary rights or reputation. PRODUCT AND SERVICE WARRANTIES When members purchase products in response to direct marketing offers that we send them or redeem points for products and services, we pass on to these members the warranties made by the manufacturers of products or providers of services. We do not provide separate additional warranties. EMPLOYEES As of December 31, 2000, we employed 301 people, including 89 in sales and marketing, 155 in technology and production and 57 in support, administration, finance, management and human resources. We believe that we maintain good relations with our employees. The number of employees may fluctuate based upon the needs of our business. Page 12 13 RISKS ASSOCIATED WITH OUR BUSINESS WE HAVE ONLY A LIMITED OPERATING HISTORY THAT INVESTORS MAY USE TO ASSESS OUR FUTURE PROSPECTS We have only a limited operating history upon which you can evaluate our business. We commenced operations in November 1996 and did not begin to generate revenues until July 1997. We have not and may never generate sufficient revenues to achieve profitability. We have limited experience addressing challenges frequently encountered by early-stage companies in the electronic commerce and direct marketing industries. We may not be successful in addressing these risks, and our business strategy may not be successful. In addition, we have never operated during a general economic downturn in the United States, which typically adversely affects advertising and marketing expenditures and retail sales. Accordingly, our limited operating history does not provide investors with a meaningful basis for evaluating an investment in our common stock. WE HAVE A HISTORY OF LOSSES AND EXPECT LOSSES TO CONTINUE AT LEAST THROUGH 2001 Our accumulated deficit as of December 31, 2000 was $272.2 million. We have never operated profitably and, given our planned level of operating expenses, we expect to continue to incur losses at least through 2001. Our losses may increase in the future, and even if we achieve our revenue targets, we may not be able to sustain or increase profitability on a quarterly or annual basis. If our revenues grow more slowly than we anticipate, or if our operating expenses exceed our expectations and cannot be adjusted accordingly, our losses could continue beyond our present expectations. OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS, WHICH COULD AFFECT OUR STOCK PRICE Our revenue and operating results may vary significantly from quarter to quarter due to a number of factors, some of which are outside of our control. As a result, our operating results may be below the expectations of public market analysts and investors. In this event, the price of our common stock may fall. The factors most likely to produce varied results include: - the advertising budget cycles of individual advertisers; - the number of reward points redeemed by our members and the costs associated with these redemptions; - changes in the mix of our business; - changes in marketing and advertising costs that we incur to attract and retain members; - changes in our pricing policies, the pricing policies of our competitors or the pricing policies for internet advertising generally; and - unexpected costs and delays. Due to these factors, revenues and operating results are difficult to forecast and you should not rely on period to period comparisons of results of operations as an indication of our future performance. OUR OPERATING RESULTS ARE SUBJECT TO SEASONAL FLUCTUATIONS THAT COULD IMPACT OUR GROWTH AND AFFECT OUR STOCK PRICE Page 13 14 We believe that our revenues will be subject to seasonal fluctuations as a result of general patterns of retail advertising, which are typically lower during the first and third quarter of the year and highest in the fourth quarter. In addition, expenditures by advertisers tend to be cyclical, reflecting general economic conditions and consumer buying patterns. The extent of these seasonal fluctuations in any period may be difficult to predict and, if the fluctuations are greater than our expectations, our growth rate would decline. In this event, the price of our common stock may fall. WE MAY HAVE DIFFICULTIES INTEGRATING RECENT AND FUTURE ACQUISITIONS AND ANY FAILURE TO SUCCESSFULLY INTEGRATE ACQUIRED COMPANIES WOULD REDUCE OUR ABILITY TO REALIZE THE ANTICIPATED VALUE OF THE ACQUISITION In the first quarter of 2000, we acquired Alliance Development Group, Inc. which we renamed MyPoints Offline Services, Inc.("ADG"). We closed the acquisition of Cybergold in the third quarter of 2000. We intend to pursue other acquisitions in the future. Based on our experiences with our first acquisition in 1998, we expect to face numerous risks and uncertainties generally associated with acquisitions, including: - potentially adverse effects on our reported results of operations from acquisition-related charges and amortization of goodwill and purchased technology; - our ability to maintain customers or the reputation of the acquired businesses; - potential dilution to current stockholders from the issuance of additional equity securities; - difficulties integrating operations, personnel, technologies, products and information systems of the acquired businesses; - diversion of management's attention from other business concerns; and - potential loss of key employees of acquired businesses. In January 2000, we acquired ADG, a company that operates offline customer rewards programs. In connection with this acquisition, we intend to integrate our technology with ADG's offline programs to help make them more efficient. Even though we are a marketing company, we might find it difficult to integrate offline and online marketing. If we are unable to integrate the two businesses, we may be unable to realize the anticipated benefits of this Acquisition. In August 2000, we closed the acquisition of Cybergold, Inc. As part of that transaction, we acquired MagnaCash, a subsidiary 100% owned by Cybergold. In October 2000, we sold 81.5% of MagnaCash to an investment group. Magnacash will perform certain services to MyPoints.com with regard to the Cybergold business. If Magnacash becomes illiquid we may be required to find an alternate source for the services to be provided. We expect to face numerous risks and uncertainties generally associated with the acquisition of Cybergold, discussed below. Page 14 15 MYPOINTS.COM AND CYBERGOLD MAY NOT ACHIEVE THE BENEFITS THEY EXPECT FROM THE MERGER, WHICH MAY HAVE A MATERIAL ADVERSE EFFECT ON THE COMBINED COMPANY'S BUSINESS, FINANCIAL CONDITION AND OPERATING RESULTS AND/OR COULD RESULT IN LOSS OF KEY PERSONNEL. We still need to overcome significant issues in order to realize any benefits from the merger, including the timely, efficient and successful execution of a number of post-merger events. Key events include: - Retaining the existing customers and strategic partners of each company - Developing new services that utilize the assets of both companies; and - Maintaining uniform standards, controls, procedures and policies. The successful execution of these post-merger events will involve considerable risk and may not be successful. These risks include: - The potential disruption of the combined company's ongoing business and distraction of its management; - The difficulty of incorporating acquired technology and rights into the combined company's products and services; - Unanticipated expenses related to technology integration; - The impairment of relationships with employees and customers as a result of any integration of new management personnel; and - Potential unknown liabilities associated with the acquired business. WE HAVE GROWN RAPIDLY, AND THE FAILURE TO ADAPT OUR RESOURCES TO A FAST CHANGING ENVIRONMENT COULD STRAIN OUR MANAGEMENT SYSTEMS AND RESOURCES As we consolidate our operations, we may not have an effective planning and management process in place to implement our business plan successfully. We have grown from 24 employees on January 1, 1998 to 301 employees on December 31, 2000. In October 2000, we initiated a workforce reduction of 120 employees. The staff reductions were primarily in technology, production and administrative related positions. The growth in our business and the workforce reduction could strain the development of our management systems. We anticipate the needs to continue to improve our financial and managerial controls and our reporting systems. In addition, we will need to train and manage our work force. OUR SUCCESS DEPENDS ON OUR ABILITY TO MAINTAIN AND EXPAND AN ACTIVE MEMBERSHIP BASE Our success largely depends on our ability to maintain and expand an active membership base. Our revenues are primarily driven by fees paid by advertisers and direct marketers based on specific actions taken by our members. If we are unable to induce existing and new members to actively participate in our programs, our business, results of operations and financial condition will be harmed. We generate a significant portion of our revenues based on the activity of a small percentage of our members, and we cannot assure you that the percentage of active members will increase. In addition, some of our members have requested to limit the number of emails they receive from us. Although our membership has grown in prior periods, we cannot be sure that our membership growth will continue at current rates or increase in the future. WE FACE INTENSE COMPETITION, AND THE FAILURE TO COMPETE EFFECTIVELY COULD Page 15 16 ADVERSELY AFFECT OUR MARKET SHARE AND RESULTS OF OPERATIONS We face intense competition from both traditional and online advertising and direct marketing businesses. We expect competition to increase due to the lack of significant barriers to entry for online business generally. As we expand the scope of our product and service offerings, we may compete with a greater number of media companies across a wide range of advertising and direct marketing services. Our ability to generate significant revenue from advertisers and loyalty partners will depend on our ability to differentiate ourselves through the technology and services we provide and to obtain adequate participation from consumers in our online direct marketing and rewards programs. Rewards providers are also a critical element of our business. The attractiveness of our program to current and potential members and loyalty partners depends in large part on the attractiveness of the rewards and point redemption opportunities that we offer. Currently, several companies offer competitive online products or services, including Netcentives. We also expect to face competition from established online portals and community web sites that engage in direct marketing and loyalty point programs, as well as from traditional advertising agencies and direct marketing companies that may seek to offer online products or services. Many of our current competitors and potential new competitors have longer operating histories, greater name recognition, larger customer bases and greater financial, technical and marketing resources than we do. These advantages may allow them to respond more quickly to new or emerging technologies and changes in customer requirements. It may also allow them to engage in more extensive research and development, undertake more far-reaching marketing campaigns, adopt more aggressive pricing policies, and make more attractive offers to potential employees, strategic partners and advertisers. 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 advertisers and advertising agency customers. As a result, it is possible that new competitors may emerge and rapidly acquire significant market share. We may not be able to compete effectively, and competitive pressures may result in price reductions, reduced gross margins and loss of our market share. THE FAILURE TO ESTABLISH THE MYPOINTS(R)BRAND WOULD IMPAIR OUR COMPETITIVE POSITION We are highly dependent on establishing and maintaining our brand. Any event or circumstance that negatively impacts our brand could have a direct and material adverse effect on our business, results of operations and financial condition. As competitive pressures in the online direct marketing industry increase, we believe that brand strength will become increasingly important. The reputation of the MyPoints brand will depend on our ability to provide a high-quality member experience. We cannot assure you that we will be successful in delivering this experience. If members are not satisfied with the quality of their experience with the MyPoints program, their negative experiences might result in publicity that could damage our reputation. If we expend additional resources to build the MyPoints brand and do not generate a corresponding increase in revenues as a result of our branding efforts, or if we otherwise fail to promote our brand successfully, our competitive position would suffer. NEW FINANCIAL ACCOUNTING STANDARDS COULD REQUIRE US TO CHANGE OUR REVENUE RECOGNITION POLICIES, WHICH COULD SIGNIFICANTLY REDUCE OUR REVENUE OR ADVERSELY AFFECT OUR RESULTS OF OPERATIONS At its September 2000 meeting, the Financial Accounting Standards Board Emerging Issues Task Force, the EITF, began discussing Issue No. 00-22, "Accounting for 'Points' and Certain Other Time- or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to be Delivered in the Future." EITF Issue No. 00-22 addresses the accounting for revenues and expenses relating to point and other loyalty programs. The EITF has not yet reached a consensus on this issue and plans on discussing it at future meetings. Among alternatives under consideration by the EITF is one that would, if adopted, result in a significant Page 16 17 delay in the timing of when we recognize revenue from the transmission of email advertisements to enrolled members and receipt of qualified responses to this email. Our current policy is to recognize revenue when email is transmitted to members and responses are received. The alternative under consideration by the EITF would result in this revenue being deferred until points issued in connection with such emails are redeemed for rewards by our members. We believe that our current revenue recognition policy related to the transmission of email advertisements to enrolled members and receipt of qualified responses to such email is in accordance with generally accepted accounting principles and is based on views published by and consultations with the Securities and Exchange Commission, as our advertising contracts with our business partners speak to performing advertising services and do not require the issuance of points. We are unable to quantify the impact of the proposed alternatives on our financial results or predict the outcome of the EITF's project. We cannot assure you as to what, if any, change, may ultimately be required by actions taken by the EITF in this project. Please refer to our future Quarterly Reports on 10-Q and Annual Reports on 10-K filed with the Securities and Exchange Commission for updates on EITF No. 00-22 and its impact on us. THE FAILURE TO ACCURATELY ESTIMATE LEVELS OF REDEMPTIONS WOULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS Our historical and forecasted financial statements reflect our assumptions as to the percentage of awards issued by us that will not be redeemed by members prior to expiration. This percentage of unredeemed awards is known as "breakage." The breakage rates we have used in preparing our financial statements and forecasts are based primarily on our experience with our own program since its launch in May 1997. If our actual breakage rates are less than our assumed breakage rates, meaning that a greater number of awards are actually redeemed than we had assumed would be redeemed, our results of operations could be materially and adversely affected. If it becomes necessary for us to extend the expiration date of a significant balance of outstanding awards in the future, it is possible that our actual breakage rates would be lower than our assumed breakage rates, which could materially and adversely affect our results of operations. In addition, the timing of members' decisions to redeem is at the discretion of members and cannot be controlled by us. Awards generally have a life of two to three years and can be redeemed by members until their expiration date. To the extent that members redeem at a rate that is more rapid than that anticipated by us, we would experience a need for increased working capital to fund these redemptions. Accordingly, the timing of redemptions by members could materially and adversely affect our results of operations. A SMALL NUMBER OF OUR ADVERTISING CUSTOMERS ACCOUNTS FOR A SIGNIFICANT PORTION OF OUR REVENUES; THEREFORE THE LOSS OF PRINCIPAL CUSTOMERS COULD ADVERSELY AFFECT OUR REVENUES No single advertising customer accounted for more than 10% of our revenue in 2000. Our ten largest advertising customers were responsible for approximately 25% of our revenues during 2000. We do not have long-term contracts with most of our customers, and customers can generally terminate their relationships with us upon specified notice and without penalties. Thus, we may not be able to retain our principal customers. The loss of one or more of our principal customers could have a material adverse effect on our revenues. OUR PROSPECTS FOR OBTAINING ADDITIONAL FINANCING, IF REQUIRED, ARE UNCERTAIN AND FAILURE TO OBTAIN NEEDED FINANCING COULD AFFECT OUR ABILITY TO PURSUE FUTURE GROWTH Page 17 18 We may need to raise additional funds to develop or enhance our services or products, to fund expansion, to respond to competitive pressures or to acquire complementary products, businesses or technologies. We cannot assure you that additional financing will be available on terms favorable to us, or at all. If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders would be reduced and these securities might have rights, preferences or privileges senior to those of our current stockholders. If adequate funds are not available on acceptable terms, our ability to fund our expansion, take advantage of unanticipated opportunities, develop or enhance services or products, or otherwise respond to competitive pressures would be significantly limited. OUR MANAGEMENT HAS LIMITED EXPERIENCE WORKING TOGETHER AND THERE IS NO ASSURANCE THAT ITS MEMBERS WILL OPERATE AS A TEAM John Steuart, previously CFO of Cybergold, joined the company in August 2000 as the new CFO. Craig Stevens, Senior Vice President, General Counsel and Secretary joined the company in August 2000. Steve Markowitz, our CEO and President resigned on November 3, 2000 and Charles H. Berman, formerly COO, resigned in December 2000. Layton Han, was Senior Vice President of Business Development of the Company and is now the President of the Company. John Fullmer became the CEO and Chairman of the Board of the Company in February 2001. The new management team has limited experience working together. WE DEPEND ON THE SERVICE OF WELL TRAINED AND MOTIVATED EMPLOYEES AND THERE IS NO ASSURANCE THAT WE CAN RETAIN THEIR SERVICES. Our success depends on our ability to attract, retain and motivate highly skilled employees. Competition for employees in our industry is intense. We may be unable to retain our key employees or to attract, assimilate and retain other highly qualified employees in the future. We have experienced difficulties from time to time in attracting and retaining the personnel necessary to support the growth and the technical infrastructure of our business, and we may experience similar difficulty in the future. In the first quarter of 2001 we have implemented a plan to reprice employee stock options to better reflect the current value of our stock in the marketplace. If the price of our stock remains below $1.00, the repricing may not have the desired effect on our employees. FAILURE TO SAFEGUARD OUR DATABASE AND MEMBER PRIVACY COULD AFFECT OUR REPUTATION AMONG CONSUMERS An important feature of the MyPoints program is our ability to develop and maintain individual member profiles. Security and privacy concerns may cause consumers to resist providing the personal data necessary to support this profiling capability. As a result of these security and privacy concerns, we may incur significant costs to protect against the threat of security breaches or to alleviate problems caused by such breaches. Usage of our MyPoints program could decline if any well-publicized compromise of security occurred. In addition, third parties could alter information in our database that would adversely affect our ability to target direct marketing offers to members. We could also be subject to legal claims from members. Any public perception that we engaged in unauthorized release of member information would adversely affect our ability to attract and retain members. As part of our point redemption services, we maintain a database containing information on our members' account balances. Our database may be subject to access by unauthorized users accessing our systems remotely. If we experience a security breach, the integrity of our points database could be affected. This breach could lead to financial losses through the unauthorized redemption of points. Our database of member accounts includes account information and transaction Page 18 19 information of each member. Failure by us to maintain the integrity of this data could result in attrition of members or could result in emails delivered to untargeted members. Failure by us to email the targeted member could result in a reduction of revenues. WE ARE VULNERABLE TO SYSTEM FAILURES WHICH COULD CAUSE INTERRUPTIONS OR DISRUPTIONS IN OUR SERVICE The hardware infrastructure on which the MyPoints system operates is located at the Exodus Communications data centers in Jersey City, New Jersey and Oak Brook, Illinois. We cannot assure you that we will be able to manage this relationship successfully to mitigate any risks associated with having our hardware infrastructure maintained by Exodus. Unexpected events such as natural disasters, power losses and vandalism could damage our systems. Telecommunications failures, computer viruses, electronic break-ins or other similar disruptive problems could adversely affect the operation of our systems. Our insurance policies may not adequately compensate us for any losses that may occur due to any damages or interruptions in our systems. Accordingly, we could be required to make capital expenditures in the event of damage. We do not currently have fully redundant systems or a formal disaster recovery plan. Periodically we experience unscheduled system downtime, which results in our web site being inaccessible to members. In particular, during the relaunch of the integrated MyPoints program in April 1999, we experienced significant periods of system downtime during which our web site was inaccessible. Although we did not suffer material losses during these downtimes, if these problems persist in the future, members and advertisers could lose confidence in our services. SYSTEM CAPACITY CONSTRAINTS MAY RESULT IN A LOSS OF REVENUES A substantial increase in the use of our products and services could strain the capacity of our systems, which could lead to slower response time or system failures. System failures or slowdowns adversely affect the speed and responsiveness of our rewards transaction processing. These would diminish the experience for our members and reduce the number of transactions, and thus, could reduce our revenue. As a result, we face risks related to our ability to scale up to our expected transaction levels while maintaining satisfactory performance. If our transaction volume increases significantly, we will need to purchase additional servers and networking equipment to maintain adequate data transmission speeds. The availability of these products and related services may be limited or their cost may be significant. WE FACE RISKS ASSOCIATED WITH THIRD PARTY CLAIMS AND PROTECTION OF OUR INTELLECTUAL PROPERTY RIGHTS, AND ANY LITIGATION RELATING TO INTELLECTUAL PROPERTY RIGHTS COULD HARM OUR BUSINESS Our business activities may infringe upon the proprietary rights of others, and other parties may assert infringement claims against us. We have received three claims of alleged infringement, one of which has been resolved through a license agreement. The second claim of infringement was with Cybergold which we acquired in August, 2000. Also, in July 1999, we received an infringement claim from another party, along with an offer to grant a license to us at a cost that would not be material. To our knowledge, no litigation has been filed against us based on this claim. Litigation may also be necessary to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. An adverse determination in any litigation of this type could require us to make significant changes to the structure and operation of our online rewards program, attempt to design around a third party's patent, or license alternative technology from another party. Implementation of any of these alternatives could be costly and time consuming, and might not be possible. In addition, any intellectual property litigation, even if successfully defended, would result in substantial costs and diversion of resources and management attention. Our success and ability to compete depends on our internally developed technologies and trademarks, which we seek to protect through a combination of Page 19 20 patent, copyright, trade secret and trademark laws. Despite actions we take to protect our proprietary rights, it may be possible for third parties to copy or otherwise obtain and use our proprietary information without authorization or to develop similar technology independently. In addition, legal standards relating to the validity, enforceability and scope of protection of proprietary rights in internet-related businesses are uncertain and still evolving. We cannot give any assurance regarding the future viability or value of any of our proprietary rights. In addition, we cannot give any assurance that the steps taken by us will prevent misappropriation or infringement of our proprietary information. Any infringement or misappropriation, should it occur, could have a material adverse effect on any competitive advantage incident to our proprietary rights. WE MAY NEED TO ADAPT OUR PRODUCTS AND SERVICES AND WE MAY BE SUBJECT TO FOREIGN GOVERNMENT REGULATION AND TAXATION, CURRENCY ISSUES, DIFFICULTIES IN MANAGING FOREIGN OPERATIONS AND FOREIGN POLITICAL ECONOMIC INSTABILITY Our participation in international markets will be subject to our potential inability to adapt, expand or enhance our products and services to suit foreign markets. In addition, international operations are generally associated with risks such as foreign government regulations, export license requirements, tariffs and taxes, fluctuations in currency exchange rates, introduction of the European Union common currency, difficulties in managing foreign operations and political and economic instability. To the extent our potential international members or our international partners are impacted by currency devaluations, general economic crises or other macroeconomic events, the ability of our members to utilize our services could be diminished. In order to help us address some of the risks associated with introducing our services internationally, we believe it will be necessary to establish strategic relationships with international partners. We cannot assure you that electronic commerce will develop successfully in international markets or that potential members in these foreign markets will utilize incentives-based marketing programs. Furthermore, we cannot assure you that we will be able to overcome any legal restrictions related to offering rewards and incentives that may exist in foreign jurisdictions. RISKS ASSOCIATED WITH THE INTERNET INDUSTRY IF THE ACCEPTANCE OF ONLINE ADVERTISING AND DIRECT MARKETING DOES NOT CONTINUE, OUR REVENUES WOULD DECLINE We expect to derive a substantial portion of our revenues from online advertising and direct marketing, including both email and web-based programs. If these services do not continue to achieve market acceptance, we cannot assure you that we will generate business at a sufficient level to support our continued operations. The internet has not existed long enough as an advertising medium to demonstrate its effectiveness relative to traditional advertising media. Advertisers and advertising agencies that have historically relied on traditional advertising may be reluctant or slow to adopt online advertising. Many potential advertisers have limited or no experience using email or the web as an advertising medium. They may have allocated only a limited portion of their advertising budgets to online advertising, or may find online advertising to be less effective for promoting their products and services than traditional advertising media. If the market for online advertising fails to develop or develops more slowly than we expect, our revenues would decline. Additionally, during the second half of 2000, market demand for on-line advertising services such as those offered by us weakened, particularly from early-stage internet and e-commerce companies. We expect weaker demand and smaller marketing budgets from these companies to continue at least in the early part of 2001. The market for email advertising in general is vulnerable to the negative public perception associated with unsolicited email, known as "spam." We do not send Page 20 21 unsolicited email. However, public perception, press reports or governmental action related to spam could reduce the overall demand for email advertising in general and our MyPoints BonusMail service in particular. IF ONLINE REWARDS PROGRAMS ARE NOT WIDELY ACCEPTED BY BUSINESSES AND INTERNET USERS OUR BUSINESS MODEL WILL NOT SUCCEED Our success depends in large part on the continued growth and acceptance of online rewards programs. If online rewards programs are not widely accepted by advertisers and embraced by internet users, our business model will not succeed. Although loyalty and rewards programs have been used extensively in conventional marketing and sales channels, they have only recently begun to be used online. We cannot assure you that online programs will continue to be accepted by advertisers and that we can continue to offer advertisers attractive promotions and satisfied members. The success of our business model also will depend on our ability to attract and retain members. We cannot assure you that our marketing efforts and the quality of each member's experience, including the number and relevance of the direct marketing offers we provide and the perceived value of the rewards we offer, will generate sufficient satisfied members. TO REMAIN COMPETITIVE, WE MUST KEEP PACE WITH RAPID TECHNOLOGICAL CHANGES IN OUR INDUSTRY Our market is characterized by rapidly changing technologies, frequent new product and service introductions, short development cycles and evolving industry standards. The recent growth of the internet and intense competition in our industry exacerbate these market characteristics. In order to adapt to rapidly changing technologies we are in the process of upgrading our technological infrastructure beyond customary maintenance and improvements in performance and features. The migration might impact the reliability of our systems. We may experience technical difficulties that could delay or prevent the successful development, introduction or marketing of new products and services. In addition, any new enhancements to our products and services must meet the requirements of our current and prospective users. We may incur substantial costs to modify our services or infrastructure to adapt to rapid technological change. CONTINUED DEVELOPMENT AND USE OF THE INTERNET INFRASTRUCTURE IS CRITICAL TO OUR ABILITY TO OFFER OUR SERVICES Our members depend on internet service providers for access to our web site. Internet service providers and web sites have experienced significant outages in the past, and could experience outages, delays and other difficulties due to system failures unrelated to our systems. If outages or delays occur frequently in the future, internet usage, as well as electronic commerce and the usage of our products and services, could grow more slowly or decline. A number of factors may inhibit internet usage, including inadequate network infrastructure, security concerns, inconsistent quality of service, and lack of availability of cost-effective, high-speed service. If internet usage grows, the internet infrastructure may not be able to support the demands placed on it by this growth and its performance and reliability may decline. OUR BUSINESS DEPENDS ON OUR ABILITY TO COLLECT MEMBER INFORMATION; FUTURE REGULATION OF THE INTERNET COULD RESTRICT OUR ACCESS TO THIS INFORMATION Laws and regulations that apply to the internet may become more prevalent in the future. The laws governing the internet and email services remain largely unsettled. There is no single governmental body overseeing our industry, and many state laws that have been enacted in recent years have different and sometimes inconsistent application to our business. In particular, our business model could be severely damaged if regulations were enacted that restricted our ability to collect or use information about our members. The governments of foreign countries may also attempt to regulate electronic commerce. New laws could dampen the growth in use of the internet generally and Page 21 22 decrease the acceptance of the internet as a commercial medium. In addition, existing laws such as those governing intellectual property and privacy may be interpreted to apply to the internet. The federal government, state governments or other governmental authorities could also adopt or modify laws or regulations relating to the internet. In 1998, the United States government enacted a three-year moratorium prohibiting states and local governments from imposing new taxes on electronic commerce transactions. Upon expiration of this moratorium, if it is not extended, states or other governments might levy sales or use taxes on electronic commerce transactions. An increase in the taxation of electronic commerce transactions might also make the internet less attractive for consumers and businesses. In addition, the Federal Trade Commission is considering the adoption of regulations regarding the collection and use of personal information obtained from individuals, especially children, when accessing web sites. These regulations could restrict our ability to provide demographic data to our advertising and marketing clients. At the international level, the European Union has adopted a directive that will impose restrictions on the collection and use of personal data. This directive could affect U.S. companies that collect information over the internet from individuals in European Union member countries and may impose restrictions that are more stringent than current internet privacy standards in the United States. These developments could have an adverse effect on our business, results of operations and financial condition. OTHER RISKS ASSOCIATED WITH OWNERSHIP OF OUR COMMON STOCK SUBSTANTIAL CONTROL WILL REMAIN WITH OUR MANAGEMENT AND MAJOR STOCKHOLDERS AND THIS COULD DELAY OR PREVENT A CHANGE OF CONTROL Our executive officers, our directors and entities affiliated with them and our 5% stockholders together currently beneficially own approximately 19% of our outstanding common stock. These stockholders, if they vote together, will retain substantial control over matters requiring approval by our stockholders, such as the election of directors and approval of significant corporate transactions. This concentration of ownership might also have the effect of delaying or preventing a change in control. PROVISIONS OF OUR CORPORATE CHARTER DOCUMENTS COULD DELAY OR PREVENT A CHANGE OF CONTROL Various provisions of our certificate of incorporation and bylaws, and in particular certain actions of the Board in adopting a Shareholder Rights Plan in December 2000, may have the effect of delaying or preventing a change in control and make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. These provisions, if used by our management, could negatively affect our stock price. OUR STOCK PRICE HAS BEEN VOLATILE, AND YOU MAY NOT BE ABLE TO SELL YOUR SHARES AT A PROFIT The stock market has experienced significant price and volume fluctuations, and the market prices of technology companies, particularly internet-related companies, have been highly volatile. Investors may not be able to resell their shares at or above the price which they paid for their shares. In addition, our results of operations during future fiscal periods might fail to meet the expectations of stock market analysts and investors. This failure could lead the market price of our common stock to decline and cause us to become the subject of securities class action lawsuits. THE COMPANY MAY NOT BE ABLE TO MAINTAIN ITS LISTING ON THE NASDAQ NATIONAL MARKET. The Company's Common Stock is currently listed on the Nasdaq National Market. The Company must satisfy a number of requirements to maintain its listing on the Nasdaq National Market, including maintaining a minimum bid price for the Common Page 22 23 Stock of $1.00 per share. As of March 15, 2001 the bid price of the Common Stock has closed below $1.00 per share since March 6, 2001. If the Common Stock loses its Nasdaq National Market status, the Common Stock would likely trade on the Over the Counter Bulletin Board, which is viewed by most investors as a less desirable, less liquid marketplace. ITEM 2. PROPERTIES. Our properties and associated leases are comprised of the following. We are currently leasing approximately 40,000 square feet of office space in San Francisco, California, approximately 28,000 square feet of space in Oakland, California, approximately 6,300 square feet in San Diego, California, approximately 53,000 square feet in Schaumburg, Illinois, approximately 1,300 square feet in Houston, Texas, approximately 1,900 square feet in Boston, Massachusetts, and approximately 4,500 square feet in New York, New York. Our sales, marketing, finance, and administration functions for MyPoints are based in San Francisco. Our technology and production groups for MyPoints are based in Schaumburg. Our Cybergold sales, marketing, technology, and production functions are based in Oakland. Sales, marketing, administration and production for our ADG group is based in Boston. We have additional sales staff located in New York and Houston. The lease for the San Francisco facility expires in 2007. The lease for the Oakland facility expires in 2004. The lease for the San Diego facility expires in 2003. The lease for the Schaumburg facility expires in 2004 with about 25% of the lease space expiring in 2002. The lease for the Houston facility expires in 2003. The lease for the Boston facility expires in 2006 and the lease for the New York facility expires in 2004. The Company believes it has excess office space in San Francisco, Oakland, San Diego and Schaumburg. The Company is currently evaluating this under-utilization of office space and intends to sub-lease or work out arrangements with landlords to cancel the leases for this excess office space. The Company can provide no assurances that it will be able to sub-lease or cancel the leases for this excess office space. ITEM 3. LEGAL PROCEEDINGS. MyPoints.com and certain of its subsidiaries have been named as defendants in various legal actions arising from their normal business activities in which varying amounts are claimed. Although the amount of any ultimate liability with respect to such matters cannot be determined, in the opinion of management, based upon the opinions of counsel, any such liability will not have a material effect on the consolidated financial position of the Corporation and its subsidiaries. An action was filed in January 2001 against MyPoints.com in the United States Superior Court of the State of California, County of San Diego. This action names MyPoints.com, Cybergold, Inc. and several of Cybergold's and MyPoints.com's officers and directors as defendants. Plaintiffs are the majority shareholder of iTarget.com, Inc., an entity which Cybergold acquired during the first quarter of 2000. The complaint alleges that defendants are liable based on e.g. fraud, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, negligence, negligent misrepresentation, breach of contract/warranty, unfair business practices, and violations of the California corporate securities laws. Among others it is alleged that defendants did not inform plaintiffs in time of MyPoints.com's and Cybergold's acquisition negotiations. Plaintiffs seek a judgment awarding damages and other relief. MyPoints.com believes the allegations contained in these actions are without merit and will vigorously defend them. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. We did not submit any matters to a vote of stockholders during the fourth quarter of 2000. Page 23 24 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCK MATTERS The Company's Common Stock is traded on the Nasdaq National Market System under the symbol of MYPT. The following table sets forth, for the period indicated, the low and high bid prices per share for the Company's Common Stock as reported by the Nasdaq National Market.

As of February 19, 2001, there were approximately 582 holders of record of the Company's Common Stock. No dividends have been paid on the Common Stock since the Company's inception and the Company currently intends to retain all future earnings, if any, for use in its business and does not anticipate paying any cash dividends in the foreseeable future. In September 2000, the Company announced a stock repurchase program. Through December 31, 2000, 216,000 shares were repurchased at prices ranging from $1.32 to $1.54. USE OF PROCEEDS OF STOCK OFFERINGS On February 23, 2000 we completed a follow-on stock offering in which we sold 2,450,000 shares of common stock at $45.88 per share. The total aggregate gross proceeds amounted to $112.4 million. Underwriters' discounts and other related costs were $6.7 million resulting in net proceeds of $105.7 million. On August 19, 1999, we completed our initial public offering, in which we sold 5,750,000 shares of common stock at $8 per share. The total aggregate gross proceeds amounted to $46 million. Underwriters' discounts and other related costs were $4.8 million resulting in net proceeds of $41.2 million. From August 19,1999 to December 31, 2000, the Company estimates that it has primarily used the net proceeds of the two offerings as follows: (i) investments in cash, cash equivalents and short-term investments of $89.1 million; (ii) working capital of $42.5 million; and (iii) property and equipment purchases of $15.3 million. RECENT SALES OF UNREGISTERED SECURITIES Prior to its initial public offering, the Company adopted the 1999 Supplemental Stock Plan. Thereafter, options were issued to certain non-officer employees but none had been exercised by March 30, 2001. Then, the Plan and the shares to be issued thereunder were registered on the Company's Form S-8 Registration Statement. Page 24 25 ITEM 6. SELECTED FINANCIAL DATA The following selected historical information has been derived from the audited financial statements of the Company. The financial information as of December 31, 2000 and 1999 and for each of the three years in the period ended December 31, 2000 are derived from audited financial statements and are included elsewhere in this Form 10-K. The table should be read in conjunction with Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 8. "Financial Statements and Supplementary Data."

Page 25 26 ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements based upon current expectations that involve risks and uncertainties. When used in this Form 10-K, the words "intend," "anticipate," "believe," "estimate," "plan" and "expect" and similar expressions are included to identify forward-looking statements. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Risk Factors" and elsewhere in this Form 10-K. OVERVIEW MyPoints.com, Inc. was founded as Intellipost Corporation in November 1996. In May 1997, we launched our email direct marketing and rewards program. In November and December 1998, through our acquisition of Enhanced Response Technologies, Inc. ("ERT") and a company affiliated with Experian, we acquired internet and electronic commerce related assets and technologies through a series of related transactions. Through these transactions, we acquired a technology license for the operation of a web-based rewards program. In early March 1999, we changed our corporate name to MyPoints.com, Inc. in order to unify our corporate and brand identities. During March and April 1999, we integrated our email and web-based direct marketing and rewards programs under the MyPoints brand. In August 1999, we completed our initial public offering and in February 2000 we completed an additional public offering of shares of our common stock. In January 2000, we acquired all the outstanding shares of ADG, a company that operates offline customer rewards programs. In August, 2000, we acquired all the outstanding shares of Cybergold, Inc.("Cybergold"), a provider of online direct marketing and advertising solutions. We generate a substantial portion of our revenues by delivering email and web-based direct marketing offers for our advertising customers. In exchange for these services, we receive fees from our advertisers based on any or all of the following: - the number of offers delivered to members; - the number of qualified responses generated; and - the number of qualified purchases made. For direct marketing services, we recognize revenues when an offer is delivered, when a qualified response is received or when a product or service is purchased, depending upon the pricing arrangement used. Pricing of our direct marketing services is not based on the issuance of incentives to our members. Direct marketing services represent our largest business activity and the majority of our revenues. As an ancillary activity, we sell points to private label partners and to advertisers for use in their promotional campaigns. We initially defer revenue and estimated point costs associated with the sale of points and recognize this revenue upon the expiration or redemption of the underlying points. Our revenues depend on a number of factors. These include the number of advertisers engaging us to send direct marketing offers to our membership base, the size of our membership base or targeted subset of our membership base demanded by our advertisers, and the responsiveness of our members to these Page 26 27 direct marketing offers. We believe that our revenues will be subject to seasonal fluctuations as a result of general patterns of retail advertising, which are typically higher during the fourth calendar quarter. In addition, expenditures by advertisers tend to be cyclical, reflecting overall economic conditions and consumer buying patterns. We also offer technology licensing arrangements to customers seeking to develop email or web-based direct marketing and loyalty programs. We entered into our first license agreement in December 1998 with Sweden Post, the Swedish postal service. Sweden Post has established a version of the MyPoints BonusMail program for the Swedish market. This license agreement provides for a licensing fee, technical support fees and royalties based on a percentage of revenues from the program site. We recognized revenue under this agreement when the custom development work that we performed for Sweden Post was completed and accepted by Sweden Post. In addition, we will recognize royalty revenue as it is received from Sweden Post. We incurred a net loss of $37.5 million in 1999 which includes $3.1 million for stock-based compensation and $3.1 million for amortization of intangible assets. We incurred a net loss of $213.7 million in 2000 which includes a charge of $138.6 million for the impairment of intangible assets, $5.1 million for stock-based compensation and $26.8 million for amortization of intangible assets. During the third and fourth quarters of 2000, the Company's revenues declined from the second quarter of 2000. This decline was primarily attributable to weak demand for internet marketing services and lower pricing for the Company's products. The Company expects revenues will decrease in the first half of 2001 as compared to the second half of 2000. In the past, we have implemented our strategies by spending substantial amounts on member acquisition and retention, new product offerings, sales and marketing strategic relationships, brand development and technology and operating infrastructure development. The Company is currently assessing its cost structure in light of its prior losses, a slowdown in the economy, and other factors. It is unclear when profitability will be achieved, if ever. Even if we were to achieve profitability in any period, we might fail to sustain or increase that profitability on a quarterly or annual basis. RESULTS OF OPERATIONS FOR 1999 AND 2000 Revenues Revenues increased to $63.5 million in the year ended December 31, 2000 as compared to $24.1 million in the year ended December 31, 1999. The increase in revenues for 2000 as compared to 1999 was primarily attributable to the following: (i) an increase in the number of direct marketing offers to our members, (ii) an increase in our advertising customer base, and (iii) an increase in average spending per advertiser. The increase in revenues can also be attributed to the two acquisitions the Company made during the current year, ADG and Cybergold. Both acquisitions were accounted for under the purchase method of accounting. ADG, which was acquired on January 12, 2000 contributed $3.1 million in revenues during the year ended December 31, 2000. Cybergold (including its wholly owned subsidiary itarget), which was acquired on August 7, 2000, contributed $4.3 million in revenues from the date of the acquisition to December 31, 2000. Cost of Revenues Cost of revenues primarily represents the costs of incentives awarded to our members for responding to advertisements and related purchasing activities associated with our direct marketing offers as well as personnel costs associated with creating, delivering and monitoring email campaigns. Cost of revenues increased to $17.4 million in the year ended December 31, 2000 from $7.4 million in the year ended December 31, 1999. As a percentage of revenues, these costs decreased to 27% in the year ended December 31, 2000 from 31% in the year ended December 31, 1999. The decrease in the cost of revenues as a percentage of revenues in 2000 as compared to 1999 was primarily attributable to a higher number of revenue-generating responses to direct marketing offers and an increase in the allowance for unredeemed points ("breakage") on the Company's members payable balance, partially offset by an increase in personnel costs associated with creating, delivering and monitoring email campaigns. The cost of personnel included in cost of revenue increased to $3.6 million in the year ended December 31, 2000 as compared to $0.5 million in the year ended December 31, 1999. Also contributing to a lower cost of revenue was reduced costs associated Page 27 28 with redemption award purchases. As redemption volume has increased, we have been able to negotiate volume purchase discounts when purchasing gift awards. Technology Costs Technology costs primarily consist of compensation for personnel associated with the development of our technology and the maintenance of our proprietary databases. To date, we have expensed technology costs as incurred except those costs directly related to license and partnership agreements. Technology costs related to these agreements are deferred and recognized over the life of the contracts, as appropriate. In the year ended December 31, 2000, the Company deferred approximately $0.7 million, net, related to these agreements. Additionally, in the future, certain technology costs may be capitalized, as appropriate. Technology costs increased to $26.9 million in the year ended December 31, 2000 from $8.7 million in the year ended December 31, 1999. The increase in technology costs in 2000 as compared to 1999 was primarily due to increases in personnel and consulting costs and related expenses used to enhance and support our proprietary databases and products. Technology costs also increased in the third and fourth quarters of 2000 due to the acquisition of Cybergold. Sales and Marketing Expenses Sales and marketing expenses consist primarily of payroll, sales commissions and related expenses for personnel engaged in sales, marketing and customer support, as well as advertising and promotional expenditures including member acquisition costs. Member acquisition costs consist primarily of online advertising, promotional costs and payments to partners, which may be in the form of cash or points, to attract members to our email and web-based programs. Sales and marketing expenses increased to $42.6 million in the year ended December 31, 2000 from $30.2 million in the year ended December 31, 1999. The increase in sales and marketing expenses in 2000 as compared to 1999 was primarily attributable to increases in personnel costs, including sales commissions, member acquisition costs and related expenses required to implement our sales and marketing strategy. Sales and marketing cost increases were partially offset by declining unit costs for new member acquisition during the second half of 2000 due to general trends in on-line advertising and new, lower cost membership marketing programs implemented by the Company. General and Administrative Expenses General and administrative expenses consist primarily of payroll and related costs for general corporate functions, including finance, accounting, business development, human resources, investor relations, facilities and administration, as well as legal fees, insurance, bad debt and fees for professional services. General and administrative expenses increased to $22.5 million in the year ended December 31, 2000 from $9.6 million in the year ended December 31, 1999. The increase in general and administrative expenses in 2000 as compared to 1999 was primarily due to the expansion of our corporate infrastructure, including the addition of finance and administrative personnel, increased general corporate expenses including legal costs and bad debt reserves, and facility-related expenses. General and administrative expenses also increased in the third and fourth quarters of 2000 due to the acquisition of Cybergold. Amortization of Intangible Assets The Company acquired various intangible assets as part of the acquisition of ERT and a company affiliated with Experian in the fourth quarter of 1998, the acquisition of ADG in the first quarter of 2000 and the acquisition of Cybergold in the third quarter of 2000. The Company recorded intangible assets of $11.2 million on the acquisition of ERT and a company affiliated with Experian. These intangible assets are being amortized over their estimated useful lives of six months to five years. The Company recorded intangible assets of $14.8 million on the acquisition of ADG in the first quarter Page 28 29 of 2000. These intangible assets are being amortized over their estimated useful lives of thirty-six to ninety months. The Company recorded intangible assets of $166 million on the acquisition of Cybergold in the third quarter of 2000. During the fourth quarter of 2000, the Company incurred a write-down of $138.6 million related to these intangible assets. See discussion below. The remaining intangible assets related to the Cybergold acquisition are being amortized over their estimated useful lives of thirty-six months. We recorded amortization of intangible assets of $26.8 million in the year ended December 31, 2000 as compared to $3.1 million in the year ended December 31, 1999. The increase in the amortization of intangible assets in 2000 as compared to 1999 was due to the acquisitions of ADG and Cybergold in 2000. Impairment of Intangible Assets On April 14, 2000, the Company agreed to acquire Cybergold. In the evaluation of the merger, the Company identified several potential benefits of the merger including: - the opportunities for MyPoints to achieve growth and a leading market position; - the potential synergies of the combined companies in marketing, technology and sales; - the opportunity for MyPoints to accelerate its revenue growth and reduce its time to profitability based on synergies from the merger; - the acquisition of a pool of talented and highly skilled employees with proven capabilities in a tight labor market; and - Cybergold's patents; At the time the merger agreement was signed, Cybergold had experienced rapid growth to 179 employees with revenues having grown to $4.3 million during the first quarter of 2000, an increase of over 700% from the $0.5 million reported in the first quarter of 1999. At the time that the merger was consummated on August 7, 2000, the Company anticipated continued growth from the Cybergold business and planned to integrate the Cybergold business to achieve cost savings. During the period from August 7 through September 30, 2000, the Cybergold business unit generated $2.6 million in revenues, a level consistent with the first quarter 2000, but less than internal projections. During this period, approximately 6% of Cybergold's employees departed (from 148 to 139). In October of 2000, the Company reduced headcount at the Cybergold business unit by approximately 50% (from 139 to 74) and outsourced the operation of the technical backend of the Cybergold operations to an affiliate. During the fourth quarter additional staff departed, including key managers associated with the business. As a result of the overall changes in integration strategy, management changes, staff departures and a weaker on-line advertising market, revenues from the Cybergold business declined sharply in the fourth quarter to $1.7 million. Cybergold's revenues in the fourth quarter were over 80% less than internal projections, and were approximately 50% less than the third quarter. Revenues from Cybergold's 10 largest customers experienced a similar reduction. Additionally, the effective price per email sent by Cybergold declined substantially during the fourth quarter. In December 2000, the Company appointed a new general manager of the Cybergold operations and decided to close Cybergold's Itarget subsidiary due to sharp declines in revenues and the departure of Itarget's founder from the Company. By December, Cybergold's total employee base had declined by 61% from the acquisition date (148 to 58) and virtually all of its senior managers had departed or had been reassigned to new duties. The integration plan was again modified to reduce integration costs as the anticipated costs of combining the MyPoints and Cybergold databases was greater than the Company had anticipated. Since the acquisition of Cybergold in April, the Company's stock price has had a sustained decline and has been reduced by approximately 90%. The Company is currently evaluating the Cybergold business unit as a stand alone product line and may discontinue its operations or merge all or part of its membership list into the Mypoints program. Due to the impairment factors described above, the Company performed an impairment assessment of identified intangibles and goodwill recorded in connection with the acquisition of Cybergold. As a result, the Company recorded a $138.6 million impairment charge to reduce goodwill. The charge was based upon the estimated discounted cash flows over the remaining useful life of the goodwill using a discount rate of 20%. The assumptions supporting the cash flows, including the discount rate, were determined using the Company's best estimates as of such date. The discount rate was determined based upon the weighted average cost of capital of comparable companies. The remaining goodwill and identifiable intangibles balance are expected to be amortized over the remaining useful life. Stock-Based Compensation Stock-based compensation increased to $5.1 million in the year ended December 31, 2000 as compared to $3.1 million in the year ended December 31, 1999. The increase in stock-based compensation expense in 2000 as compared to 1999 is primarily related to grants of stock options to employees at prices below market value (prior to the Company's initial public offering) and stock-based compensation related to the Cybergold acquisition. Interest Income Interest income increased to $6.6 million in the year ended December 31, 2000 from $0.6 million in the year ended December 31, 1999. This increase is primarily due to interest earned on higher average cash and investment balances resulting from proceeds received from our initial public offering which was completed in August 1999, our follow-on offering which was completed in February 2000, and cash and investment balances held by Cybergold upon acquisition in August 2000. Write-down of Notes and Interest Receivable In connection with the ADG acquisition in January 2000, the net assets purchased included notes and interest receivable amounting to $ 2.0 million. These notes and interest receivable are due from two former shareholders of ADG. During the year ended December 31, 2000, the Company determined that the notes and related interest were not fully collectible. The carrying value of the notes and interest receivable were reduced to their estimated net realizable value. Income Taxes We recorded a net loss of $213.7 million in 2000 and a net loss of $37.5 million in 1999. Accordingly, no provision for income taxes was recorded in the year and no tax benefit has been recognized due to the uncertainty of realizing a future tax deduction for these losses. Page 29 30 RESULTS OF OPERATIONS FOR 1998 AND 1999 We completed the acquisitions of internet and electronic commerce related assets from ERT and a company affiliated with Experian during November and December 1998. Accordingly, actual results of operations for the years ended December 31, 1998 and 1999 include results for the acquired businesses from the dates of acquisition. Revenues For 1999, total revenues increased to $24.1 million from $1.3 million in 1998. The increase in revenues for 1999 as compared to 1998 was primarily attributable to the following: (i) an increase in the number of direct marketing offers to our members, (ii) an increase in our advertising customer base, and (iii) an increase in average spending per advertiser. Additionally, we recognized license revenues of $614,000 in 1999 attributable to our license arrangement with Sweden Post. Cost of Revenues Cost of revenues represents the costs of points awarded to our members for receiving and responding to advertisements and related purchasing activities associated with our direct marketing offers as well as personnel costs associated with creating, delivering and monitoring email campaigns. For 1999, cost of revenues increased to $7.4 million from $1.1 million in 1998. As a percentage of revenues, these costs decreased to 31% in 1999 from 87% in 1998. The decrease in the cost of revenues as a percentage of revenues in 1999 as compared to 1998 is primarily attributable to a higher number of revenue-generating responses to direct marketing offers, as well as the elimination of points cost associated with members' receipt of email direct marketing offers. We eliminated this points cost because we discontinued our practice of providing points to members for simply receiving our email direct marketing offers. We discontinued this practice in April 1999. We now require members to respond to email offers to earn points. Technology Costs Technology costs primarily consist of compensation for personnel associated with the development of our technology and the maintenance of our proprietary database. We expense technology costs as incurred. For 1999, technology costs increased to $8.7 million from $1.5 million in 1998. This increase was primarily due to increased number of personnel and related expenses used to enhance and support our proprietary database and products. We expect our technology costs to increase in future periods as we continue to improve and enhance our direct marketing technology and expand our membership database. Sales and Marketing Expenses Sales and marketing expenses consist primarily of payroll, sales commissions and related expenses for personnel engaged in sales, marketing and customer support, as well as advertising and promotional expenditures including member acquisition costs. Member acquisition costs consist primarily of online advertising, promotional costs and payments to partners, which may be in the form of cash or points, to attract members to our email and web-based programs. For 1999, sales and marketing expenses increased to $30.2 million from $4.5 million in 1998. This increase was primarily attributable to increased number of personnel and related expenses required to implement our sales and marketing strategy as well as increased promotional and advertising expenses. We expect Page 30 31 increases in sales and marketing expenses to continue in future periods as we continue to hire additional marketing and sales employees, and continue to spend more on member acquisition and promotions. General and Administrative Expenses General and administrative expenses consist primarily of payroll and related costs for general corporate functions, including finance, accounting, business development, human resources, investor relations, facilities and administration, as well as legal fees, insurance, bad debt and fees for professional services. General and administrative expenses increased to $9.6 million in 1999 from $2.0 million in 1998. This increase was primarily due to the expansion of our corporate infrastructure, including the addition of finance and administrative personnel. We expect general and administrative expenses to increase in absolute dollars in future periods as we expand our administrative staff to support the growth of our operations. Amortization of Intangible Assets As part of the acquisition of assets from ERT and a company affiliated with Experian, in the fourth quarter of 1998, we recorded intangible assets related to the acquired assets in the amount of $11.2 million. These intangible assets include core technology, purchased trademark, assembled workforce and other intangibles. These intangibles are being amortized over their estimated useful lives of six months to five years. We recorded amortization of intangible assets of $3.1 million in 1999 as compared to $275,000 in 1998. Amortization charges in 1998 were attributable to the acquisition of ERT and a company affiliated with Experian, which was completed in the fourth quarter of 1998. Stock-Based Compensation As of December 31, 1999, we recorded aggregate deferred compensation totaling $12.7 million in connection with the grant of stock options to employees and consultants. This charge is being amortized over the vesting periods of the options, which generally range from three to four years. Stock-based compensation increased to $3.1 million during 1999 from $158,000 during 1998. Interest Income Interest income increased to $633,000 in 1999 from $87,000 in 1998. This increase is primarily due to interest earned on higher average cash and investment balances resulting from proceeds received from our initial public offering which was completed in August 1999. Income Taxes We recorded a net loss of $37.5 million for 1999. Accordingly, no provision for income taxes was recorded in the year and no tax benefit has been recognized due to the uncertainty of realizing a future tax deduction for these losses. LIQUIDITY AND CAPITAL RESOURCES Since incorporation, we have financed our operations primarily from the sale of equity securities to venture capital firms and other individual, institutional and strategic investors as well as our initial public offering in August 1999 and our follow-on public offering in February 2000. We have also borrowed funds under long-term capital lease and equipment financing facilities. The outstanding members payable liability balance at December 31, 2000 amounted to $18.5 million. This liability is made up of cash balances owed to Cybergold members amounting to $3.8 million and point balances owed to Mypoints members. The total number of outstanding points issued to members Page 31 32 in the MyPoints database for which we have a recognized liability as of December 31, 2000 was approximately 2.3 billion points with a redemption liability of $14.7 million. This liability was calculated based on certain assumptions, including the assumption that 72% of the outstanding points would be redeemed in the future. We also use historical redemption activity and individual member account activity to determine our estimated redemption liability. The factors that were considered in our estimated point redemption liability include points held by terminated and inactive members, as well as those members we believe will not respond to our direct marketing offers with sufficient frequency to accumulate points to meet our minimum redemption levels. This information is updated on a quarterly basis. The total number of points redeemed by members was 227 million in 1999 and 988 million in the year ended December 31, 2000. Our current policy is that unredeemed points held by inactive members will expire no later than December 31 of the second calendar year following the calendar year in which such points are first deemed earned. Although we do not anticipate making changes to our current policy we reserve the right to alter point expiration terms at anytime. Members may redeem points at their discretion at any time prior to the expiration of the points. We fund redemptions through our working capital resources. Because we cannot control the timing of members' decisions to redeem, should the rate of redemption exceed our estimates, it could be necessary for us to obtain additional working capital and our results of operations could be materially and adversely affected. Net cash used in operating activities was $32.6 million in the year ended December 31, 2000. This cash used in operating activities was due to our expanded operations and primarily resulted from the net loss and a reduction in accounts payable and accrued liabilities partially offset by an increase in the members payable liability and deferred revenue. Net cash used in investing activities was $9.7 million in the year ended December 31, 2000 which was primarily used to acquire property and equipment, primarily computer equipment, software and leasehold improvements. Net cash provided by financing activities was $109.6 million in the year ended December 31, 2000 which includes net proceeds of $105.7 million from our follow-on offering in February 2000. At December 31, 2000 we had unrestricted cash, cash equivalents and liquid short-term investments of $105.1 million. We currently anticipate that our available cash resources will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months. Thereafter, we may need to raise additional funds to fund more rapid expansion, to develop new or enhance existing services or products, to respond to competitive pressures or to acquire complementary products, businesses or technologies. If adequate funds are not available on acceptable terms, our business, results of operations and financial condition could be materially and adversely affected. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities and requires recognition of all derivatives as assets or liabilities and measurement of those instruments at fair value. In June 1999, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities Deferral of the Effective Date of FASB Statement No. 133," which deferred the required date of adoption of SFAS No. 133 for one year, to fiscal years beginning after June 15, 2000. The effect of SFAS No. 133 is not expected to be material to the Company's financial statements. In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB 101"),"Revenue Recognition in Financial Statements." SAB 101 summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. The effect of SAB 101 was not material to the Company's financial statements. Page 32 33 In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44 ("FIN No. 44") "Accounting for Certain Transactions involving Stock Compensation," an interpretation of APB No. 25. FIN No. 44 clarifies the application of APB No. 25 for (a) the definition of employee for purposes of applying APB No. 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN No. 44 is effective July 1, 2000, but certain conclusions cover specific events that occur after either December 15, 1998, or January 12, 2000. The adoption of FIN No. 44 did not have a material effect on the Company's financial position or results of operations for fiscal year 2000. Recent Developments At its September 2000 meeting, the Financial Accounting Standards Board Emerging Issues Task Force, the EITF, began discussing Issue No. 00-22, "Accounting for 'Points' and Certain Other Time- or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to be Delivered in the Future." EITF Issue No. 00-22 addresses the accounting for revenues and expenses relating to point and other loyalty programs. The EITF has not yet reached a consensus on this issue and plans on discussing it at future meetings. Among alternatives under consideration by the EITF is one that would, if adopted, result in a significant delay in the timing of when we recognize revenue from the transmission of email advertisements to enrolled members and receipt of qualified responses to this email. Our current policy is to recognize revenue when email is transmitted to members and responses are received. The alternative under consideration by the EITF would result in this revenue being deferred until points issued in connection with such emails are redeemed for rewards by our members. We believe that our current revenue recognition policy related to the transmission of email advertisements to enrolled members and receipt of qualified responses to such email is in accordance with generally accepted accounting principles and is based on views published by and consultations with the Securities and Exchange Commission, as our advertising contracts with our business partners speak to performing advertising services and do not require the issuance of points. We are unable to quantify the impact of the proposed alternatives on our financial results or predict the outcome of the EITF's project. We cannot assure you as to what, if any, change, may ultimately be required by actions taken by the EITF in this project. FACTORS AFFECTING OPERATING RESULTS Our results of operations have varied widely in the past and we expect that they will continue to vary significantly in the future due to number of factors, including those set forth under "Risks Associated with our Business" in Item 1 of this report. You should read the "Risks Associated with our Business" section of this report carefully. Due to these factors, we believe that quarter-to-quarter or year-to-year comparisons of our results of operations are not a good indication of our future performance. Our results of operations in some future quarter may be below the expectations of public market analysts and investors. In this event, the price of our common stock is likely to decline. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our exposure to market risk for changes in interest rates is limited to the exposure related to our debt instruments which are tied to market rates. We do not plan to use derivative financial instruments in our investment portfolio. We plan to ensure the safety and preservation of our invested principal funds by limiting default risks, market risk and reinvestment risk. We plan to invest in high-credit quality securities. See note 2 to the notes to the financial statements. Page 33 34 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS

II -- Valuation and Qualifying Accounts for each of the three years in the period ended December 31, 2000 All other schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto. Page 34 35 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders MyPoints.com, Inc. In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of MyPoints.com, Inc. and its subsidiaries at December 31, 1999 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly in all material respects the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP March 29, 2001 San Francisco, California Page 35 36 MYPOINTS.COM, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

The accompanying notes are an integral part of these consolidated financial statements. Page 36 37 MYPOINTS.COM, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The accompanying notes are an integral part of these consolidated financial statements. Page 37 38 MYPOINTS.COM, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands)

The accompanying notes are an integral part of these consolidated financial statements. Page 38 39 MYPOINTS.COM, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)

Page 39 40 Note receivable from Magnacash -- -- (1,100) Purchases of short-term investments -- -- (5,566) Proceeds from short-term investments -- -- 7,531 Purchase of long-tem investments -- -- (2,267) Payment of restricted cash -- (2,208) (750) ------- -------- --------- Net cash provided by (used in) investing activities 1,389 (9,399) (9,660) ------- -------- --------- Cash flows from financing activities: Proceeds from issuance of preferred stock, net 6,084 10,300 -- Proceeds from issuance of common stock, net -- 41,205 106,724 Purchase of treasury stock -- -- (295) Bank overdraft (54) -- -- Borrowings under credit line 400 -- -- Repayments of borrowings (213) (791) (536) Repayments of software license -- (2,624) -- Borrowing under capital lease line -- 1,254 -- Proceeds from exercise of stock options 9 209 3,717 Proceeds from exercise of warrants -- 1,450 -- ------- -------- --------- Net cash provided by financing activities 6,226 51,003 109,610 ------- -------- --------- Net increase in cash and cash equivalents 2,141 16,703 67,345 Cash and cash equivalents, beginning of period 2,948 5,089 21,792 ------- -------- --------- Cash and cash equivalents, end of period $ 5,089 $ 21,792 $ 89,137 ======= ======== =========

See supplemental disclosure of cash flow information in note 14. The accompanying notes are an integral part of these consolidated financial statements. Page 40 41 MYPOINTS.COM, INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. THE COMPANY MyPoints.com, Inc. and its wholly owned subsidiaries (together, the "Company") was founded in November 1996. The Company offers advertisers the ability to target internet users enrolled as members of its direct marketing and loyalty programs. The Company's programs provide enrolled members awards for responding to advertisements. Awards may be redeemed by members for gift certificates, other rewards or cash depending upon the program the member is enrolled in. The Company has determined that it does not have any separately reportable business segments as of December 31, 2000. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in the consolidation process. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Such estimates include the levels of valuation allowances for doubtful accounts receivable, deferred taxes, members payable liability and the value of the Company's capital stock. Actual results could differ from those estimates, and such differences could be material. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS The Company invests its excess cash in debt instruments of the U.S. Government and its agencies, high-quality corporate issuers and money market funds. All highly liquid instruments with an original maturity of three months or less are considered cash equivalents; those with original maturities greater than three months and less than twelve months are considered short-term investments. LONG-TERM INVESTMENTS The Company invests in equity instruments of privately-held companies for business and strategic purposes. These investments are included in long-term investments and are accounted for under the cost method when ownership is less than 20% and the Company does not have the ability to exercise significant influence over operations. For these investments, the Company's policy is to regularly review the assumptions underlying the operating performance and cash flow forecasts in assessing the carrying values. The Company identifies and records impairment losses when events and circumstances indicate that such assets might be impaired. To date, no such impairment has been recorded. Page 41 42 LONG-LIVED ASSETS The Company accounts for long-lived assets in accordance with Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" whereby assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The Company estimates undiscounted future cash flows produced by the asset, or the appropriate grouping of assets, and compares such cash flows to the assets' carrying value. Where it is determined that the assets' carrying value exceeds expected undiscounted cash flows, the loss is measured based on quoted market prices in active markets, if available. If quoted market prices are not available the estimate of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows and other fundamental analysis. PROPERTY AND EQUIPMENT Property and equipment, including leasehold improvements are stated at cost and depreciated using the straight-line method over their respective estimated useful lives, which range from three to seven years. Maintenance and repairs are charged to expense as incurred, and improvements and betterments are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is reflected in the consolidated statement of operations for the period in which it is realized. INTANGIBLE ASSETS Identified intangible assets resulting from the acquisition of Enhanced Response Technologies, Inc. ("ERT"), MotivationNet LLC ("MNet"), Cybergold, Inc. ("Cybergold") and MyPoints Offline Services, Inc., formerly known as Alliance Development Group, Inc., ("ADG") were estimated by management to comprise the acquired trademark and trade name, customer base, membership base, workforce, technology license agreements and other intangible assets, comprising primarily goodwill. Intangible assets are amortized on a straight-line basis over the estimated periods of benefit which range from six to ninety months. INCOME TAXES The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes". Under SFAS No. 109, deferred tax assets and liabilities are determined based on temporary differences between the financial statement and tax bases of assets and liabilities and net operating loss and credit carryforwards using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. A provision for income tax expense is recognized for income taxes payable for the current period, plus the net changes in deferred tax amounts. MEMBERS PAYABLE LIABILITY Page 42 43 The Company's members payable liability balance consists of cash amounts due to members of the Cybergold database and points redemption liability payable to the members of the MyPoints database. The members payable liability represents the estimated costs associated with the Company's obligation to redeem outstanding member balances, less an allowance for awards expected to expire prior to redemption, which may be converted by enrolled members into various third party gift certificates, frequent travel programs, coupons, other rewards or for cash in regards to the Cybergold database members. Awards are provided to members when they respond to direct marketing offers delivered by the Company, or purchase goods from advertisers. The Company is liable for providing the rewards to members, if and when such members seek to redeem accumulated awards upon reaching required redemption thresholds. The liability for the Company's point balance member accounts is estimated based upon the weighted average cost of awards that may be redeemed in the future. The liability is based upon redemption cost trends and management estimates of future redemption costs. Under the Company's current points program, unredeemed points held by inactive members are valid through December 31st of the second calendar year following the date they are awarded to a member and may be redeemed at any time prior to expiration. The Company bases its estimate of points that will not be redeemed on an analysis of historical point earning trends, redemption activity and individual member accounts. This analysis is updated quarterly. At December 31, 1999 and December 30, 2000, the allowance for unredeemed points was $2.8 million and $5.7 million, respectively. As of December 31, 2000, the gross points redemption liability was $20.4 million. The liability for the Company's cash balance members accounts is recorded at its outstanding cash balance which has been reduced by fees charged to members who are inactive. As of December 31, 2000, the cash balance member liability amounted to $3.8 million. REVENUE RECOGNITION The Company earns revenues from corporate advertisers by charging fees for sending email to its members. Under the terms of advertising contracts, the Company earns revenues primarily based on three components: (1) transmission of email advertisements to enrolled members, (2) receipt of qualified responses to email sent and (3) actual purchases of goods by members over the internet. It is the Company's policy to recognize revenues when email is transmitted to members, when responses are received and when the Company is notified of purchases. Each of these activities are discrete, independent activities, which generally are specified in the advertising sales agreement entered into with the customer. As the earning activities take place, activity measurement data (e.g., number of emails sent, and number of responses received) is accumulated and the related revenues are recorded. The Company also sells points to private label partners and to advertisers for use in such partner's or advertiser's promotional campaigns. The Company is responsible for redeeming a member's points upon the balance reaching required thresholds and request by the member recipients of points. Revenues and estimated point costs under these contracts are deferred until the time points are redeemed and an award is provided by the Company or the points expire prior to redemption. The Company expects that sales of points will likely represent a decreasing percentage of its business in the future but has continued to participate in the sale of points business. ADG, a wholly owned subsidiary of the Company specializes in rewards-based credit card loyalty programs. ADG typically provides assistance with program development and implementation, marketing consultation and travel rewards. ADG recognizes revenues when purchases are made with credit cards that ADG has developed and implemented. Also included in revenues are revenues generated from exchanging lead generation and advertising services for advertising services. Such transactions are recorded at the lower of the estimated fair value of the advertisements received or delivered, whichever is more reliably measurable. Revenues from these types of transactions are recognized when advertising or lead generation is provided, and services received are charged to expense when used. For the years ended December 31, 1999 and 2000, these revenues amounted to zero and $1.4 million, respectively. Page 43 44 During the year ended December 31, 2000, the Company entered into cross-marketing arrangements with various third parties. These arrangements provided for the Company to generate qualified response of leads and advertising services in exchange for advertising services from the various third parties. As the fair value of the services exchanged could not be reasonably determined, the Company recorded the transactions on a net basis resulting in no revenue or expense for these transactions. During the years ended December 31, 1999 and 2000, the Company generated revenues in the amount of zero and $0.5 million, respectively, in exchange for equity instruments. Such transactions are recorded at the estimated fair value of the advertisements delivered or the fair value of the equity instruments received, whichever is more reliably measurable. TECHNOLOGY COSTS Product development costs and costs of enhancing existing products are charged to technology costs as incurred except those costs related to license and partnership agreements, which are capitalized and amortized over the life of the agreement, as appropriate. Software development costs are required to be capitalized beginning when a product's technological feasibility has been established by completion of a working model of the product, and ending when the product is available for general release to customers. To date, completion of a working model of the Company's products and general release have substantially coincided. In the years ended December 31, 1999 and 2000, the Company capitalized zero and $0.8 million, respectively, related to license and partnership agreements. During the year ended December 31, 2000, the Company amortized $0.1 million of these costs. BUSINESS RISKS AND CONCENTRATION OF CREDIT RISKS The Company has a limited operating history and its prospects are subject to the risks, expenses and uncertainties frequently encountered by companies in new and rapidly evolving markets for Internet products and services. These risks include the failure to develop and extend the Company's online service brands, the rejection of the Company's services by web consumers and/or advertisers and the inability of the Company to maintain and increase the levels of traffic on its online services, as well as other risks and uncertainties. Failure to address these risks successfully may have a material adverse impact on the Company's operations and financial position. Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of temporary cash investments, including money market mutual fund accounts, short-term investments and accounts receivable. The Company deposits its temporary cash investments and short-term investments with two financial institutions and these deposits exceed insured amounts. The Company evaluates customer creditworthiness and establishes allowances as necessary based on management estimates of collectibility. STOCK-BASED COMPENSATION The Company accounts for stock-based employee compensation arrangements in accordance with provisions of Accounting Principles Board ("APB") No. 25, Accounting for Stock Issued to Employees, and complies with the disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Under APB No. 25, for stock awards qualifying for fixed expense recognition, compensation expense is based on the difference, if any, on the date of the grant, between the estimated fair value of the Company's stock and the exercise price of options to purchase that stock. For stock based awards that do not qualify for fixed expense recognition, the value of the underlying unvested award is periodically remeasured, and the resulting adjustment is recognized as compensation expense. TREASURY STOCK Page 44 45 In September 2000, the board of directors authorized the repurchase, at management's discretion, of up to $20 million of the Company's common stock. The Company's repurchases of shares of common stock are recorded as treasury stock. NET LOSS PER SHARE The Company computes net loss per share in accordance with SFAS No. 128, Earnings per Share, and SEC Staff Accounting Bulletin ("SAB") No. 98. Under the provisions of SFAS No. 128 and SAB No. 98, basic net income per share is computed by dividing the net income available to common stockholders for the period by the weighted average number of vested common shares outstanding during the period. Diluted net income per share is computed by dividing the net income for the period by the weighted average number of vested common and common equivalent shares outstanding during the period. However, as the Company has generated net losses in all periods presented, common equivalent shares, composed of incremental common shares issuable upon the exercise of stock options and warrants and upon conversion of Series A, Series B, Series C, Series D and Series E convertible preferred stock, are not included in diluted net loss per share (prior to conversion on August 19, 1999) because such shares are anti-dilutive. The following table sets forth the computation of basic and diluted net loss per share for the periods indicated (in thousands, except per share amounts):

Page 45 46 COMPREHENSIVE INCOME Effective January 1, 1998, the Company adopted the provisions of SFAS No. 130, Reporting Comprehensive Income. SFAS No. 130 establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income, as defined, includes all changes in equity (net assets) during a period from non-owner sources. To date, the Company has not had any transactions that are required to be reported in comprehensive income. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities and requires recognition of all derivatives as assets or liabilities and measurement of those instruments at fair value. In June 1999, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities Deferral of the Effective Date of FASB Statement No. 133," which deferred the required date of adoption of SFAS No. 133 for one year, to fiscal years beginning after June 15, 2000. The effect of SFAS No. 133 is not expected to be material to the Company's financial statements. In December 1999, the SEC issued SAB No. 101, "Revenue Recognition in Financial Statements." SAB No. 101 summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. The effect of SAB No. 101 was not material to the Company's financial statements. In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44 ("FIN No. 44") "Accounting for Certain Transactions involving Stock Compensation," an interpretation of APB No. 25. FIN No. 44 clarifies the application of APB No. 25 for (a) the definition of employee for purposes of applying APB No. 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN No. 44 is effective July 1, 2000, but certain conclusions cover specific events that occur after either December 15, 1998, or January 12, 2000. The adoption of FIN No. 44 did not have a material effect on the Company's financial position or results of operations for fiscal year 2000 (see note 16). 3. ACQUISITIONS On January 12, 2000, the Company agreed to acquire all the outstanding shares of ADG. ADG operates offline customer reward programs including rewards based credit card loyalty programs. The total purchase price of approximately $16.7 million included 270,000 shares of the Company's common stock with an estimated fair value of $16.6 million based upon its value at the closing of the transaction. Following the acquisition, ADG is now a wholly owned subsidiary of the Company. On August 7, 2000, the Company acquired all of the outstanding shares of Cybergold, a Delaware Corporation as approved by the Company's Board of Directors on April 14, 2000. Cybergold was a public company that provided online direct marketing and advertising solutions. The shares were acquired in a tax-free stock-for-stock exchange. Each share of Cybergold was exchanged for 0.48 shares of the Company's common stock resulting in the issuance of approximately 10.6 million shares of the Company's common stock. In addition, the Company assumed all outstanding options to purchase Cybergold common stock at a ratio of 0.48 of the Company's shares for each share of Cybergold common stock underlying the option. Following the acquisition, Cybergold became a wholly-owned subsidiary of the Company. Page 46 47 The Company has accounted for the Cybergold transaction under the purchase method of accounting. The purchase price of the Cybergold acquisition amounted to $184.8 million including the estimated value of the Company's shares and transaction costs of $3.0 million. The purchase price allocation is as follows (in millions):

The Company is amortizing the intangibles acquired in the Cybergold acquisition over their estimated useful lives of 3 years. Following its acquisition by the Company, Cybergold experienced significant changes in market conditions which led to substantial declines in revenue. Due to the significance of these changes, management performed an evaluation of the recoverability of the long-lived assets of Cybergold as described in Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" during the fourth quarter ended December 31, 2000. Management concluded from the results of this evaluation that a significant impairment of goodwill had occurred and recorded a $138.6 impairment charge to reduce goodwill. The charge was based upon the estimated discounted cash flows over the remaining useful life of the goodwill using a discount rate of 20%. The assumptions supporting the cash flows, including the discount rate, were determined using the Company's best estimates. The discount rate was determined based upon the weighted average cost of capital for comparable companies. The remaining goodwill and identifiable intangibles related to Cybergold will be amortized over their remaining useful lives. The following unaudited pro forma results of operations have been prepared assuming that the acquisitions of ADG and Cybergold occurred at the beginning of the respective years. The pro forma financial information is not necessarily indicative of the combined results that would have occurred, nor is it necessarily indicative of future results (in thousands, except per share amounts).

4. INVESTMENTS MyPoints Europe During the third quarter of 2000, the Company entered into an agreement ("Agreement") with The Great Universal Stores PLC ("GUS"), an affiliate of Experian, a stockholder of the Company, under which MyPoints Europe Limited ("MyPoints Europe") was established for the purpose of owning and operating internet based loyalty rewards and other direct marketing programs in Europe. The Agreement provides for initial capitalization of MyPoints Europe by the Company in the amount of $0.4 million in exchange for 19.9% of the total outstanding shares of MyPoints Europe. The shares were acquired in October 2000. The remaining 80.1% of all outstanding shares were purchased by GUS at the same price per share paid by Company. The Agreement permits MyPoints Europe to issue additional shares to increase capitalization up to an additional $13 million, with the parties subscribing to any such share issue in accordance with the same ratio as provided above. The Agreement also provides the Company the option to purchase additional shares of MyPoints Europe which in the aggregate total the number of share owned by GUS, at a share price equal to 1.25 times the initial share paid by GUS. The investment by the Company under the Agreement has been Page 47 48 accounted for under the equity method of accounting. The Company's share of the net loss of MyPoints Europe, to date, has not been significant. In September 2000, the Company and MyPoints Europe entered into an agreement under which the Company will develop, design and manage a private label version of the MyPoints(R) Program for MyPoints Europe. The term of the agreement is for nine calendar months from the effective date of the agreement. The agreement provides for a monthly renewal option at the sole discretion of MyPoints Europe. The Company will receive program management fees and other service fees during the term of the agreement. During the year ended December 31, 2000, the Company recognized $0.4 million in revenues under the agreement. MyPoints Japan During the third quarter of 2000, the Company entered into an agreement ("the DNP Agreement") with Dai Nippon Printing Co., Ltd. ("DNP"), a Japanese Corporation under which the parties agreed to form MyPoint.com Japan Co., Ltd. ("MyPoints Japan") for the purpose of developing and operating internet based loyalty rewards and other direct marketing programs in Japan. The agreement provided for DNP to initially subscribe for 4,000 shares of common stock representing 100% of the issued and outstanding shares of MyPoints Japan. During the third quarter of 2000, the Company purchased 796 shares of common stock from DNP, representing a 19.9% interest in MyPoints Japan for an aggregate purchase price of $0.4 million. The Agreement also calls for additional funding, on a pro rata basis in accordance with the then current ownership interest, provided however, that in no event shall either Party be required to provide more than 800,000,000 yen in total funding to the Company. The investment has been accounted for under the equity method of accounting. The Company's share of the net loss of MyPoints Japan, to date, has not been significant. During the year ended December 31, 2000, the Company has recognized $0.1 million in revenues for training services provided to MyPoints Japan. 5. INVESTMENT IN AND ADVANCES TO MAGNACASH On October 13, 2000 the Company sold 81.5% of the issued and outstanding shares of Magnacash to an investment group for a purchase price of $7.2 million plus the Company contributed equipment with a book value of $1.2 million. The Company took a collateralized promissory note for the full amount from the buyers. The note bears interest at an annual rate of prime plus two percent and is collateralized under a Stock Pledge Agreement by the Magnacash common stock purchased. Payment of the note and all accrued and unpaid interest is due upon the earlier of October 13, 2010 or occurrence of a qualified Initial Public Offering ("IPO") or sale of substantially all of the assets of Magnacash. Due to the uncertainty of the collectibility of the promissory note of $7.2 million, the Company deems the fair value of this note to be zero. During the year ended December 31, 2000, the Company recorded a loss of $1.0 million as a result of the sale of Magnacash. The Company has also loaned Magnacash $1.1 million for the funding of operations. The loan bears interest at an annual rate of prime plus two percent and is collateralized by a senior secured convertible promissory note and Security Agreement covering all of the assets of Magnacash. The Company has the option to convert any portion of the outstanding principal together with accrued and unpaid interest into shares of capital stock of Magnacash in connection with a qualified financing, as defined in the note. Payment of the note and all accrued and unpaid interest is due upon the earlier of October 12, 2010 or the occurrence of a qualified IPO by Magnacash or the sale of substantially all of the assets of Magnacash. 6. PROPERTY AND EQUIPMENT Property and equipment are summarized as follows (in thousands): Page 48 49

Depreciation expense amounted to $265,000, $1,462,000 and $5,361,000 for the years ended December 31, 1998, 1999 and 2000, respectively. 7. MEMBERS PAYABLE LIABILITY Following is a summary of members payable liability activity for the years ended December 31, 1998, 1999 and 2000:

8. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS On December 19, 1997, the Company entered into a promissory note with a bank to borrow $400,000 at an interest rate of prime plus 0.5% (initial rate of 8.50%). The Company was required to make 36 equal payments from July 31, 1998 through June 30, 2001. The agreement contains certain negative covenants including financial covenants related to a minimum liquidity coverage ratio and monthly minimum points redemption liability. The Company was in compliance with these covenants as of December 31, 2000. On March 26, 1999, the Company entered into a senior loan and security agreement with a financing company. The lender has committed to finance up to $1.5 million under this capital lease line of which borrowings of $0.9 million were outstanding as of December 31, 2000. These capital lease agreements have terms ranging three to five years with interest rates ranging from 7.2% to 18.0%. Borrowings against this line are collateralized by certain fixed assets Page 49 50 of the Company. The agreement contains certain negative covenants including financial covenants related to minimum liquidity coverage ratios. The Company was in compliance with the covenants at December 31, 2000. During February 1999, Cybergold entered into a $400,000 equipment credit line to be used solely for capital expenditures. Interest of approximately 20 percent and principal are payable monthly over a three-year period. At December 31, 2000, borrowings outstanding under this line amounted to $0.3 million. Annual maturities of notes payable and capital lease obligations are as follows (in thousands):

9. COMMITMENTS AND CONTINGENCIES LEASES The Company leases office space under noncancelable operating leases with various expiration dates through the year 2007. Rent expense amounted to $180,000, $775,000 and $2,914,000 for the years ended December 31, 1998, 1999 and 2000, respectively. Future minimum lease payments under noncancelable operating leases are as follows (in thousands):

LEGAL In the normal course of business, the Company is at times subject to pending and threatened legal actions and proceedings. After reviewing pending and threatened actions and proceedings with counsel, management believes that the outcome of such actions or proceedings is not expected to have a material adverse effect on the financial position or results of operations of the Company. 10. CAPITAL STRUCTURE The Company is authorized to issue 100,000,000 shares of $0.001 par value Page 50 51 common stock and 10,000,000 shares of $0.001 par value preferred stock. The Board of Directors has the authority to issue the undesignated preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. WARRANTS In connection with the issuance of Series D preferred stock in 1998, the Company issued warrants to the holders of Series D preferred stock to purchase 1,374,028 additional shares of Series D preferred stock with an exercise price of $2.06 per share. The warrants became exercisable three months from the closing date of the Stock Purchase Warrant Agreement and are exercisable for a period up to five years. The Company determined that the fair value of the warrants approximated $1.5 million on the date of grant. The fair value of the warrants was estimated using the Black-Scholes model with the following weighted average assumptions, risk-free interest rate of 4.59%, expected life of five years, expected dividend rate of 0%, and volatility rate of 109%. The estimated fair value of the warrants of $1.5 million is included in additional paid-in capital. During May and June 1999, the Company issued warrants in connection with commercial agreements entered into with two third parties. The warrants were fully vested at the date of grant, enable the holders to purchase an aggregate of 150,000 shares of the Company's common stock at a price of $8.00 per share and were exercisable for a period of one year. The fair value of these warrants, estimated at approximately $807,000 using the Black-Scholes valuation model, were charged to operations over the term of the agreements. PREFERRED STOCK Upon completion of the Company's Initial Public Offering in August 1999, the Company's preferred stock was converted into 12,388,316 shares of common stock, and all outstanding shares of preferred stock were cancelled and retired. Upon conversion of the preferred stock, all rights to accrued and unpaid dividends were waived. PREFERRED STOCK RIGHTS In December 2000, the Company adopted a stockholder rights plan. Under the Company's stockholder rights plan, each stockholder receives one right to purchase one one-thousandth of a share of Series A Participating Preferred Stock ("the Rights") for each share of common stock owned by the stockholder. Holders of the Rights are entitled to purchase for $20.00 ("the Purchase Price") one one-thousandth of one share of the Company's Series A Participating Preferred Stock in certain limited circumstances involving acquisitions of, or offers for, 20 percent or more of the Company's common stock. In the event that 20% or more of the Company's common stock is acquired, the holders of the Rights will have the right to receive, upon exercise, common shares having a value equal to two times the Purchase Price, as defined in the Company's Preferred Stock Rights Agreement. COMMON STOCK OPTIONS The Company adopted several employee stock option plans including the 1996 Stock Plan adopted on November 7, 1996, the 1999 Stock Plan adopted on November 13, 1998, and the 1999 Supplemental Stock Plan adopted on December 8, 1999 (together, the "Plans"). The Plans provide for the grant of incentive stock options and nonstatutory stock options to employees and consultants of the Company. In April 1999, the Company adopted the senior management incentive plan. The terms of this plan apply to discretionary option grants to executive officers under the 1999 Stock Plan. In 1999, options to purchase a total of 690,000 shares with exercise prices of $8.00 per share were granted under this senior management incentive plan. Page 51 52 The Company has reserved 9,335,833 shares of common stock for issuance under the Plans as of December 31, 2000. The Company has granted incentive and nonstatutory stock options with vesting, in most cases, equal to either 25.0% at the first anniversary date and 1/48th per month thereafter or 25.0% immediately with the remainder vesting 1/48th per month thereafter. These options are exercisable for a period of no more than ten years from the date of grant. Following is a summary of stock option activity for the years ended December 31, 1998, 1999 and 2000:

The following table summarizes information about stock options outstanding at December 31, 2000: Page 52 53

The Company accounts for the Plans in accordance with APB No. 25 and related Interpretations and complies with the disclosure requirements of SFAS No. 123, Accounting for Stock-Based Compensation. In connection with certain stock option grants during the years ended December 31, 1998, 1999 and 2000, the Company recognized unearned compensation that is being amortized over the four-year vesting periods of the related options. Amortization expense recognized during the years ended December 31, 1998, 1999 and 2000 totaled $158,000, $3,054,000, and $5,110,000, respectively. In accordance with SFAS No. 123, the fair value of employee stock option grants has been estimated on the date of grant using the minimum value model for grants in 1998. For grants in 1999 and 2000, the fair value has been estimated using the Black-Scholes Option Pricing Model. The Black-Scholes Option Pricing Model was developed for use in estimating the fair value of traded options and warrants that have no vesting restrictions and are fully transferable. In addition, valuation models require the input of highly subjective assumptions, including the expected stock volatility. The Company's options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate. Utilizing the minimum value model, the weighted average fair value of employee stock options granted during 1998 was $2.27. Utilizing the Black-Scholes Option Pricing Model, the weighted average fair value of employee stock options granted during 1999 and 2000 was $7.83 and $13.61 per share, respectively. The following assumptions were used in determining the fair value of options granted and warrants issued: Page 53 54

Had compensation cost for the Plans been determined based on fair value at the grant date consistent with the method prescribed by SFAS No. 123, the Company's net loss would have been increased to the pro forma amounts below (in thousands)(unaudited):

OTHER A portion of the common stock issued to the Company's founders at inception is subject to restricted stock purchase agreements which provide that one-third of the Company's repurchase right lapses on the vesting start date and 1/48th of the Company's remaining repurchase right lapses at the end of each month thereafter. Upon a merger or sale of the Company, one-half of the remaining shares subject to the Company's right of repurchase will become vested. 11. EMPLOYEE BENEFIT PLANS In February 1997, the Company established a 401(k) Savings Plan (the "401(k) Plan") that covers substantially all employees. Under the 401(k) Plan, employees are permitted to contribute a portion of gross compensation not to exceed standard limitations provided by the Internal Revenue Service. Discretionary contributions may be made by the Company; however, no contributions have been made to date. In March 1999, the Company adopted an employee stock purchase plan ("the Purchase Plan") effective on the date of the prospectus for the Company's Initial Public Offering. The Purchase Plan, as of December 31, 2000, provides for the issuance of a maximum of 400,000 shares of common stock. On the first day of each fiscal year beginning January 1, 2001, the number of shares reserved for issuance under the Purchase Plan will be automatically increased by an amount equal to the lesser of (i) 500,000 shares, (ii) 1.0% of the outstanding shares of the Company's common stock on such date, or (iii) a lesser amount determined by the Company's Board of Directors. Eligible employees can have up to 15% of their earnings withheld, subject to certain maximum limits, to be used to purchase shares of the Company's common stock on every December 31st and June 30th. The purchase price of the common stock purchased under the Purchase Plan will be equal to 85% of the lower of the fair market value of the Common Stock on the commencement date of each six month offering period or the specified purchase date. During 1999, 60,371 shares were purchased at $6.80. During 2000, 156,428 shares were purchased at prices from $1.01 to $16.10 per share. Page 54 55 12. NOTES AND INTEREST RECEIVABLE In connection with the ADG acquisition in January 2000, the net assets purchased included notes and interest receivable amounting to $ 2.0 million. These notes and interest receivable are due from two former shareholders of ADG. During the year ended December 31, 2000, the Company determined that the notes and related interest were not fully collectible. The carrying value of the notes and interest receivable were reduced to their estimated net realizable value. 13. INCOME TAXES As of December 31, 1999 and December 31, 2000, the Company had net operating loss carryforwards of approximately $27,332,000 and $50,236,000 for federal income tax purposes, and $27,371,000 and $41,947,000 for state income tax purposes, respectively. The federal and state net operating loss carryforwards begin to expire in the years 2011 and 2004, respectively. The Company's ability to utilize its net operating loss carryforwards to offset any future taxable income may be restricted as a result of equity transactions that give rise to changes in ownership as defined in the Tax Reform Act of 1986. These restrictions may limit, on an annual basis, the Company's future use of its net operating loss carryforwards and research and experimentation credit carryforwards. A reconciliation of the provision for income taxes to the federal statutory rate of 34% is as follows:

The estimated tax effects of significant temporary differences and carryforwards that give rise to deferred income tax assets are as follows (in thousands):

Page 55 56 The Company has recorded a valuation allowance against gross deferred tax assets due to uncertainties surrounding their realization. The change in the valuation allowance amounted to $11,325,000 and $16,770,000 in 1999 and 2000, respectively. 14. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

In January 2000, the Company issued 270,000 shares of common stock in exchange for all the outstanding shares of Alliance Development Group, Inc. In August 2000, the Company issued 10.6 million shares of common stock in exchange for all the outstanding shares of Cybergold, Inc. 15. RELATED PARTY TRANSACTIONS One of the Company's directors is also a member of the law firm that has Page 56 57 served as the Company's corporate counsel since its inception. From inception through December 31, 1998, 1999 and 2000, the Company incurred a total of $227,000 $875,000 and $1,270,000, respectively, in fees to the law firm. The Company entered into an agreement with Direct Marketing Technology, Inc., a wholly owned subsidiary of Experian, a stockholder of the Company and Experian, in which Direct Marketing Technology and Experian agreed to provide demographic data and other services for the Company. From inception through December 31, 1998, 1999, and 2000 the Company has incurred a total of $0, $226,000, and $295,000 respectively, in fees under this agreement. During the year ended December 31, 2000, the Company purchased software amounting to $0.2 million from KnowledgeTrack. In connection with this transaction, KnowledgeTrack purchased $0.1 million of media services from the Company which is included in accounts receivable as of December 31, 2000. John Steuart, the Company's chief financial officer is a member of the board of directors of KnowledgeTrack. 16. SUBSEQUENT EVENT REPRICING OF STOCK OPTIONS In January 2001, the Company announced a voluntary option repricing program for its employees. Under the program, the Company's employees were given the opportunity, if they so chose, to modify outstanding stock options previously granted to them which had an exercise price of at least $3 per share. As modified, the exercise price would be equal to the fair market value of the Company's common stock on the effective date of the program, January 3, 2001, which was $1.00. In addition, the number of shares subject to options would be reduced by 1/2 of the number of shares which previously had an exercise price of at least $20 per share. The modified options could not be exercised for six months unless the employee dies, becomes disabled or is terminated by the Company (other than for cause). The Company expects the accounting for these new options to comply with FASB Interpretation No. 44 "Accounting for Certain Transactions Involving Stock Compensation" and therefore expects compensation charges based upon variable plan accounting. Page 57 58 QUARTERLY FINANCIAL DATA (unaudited) (in thousands, except per share amounts)

59 SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)

(1) Additions in 2000 includes the allowance for doubtful accounts amounting to $874 assumed upon the acquisition of Cybergold on August 07, 2000. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Page 58 60 PART III None ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is hereby incorporated by reference from the information under the caption "Election of Directors" contained in the Company's definitive Proxy Statement, to be filed with the Securities and Exchange Commission no later than 120 days from the end of the Company's last fiscal year in connection with the solicitation of proxies for its 2000 Annual Meeting of Stockholders (the "Proxy Statement"). The information required by Section 16(a) is incorporated by reference from the information under the caption "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference from the information under the caption "Executive Officer Compensation" in the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference to the information under the caption "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference to the information under the caption "Certain Relationships and Related Transactions" in the Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)1. FINANCIAL STATEMENTS The financial statements (including the notes thereto) listed in the Index to Consolidated Financial Statement Schedule (set forth in Item 8 of Part II of the Form 10-K) are filed as part of this Annual Report on Form 10-K. (a)2. FINANCIAL STATEMENT SCHEDULES See Index to Consolidated Financial Statements at Item 8 of Part II of this Form 10-K. (a)3. EXHIBITS Refer to the Exhibit Index. (b) REPORTS ON FORM 8-K On October 23, 2000, the Company filed a report on Form 8-K relating to its acquisition of Cybergold, Inc. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, MyPoints.com has duly caused this report to be signed on its behalf by Page 59 61 the undersigned, thereunto duly authorized, in the City of San Francisco, State of California, on the 30th day of March, 2001. MYPOINTS.COM, INC. By: /s/ JOHN FULLMER ----------------------------------- John Fullmer Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints John Fullmer and John Steuart, and each of them, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting to said attorneys-in-fact, or his substitute or substitutes, the power and authority to perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated:

Page 60 62 EXHIBIT INDEX

Page 61 63 WHLNF Real Estate Limited Partnership for facility located at 100 California Street, 12th Floor, San Francisco, California 94111 10.19*** Cybergold 1996 Stock Plan 10.20*** Cybergold 1999 Omnibus Equity Incentive Plan 10.21**** Agreement and Plan of Reorganization and Merger by and between Cybergold, Inc., Mygo Acquisition Corporation and MyPoints Inc., dated as of April 14, 2000, as amended by Amendment No. 1 dated as of June 20, 2000 10.22***** 1999 Supplemental Stock Plan, as amended. 21.1 Subsidiaries of Registrant 23.1 Consent of Independent Accountants

---------- * Exhibit incorporated by reference to the like-numbered exhibit to Registrant's registration statement on Form S-1 filed with the Securities and Exchange Commission on April 1, 1999 (File No. 333-75523). ** Exhibit incorporated by reference to the like-numbered exhibit to Registrant's registration statement on Form S-1 filed with the Securities and Exchange Commission on January 20, 2000 (File No. 333-95009). *** Exhibit incorporated by reference to the like-numbered exhibit to Cybergold, Inc.'s annual report on Form 10-K filed with the Securities and Exchange Commission on March 30, 2000 (File No. 000-27329). **** Exhibit incorporated by reference to the like-numbered exhibit to Registrant's registration statement on Form S-4 filed with the Securities and Exchange Commission on June 23, 2000. ***** Exhibit incorporated by reference to Exhibit 4.1 to Registrant's registration statement on Form S-8 filed with the Securities and Exchange Commission on March 30, 2000. + Confidential treatment has been granted for portions of this exhibit. Page 62

MYPOINTS COM INC 10-K